(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 multisite, multistate, environmental insurance coverage case. The Court granted leave to
appeal in this action and in HM Holdings, Inc. v. Aetna Casualty & Surety Co. (A-68/69/70-97) and Unisys
Corp. v. Insurance Co. of North America (A-71-97) to consider the choice of law governing the
interpretation of the casualty-insurance contracts.
Pfizer seeks coverage for environmental contamination liability claims that have arisen at some
ninety separate sites in nineteen states and in Puerto Rico. Twenty-four of the sites are located in New
Jersey. The issues are what law guides the interpretation of the pollution-exclusion clause in the
comprehensive general liability (CGL) policies and what law governs the validity of the late-notice defense.
The trial court determined in earlier rulings that New Jersey law would govern the litigation pertaining to the
New Jersey sites and one Rhode Island site. This appeal concerns sites located in other states, none of
which received any waste generated in New Jersey.
The insurance companies argued that either New York law, the place of contract and Pfizer's
headquarters, or the law of the state in which each site was located should control. Pfizer argued that the
law of a single jurisdiction, New Jersey, should apply to all the sites. The trial court agreed with Pfizer,
citing Pfizer's significant presence in New Jersey and finding that New Jersey has an interest in protecting its
businesses through the application of its laws.
HELD: The law of New York or of the states where the waste sites are located should apply. As between
the two, the law of the waste site would appear to have the more dominant, significant relationship to the
issues here. If the law of the site differs from New York's, then that state's law should apply.
1. When an insured operation or activity is predictably multistate, the governing law is that of the state with
the dominant significant relationship as applied to the particular issue involved. This inevitably means that
more than one state's law may govern coverage questions arising under the same CGL policy. (pp. 6-11)
2. Some have found it tempting to extract from this Court's opinion in Gilbert Spruance Co. v. Pennsylvania
Manufacturers' Association Ins. Co.,
254 N.J. Super. 43 (App. Div. 1992), aff'd
134 N.J. 96 (1993), a bright
line rule applying the law of the state in which the waste disposal site is located. However, Spruance
specifically refused to adopt such a rule. Although the process is demanding, Spruance requires a careful,
site-specific determination of the state with the most significant relationship to the parties and the transaction
under the principles stated in section 6 of the Restatement (Second) of Conflict of Laws (1971). The
relevant factors listed in Restatement section 6 can be grouped under the following categories of interest: (1)
the competing interests of the relevant states; (2) the interests of commerce among the states; (3) the
interests of the parties; and (4) the interests of judicial administration. (pp. 11-16)
3. The interpretation of the pollution exclusion clause involves analysis of the law of three states -- New Jersey (the forum), New York (the law of the place of contract and the headquarters of the insured), and each of the states where the waste came to rest. In New Jersey, a CGL policy that includes a pollution exclusion clause is deemed to cover gradual pollution as long as it is unexpected. In New York, the exclusion
is interpreted literally to bar coverage for gradual pollution, in part to discourage the provision of insurance
against pollution. Although there are variations on these views, one may assume that the laws of the waste
sites will be similar to either New York law or New Jersey law in that the exclusion will either be operative
or inoperative. New Jersey's interests are not served applying its law in a dispute involving a non-New Jersey
policyholder and waste sites in other states. On balance then, considering the policies to be advanced by
application of each state's law, the interests of the states, of commerce among the states, and of the parties
and judicial administration, point toward application of the laws of New York or of the specific state where
the waste site is located. New York law should apply unless the law of the waste site is that the pollution
exclusion clause is inoperative. (pp. 16-25)
4. The analysis and result are similar on the late notice-defense. In New York, an insured's failure to satisfy
the notice requirement vitiates the policy and the insurer need not show prejudice. In contrast, New Jersey
and many other jurisdictions require a showing of prejudice before the insurance contract may be voided.
The laws are in conflict. Because the purpose served by New Jersey's late notice rule is the protection of
New Jersey policyholders, the fact that Pfizer does business in New Jersey does not warrant the application
of this State's law at the expense of the laws of New York and other competing states. Thus, the law of New
York should govern the issue of the late-notice defense unless the law of the waste site differs. (pp. 25-28)
The order of the Law Division is REVERSED and the matter is REMANDED for further
proceedings.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, STEIN and COLEMAN join in
JUSTICE O'HERN's opinion. JUSTICE GARIBALDI did not participate.
SUPREME COURT OF NEW JERSEY
A-66/
67 September Term 1997
PFIZER, INC.,
Plaintiff-Respondent,
v.
EMPLOYERS INSURANCE OF WAUSAU, A
Mutual Company, ALLSTATE INSURANCE
COMPANY, NORTHBROOK INDEMNITY
COMPANY, AMERICAN HOME ASSURANCE
COMPANY, GRANITE STATE INSURANCE
COMPANY, INSURANCE COMPANY OF
PENNSYLVANIA, NATIONAL UNION FIRE
INSURANCE COMPANY, CONTINENTAL
INSURANCE COMPANY, FIDELITY &
CASUALTY COMPANY OF NEW YORK,
PACIFIC INSURANCE COMPANY,
CONTINENTAL CASUALTY COMPANY,
BRITAMCO LTD., FORUM INSURANCE
COMPANY, GOVERNMENT EMPLOYEES
INSURANCE COMPANY, INTERNATIONAL
INSURANCE COMPANY, PRUDENTIAL
REINSURANCE COMPANY, ROYAL
INDEMNITY INSURANCE COMPANY,
TRANSAMERICA INSURANCE COMPANY,
UNIGARD SECURITY INSURANCE COMPANY,
ARKWRIGHT INSURANCE COMPANY, ST.
PAUL FIRE & MARINE INSURANCE
COMPANY, NORTHWESTERN NATIONAL
INSURANCE COMPANY, MARINE OFFICE OF
AMERICA CORPORATION, and JOHN DOES
1-10,
Defendants,
and
COMMERCIAL UNION INSURANCE COMPANY, THE HOME INSURANCE COMPANY, INSURANCE COMPANY OF NORTH AMERICA, CERTAIN UNDERWRITERS OF LLOYD'S, LONDON AND THE LONDON MARKET COMPANIES, CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, C.E. HEATH COMPENSATION & LIABILITY INSURANCE COMPANY, HIGHLANDS
INSURANCE COMPANY and CITY
INSURANCE COMPANY,
Defendants-Appellants.
Argued December 1, 1997 -- Decided June 11, 1998
On appeal from Superior Court, Chancery
Division, Middlesex County.
Paul R. Koepff, a member of the New York bar,
argued the cause for appellants Commercial
Union Insurance Company, Insurance Company of
North America, Century Indemnity Company as
successor to CCI Insurance Company, as
successor to INA, Alan Lloyd, on his own
behalf and as a representative for Certain
Underwriters of Lloyd's, London and Certain
London Market Companies, Central National
Insurance Company of Omaha with respect to
policies issued through Cravens, Dargan &
Company, Pacific Coast, as their Managing
General Agent, C.E. Heath Compensation &
Liability Insurance Company, Highlands
Insurance Company with respect to policies
issued through Cravens, Dargan & Company,
Pacific Coast, as their Managing General
Agent (Graham, Curtin & Sheridan, attorneys
for Insurance Company of North America,
Century Indemnity Company as successor to CCI
Insurance Company, as successor to INA,
Highlands Insurance Company with respect to
policies issued through Cravens, Dargan &
Company, Pacific Coast, as their Managing
General Agent, Central National Insurance
Company of Omaha with respect to policies
issued through Cravens, Dargan & Company,
Pacific Coast, as their Managing General
Agent, Christie, Pabarue, Mortensen and Young
attorneys for Commercial Union Insurance
Company and C.E. Heath Compensation &
Liability Insurance Company and Margolis
Edelstein attorneys for Alan Lloyd, on his
own behalf and as a representative for
Certain Underwriters of Lloyd's, London and
Certain London Market Companies; Mr. Koepff,
Joseph R. McDonough, James W. Christie, III,
Arthur J. Liederman, a member of the New York
bar, and Bruce E. Barrett on the brief).
Jerrald J. Hochman submitted a brief on
behalf of appellants The Home Insurance
Company and The City Insurance Company
(Sheft, Golub & Kamlet, attorneys).
Andrew T. Berry argued the cause for
respondent (Killian & Salisbury and McCarter
& English, attorneys; Eugene Killian, Jr.,
Jerold Oshinsky, a member of the District of
Columbia bar, Edward Tessler and Lynda A.
Bennett, on the brief).
The opinion of the Court was delivered by
O'HERN, J.
This is a multisite, multistate, environmental insurance
coverage case. We granted leave to appeal in this action and in
HM Holdings, Inc. v. Aetna Casualty & Surety Co., ___ N.J. ___
(1998), and Unisys Corp. v. Insurance Co. of North America, ___
N.J. ___ (1998), also decided today, to consider the choice of
law governing the interpretation of the casualty-insurance
contracts that provide indemnity against pollution-damage claims.
Choice of law with respect to interpreting
insurance contracts develops a life of its
own when considered in the context of
hazardous waste sites. Because of the
public's heightened sensitivity to
environmental pollution in the last quarter
century and because of the significant costs
associated with these coverage disputes, a
"virtual avalanche of coverage litigation
between carriers and their policyholders has
ensued to determine who may be ultimately
responsible for the payment of these costs."
At the very core of these disputes, which
have spawned hundreds of reported cases
nationwide, is the interpretation to be
accorded certain contractual language
contained in comprehensive general liability
(CGL) policies.
[In re Combustion, Inc.,
960 F. Supp. 1056,
1062 (W.D. La. 1997) (citations omitted).]
The appeals require us to apply the principles of Gilbert
Spruance Co. v. Pennsylvania Manufacturers' Ass'n Insurance Co.,
134 N.J. 96 (1993). In Spruance, we held that choice-of-law
determinations in interpreting casualty-insurance contracts
should be made by looking first to section 193 of the Restatement
(Second) of Conflict of Laws (1971) (Restatement). That section
provides that the law of the principal location of the insured
risk governs unless another state has a more significant
relationship to the parties and the transaction under the
principles stated in Restatement section 6. The principles are
best understood in the context of the specific cases.
In this declaratory judgment action, Pfizer seeks coverage for environmental contamination liability claims that have arisen at some ninety separate sites in nineteen states and in Puerto Rico. Twenty-four of the sites are located in New Jersey. (We have not made any factual findings concerning Pfizer's allegations but merely set forth principles of law based on the facts asserted.) Pfizer sought this relief under comprehensive general liability (CGL) policies and environmental impairment liability policies issued by the various defendants. In earlier rulings, the trial court had determined that New Jersey law would
govern the litigation pertaining to five New Jersey sites and one
Rhode Island site. The trial court had also determined that New
Jersey law would apply to certain other legal issues in the case.
This appeal presents choice-of-law issues concerning six sites in
other states--two in Pennsylvania and one each in Massachusetts,
North Carolina, Connecticut and Indiana. None of the sites
received any waste generated in New Jersey by Pfizer. The issues
before us are (1) what law guides the interpretation of the
pollution-exclusion clause in the CGL policies and (2) what law
governs the validity of late-notice defenses. The insurance
companies contended that with respect to the non-New Jersey sites
either New York law, the place of Pfizer's headquarters, or the
law of the sites--that is, the law of the state in which each
site was located--should control. Pfizer argued that the law of
a single jurisdiction, that of New Jersey, should apply to all
the sites. The trial court agreed with Pfizer.
Applying the Spruance principles, the trial court found that
when an operation is predictably multistate, as was Pfizer's, the
significance of the principal location of the insured risk
diminishes. In that instance, the court reasoned that in
accordance with section 6 of the Restatement, the governing law
should be the law of the state with the dominant significant
relationship to the disputed issue. The court found that New
Jersey has a commitment to "protecting its insureds through
liberal insurance coverage." After contrasting the law of other
states with New Jersey's law concerning interpretation of the
pollution-exclusion clause and the late-notice defense, the court
observed that Pfizer had been authorized to do business in New
Jersey since 1900 and employed 2,200 New Jersey residents at six
State locations, and that an additional 500 New Jersey residents
work at Pfizer's New York headquarters. The company shipped some
$375 million worth of products and services from New Jersey in
1993 and expended $31 million for research and development in
that year. Four of the insurance companies were either
incorporated or had their principal place of business in New
Jersey. The court held that New Jersey law should apply,
reasoning that "New Jersey has an interest in protecting its
businesses through the application of its laws" and that
"[f]ailure to apply New Jersey law to the pollution exclusion and
the notice issues would frustrate significant New Jersey public
policies."
We granted leave to appeal,
150 N.J. 20 (1997), to consider
the arguments of the insurance companies.
At an earlier time, choice-of-law rules were relatively simple and easy to apply. Under the doctrines of lex loci contractus and lex loci delicti, the contract laws of the place where a contract was made would govern contract disputes, and the tort laws of the place where an accident happened would control
in tort cases. Over time, those rules gave way to more complex
analysis.
The several states now have differing choice-of-law rules.
Among the rules used are the most-significant-relationship test,
People v. Saiken,
275 N.E.2d 381 (Ill. 1971), cert. denied,
405 U.S. 1066,
92 S. Ct. 1499,
31 L. Ed.2d 796 (1972); the
governmental-interest test, Stonewall Surplus Lines Ins. Co. v.
Johnson Controls, Inc.,
17 Cal. Rptr.2d 713 (Cal. Ct. App.
1993); the law of the forum, Joy Techs., Inc. v. Liberty Mut.
Ins. Co.,
421 S.E.2d 493 (W. Va. 1992); and the place of
contracting, American Motorists Ins. Co. v. ARTRA Group, Inc.,
659 A.2d 1295 (Md. 1995). New Jersey had long rejected "the
mechanical and inflexible lex loci contractus rule in resolving
conflict-of-law issues in liability-insurance contracts.
Instead, our courts have adopted a more flexible approach that
focuses on the state that has the most significant connections
with the parties and the transaction." Spruance, supra, 134 N.J.
at 102. New Jersey courts seek to apply the law of the state
with the greatest interest in resolving the particular issue that
is raised. Gantes v. Kason Corp.,
145 N.J. 478, 484 (1996)
(citing Veazey v. Doremus,
103 N.J. 244, 247-49 (1986); State
Farm Mut. Auto. Ins. Co. v. Estate of Simmons,
84 N.J. 28, 36-37
(1980); and O'Keeffe v. Snyder,
83 N.J. 478, 490 (1980)).
Prior to this Court's decision in Spruance, the principal
analytical choice in multisite environmental coverage cases had
been between cases holding that one law governs the insurance
contract regardless of the location of the insured risk--the
"uniform-contract-interpretation approach"--and cases that
emphasize the location of the insured risk and apply the law of
that state unless another state has a more significant
relationship with regard to the contested issue--"the site-specific approach." See Spruance, supra, 134 N.J. at 103-11;
Symeon C. Symeonides, Choice of Law in the American Courts in
1995: A Year in Review,
44 Am. J. Comp. L. 181, 230 (Spring
1996).
In Westinghouse Electric Corp. v. Liberty Mutual Insurance
Co.,
233 N.J.Super. 463 (1989), the Appellate Division adopted
the uniform-contract-interpretation approach. In Spruance,
supra, the Court adopted a "site-specific" approach that
emphasizes the location of the site of the risk. 134 N.J. at
112. At first, some believed that 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), might require New Jersey courts to apply New Jersey's law
on the pollution-exclusion clause irrespective of the location of
specific sites. However,
New Jersey courts have rejected efforts to
base the choice of law determination upon New
Jersey's perceived interest in broadly
applying the regulatory estoppel holding set
forth in Morton to environmental coverage
disputes or upon a mechanical application of
the law where the site is located. Instead
of applying either of these automatic rules,
the choice of law determination must reflect
a careful site-specific determination, made
upon a complete record, of the factors set
forth in either section 193 (principal
location of the insured risk) or section 6
(identification of state with dominant
significant relationship) of the Restatement
(Second) of Conflict of Laws.
[Michael Misch, et al., Recent Developments
in Insurance Coverage Issues, 31 Tort & Ins.
L.J. 335, 336 (Winter 1996) (hereinafter,
Misch).See footnote 1]
At the risk of repetition, we summarize the Spruance analysis. Although Restatement section 188 sets forth the general rule governing choice of law in contract actions,See footnote 2
Spruance set forth a specific choice-of-law framework for interpreting casualty-insurance contracts. Under this framework, a court looks first to Restatement section 193, which provides that the place that "the parties understood . . . to be the principal location of the insured risk governs unless some other state has a more significant relationship under the principles stated in [section] 6 to the transaction and the parties." Spruance, supra, 134 N.J. at 112 (quoting Restatement § 193). When the policy covers risks located primarily in a single state, "the choice-of-law issue can be straightforward. For example, there is no choice-of-law issue where the policyholder is located in one state, the environmental liability arises out of the same state, and the policies are issued by a state-based insurer for that one site." In re Combustion, supra, 960 F. Supp. at 1062; accord Restatement § 193, comment b. An easy example is that of a CGL policy covering a solid waste treatment plant creating a risk in a single state. "At the other end of the spectrum are cases where a single insured seeks coverage under CGL policies for certain environmental and toxic tort liabilities, including . . . [multiple] sites located in . . . different states." In re Combustion, supra, 960 F. Supp. at 1062. When such an insured operation or activity is predictably multistate, the significance
of the principal location of the insured risk diminishes; in such
a case, section 193 directs that "the governing law is that of
the state with the dominant significant relationship according to
the principles set forth in Restatement section 6" as applied to
"the particular issue involved." Spruance, supra, 134 N.J. at
112.See footnote 3 The site-specific approach of section 193 inevitably
means that more than one state's law may govern coverage
questions arising under a casualty insurance policy. Restatement
section 193, comment f, addresses the problems encountered
when an insurance policy insures multiple
risks located in different states which by
statute require specific forms of insuring
clauses. In such a case, the single policy
insuring multiple risks will usually
incorporate the statutorily-mandated forms of
the states involved, and the courts will,
presumably, treat the policy as involving
separate policies, each insuring an
individual risk.
[The Rouse Co. v. Federal Ins. Co.,
991 F.
Supp. 460, 463 (D. Md. 1998).]
Spruance used the "site-specific" analysis to determine what law governed the duty to indemnify for hazardous waste produced in Pennsylvania by a Pennsylvania company that came to rest at a New Jersey site. The Spruance Court thus agreed with the Appellate Division that New Jersey courts should interpret a
pollution-exclusion clause contained in a CGL policy that was
purchased to cover an operation or activity according to New
Jersey substantive law, without regard to the place the contract
was made or the location at which the toxic wastes that
predictably come to rest in New Jersey were generated. In such a
case, New Jersey has the dominant and significant relationship
with the parties, the transaction, and the outcome of the
controversy. Gilbert Spruance Co. v. Pennsylvania Mfrs.' Ass'n
Ins. Co.,
254 N.J. Super. 43 (App. Div. 1992), aff'd,
134 N.J. 96
(1993).
The Spruance Court approved the holding in a factually
similar case, Leksi, Inc. v. Federal Insurance Co.,
736 F. Supp. 1331 (D.N.J. 1990). The Leksi court had held that "in the
absence of a choice of law provision [in the contract], the state
where the toxic waste comes to rest is the state whose law will
apply, provided that it was reasonably foreseeable that the waste
would come to rest there." Id. at 1336. Although Spruance,
supra, accepted Leksi's section 6 analysis to determine that when
"out-of-state generated waste foreseeably comes to rest in New
Jersey, New Jersey has the dominant significant relationship,"
134 N.J. at 113, Spruance expressly declined to state that its
holding would apply to the converse situation in which waste
generated in New Jersey was predictably disposed of in another
state, ibid. (Spruance was essentially a two-state, single-site
case.) Noting that the Leksi court had enunciated an unqualified
"bright-line" rule calling for the application of law of the
state of the waste location and that another court had called for
an analysis under section 6, Spruance chose to "express no view
on [either] proposition." Id. at 113-14.
Courts have found it "tempting" to extract from Spruance a
"bright-line rule" of applying the law of the state in which the
waste disposal site is located as long as it was reasonably
foreseeable to the contracting parties that the insured's waste
would predictably come to rest in that state. General Ceramics
Inc. v. Firemen's Fund Ins. Cos.,
66 F.3d 647 (3d Cir. 1995)
(determining whether New Jersey or Pennsylvania laws should
govern interpretation of pollution-exclusion clause when New
Jersey company shipped waste to Pennsylvania). Such a bright-line rule would be attractive, not only because of its simplicity
but because of its "surface level" appearance of fairness. Id.
at 655. However, Ceramics rejected this rule because Spruance
had specifically refused to adopt it and because such a rule
would defeat New Jersey's policies without furthering the
"Pennsylvania policy reasons for giving [the pollution-exclusion
clause] its literal meaning." Ibid.; see also J. Josephson,
Inc. v. Crum & Forster Ins. Co.,
293 N.J. Super. 170, 186 (App.
Div. 1996) (relying on Spruance and Ceramics to conclude that New
Jersey law governed coverage issues when New Jersey insured
deposited waste in Pennsylvania).
Although the process is demanding, there is no way to avoid
a "careful site-specific determination, made upon a complete
record." Misch, supra, 31 Tort & Indus. L.J. at 336. In each of
these cases before us, the risks insured, like the risk in
Spruance, were "to some degree transient." Spruance, supra, 134
N.J. at 113 (quoting A. Johnson & Co. v. Aetna Cas. & Sur. Co.,
741 F. Supp. 298, 301 (D. Mass. 1990), aff'd,
933 F.2d 66 (1st
Cir. 1991)). Accordingly, in order to choose the applicable law
that governs the disputed issues, Spruance requires that we turn
to the section 6 analysis.
In its well-reasoned opinion in Ceramics, supra, the Third Circuit suggested grouping the relevant factors listed in Restatement section 6 under five different categories of interest, which it described as (1) the competing interests of the relevant states, (2) the national interests of commerce among the several states, (3) the interests of the parties, (4) the interests underlying the contract law, and (5) the interests of judicial administration. 66 F. 3d at 656. Because contract law is largely private law, we believe that factors (3) and (4) can be combined into one factor. We consider each of the factors separately.
1. The competing interests of the states require courts to consider whether application of a competing state's law under the circumstances of the case "will advance the policies that the law was intended to promote." Ibid. The "law" can be either the decisional or statutory law of a state. The focus of this inquiry should be on "what [policies] the legislature or court
intended to protect by having that law apply to wholly domestic
concerns, and then, whether those concerns will be furthered by
applying that law to the multi-state situation." Ibid. This is
another way of saying that "[i]f a state's contacts [with the
transaction] are not related to the policies underlying its law,
then that state does not possess an interest in having its law
apply. Consequently, the qualitative, not the quantitative,
nature of a state's contacts ultimately determines whether its
law should apply." Veazey, supra, 103 N.J. at 248 (citation
omitted). Thus, if a state statute regulating the late-notice
defense required a showing of prejudice before invocation of the
defense, a court should consider when that legislature would have
an interest in having its law apply and when its purposes in
adopting the late-notice requirement would be served by applying
the law to the case.
2. The interests of commerce among the states require
courts to consider whether application of a competing state's law
would frustrate the policies of other states. Using the example
of a late-notice defense, if a competing state's law did not
require prejudice, a conflict between the states' interests is
created. Can the law of one state be disregarded without offense
to its purposes?
3. The interests of parties require courts to focus on
their justified expectations and their needs for predictability
of result. These are basic purposes of contract law, especially
insurance law. See Meier v. New Jersey Life Ins. Co., 101 N.J.
597, 612-13 (1986); see also Kievit v. Loyal Protective Life Ins.
Co.,
34 N.J. 475, 482 (1961) ("When members of the public
purchase policies of insurance they are entitled to the broad
measure of protection necessary to fulfill their reasonable
expectations."). Restatement section 188 "contacts" with the
states, the domicile or residence of the parties, and places of
incorporation, business, contracting, and performance, come into
play here in assessing what parties might reasonably have
expected to be predictable.
4. The interests of judicial administration require a court
to consider whether the fair, just and timely disposition of
controversies within the available resources of courts will be
fostered by the competing law chosen. In other words, what
choice of law works best to manage adjudication of the
controversy before the court. Environmental insurance coverage
cases tend to be extraordinarily complex, with multiple parties
and multiple issues. Efficient administration of such cases is
an important factor to consider.
the pollution-exclusion clause?
We begin with the obvious. "A court has to make a choice of law decision in an actual case only (1) when the case is connected with more than one state, and more importantly, (2) when the laws of the involved states differ on the point in
issue." Robert A. Sedler, A Real World Perspective on Choice of
Law,
48 Mercer L. Rev. 781, 783 (Winter 1997). This case is
plainly connected with more than one state. The "point in issue"
is what state's law governs the interpretation of the pollution-exclusion clause. Three states are involved--New Jersey (the law
of the forum), New York (the law of the place of making of the
contract and the headquarters of Pfizer), and each of the states
where the waste has come to rest (the waste sites). In Morton,
supra, we were asked to interpret the "sudden and accidental"
exceptions to the pollution exclusion clause. 134 N.J. at 28.
That exclusion bars claims arising out of pollution events,
unless the discharge of contaminants was both sudden and
accidental. Insurers asserted that the term "sudden" could not
be stripped of its temporal element. Thus, the insured must show
that the pollution occurred abruptly. In contrast, parties
seeking coverage contended that "sudden" meant only "unexpected,"
thereby providing coverage for instances of gradual pollution.
Although agreeing with the insurer's position on the plain
meaning of the terms in the exclusion, we declined to enforce the
exclusion as written. Id. at 29. We concluded that the
insurance industry misled the State insurance department that
approved the exclusion. Ibid. The Court held that the exclusion
should be interpreted to provide identical coverage to that
provided under prior occurrence-based policies, but declined to
extend coverage to those cases in which the insured intentionally
discharged known contaminants. Id. at 30-31.
New York has a contrary view. It does not interpret the
exception to afford liability coverage for gradual discharges.
According to the insurance companies, New York's law on the point
in issue was embodied in (1) a New York insurance statute that
once mandated the inclusion of a pollution-exclusion clause in
insurance policies, N.Y. Ins. Law § 46(13) & (14) (McKinney
1971), (2) New York Insurance Department directives that the
statute applied to sites located outside of New York, and (3)
other executive pronouncements, including speeches and comments
by then Governor Nelson A. Rockefeller. The insurance companies
cite decisions of federal and state courts holding that in New
York there is no coverage for polluters. See, e.g., New York v.
AMRO Realty Corp.,
936 F.2d 1420, 1427 (2d Cir. 1991); Ogden
Corp. v. Travelers Indem. Co.,
924 F.2d 39, 42 (2d Cir. 1991);
Powers Chemco, Inc. v. Federal Ins. Co.,
548 N.E.2d 1301 (N.Y.
1989); Technicon Elecs. Corp. v. American Home Assurance Co.,
542 N.E.2d 1048 (N.Y. 1989); Borg-Warner Corp. v. Insurance Co. of N.
Am.,
577 N.Y.S.2d 953, 956 (App. Div.) (citing to "New York's
unique policy-based interest in the pollution exclusion clause"),
leave to appeal denied,
600 N.E.2d 632 (1992).See footnote 4
Although there are variations on these views, we may assume
that the laws of the waste sites will be similar to either New
York law of New Jersey law in that the exclusion will either be
operative or inoperative. We will therefore initially apply the
section 6 factors to New Jersey and New York law.
With respect to the first factor, Spruance, supra, had
identified the purposes of New Jersey's law concerning the
interpretation of the pollution-exclusion clause as New Jersey's
interest in securing financial resources, both to remediate New
Jersey toxic waste sites and to compensate victims of pollution
in New Jersey. 134 N.J. at 100-01. Those purposes are not
implicated in this aspect of the case concerning out-of-state
waste sites. Morton, supra, identified as purposes of its law
New Jersey's interest in protecting the "objectively reasonable
expectations" of New Jersey policyholders, 134 N.J. at 30, and in
deterring "misrepresentation and non-disclosure [by insurance
companies] to state regulatory authorities," id. at 74. We do
not perceive New Jersey's "wholly domestic concerns," Ceramics,
supra, 66 F.
3d at 656, to be significantly advanced when its
"law" concerning interpretation of the pollution-exclusion clause
is applied to a dispute involving policyholders from another
state and waste sites in yet others. See Waste Management, Inc.
v. Admiral Ins. Co.,
138 N.J. 106, 129 (1994) (finding diminished
New Jersey interest when claimants "are all nonresidents seeking
coverage for environmental damage occurring beyond New Jersey's
borders"), cert. denied sub nom. WMX Techs., Inc. v. Canadian
Gen. Ins. Co.,
513 U.S. 1183,
115 S. Ct. 1175,
130 L. Ed.2d 1128
(1995).
In contrast, the laws of New York or of the waste sites in
this case bears a closer relationship to the goals underpinning
those laws. New York is the principal place of business of
Pfizer. The insurance contracts were negotiated there. Because
the purpose of the New York rule was in part to discourage the
provision of insurance against pollution, the rule's purpose
would be served by its application. In addition, the states in
which the waste has come to rest would have their laws rather
than New Jersey's more fully advanced if applied to the matter in
issue.
Concerning factor two, application of New Jersey's
conflicting view of the pollution-exclusion clause would hinder
the interests of commerce among the several states if that law
were to be applied to determine a dispute with which New Jersey
did not have a dominant and significant relationship. We do not
find it "offensive or repugnant," State Farm, supra, 84 N.J. at
41, to New Jersey's public policy that another state, such as
Indiana, might, in connection with waste sites and policyholders
located there, give a literal meaning to the pollution-exclusion
clause. Conversely, if New York law were applied to determine
coverage at a waste site in Indiana and that state's law mirrored
the law of Spruance and Morton, the interests of Indiana would be
hindered.
Concerning factor three, because Spruance rejected both the
uniform-contract-interpretation approach and the bright-line
approach of choosing the law of either the state of waste
generation or waste disposal, courts have concluded that the New
Jersey Supreme Court "favors a government-interest sensitive
approach over a predictable one." NL Industries, Inc. v.
Commercial Union Ins. Co.,
926 F. Supp. 1213, 1232 (D.N.J. 1996).
It is not that we favor governmental interests over private
interests, but rather that unpredictability lies in the nature of
the insurance contracts. "Predictability appears to be a minor
virtue in view of the willingness of insurers to issue multi-site
policies that will be subject to the unpredictable substantive
law of many states fixing the liabilities of their insureds."
Johnson Matthey Inc. v. Pennsylvania Mfrs.' Ass'n Ins. Co.,
250 N.J. Super. 51, 59 (App. Div. 1991). It is likely that the
parties could have contracted for more predictable results had
they inserted choice-of-law provisions in the insurance
contracts. Ibid. That the parties did not do so indicates that
there would be uncertainty with respect to the interpretation of
the CGL clauses in various states where the policies might
provide coverage. The absence of choice-of-law clauses in the
policies has been described to us as the understandable effect of
market forces. If the policies were to contain choice-of-law
provisions the policies might not be as readily marketable, in
certain states, either because of objections on the part of
regulators or consumers. That does not mean that we may or
should disregard the fair expectations of the parties in the
predictability of a result.
Certainly in this case the interests of fair expectation and
predictability of result do not favor application of New Jersey
law. Given that the policies were purchased, paid for, and
maintained at the principal office of Pfizer in New York, it
could hardly have been predictable that New Jersey law would
govern the interpretation of coverage issues in Illinois or
Pennsylvania. Conversely, in the absence of a choice-of-law
provision, a policyholder would expect that it would be
indemnified under the law in effect at the place where liability
is imposed. The policies contain sweeping declarations of
coverage that should be given effect where the risks arise.
Finally, we must consider the concerns of judicial
administration. In colloquy in a companion case, the trial court
expressed concern that judicial administration would be hampered
by requiring a jury to consider, under different standards of
law, the application of the facts to the differing law at each
of several waste sites. The court, in Unisys, said:
I must tell you in all honesty I am not
a great fan of the site specific [approach]
because I think that this is a situation
where facts in life have outweighed the
development of traditional Anglo American
common law concepts. We are ill-equipped to
deal with these sorts of situations. The
idea of impanelling a jury from Middlesex
County and suggesting to them that we're
going to try six sites and then charge them
the law, assuming that I can figure it out .
. . correctly, of Montana, California,
Kentucky, that frankly in a practical sense
is just so unworkable that unless I was
[forced to] I would never do it.
The trial court's concerns over jury management should be
considerably eased by the Court's decision in Ciba-Geigy Corp. v.
Liberty Mutual Insurance Co.,
144 N.J. 372 (1996), which permits,
in certain circumstances, non-jury trials in environmental
pollution insurance coverage cases.
The mere existence of factual issues does not
automatically entitle a party to a jury
trial. Here, for example, a central point of
dispute in both Ciba-Geigy and GEI is whether
the insureds intended the environmental
contamination within the meaning of the
underlying policies. The right to a jury
that otherwise might attach to those claims
must yield to the resolution of the dominant
equitable issues in a non-jury trial.
[In re Environmental Insurance Declaratory
Judgment Action,
149 N.J. 278, 301 (1997).]
Although we do not minimize the difficulties encountered by a
court that must analyze the pollution-exclusion laws of each of
the states involved in multistate environmental coverage cases,
we suspect that the laws will fall into categories or groups that
the court can apply to the several factual circumstances as they
develop. As counsel stated, the clause will normally be found
"either unambiguous and operative or ambiguous and not
operative."
In addition, as a practical matter, we may expect (and the
parties suggest this) that the proofs will be different at each
of several waste sites involved. For example, the nature of the
operations in Indiana may have been entirely different from the
nature of the operations in Pennsylvania or Massachusetts. The
question of the extent to which company officials and plant
operators would have known that their activities would cause
environmental pollution may be expected to be quite different.
See Tim O'Brien, Cleanup Coverage Case Costs Carriers $400M,
151
N.J.L.J. 461 (Feb. 2, 1998). Hence, there is little way in which
to avoid separate trials at the separate sites. This does not
mean, however, that there will be separate trials over each site.
The sites at issue here are referred to as "Phase I" or "test"
sites. In a companion case, counsel for an insurance company
suggested that normally the lead sites are contested first and
once the major issues are resolved the rest fall in place.
Counsel said, "all of our clients would shoot us if we tried 100
sites." We are told that these cases are "almost always" in
mediation. We have said that "[s]uch disputes seem ideally
suited for mediation or arbitration under court-annexed programs
of alternate dispute resolution or on the parties' own
initiative." General Accident Ins. Co. of Am. v. State, Dept. of
Envtl. Protection,
143 N.J. 462, 477 (1996). The State of New
Jersey Office of Dispute Settlement provides just such a useful
mediation service. As we did in Owens-Illinois, Inc. v. United
Insurance Co.,
138 N.J. 437, 478 (1994), we urge the involved
business managers to study the cost effectiveness of
stonewalling. Referring to the example of another case, we said:
"The settlement was reasonable and the parties saved millions of
dollars in litigation expense and thousands of hours of
management time." Ibid.
On balance, then, considering the policies to be advanced by
the application of each state's law, the interest of commerce
among the states, and the interest of predictability and ease of
administration all point toward application in a New Jersey forum
of the laws of New York or of the specific waste sites concerning
pollution exclusion. In the event of a conflict between the law
of New York and the law of the waste site, the law of the waste
site should be applied because under the site-specific approach
it would have the dominant significant relationship to the issue.
See NL Industries, supra, 65 F.
3d at 321 (observing that "Gilbert
Spruance thus establishes that, in environmental cases, the
location of the site carries very substantial weight in the
`significant relationship' analysis, typically adequate to
overcome the contacts of the place of contracting"); Restatement,
supra, § 188, comment e (stating that when a contract deals with
a "specific physical thing," such as a plant or waste site, "the
location of the thing or of the risk is significant").
Most liability-insurance contracts contain clauses that require policyholders to provide prompt notice of an occurrence that gives rise to coverage under the policy. Under traditional contract-law principles, breach of such a contractual condition would excuse the aggrieved parties' performance only if a party was actually prejudiced by the delay. New York, however, has
adopted a limited exception to this general rule that exists for breach of notice provisions in insurance contracts. See Unigard Sec. Ins. Co. v. North River Ins. Co., 594 N.E.2d 571, 573 (N.Y. 1992). In New York, absent a valid excuse, a failure to satisfy the notice requirement vitiates the policy and the insurer "need not show prejudice before it can assert the defense of non-compliance." Id. at 571. In contrast, New Jersey and many other jurisdictions require a showing of prejudice before a contract of insurance may be avoided. The reason for the New York rule is to protect insurance companies so that they may make prompt investigation of claims. Id. at 573. The reason for the New Jersey rule is to protect the interests of policyholders because insurance contracts are contracts of adhesion and policyholders should not lose the benefits of coverage unless the delay has prejudiced the insurance company. Cooper v. Government Employees Ins. Co., 51 N.J. 86, 94 (1968). The laws are in conflict. We may safely assume that the laws of the waste sites will follow either of these two rationales. Applying the section 6 analysis, we find that the substantial weight given to the law of the waste site is not overcome. Because the purpose to be served by New Jersey's late-notice rule is the protection of New Jersey policyholders, we do not believe that the fact that Pfizer does business in New Jersey entitles it to the application of New Jersey law at the expense of the laws of the other competing states. To apply New Jersey law would unduly conflict with the interests of commerce among the states. Again, the interests of
predictability and fair expectations do not favor the choice of
New Jersey law on the late-notice issue. See supra at ___ (slip
op. at 15-16). Were the waste sites located in New Jersey, our
interest in protecting the environment and compensating the
victims of environmental pollution would be served and would
overcome that concern.
Finally, application of New Jersey's late-notice rule would
not materially advance judicial administration. We suspect that
the notice issues at the several sites will frequently be
different and we cannot see any genuine administrative benefit in
the application of New Jersey law. Thus, the law of the waste
site should govern if it differs from the law of New York.
To sum up, the governmental interests of a New Jersey forum under the Morton/Spruance analysis are protection of the regulatory process in New Jersey, protection of New Jersey policyholders, protection of the victims of pollution, and protection of the New Jersey environment. Those interests are minimally implicated when the issue concerns indemnity of a New York policyholder for environmental waste liabilities incurred in states other than New Jersey. That Pfizer has had a long-term significant business presence in New Jersey is important, American Home Prods. Corp. v. Adriatic Ins. Co., 286 N.J. Super. 24, 40 (App. Div. 1995), but must be viewed in perspective. Although Pfizer has had various business operations in New Jersey
since 1900 (28" of the remediation costs are here, a large
manufacturing facility is in Rutherford, and a product line
headquarters is in Parsippany) and it now has approximately 2,200
employees engaged in various activities in New Jersey, those
constitute five percent of Pfizer's total of over 40,000
employees. Pfizer has more employees--some 2,500--at its
corporate headquarters in New York. Pfizer's 1993 sales of $375
million from New Jersey are five percent of Pfizer's total sales
of $7.5 billion. Pfizer also has fourteen subsidiaries which
have their home office in New York and six subsidiaries which
were incorporated in New York from at least 1961 to 1985.
Pfizer's four principal plants and properties are outside New
Jersey.
The interests of the parties and the interests of commerce
favor the laws of either New York or the waste sites. As between
the two, the law of the waste site would appear to have the more
dominant significant relationship to the issues of interpretation
of the pollution-exclusion clause and the late-notice defense.
New Jersey's interests in judicial administration are important
but, with the hindsight of our ruling in Ciba-Geigy, do not
outweigh the interests of the other states.
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, STEIN,
and COLEMAN join in JUSTICE O'HERN's opinion. JUSTICE GARIBALDI
did not participate.
NO. A-66/67 SEPTEMBER TERM 1997
ON APPEAL FROM Appellate Division, Superior Court
ON CERTIFICATION TO
PFIZER, INC.,
Plaintiff-Respondent,
v.
EMPLOYERS INSURANCE OF WAUSAU,
etc., et al.,
Defendants,
and
COMMERCIAL UNION INSURANCE COMPANY,
et al.,
Defendants-Appellants.
DECIDED June 11, 1998
Chief Justice Poritz PRESIDING
OPINION BY Justice O'Hern
CONCURRING OPINION BY
DISSENTING OPINION BY
Footnote: 1Among the cases cited by the author were Waste Management,
Inc. v. Admiral Insurance Co.,
138 N.J. 106 (1994), cert. denied
sub nom. WMX Technologies, Inc. v. Canadian General Insurance
Co.,
513 U.S. 1183,
115 S. Ct. 1175,
130 L.Ed.2d 1128 (1995),
CBS, Inc. v. Crum & Forster, No. AM-712-94T2 (App. Div. Mar. 27,
1995), and Seton Co. v. Birmingham Fire Insurance Co., No. AM-974-94T2 (App. Div. May 18, 1995).
Footnote: 2According to Restatement section 188, the general rule in
contract actions is that the governing law is that of the state
with the most significant relationship to the parties and the
transaction under the principles stated in Restatement section 6
governs. State Farm Mut. Auto. Ins. Co. v. Estate of Simmons,
84 N.J. 28, 34 (1980). Section 188 lists several relevant
"contacts," according to their relative importance, to be
considered in the section 6 analysis, such as the domicile,
residence, nationality, place of incorporation and place of
business of the parties, and the places of contracting and
performance. Under section 6, the "general considerations
germane to a court's conflict-of-law analysis" are:
(a) the needs of the interstate and
international system,
(b) the relevant policies of the forum,
(c) the relevant policies of other affected
states and the relevant interests of those
states in the determination of the particular
issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the
particular field of law,
(f) certainty, predictability, and uniformity
of result, and
(g) ease in the determination and application
of the law to be applied.
Footnote: 3We pause to note our concurrence with the sound observation of Chief Judge Becker in NL Industries, Inc. v. Commercial Union Insurance Co., 65 F.3d 314 (3d Cir. 1995), that the Spruance principles may not be readily transferable from environmental coverage cases to products-liability cases. Footnote: 4In 1982, New York amended its laws to allow coverage of pollution damages.