The Appellate Division of New Jersey's Superior Court held last week in a precedential decision that insurance of successive owners of a contaminated property cannot be aggregated for purposes of establishing allocation. Instead, a separate Owens-Illinois allocation analysis applies to the insurers of each responsible property owner. See Franklin Mutual Ins. Co. v. Metropolitan Property & Casualty Ins. Co., No. A-536507T2, __ A.2d ___ (N.J. Super. Ct. App. Div. Apr. 17, 2009). In so holding, the Court rejected an insurer's argument that all insurance of successive insurers should be aggregated and a single Owens-Illinois allocation analysis conducted.
New Jersey courts apply a continuous trigger in cases of progressive environmental injury. The progressive injury constitutes one occurrence in each policy year from the onset of the environmental damage. Owens-Illinois Inc. v. United Insurance Co., 138 N.J. 437 (1994); see also, Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 320-21 (N.J. 1998); Benjamin Moore & Co. v. Aetna Cas. & Surety Co., 179 N.J. 87 (2004). In Owens-Illinois, the Supreme Court determined that loss should be allocated across policy years in proportion to the amount of coverage available in each policy period, resulting in a larger allocation to those years in which the policyholder has more coverage. The Court further held that the insured should be allocated a share of liability for periods of time during which it chose not to carry insurance. Prior cases applying the Owens-Illinois allocation analysis to environmental claims involved one insured with several insurers spread across many policy years.
In Franklin Mutual, the Appellate Division was presented with the issue of, "how the 'continuous trigger' theory adopted by the New Jersey Supreme Court in Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437 (1994), is applied in allocating insurance coverage in long-term environmental contamination cases when the contaminated property changes ownership while the contamination takes place." Franklin Mutual, No. A- 536507T2, __ A.2d ___, slip op. at 1-2. The declaratory judgment action involved a coverage dispute between two insurers, Franklin Mutual and Metropolitan, concerning the proper allocation of the cost to remediate a continuous, nineteen-year heating oil leak. That leak spanned the tenancies of two successive property owners. The more recent of which had been uninsured for some period of time and held policies with Metropolitan and Franklin Mutual in consecutive years.
Franklin Mutual, the property owner's insurer at the time of the leak's discovery, paid for the cleanup costs. Franklin Mutual then sought a pro rata reimbursement from the homeowner's prior insurer, Metropolitan. Franklin Mutual and Metropolitan agreed that they would not seek contribution from their insured for the period of time that he carried no homeowner's insurance, and that they would not pursue the prior owner for a share of the cleanup costs.
Despite this agreement, Metropolitan argued that Owens-Illinois required that all policies covering the property across the entire period of the contamination should be considered in calculating Metropolitan's share of coverage. Metropolitan's formula would include those years in which the property was owned by someone other than its insured. Pursuant to Metropolitan's analysis, a portion of the total cleanup costs would be attributed to the prior homeowner or his insurer, thereby reducing the percentage apportioned to Metropolitan.
Both the trial court and the Superior Court Appellate Division disagreed with Metropolitan. The Appellate Division held that the Owens-Illinois allocation analysis applies to each insured, not to each environmentally damaging event. The Court explained that the "Owens-Illinois allocation formula does nothing more than allocate responsibility for the insured's share of cleanup costs when the insured has more than one carrier that provided coverage for the property during the period of contamination." Franklin Mutual, No. A-536507T2, __ A.2d ___, slip op. at 11. The Court noted that the Owens-Illinois allocation analysis is a "separate question" from the property owner's proportionate share of liability for environmental cleanup which, under New Jersey law, is joint and several. Id. (citing the Spill Act, N.J.S.A. 58:10-23.11g(c)(1)).
While the Court did not expand upon the latter point, one effect of the Franklin Mutual opinion is to preserve coverage for damages assessed against any one property owner under the joint and several liability provisions within New Jersey environmental statutes such as the Spill Act. Had the Court accepted Metropolitan's argument, one property owner, among several responsible, successive property owners, who is singled out and sued under the Spill Act could be held liable for the total cost of remediation, yet not be fully indemnified by its insurers. The Franklin Mutual decision, holding that the Owens-Illinois allocation formula applies only to determine liability among insurers of a single insured, precludes such a result.
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