Pittston Co. v. Allianz Ins. Co.

905 F. Supp. 1279

PITTSTON COMPANY, et al., Plaintiffs, v. ALLIANZ INSURANCE COMPANY, et al., Defendants.

Civ. A. No. 90-3631.

United States District Court, D. New Jersey.

August 25, 1995.

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David J. Farber, Timothy A. Vanderver, Jr., Paul A.J. Wilson, Patton Boggs, Washington, DC and Dennis J. Drasco, Kevin O'Connor, Lum, Danzis, Drasco, Positan & Kleinberg, Roseland, NJ, for Plaintiff, The Pittston Company.

Sherry Ward Gilbert, Robert P. Jacobs, Christopher H. Marraro, Howrey & Simon, Washington, DC and John M. Agnello, Carrella, Byrne, Bain, Gilfillan Cecchi, Stewart & Olstein, Roseland, NJ, for Intervenor/Plaintiff, Ultramar.

Robert Bell, Joseph L. Ruby, Wiley, Rein & Fielding, Washington, DC and Douglas Arpert, Evans, Hand, Allabough & Amoresano, West Paterson, NJ, for Defendant Travelers Insurance Co.

William B. McGuire, John J. Henschel, Tompkins, McGuire & Wachenfeld, Newark, NJ, for Defendant Hartford Insurance Co.

Frances Buckley, Neal M. Glazer, D'Amato & Lynch, New York City and James A. Scarpone, Hellring, Lindeman, Goldstein & Seigal, Newark, NJ, for Ultramar London Insurers.

Wm. Gerald G. McElroy, Jr., Natalie Monroe, Zelle & Larson, Waltham, MA and Philip Hunsucker, Zelle & Larson, San Francisco, CA and William S. Wachenfeld, Mendes & Mount, Newark, NJ, for Defendant Employees Ins. of Wausau.

George Daly, Stacey Tranchina, Timothy Lennon, Donald T. Rave, Jr., Bigham, Englar, Jones & Houston, New York City, for Defendants Hartford, Allianz, AMIG and others.

Bruce R. Grace, Martin R. Baach, Nussbaum & Wald, Washington, DC, for London Insurers on Pittston policies.

Karen M. Hoerrner, John L. Altieri, O'Melveny & Myers, Newark, NJ, for Defendant INA.

Edward G. Madden, Jr., Mark L. Czyz, Angelo A. Cuonzo, Mattson & Madden, Newark, NJ, for Defendant Protective Ins. Co.

Michael B. McCauley, Palmer, Biezup & Henderson, Camden, NJ and Alfred J. Kuffler, Kevin G. O'Donovan, Palmer, Biezup & Henderson, Philadelphia, PA, for Various Lloyds Underwriters & Marine Insurers.

                           TABLE OF CONTENTS
BACKGROUND ..............................................................  1288
DISCUSSION ..............................................................  1292
    1. The Summary Judgment Standard ....................................  1292
    2. The Travelers CGL Policies .......................................  1293
       A. Voluntary Assumption of an Obligation .........................  1293
       B. Damages .......................................................  1297
       C. The Continuous Trigger ........................................  1297
       D. "Expected nor Intended" as an Element of Coverage .............  1300
       E. Defenses to Coverage ..........................................  1311
          (i)   Late Notice and Defense Costs ...........................  1311
          (ii)  Pollution Exclusion Clause ..............................  1312
          (iii) Owned Property Exclusion ................................  1316
       F. The Fortuity, Known Loss and Loss in Progress Doctrines .......  1317
       G. Summary .......................................................  1318
    3. The Other Insurers ...............................................  1318
       A. CMLP Policies .................................................  1318
       B. The Protective Insurance Company's Motion .....................  1327
       C. The Insurance Company of North America ("INA") Motions ........  1327
          (i)  The Named Insured Issue ..................................  1327
          (ii) The Fortuity, Known Loss, and Loss in Progress Issue .....  1329
CONCLUSION ..............................................................  1332
APPENDIX ................................................................  1332
MAP OF TANKPORT TERMINAL, JERSEY CITY, N.J. .............................  1334

OPINION

WOLIN, District Judge.

BACKGROUND

As our body politic has come to grips with the legacy of an earlier, less environmentally enlightened time, certain issues have been settled and become features of our legal landscape. There is now broad consensus that the users of industrial sites who profited by them in the past must now take responsibility for their remediation. See, e.g., Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42 U.S.C. §§ 9601 et seq.; New Jersey Environmental Cleanup Responsibility Act ("ECRA"), N.J.S.A. 13:1K-6 et seq. As this primary issue has been resolved, secondary ones have taken their place.

Such an issue is presented by this case; what is the liability of insurers who wrote traditional policies of liability and marine insurance over the years to industries now faced with the task of bringing these sites up to modern standards of environmental safety? As will be seen below, this issue is well on its way to joining the underlying questions of clean-up responsibility as a settled area of the law. Nonetheless this Court is regularly required to adjudicate coverage disputes between policyholders and insurers who are reluctant to ameliorate the wrongs of the past.

This case involves a former oil transfer terminal on the western shore of upper New York Harbor in Jersey City, New Jersey. The involvement with the oil industry of this parcel of tideland dates to the dawn of the petroleum age. It was known as the Eagle Works Refinery when John D. Rockefeller acquired it in 1881. Ralph W. Hidy & Muriel E. Hidy, Pioneering in Big Business: History of Standard Oil (New Jersey) 1882-1911 50 (1955). It was listed as one of the initial assets of Standard Oil of New Jersey. Id. Eagle Works had itself been built around equipment brought from the Pennsylvania oil fields, the site of the first commercial exploitation of petroleum in history. Id. at 5.

By 1911, Eagle Works was the largest manufacturer of petroleum-based lubricants on earth, id. at 713, processing over 11,000 barrels of crude oil a day. Id. at 414. By 1920, however, the rise of the Texas oil fields undermined the economic advantage of east coast refineries, and Eagle Work's production began to decline. George S. Gibb & Evelyn H. Knowlton, The Resurgent Years: History of Standard Oil Company (New Jersey) 1911-27 560-61 (1956). Thus, before the middle of this century, the site had begun to pass into obsolescence. Standard Oil abandoned Eagle Works as antiquated in the 1930's, dismantled the refining equipment, but left some of the tanks and pipelines. Kaulaikis Dep. at A1786;¹ B390.

The western and southern ends of the Eagle Works site, see B1981, were purchased by Pittston for use as a marine oil terminal in 1954 and given the name Tankport. This area of the old refinery was dominated by large storage tanks, id., and it was for storage and transfer of fuel oil that Pittston intended to use the site. Some of the Eagle Works tanks remained and were put back into service by Pittston. Kaulakis Dep. at A1790. An oil/water separator that is the source of much controversy in this case appears on an old map of the Eagle Works plant, id., and the Court presumes that this was a pre-existing structure taken over by Pittston. The Court has appended a map, compiled from various exhibits submitted by the parties, for the guidance of the reader.

Tankport is on a very low lying piece of land. At places the surface of the ground is within inches or even below the water table; at most it rises less than twenty feet. A creek known as Caven Creek runs along one side of the property. Access to the pier where the oil barges unload is by right of way across a piece of land owned by the Central New Jersey Railroad. The discharge from the oil/water separator arrives at the Creek through a drainage ditch.

That Tankport had suffered significant environmental degradation well before Pittston took it over may be readily imagined. The very large volume of oil processed and transshipped through the site under the rudimentary or non-existent environmental safeguards that characterized the industry early this century must necessarily have left its mark. See Kaulakis Dep. at A1830-32 (state of the art for oil refineries in the early days of the oil business caused leakage). The record shows that buried pipelines still filled with oil from the Eagle Works days lay forgotten in the ground. Stendardi Dep. at A2852. An expert retained by defendant Travelers Indemnity Company testifies that there was an oil sheen visible in the water surrounding Tankport in aerial photographs taken from the 1940's onward. Robertson Decla. Long-time employees report seeing oil stains on the ground in the 1940's. Shivey Dep. at A2672-73. This was the site that, in 1961, defendant Travelers Indemnity Company decided to insure.

Travelers' policies in this case are what is known as Comprehensive General Liability ("CGL") policies. Each ran for a year and was renewed each year. From 1961 to 1967, the policies were "accident based," that is they obliged Travelers:

To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident.

C365-1764 (CGL Master Policy File). By endorsement, and in 1967 in the policy itself, the term "accident" was replaced with "occurrence," a term of art whose meaning will be explored infra. The policies contain typical notice and owned-property exclusions. Starting in 1971, the policies began to contain pollution exclusion clauses. The issue of whether there is an occurrence triggering coverage in this case, and whether the various exclusion clauses and requirements of the policies apply here are heatedly debated.

From 1978 to 1984, Pittston purchased Comprehensive Marine...