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Vol. 5, Iss. 10
October 12, 2016

A Pollution Exclusion First: Swamps Of Jersey Are Badlands For Insurers


As we all know, when it comes to the absolute pollution exclusion, the hubbub is usually whether it is interpreted narrowly (limited to traditional environmental pollution, such as landfills and industrial pollution) or broadly (applicable to all hazardous substances, such as carpet fumes or carbon monoxide (and dozens more)). This is why you do not often see cases involving the applicability of the absolute pollution exclusion to traditional environmental pollution, since it should be precluded regardless of which interpretation applies.

For this reason, the New Jersey District Court’s decision in Castoro & Co. v. Hartford Accident & Indem. Co., No. 14-1305 (D.N.J. Sept. 29, 2016) is a must read. The court interpreted the pollution exclusion in a manner that I have never seen done before.

At issue was coverage for hazardous waste at a disposal site that had been used for decades for a variety of waste materials from construction sites. The New Jersey Department of Environmental Protect did testing and identified Castoro & Co. as the sole party responsible for contamination.

Coverage litigation ensued with lots of the issues that you usually see in these types of cases involving environmental contamination over a long period of time. The one that grabbed my attention was the absolute pollution exclusion.

This case should have been a lay-up for the insurer – even in New Jersey, where the pollution exclusion has been interpreted narrowly, i.e., limited to traditional environmental pollution. If the contamination here is not traditional environmental pollution, what is? So how come the court denied the insurer’s motion for summary judgment on the pollution exclusion?

The Castoro court observed that, under New Jersey’s seminal absolute pollution exclusion decision, Nav-It’s v. Selective (2005), the exclusion is limited to traditional environmental pollution. And the Nav-It’s court defined “traditional environmental pollution” as “environmental catastrophe related to intentional industrial pollution.” (emphasis added by Castoro court). The Castoro court went on to state: “Nav-Its explained that even when a pollution exclusion’s language does not require intent, New Jersey public policy requires intent to avoid unregulated and sweeping elimination of pollution-caused damage coverage.”

Looking to this intent requirement, the Castoro court held: “Due to this intent requirement, CGL policies that attempt to exclude all pollution damage actually ‘include[] coverage for continuous or repeated exposure to conditions, provided that the property damage—not the discharge—was ‘neither expected nor intended from the standpoint of the insured.’ Morton Int’l, Inc. v. Gen.
Accident Ins. Co. of Am., 629 A.2d 831, 847 (N.J. 1993); see also Nav-Its, 867 A.2d at 937 (applying the intent requirement in Morton, even though the absolute pollution exclusion in Morton was expressly limited to ‘sudden’ and ‘accidental’ injuries, unlike the pollution exclusion in Nav-Its). Here, Hartford fails to allege that Plaintiff intentionally polluted the Grovers Mill site. Moreover, Plaintiff contends that its polluting conduct was unintentional because the ‘materials seemed innocuous at the time.’”

Yes, you read that right – The court applied Morton International to the interpretation of the absolute pollution exclusion and held that the exclusion did not apply. I just don’t not see how Nav-It’s can be read to reach this conclusion. I have also never seen a court apply an intentional pollution requirement in a (absolute or total) pollution exclusion case.

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