New Jersey Court Holds Pollution Exclusion Inapplicable to Unintentional Contamination

In its recent decision in Benjamin v. State Farm Ins. Co., 2017 U.S. Dist. LEXIS 131078 (D.N.J. Aug. 17, 2017), the United States District Court for the District of New Jersey had occasion to consider the scope of the pollution exclusion under New Jersey law.

At issue in the Benjamin case was a policyholder’s right to coverage under his homeowner’s insurance for liabilities associated with a leaking underground storage tank located under his property.  Notably, the insured was unaware of the tank when it purchased the property.  It was only after the insured learned of the tank’s existence, and undertook efforts to have it excavated and removed, that he determined that the tank had leaked several years prior to his purchase of the property, resulting in soil and groundwater contamination.  The policyholder then sought coverage under several of his homeowner’s insurance policies for remedial efforts required by the New Jersey Department of Environmental Protection.

The Benjamin court addressed a number of coverage issues, including whether the insured’s liability resulted from an occurrence, the scope of the owned property exclusion, and how loss should be allocated under New Jersey law.  The court also addressed the application of the pollution exclusion, and in particular under what circumstances the exclusion applies to unintentionally created pollution.

In considering the scope of the exclusion, the court observed that New Jersey state and federal case law construing the pollution exclusion – both the qualified and absolute exclusion – have read an intentionality requirement into the exclusion.  Thus, not only is the exclusion limited to traditional environmental harm, as reflected in the Supreme Court’s decision in Nav-Its, Inc. v. Selective Ins. Co. of America, 869 A.2d 929 (N.J. 2005), but application of the exclusion has been limited to intentional industrial pollution even for exclusions not containing the “sudden and accidental” exception.  The court referred to its own prior decision in Castoro v. Hartford Accident and Indemnity Co., Inc., 2016 U.S. Dist. LEXIS 134686 (D.N.J. Sept. 29, 2016), in which it held that as a matter of public policy the exclusion did not apply to unintentional pollution caused by a “mom and pop” contracting business where the contamination was not expected or intended from the standpoint of the insured, even if the event giving rise to the contamination was expected.

Relying on this case law, the court denied the carriers’ motions for summary judgment on the basis of the exclusion, observing that the insurers failed to allege, or even attempt to demonstrate, that the insured policyholder expected or intended the pollution, particularly since he had no part in causing the release and was not even aware of the underground storage tank until long after the leak had happened.