(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued December 1, 1997 -- Decided June 11, 1998.
O'HERN, J., writing for a unanimous Court.
This is a multistate, multisite environmental insurance coverage case raising choice-of-law issues on
the interpretation of the pollution exclusion clause and the insurers' late-notice defense.
The controversy concerns two separate coverage cases brought by U.S. Industries, Inc. (USI) and
Kidde Industries, Inc. (Kidde), both of which became subsidiaries of HM Holdings after the coverage period
at issue. The policies were issued separately to USI and Kidde. The choice-of-law decision rendered by the
trial court related to the interpretation of the insurance policies issued to USI as applied to USI sites, none
of which are located in New Jersey.
When the pollution occurred, USI had its headquarters and principal place of business in New York
City. USI's headquarters was moved to New Jersey in 1986 after HM Holdings, which had its headquarters
in New Jersey, acquired USI. This was after the insurance policies had been issued and after any of USI's
conduct that might have caused the pollution occurred.
Some insurers argued that the law of the state where each waste site is located should govern.
Others argued that if the court were to apply the law of only one state to all of the sites, it should be the law
of New York. USI argued that New Jersey law should apply. The trial court applied the law of New Jersey
to all sites because USI is now a New Jersey resident. The Supreme Court granted leave to appeal.
HELD: On the issue of the interpretation of the pollution exclusion clause, the law of the waste sites should
apply. On the late-notice defense issue, if the law of the site is similar to New York's, it should yield to the
law of New Jersey unless the insurer is a domestic company of the waste site.
1. In respect of the interpretation of the pollution exclusion clause, New Jersey's interests in protecting New
Jersey policyholders are implicated. The weight to be given those interests are tempered, however, since the
policyholder was not a resident when the policies were purchased. Given that the location of the waste site
carries substantial weight and the policyholder did not have a significant presence in New Jersey when the
policies were purchased or when the pollution occurred, New Jersey's interests are less significant than those
of the waste sites. Further, the justifiable expectations of the parties at the time when they entered into the
insurance contracts could not have been that New Jersey law would govern issues of coverage in other states.
Finally, although the case-management difficulties for the trial court should not be minimized, they do not
overcome the other factors. On balance, the section 6 factors of the Restatement (Second) of Conflict of
Laws (1971) point toward application of the law of the waste sites. (pp. 7-9)
2. The analysis concerning the law of the late-notice defense is almost identical to that of the companion case Pfizer, Inc. v. Employers Insurance of Wausau (A-66/67). Under New Jersey law, the insurer must show prejudice to avoid coverage. Because the purpose of this law is the protection of a New Jersey policyholder, and the late notice may have occurred at a time when this policyholder was a resident of New Jersey, New Jersey's policies would be fostered by application of its law. Application of New York's law (no need to show prejudice to avoid coverage) would interfere with the public policy of New Jersey's law without
a corresponding benefit to New York domestic concerns. The lead insurance companies are not New York
based companies. Therefore, New Jersey law or the law of the waste sites should govern the late-notice
issues. If the law of the waste sites is similar to New York's, it should yield to New Jersey's law unless the
insurance companies are domestic companies of the waste sites. If the problems of judicial administration in
the application of this ruling prove to be too great, the Court would reconsider on a proper record whether
under the "site-specific" analysis there should be a common governing law as to each site. (pp. 9-11)
The order of the Law Division is REVERSED and the matter is REMANDED for further
proceedings.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN and
COLEMAN join in JUSTICE O'HERN's opinion.
SUPREME COURT OF NEW JERSEY
A-68/69/
70 September Term 1997
HM HOLDINGS, INC., U.S.,
INDUSTRIES, INC., and KIDDE
INDUSTRIES INC.,
Plaintiffs-Respondents,
v.
AETNA CASUALTY & SURETY COMPANY,
AMERICAN MOTORIST INSURANCE
COMPANY, CENTRAL NATIONAL INSURANCE
COMPANY OF OMAHA, INSURANCE COMPANY
OF NORTH AMERICA, THE TRAVELERS
INDEMNITY COMPANY and TRAVELERS
INSURANCE COMPANY,
Defendants-Appellants,
and
AETNA LIFE & CASUALTY COMPANY, AIU INSURANCE COMPANY, ALLSTATE INSURANCE COMPANY (as successor in interest to NORTHBROOK EXCESS AND SURPLUS LINES INSURANCE COMPANY), AMERICAN CENTENNIAL INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, AMERICAN RE-INSURANCE CO., CONTINENTAL CASUALTY COMPANY, CONTINENTAL CORPORATION (as successor to HARBOR INSURANCE COMPANY), CONTINENTAL INSURANCE COMPANY, EMPLOYERS INSURANCE OF WAUSAU, EMPLOYERS MUTUAL CASUALTY COMPANY, FEDERAL INSURANCE COMPANY, FIREMAN'S FUND INSURANCE COMPANY, FIRST STATE INSURANCE COMPANY, GIBRALTAR CASUALTY COMPANY, GLOBE SECURITY INSURANCE COMPANY, GRANITE STATE INSURANCE COMPANY, HARTFORD ACCIDENT & INDEMNITY COMPANY, HIGHLANDS INSURANCE COMPANY, HOME INSURANCE COMPANY, LEXINGTON INSURANCE COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, CERTAIN
UNDERWRITERS AT LLOYD'S AND
COMPANIES IN THE LONDON MARKET,
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA, NEW
JERSEY PROPERTY-LIABILITY INSURANCE
GUARANTY ASSOCIATION, NORTHBROOK
INDEMNITY COMPANY, NORTH STAR
REINSURANCE COMPANY, PRUDENTIAL
REINSURANCE COMPANY, THE INSURANCE
COMPANY OF THE STATE OF
PENNSYLVANIA, TRANSAMERICA
INSURANCE COMPANY, TRANSAMERICA
PREMIER INSURANCE COMPANY, UNIGARD
MUTUAL INSURANCE COMPANY and
WESTPORT INSURANCE CORPORATION (as
successor in interest to PURITAN
INSURANCE COMPANY),
Defendants.
Argued December 1, 1997-- Decided June 11, 1998
On appeal from the Superior Court, Law
Division, Middlesex County.
Stephen J. Harburg, a member of the District
of Columbia bar, argued the cause for
appellants Century Indemnity Company, as
successor to CCI Insurance Company of North
America and Central National Insurance
Company of Omaha (Graham, Curtin & Sheridan,
attorneys; Mr. Harburg and Joseph R.
McDonough, on the brief).
Judith F. Helms, a member of the Illinois
bar, argued the cause for appellant American
Motorists Insurance Company (Sellar
Richardson, attorneys; Wendy H. Smith, of
counsel; David E. Trainor, a member of the
Illinois bar, on the brief).
Michael R. Magaril argued the cause for
respondents (Anderson, Kill & Olick,
attorneys).
Neil S. Cartusciello submitted a brief on
behalf of appellants Aetna Casualty & Surety
Company, The Travelers Indemnity Company and
The Travelers Insurance Company (Shanley &
Fisher, attorneys; Mr. Cartusciello and John
M. O'Reilly, on the brief).
Arnold C. Lakind submitted a brief on behalf
of amicus curiae, New Jersey Public Risk
Managers Association (Szaferman, Lakind,
Blumstein, Watter & Blader, attorneys).
The opinion of the Court was delivered by
O'HERN, J.
This appeal is a companion case to Pfizer, Inc. v. Employers
Insurance of Wausau, ___ N.J. ___ (1998), also decided today.
The case is a multistate, multisite environmental coverage case.
The principles for decision that we apply are set forth in
Pfizer, supra. The central question is similar: what law
governs (1) whether the sudden and accidental pollution
exclusion clause contained in certain of the insurance policies
will bar coverage of the claims and (2) whether the late-notice
defense is available to the insurance company.
As in Pfizer, supra, we merely recite the facts as asserted. The controversy concerns two separate coverage cases brought by U.S. Industries, Inc. (USI) and Kidde Industries, Inc. (Kidde), both of which became subsidiaries of HM Holdings after the coverage period at issue. The policies were issued separately to USI and Kidde. The action seeks coverage for nine sites that were either owned by or received waste from USI and twenty-six sites that were either owned by or received waste from Kidde. The choice-of-law decision rendered by the trial court related to
the interpretation of the insurance policies issued to USI as
applied to the USI sites.
When the pollution occurred, USI had its headquarters and
its principal place of business in New York City. It bought most
of the insurance policies through a New York broker. The waste
sites are located outside of New Jersey and are said to have no
connection with New Jersey. The waste was generated at a time
when USI had no connection with New Jersey. USI's decision-making during most of that period when pollution was occurring
took place at USI's New York headquarters or at the waste sites.
The procedural background to the case is similar to that of
Pfizer. The order arises from proceedings to establish the
choice of law to be applied to nine USI sites, which are located
in Ohio, Texas (two sites), Pennsylvania, Michigan, Illinois (two
sites), Colorado, and Arizona. American Motorists Insurance
Company and other insurance companies who joined American
Motorists' motion argued that the law of the state where each
waste site was located should govern resolution of the issues
involving that site. USI cross-moved, contending that New Jersey
law should apply. The Travelers companies (Travelers Indemnity
and Travelers Insurance Company) and Aetna Casualty & Surety
Company opposed USI's cross-motion on the ground that it
contravened our holding in Gilbert Spruance Co. v. Pennsylvania
Manufacturers' Ass'n Insurance Co.,
134 N.J. 96 (1993). The
Cigna companies (referring to Century Indemnity Company and
Central National Insurance Company of Omaha)See footnote 1 argued that if the
court were to apply the law of one state to all of the USI
states, the law should be that of New York and not New Jersey.
The remaining defendants opposing the cross-motion, American
Motorists, American Home Assurance Company, Granite State
Insurance Company, AIU Insurance Company, The Insurance Company
of the State of Pennsylvania, National Union Fire Insurance
Company of Pittsburgh, and Lexington Insurance Company, argued
that the law of the waste site should apply.
After carefully analyzing the laws of the waste sites and
finding them "in conflict with the law of New Jersey," the trial
court applied New Jersey law to all sites because USI is now a
New Jersey resident. Applying Spruance, supra, the court
reasoned that when operations are multistate, the location of the
risk diminishes and the governing law is that of the state with
the dominant significant relationship, according to Restatement
(Second) of Conflict of Laws section 6 (1971) (Restatement). The
court noted:
The states in which the sites are located
have a policy interest in securing financial
resources to compensate victims of pollution
and to remediate its toxic-waste sites. The
identification of these states' environmental
interests makes clear that the application of
New Jersey law would promote the state's
environmental concerns by permitting coverage
that might otherwise be defeated by the
application of the laws of the states where
the sites are located.
Recognizing that failure to apply New Jersey law to the pollution
clause and notice issues would frustrate New Jersey's public
policies, the court held:
The defendants' failure to include a choice
of law clause in any of the policies is
evidence that they had no reasonable
expectation that any particular state's law
would apply to litigation under these
policies. As New Jersey residents,
plaintiffs are entitled to invoke this
state[']s policies of liberal insurance
coverage.
The insurance companies counter that USI's connection with
New Jersey did not arise until 1986 when USI's headquarters were
moved to New Jersey. The move occurred after HM Holdings, which
had its headquarters in New Jersey, acquired USI. That was two
years after the last of the American Motorist policies had been
issued and ten years after the Cigna companies issued their last
policy to USI. In addition, the merger took place after any of
USI's conduct that might have caused the pollution damage for
which coverage is sought occurred. The insurance companies
contended that to treat the case as one involving a New Jersey
resident was incorrect.
We granted leave to appeal to consider the issues.
150 N.J. 20 (1997).
of the pollution-exclusion clause?
The analysis is that set forth in Pfizer concerning factor
one, the competing interests of the states. Pfizer, supra, ___
N.J. at ___ (slip op. at 14-15). We must consider the laws of
three states, New Jersey, New York or that of the waste site.
The interests identified by both the Appellate Division and
Supreme Court in Spruance, to secure financial resources, to
remediate New Jersey toxic waste sites, and to compensate the
victims of pollution in New Jersey, are not implicated. See
Spruance, supra, 134 N.J. at 100-01 (citing Gilbert Spruance Co.
v. Pennsylvania Mfrs.' Ass'n Ins. Co.,
254 N.J. Super. 43, 47-48
(App. Div. 1992)). The nine sites are outside of New Jersey.
Despite this fact, the trial court reasoned that application of
New Jersey law would foster the policy interests of other states
"in securing financial resources to compensate victims of
pollution and to remediate [their] toxic waste sites." However,
the Restatement section 6 ("section 6") analysis focuses on
whether the "wholly domestic" concerns of a competing state (such
as New Jersey) are advanced by application of its law to the
point in issue, Pfizer, supra, ___ N.J. at ___ (slip op. at 14-15), not whether application of New Jersey law would better serve
the environmental concerns of another state than would that
state's own law.
The interests identified in Morton International, Inc. v.
General Accident Insurance Co. of America,
134 N.J. 1 (1993),
cert. denied,
512 U.S. 1245,
114 S. Ct. 2764,
129 L. Ed.2d 878
(1994), in protecting the objectively reasonable expectations of
New Jersey policyholders and in deterring misrepresentation of
nondisclosure by insurance companies to state regulatory
authorities, are implicated in this case. Because HM Holdings is
a resident policyholder, the issue is the extent of that
interest. As noted, the policies were purchased by USI when it
was a nonresident, negotiated outside of New Jersey, and were
designed to cover risks not located in New Jersey (at least not
these). That the policyholder has since moved to New Jersey does
not deprive the policyholder of the protection of New Jersey law,
but tempers the weight to be given to that factor. See Allstate
Ins. Co. v. Hague,
449 U.S. 302, 337,
101 S. Ct. 633, 653,
66 L.
Ed.2d 521, 546 (1981) (Powell, J., dissenting) (stating that if
a policyholder "could choose the substantive rules to be applied
to an action . . . the invitation to forum shopping would be
irresistible"). If the situation were otherwise, and New Jersey
(where the policyholder had moved) had the more restrictive view
of coverage under the pollution-exclusion clause, we are certain
that New Jersey's laws should yield to the laws of the waste
sites that would have the more dominant relationship to the
transaction and the issue.
Concerning factor two, the interests of commerce would be
hindered if New Jersey law were applied to determine a dispute
with which it did not have a dominant significant relationship.
Given that the location of the waste site carries "very
substantial weight" in the section 6 analysis, NL Industries,
Inc. v. Commercial Union Insurance Co.,
65 F.3d 314, 321 (3d Cir.
1995), and that the policyholder did not have a significant
business presence in New Jersey when the policies were purchased
or when the "occurrences" under the policies took place, New
Jersey's interests are less significant than those of the waste
sites. But see J. Josephson, Inc. v. Crum & Forster Ins. Co.,
293 N.J. Super. 170 (App. Div. 1996) (holding that New Jersey law
governs choice of law when New Jersey company hires licensed
hauler to transport waste to Pennsylvania).
Concerning factor three, certainly, in this case the
justifiable expectations of the parties at the time when they
entered the insurance contracts could not have been that New
Jersey law would govern issues of coverage in Illinois or
Michigan.
Finally, although we do not minimize the case-management
difficulties for the trial court, for the reasons stated in
Pfizer we do not believe that the interests of judicial
administration should overcome the other factors. On balance,
the section 6 factors point toward application of the law of the
waste sites.
Again, the analysis is almost identical to that in Pfizer. The laws of New Jersey and New York are in conflict. We may
safely assume again that the laws of the waste sites will follow
either one of the two rationales outlined in Pfizer, supra, ___
N.J. ___ (slip op. at 25-26). Because the purpose to be served
by New Jersey's late-notice rule is the protection of a New
Jersey policyholder and the conduct about which we are concerned
(the late notice) may have occurred at a time when the
policyholder was a corporate resident of New Jersey, New Jersey's
policies would be fostered by application of its late-notice law.
Those policies do not affect the formation of the contract, but
rather its performance. Application of New York's law, would
interfere with the public policy reflected in New Jersey's law
without a corresponding benefit to New York domestic concerns.
The lead insurance companies are not New York based companies.
The "wholly domestic" concerns of New York are not advanced when
its late-notice doctrine is applied to parties not resident in
New York, concerning waste sites not in New York. Concerning
factor three, we cannot say that the justified expectations of
insurance companies would be frustrated if a prejudice rule were
applied to the late-notice issues. A Connecticut court recently
observed:
[A]pplication of [the law of the waste site]
is consistent with the protection of the
justified expectations of the parties; which
is a basic principle underlying the field of
contracts. The policies at issue in this
case do not contain choice of law clauses;
accordingly, it is not possible to give
effect to the parties' subjective
expectations with respect to choice of law.
It is possible, however, to give effect to
their justified expectations regarding
performance of substantive contract
obligations. While an insurer's expectation
regarding protection from liability in cases
in which an insured's failure to provide
timely notice has prejudiced the insurer is
justified, such expectation of protection
from liability in cases in which the lack of
notice has not prejudiced the insurer is not
justified. Requiring a showing of prejudice
protects the justified expectations of the
parties and at the same time prevents one
party from reaping an unjust windfall.
[Reichhold Chems., Inc. v. Hartford Accident
& Indem. Co.,
703 A.2d 1132, 1141-42 (Conn.
1997) (citations omitted) (emphasis added).]
We conclude that either New Jersey law or the law of the
waste sites should govern the late-notice issues. If the law of
the waste sites is similar to New York's, it should yield to New
Jersey's unless the insurance companies are domestic companies of
the waste sites.
We appreciate the problem of judicial administration that
our conclusion poses. "[C]ommonality of governing law with
respect to each site" is a desired goal. CBS, Inc. v. Crum &
Forster, Inc., No. AM-711-94T2 (App. Div. March 20, 1995)
(reproduced in Appendix p. ___). But that goal ought not
override the balance of section 6 factors. Restatement section
193 directs attention to the "particular issue" when making a
choice of law. For the reasons stated in Pfizer, we believe that
the late-notice issues will often be site specific. If problems
of judicial administration prove to be too great, we would
reconsider on a proper record whether under the "site-specific"
analysis there should be a common governing law as to each site.
We reverse the order of the Law Division and remand the
matter for further proceedings in accordance with this opinion.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN, and COLEMAN join in JUSTICE O'HERN's opinion.
NO. A-68/69/70 SEPTEMBER TERM 1997
ON APPEAL FROM Appellate Division, Superior Court
ON CERTIFICATION TO
HM HOLDINGS, INC., et al.,
Plaintiffs-Respondents,
v.
AETNA CASUALTY & SURETY COMPANY, et al.,
Defendants-Appellants,
and
AETNA LIFE & CASUALTY COMPANY, et al.,
Defendants.
DECIDED June 11, 1998
Chief Justice Poritz PRESIDING
OPINION BY Justice O'Hern
CONCURRING OPINION BY
DISSENTING OPINION BY
Footnote: 1We take no position on the issue of whether Century Indemnity or the Insurance Company of North America is the proper party in this action. Our references to the corporate parties conform to those used by the trial court for the sake of simplicity and coherence.