Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co.

Opinions of the United

1996 Decisions States Court of Appeals

for the Third Circuit

6-20-1996

Chemical Leaman v. Aetna Casualty & Surety

Precedential or Non-Precedential:

Docket 93-5777,93-5794

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UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_______________

No. 93-5777 & 93-5794

_______________

CHEMICAL LEAMAN TANK LINES, INC.

v.

THE AETNA CASUALTY AND SURETY COMPANY;

and CERTAIN UNDERWRITERS AT LLOYDS, LONDON,

subscribing to Insurance Policies Numbers

WAR 6771, WAR 6772/A, C62P 10-117, L62P 10-117,

64P 3-121, L64P 3-121A, L64P 3-121B, C64P 3-121B,

C65P 5-119, C65P 5-119A, L65P 5-119A, L66P 5-119A,

C67P 4-158, L67P 4-158, C68P 2-116, L68P 2-116,

C68P 2-116A, C68P 2-116B, L68P 2-116A, L68P 2-116B,

C71-03-03-13, L71-03-03-13, C71-03-03-13A,

C71-03-03-13B, L71-03-03-13A, L71-03-03-13B,

C74-03-18-02, 77-01-19-23, 77-01-19-23A, C77-01-19-23B,

79-04-19-10, C80-02-19-09, C80-02-19-09B, L80-02-09A,

L80-02-19-09A, L80-02-19-09B, C83-02-19-09,

L83-02-19-09A, L83-02-19-09B, L83-02-19-09C

ROBIN ANTHONY GILDART JACKSON, an Underwriter at Lloyds,

London, individually and in his capacity as representative

Underwriter at Lloyds, London for certain subscribing

Underwriters at Lloyds, London who subscribed to certain

liability insurance policies issued to plaintiff Chemical

Leaman Tank Lines, Inc.; ACCIDENT AND CASUALTY COMPANY OF

WINTERTHUR; ALBA GENERAL INSURANCE COMPANY LTD.; ALLIANZ

CORNHILL INTERNATIONAL INSURANCE PLC, FORMERLY KNOWN AS

ALLIANZ INTERNATIONAL INSURANCE COMPANY LTD.; ANGLO-FRENCH

INSURANCE COMPANY LTD.; ARGONAUT NORTHWEST INSURANCE

COMPANY; ASSICURAZIONI GENERALI SPA; BALOISE FIRE INSURANCE

COMPANY; BELLEFONTE INSURANCE COMPANY LTD.; BRITISH NATIONAL

LIFE INSURANCE SOCIETY LTD.; CNA INTERNATIONAL REINSURANCE

CO. LTD., FORMERLY KNOWN AS CNA REINSURANCE OF LONDON LTD.;

DELTA LLOYD NON-LIFE INSURANCE COMPANY; DOMINION INSURANCE

COMPANY LTD.; DRAKE INSURANCE COMPANY LTD.; EDINBURGH

INSURANCE COMPANY; EXCESS INSURANCE COMPANY LTD.; FIDELIDADE

INSURANCE COMPANY; FOLKSAM INTERNATIONAL INSURANCE COMPANY

(U.K.) LTD.; HELVETIA ACCIDENT SWISS INSURANCE COMPANY;

INDEMNITY MARINE ASSURANCE COMPANY, LTD.; LEXINGTON

INSURANCE COMPANY LTD.; LONDON & OVERSEAS INSURANCE COMPANY,

LTD.; LONDON & EDINBURGH INSURANCE COMPANY, LTD.; LONDON &

SCOTTISH ASSURANCE CORPORATION, LTD.; GAN MINSTER INSURANCE

COMPANY, FORMERLY KNOWN AS MINSTER INSURANCE COMPANY LTD.;

NATIONAL CASUALTY COMPANY; NATIONAL CASUALTY INSURANCE OF

AMERICA, LTD.; NEW LONDON REINSURANCE COMPANY, LTD.; NORTH

ATLANTIC INSURANCE COMPANY LTD., FORMERLY KNOWN AS BRITISH

NATIONAL INSURANCE CO. LTD.; ORION INSURANCE COMPANY LTD.;

PINE TOP INSURANCE COMPANY LTD.; RIVER THAMES INSURANCE

COMPANY LTD.; SCOTTISH LION INSURANCE COMPANY; SOVEREIGN

MARINE AND GENERAL INSURANCE COMPANY, LTD.; SPHERE INSURANCE

COMPANY LTD.; ST. KATHERINE INSURANCE COMPANY LTD.;

STRONGHOLD INSURANCE COMPANY LTD.; SWISS UNION GENERAL

INSURANCE COMPANY LTD.; TAISHO MARINE & FIRE INSURANCE

COMPANY (EUROPE) LTD., FORMERLY KNOWN AS TAISHO MARINE &

FIRE INSURANCE COMPANY (U.K.) LTD.; TOKIO MARINE & FIRE

INSURANCE COMPANY (U.K.) LTD.; TUREGUM INSURANCE COMPANY

LTD.; UNIONAMERICA INSURANCE COMPANY; UNITED STANDARD

INSURANCE COMPANY LTD.; WINTERTHUR SWISS INSURANCE COMPANY;

WORLD AUXILIARY INSURANCE CORPORATION LTD.; YASUDA INSURANCE

COMPANY (U.K.) LTD. (hereinafter collectively referred to as

"Jackson & Companies"),

Appellants at No. 93-5777

AETNA CASUALTY AND SURETY COMPANY ("AETNA"),

Appellant at No. 93-5794

_______________________________________________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil Action No. 89-cv-1543 )

___________________

Argued September 26, 1994

Decided October 12, 1995

Petition for Panel Rehearing Granted

and Opinion and Judgment Vacated

December 15, 1995

Submitted on Petition for Panel Rehearing

December 15, 1995

Before: SCIRICA, NYGAARD and McKEE, Circuit Judges

(Filed June 20, 1996)

HENRY LEE, ESQUIRE (ARGUED)

GARY P. SCHULZ, ESQUIRE

JOHN G. McANDREWS, ESQUIRE

HANNAH M. O'DRISCOLL, ESQUIRE

Mendes & Mount

750 Seventh Avenue

New York, New York 10019

WILLIAM J. HANLEY, ESQUIRE

Ronca, McDonald & Hanley

5 Regent Street, Suite 517

Livingston, New Jersey 07039

Attorneys for Appellants at No. 93-5777

BRIAN J. COYLE, ESQUIRE (ARGUED)

PETER E. MUELLER, ESQUIRE

HARWOOD LLOYD, ESQUIRE

130 Main Street

Hackensack, New Jersey 07601

WILLIAM H. JEFFRESS, JR., ESQUIRE

Miller, Cassidy, Larroca & Lewin

2555 M Street, N.W., Suite 500

Washington, D.C. 20037

EDWARD M. DUNHAM, JR., ESQUIRE

Miller, Dunham & Doering

1515 Market Street, 13th Floor

Philadelphia, Pennsylvania 19102

Attorneys for Appellant,

Aetna Casualty and Surety Company

KEVIN B. CLARK, ESQUIRE (ARGUED)

JOHN P. DEAN, ESQUIRE

CONRAD J. SMUCKER, ESQUIRE

Willkie, Farr & Gallagher

Three Lafayette Centre, Suite 600

1155 21st Street, N.W.

Washington, D.C. 20036

Attorneys for Appellee,

Chemical Leaman Tank Lines, Inc.

THOMAS W. BRUNNER, ESQUIRE

Wiley, Rein & Fielding

1776 K Street, N.W.

Washington, D.C. 20006

Attorney for Amicus Curiae Appellant,

Insurance Environmental Litigation Association

KAREN L. JORDAN, ESQUIRE

Office of Attorney General of New Jersey

Department of Law & Public Safety

Richard J. Hughes Justice Complex

Trenton, New Jersey 08625

Attorney for Amicus Curiae Appellee, State of New Jersey,

New Jersey Department of Environmental Protection & Energy

__________________

OPINION OF THE COURT

__________________

SCIRICA, Circuit Judge.

Chemical Leaman Tank Lines, Inc. brought this

declaratory judgment action against Aetna Casualty and Surety

Company and the London Market Insurers, seeking a declaration

that defendants' insurance policies covered the cost of

environmental clean-up at Chemical Leaman's Bridgeport, New

Jersey facility. After a three week trial, a jury found Chemical

Leaman was entitled to partial coverage under several policies.

Thereafter the New Jersey Supreme Court decided Morton Intern.,

Inc. v. General Acc. Ins. Co., 629 A.2d 831 (N.J. 1993), cert.

denied, 114 S. Ct. 2764 (1994), which interprets several key

provisions of comprehensive general liability insurance policies

in the context of environmental pollution. Defendant insurers

now appeal, contending the district court incorrectly instructed

the jury on whether Chemical Leaman "expected or intended" to

cause environmental damage under Morton. We believe Mortonrequires an

inquiry into the insured's subjective intent to cause

environmental harm, unless "exceptional circumstances" support a

presumption of the insured's subjective intent. Therefore we

conclude the district court's jury instructions were proper.

Defendant insurers raise several other issues on

appeal. They argue the district court mistakenly limited the

applicability of the policies' pollution exclusion clause,

incorrectly adopted the "continuous trigger" theory as New Jersey

law, and ignored the prejudicial effect of Chemical Leaman's

failure to file its claims for coverage in a timely manner. They

also dispute the district court's exclusion of evidence relating

to environmental contamination at other Chemical Leaman

facilities. We will affirm the district court's holdings on the

pollution exclusion clause, the "continuous trigger" theory, and

timely notice. We also conclude that the exclusion of certain

evidence was within the sound discretion of the district court.

I. Background

A. Contamination at the Bridgeport Facility

Chemical Leaman Tank Lines, Inc., a tank truck company

that specializes in the transport of chemicals and other liquids,

operates a number of tank truck cleaning facilities around the

country, including one in Bridgeport, New Jersey. At the

Bridgeport facility, Chemical Leaman disposed of rinsewater

contaminated with chemical residue during the cleaning process

into a water treatment system designed by Harry Elston, Chemical

Leaman's Manager of Real Estate and Engineering, and Harry

Wagner, a professional sanitary engineer. At its inception in

1960, the Bridgeport water treatment system consisted of three

unlined ponds connected by "tee pipes." The ponds were intended

to purify rinsewater by filtering out contaminants as the water

seeped into the soil. The designers of the system believed that

the forces of gravity would separate contaminates from the

rinsewater, and that natural processes of aerobic and anaerobic

microbial degradation would break down trace contaminants. An

overflow pipe drained from the final pond of the water treatment

system into an adjacent swamp in order to allow water to escape

in the case of heavy rains.

In September 1961, an Inspector with the New Jersey

Division of Fish Game & Wildlife informed Chemical Leaman that

its water treatment system was "not satisfactory." In response,

Chemical Leaman constructed two additional aeration lagoons and a

settling lagoon with a limestone bed. The lagoons were designed

to function in the same manner as the first three ponds. But the

overflow pipe still drained from the last lagoon into the

neighboring swamp.

Water pollution inspectors with the New Jersey

Department of Health observed discharge from the overflow pipe

into the swamp in November 1968. They found the discharge to be

"highly pollutional" and ordered Chemical Leaman to submit a plan

to improve its water treatment system. In May 1969, Chemical

Leaman submitted a plan, but state regulators found it to be

unsatisfactory. Thereafter state regulators and Chemical Leaman

unsuccessfully attempted to reach agreement. Finally, on January

28, 1974, Chemical Leaman and the New Jersey Department of

Environmental Protection entered into a consent decree in which

Chemical Leaman agreed to construct an approved water treatment

facility. In 1975, Chemical Leaman arranged for its wastewater

to be treated by Du Pont and ceased to use the system of ponds

and lagoons. Subsequently, Chemical Leaman drained the ponds and

lagoons, dredged them, and filled them with brickbat, sand and

concrete.

In 1980, a routine survey by the New Jersey Department

of Environmental Protection discovered groundwater contamination

at and around the Bridgeport site. Subsequent investigations

established that the ponds and lagoons were the primary source of

groundwater contamination on the site, and that several private

wells near the facility were either contaminated or threatened

with contamination. The federal Environmental Protection Agency

placed the Bridgeport site on the Superfund National Priorities

List in 1984, and, in 1985, Chemical Leaman entered into a

consent order with the EPA. Chemical Leaman admitted liability

under the Comprehensive Environmental Response, Compensation and

Liabilities Act ("CERCLA") and agreed to remediate the Bridgeport

site or to pay for its remediation.

Chemical Leaman gave notice of claims to Aetna in April

1988, and to the London Market insurers ("LMI") in March 1989.

Aetna and the LMI refused to defend or indemnify Chemical Leaman

for costs incurred in connection with the clean-up of the

Bridgeport site. Chemical Leaman then filed this suit.

B. The Insurance Policies

Chemical Leaman purchased comprehensive general

liability insurance from Aetna covering successive years from

April 1, 1959 through April 1, 1985. It purchased excess

comprehensive general liability policies covering the same period

from the LMI. The LMI challenge the district court's

interpretation of several provisions of the policies purchased by

Chemical Leaman. Because Aetna has withdrawn from this appeal,

we need not discuss its policies.

The LMI policies were standard form "occurrence-based"

policies, meaning they insured against "occurrences" as defined

in the policies. The insuring clause in the LMI policies

typically stated that the LMI agreed:

[s]ubject to the limitations, terms and

conditions [of the policy] to indemnify the

Assured for all sums which the Assured shall

be obligated to pay by reason of the

liability . . . imposed upon the Assured by

law, . . . for damages . . . on account of:

. . . (ii) Property Damage . . . caused by or

arising out of each occurrence.

The LMI policies defined "occurrence" as "[a]n accident or a

happening or event or a continuous or repeated exposure to

conditions which unexpectedly and unintentionally results

in . . . property damage . . . during the policy period"

(emphasis added). The combined effect of the insuring clause and

the definition of "occurrence" is to preclude coverage for

property damage that is expected or intended by the insured. On

appeal, the LMI contend the district court incorrectly instructed

the jury on the legal standard by which to evaluate Chemical

Leaman's expectation or intention to cause property damage.

Each LMI policy in effect from 1971 to 1985 also

contained a pollution exclusion clause. The LMI policies in

effect from April 1, 1971 to April 1, 1974, and from April 1,

1977 to April 1, 1985 contained the standard form exclusion known

as NMA 1685. NMA 1685 does not cover personal injury or property

damage caused by seepage, pollution, or contamination unless

"such seepage, pollution or contamination is caused by a sudden,

unintended and unexpected happening during the period of [the]

insurance." The LMI policies in effect from April 1, 1974 to

April 1, 1977 contained the standard industry pollution exclusion

clause, the so-called "ISO" pollution exclusion, which precludes

coverage for pollution and contamination, unless the "discharge,

dispersal, release or escape is sudden and accidental." Both the

ISO pollution exclusion clause and the NMA 1685 pollution

exclusion clause focus on the insured's intention and expectation

to discharge pollutants, not on the insured's intention or

expectation to cause property damage. On appeal, the LMI argue

the pollution exclusion clauses bar coverage under the 1971 to

1985 policies because Chemical Leaman's discharges of pollutants

were not sudden, unintended, or unexpected.

Finally, the LMI policies require the insured to

provide written notice "as soon as practicable" following an

occurrence. The LMI argue that Chemical Leaman's failure to

comply with this provision bars coverage.

II. Procedural History

Chemical Leaman filed this declaratory judgment action

in 1989 after the insurers' refusal to indemnify it for the costs

of environmental clean-up at the Bridgeport facility. Following

extensive discovery, the parties filed cross-motions for summary

judgment on various grounds. The district court granted partial

summary judgment in favor of Chemical Leaman, holding that New

Jersey law applied, and that the "owned property exclusion" did

not bar coverage for the costs of remediation of onsite soil

contamination designed to correct injury to surrounding

properties. See Chemical Leaman Tank Lines, Inc. v. Aetna Cas. &

Sur. Co., 788 F. Supp. 846 (D.N.J. 1992).

After subsequent cross-motions for summary judgment,

the district court held Chemical Leaman bore the burden of

proving it did not subjectively expect or intend the damage to

the soil and groundwater for which it sought coverage. SeeChemical Leaman

Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F.

Supp. 1136, 1146 (D.N.J. 1993). It also found Chemical Leaman's

actions were not so "reprehensible" as to objectively establish

that it expected or intended to cause damage. Id. The court

then denied the cross-motions for summary judgment because there

remained genuine issues of fact about Chemical Leaman's

subjective intent. Id. at 1152.

The district court also held as a matter of law that

damage to the soil and groundwater occurred during the April 1,

1960 to April 1, 1961 policy year because Chemical Leaman began

depositing rinsewater in the ponds during that time period. The

district court noted that from 1960 to 1975, Chemical Leaman

disposed of 10,000 to 20,000 gallons of rinsewater into the ponds

each day, but did not find that property damage occurred during

that period as a matter of law. Id. Rather, it ruled that New

Jersey follows the "continuous trigger" theory and that factual

issues remained as to whether Chemical Leaman suffered

continuous, indivisible property damage from 1961 to 1985.

The district court interpreted the pollution exclusion

clauses in the LMI's post-1971 policies as precluding coverage

"when the insured has caused the discharge of contaminants or

pollutants, unless the discharge was neither expected nor

intended from the standpoint of the insured." Id. at 1157. On

the basis of the pollution exclusion clauses, the district court

granted partial summary judgment in favor of defendants as to

soil damage on the post-1971 policies. It denied summary

judgment with respect to groundwater contamination, and did not

address contamination to the surrounding wetlands. Id. Finally,

the district court held Chemical Leaman's failure to give timely

notice of its claims did not preclude insurance coverage because

the delay had not prejudiced the defendant insurers. Id. at

1157-58.

Before trial, Chemical Leaman filed a motion in limineto exclude

evidence relating to waste disposal sites other than

Bridgeport. The district court granted the motion, holding the

other-site evidence more prejudicial than probative and unduly

time consuming.

After a three week trial, the jury found that Chemical

Leaman was entitled to coverage for damage to the soil and

wetlands under the April 1, 1960 to April 1, 1971 policies, and

to coverage for damage to the groundwater under the April 1, 1960

to April 1, 1981 policies. In reaching its verdict, the jury

answered detailed interrogatories on Chemical Leaman's intent and

expectation to cause property damage and to discharge pollutants

during each policy year. After oral argument before this Court,

Chemical Leaman and Aetna settled all claims arising from this

dispute. The LMI now appeals the district court's legal

determinations and the jury's verdict.

We have jurisdiction to review the final judgment of

the district court under 28 U.S.C. 1291. The district court

held New Jersey law governs, which the parties do not dispute.

Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 788 F.

Supp. at 851. As a federal court sitting in diversity, we must

apply the substantive law of New Jersey. Borse v. Pierce Goods

Shop, Inc., 963 F.2d 611, 613 (3d Cir. 1992). Our review of the

district court's interpretation of New Jersey law is plenary.

Wiley v. State Farm Fire & Cas. Co., 995 F.2d 457, 459 (3d Cir.

1993).

III. Occurrence-Based Insurance Policies

and "Expected or Intended"

Chemical Leaman purchased "occurrence-based"

comprehensive general liability insurance from the LMI that

provided coverage for "[a]n accident or a happening or event or a

continuous or repeated exposure to conditions which unexpectedly

and unintentionally results in . . . property damage." The LMI

contend that because Chemical Leaman "expected" or "intended" to

cause property damage at the Bridgeport site, the policies do not

provide coverage.

New Jersey courts have been called upon repeatedly to

interpret the "expected/intended" clause in occurrence-based

insurance policies. They have sought to balance the need to

compensate victims against the public policy of deterring

intentional wrongdoing by denying coverage for its consequences.

In companion cases, Voorhees v. Preferred Mut. Ins. Co., 607 A.2d

1255 (N.J. 1992), and SL Industries, Inc. v. American Motorists

Ins. Co., 607 A.2d 1266 (N.J. 1992), the New Jersey Supreme Court

addressed how the "expected/intended" clause should be

interpreted in order to strike the correct balance.

In Voorhees, the New Jersey Supreme Court held the

accidental nature of an occurrence is determined by analyzing

whether the insured subjectively intended or expected to cause an

injury. Voorhees v. Preferred Mut. Ins. Co., 607 A.2d at 1264.

The court explained:

That interpretation prevents those who

intentionally cause harm from unjustly

benefitting from insurance coverage while

providing injured victims with the greatest

chance of compensation consistent with the

need to deter wrong-doing. It also accords

with an insured's objectively-reasonable

expectation of coverage for unintentionally-

caused harm.

Id. at 1264. The court emphasized, "[e]ven when the actions in

question seem foolhardy and reckless, the courts have mandated an

inquiry into the actor's subjective intent to cause injury." Id.

The court also recognized an "exceptional

circumstances" exception to the subjective intent inquiry.

When the actions are particularly

reprehensible, the intent to injure can be

presumed from the act without an inquiry into

the actor's subjective intent to injure.

That objective approach focuses on the

likelihood that an injury will result from an

actor's behavior rather than on the

wrongdoer's subjective state of mind.

Id. at 1265. The court cited to sexual assault against children

as an example of an act that is "so inherently injurious" that an

intent to injure can be presumed. Id.

In SL Industries, the court confronted the question

"whether any intent to injure will render the resulting injury

intentional [and preclude coverage], whether the wrongdoer must

intend the specific injury that results, or whether there is some

middle ground between the two approaches." SL Industries, Inc.

v. American Motorists Ins. Co., 607 A.2d at 1277 (emphasis in

original). After evaluating alternative theories, the court

adopted the "middle ground," which it summarized as follows:

Assuming the wrongdoer subjectively intends

or expects some sort of injury, that intent

will generally preclude coverage. If there

is evidence that the extent of the injuries

was improbable, however, then the court must

inquire as to whether the insured

subjectively intended or expected to cause

that injury. Lacking that intent, the injury

was "accidental" and coverage will be

provided.

Id. at 1278. SL Industries involved an allegation of intentional

fraud that "presupposes a general subjective intent to injure."

Accordingly the New Jersey Supreme Court remanded the cases for a

determination of whether the injury suffered by the victim was

improbable, and if so, whether the insured intended or expected

the victim's actual injuries. Id. at 1279. The court noted this

approach "conforms to an insured's objectively-reasonable

expectations and provides the victim the greatest possibility of

additional compensation consistent with the goal of deterring

intentional wrongdoing." Id.

The New Jersey Supreme Court addressed the

expected/intended clause of comprehensive general liability

policies in the environmental pollution context in Morton

Intern., Inc. v. General Acc. Ins. Co., 629 A.2d 831 (N.J. 1993),

cert. denied, 114 S. Ct. 2764 (1994). It attempted to apply the

principles established in Voorhees and SL Industries, but was

forced to "acknowledge the impracticality of adherence to the

general rule that `we will look to the insured's subjective

intent to determine intent to injure.'" Id. at 879. The court

then elaborated upon Voorhees' "exceptional circumstances"

exception, which allows an intent to injure to be presumed

without inquiry into the actor's subjective intent.

[W]e hold that in environmental-coverage

litigation a case-by-case analysis is

required to determine whether, in the context

of all the available evidence, "exceptional

circumstances exist that objectively

establish the insured's intent to injure."

Voorhees, 607 A.2d at 1265. Those

circumstances include the duration of the

discharges, whether the discharges occurred

intentionally, negligently, or innocently,

the quality of the insured's knowledge

concerning the harmful propensities of the

pollutants, whether regulatory authorities

attempted to discourage or prevent the

insured's conduct, and the existence of

subjective knowledge concerning the

possibility or likelihood of harm.

Id. at 879-80. The court cautioned, "insureds held responsible

for remediation of environmental pollution vary significantly in

their degree of culpability for the harm caused by pollutant

discharges." Therefore, "[a] general rule in environmental-

pollution coverage litigation that would permit intent to injure

to be presumed simply on the basis of a knowing discharge of

pollutants would be unjustified." Id. at 879.

The New Jersey Supreme Court applied the factors it had

outlined to determine whether "exceptional circumstances"

supported the presumption of an intent to cause property damage.

It noted Morton and predecessors had polluted Berry's Creek to

such an extent that "[f]or a stretch of several thousand feet,

the concentration of mercury . . . [was] the highest found in

fresh water sediments in the world." Id. at 834. This damage

was caused by the discharge of pollutants from a mercury-

processing plant over a period of at least eighteen, and perhaps

as many as forty-five, years. Id. at 882. Moreover, for at

least eighteen years the discharges had been intentional, even

though the company knew they would cause environmental harm.

Despite repeated complaints by regulatory agencies, Morton

engaged in "a pattern of `stonewalling' . . . characterized by

promises of compliance that consistently were unfulfilled." Id.

On the basis of these facts, the court held, it "would have

ignored reality to conclude that [Morton's] predecessors did not

know that the mercury and its effluents was [sic] harmful to the

land over which it coursed and the waters into which it fell."

Id. at 884. Therefore, it held as a matter of law that the

property damage was not caused by an "occurrence" within the

meaning of the applicable insurance policies.

Morton's presumption of an insured's subjective intent

to cause property damage from egregious circumstances does not

hinge on whether the insured should have expected or intended to

cause injury. This would be akin to a negligence standard. If

negligent acts did not fall within the definition of a covered

occurrence, then there would be no point in purchasing

comprehensive general liability insurance. Pittston Co. v.

Allianz Ins. Co., 905 F. Supp. 1279, 1301 (D.N.J. 1995). While

Morton pragmatically acknowledges courts should not "ignore

reality" when exceptional circumstances establish the insured's

subjective intent to injure, the insured's subjective intent to

cause injury remains the relevant inquiry under the occurrence

language.

In Morton, the New Jersey Supreme Court also addressed

the applicability of SL Industries' improbability rule in

environmental pollution coverage litigation. It explained:

Turning to the question of whether

environmental injury was intended or

expected, we first observe that although the

magnitude of damage to Berry's Creek and the

surrounding areas may exceed any intention or

expectation attributable to Morton's

predecessors, we do not consider differences

in harm relating to severity of environmental

damage give rise to a finding of

"improbability" of harm that invokes the need

for evidence of subjective intent. SL

Industries, supra. . . . The holding of SL

Industries was based on the Appellate

Division's ruling . . . that in a coverage

action arising from a fight between two young

teenagers in which one sustained a broken

hip, a factual issue was presented because of

the inherent improbability that the skirmish

would result in a hip fracture. No such

inherent "improbability" can be ascribed to

the environmental damage attributable to

Morton's predecessors.

Morton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d at 882

(citations omitted). Therefore the court concluded it did not

have to inquire into Morton's subjective intent to cause the

specific environmental damage at issue.

In this case, the district court interpreted New Jersey

law on the "expected/intended" clause before the New Jersey

Supreme Court's decision in Morton. Nevertheless, it instructed

the jury to determine whether Chemical Leaman subjectively

expected or intended to cause property damage at the Bridgeport

site. At the end of trial, on the LMI's Rule 50(a) motion for

judgement as a matter of law, the district court found that the

harm to the environment caused by the Bridgeport water treatment

system was improbable as a matter of law. The district court

also held Chemical Leaman's actions were not so reprehensible as

to justify the presumption of an intent to cause property damage

under the "exceptional circumstances" exception. It concluded

Chemical Leaman was not "throwing toxic waste out into the

meadow-lands" as Morton and its predecessors had done; rather, it

had "designed and built the facility to prevent [harm to the

environment]." Chemical Leaman Tank Lines, Inc. v. Aetna Cas. &

Sur. Co., 817 F. Supp. at 1146.

On appeal, the LMI argue the district court's jury

instructions on the expected/intended issue were erroneous and

inconsistent with New Jersey law. They also assert the harm at

the Bridgeport site was not improbable as a matter of law.

Finally, they contend "exceptional circumstances" objectively

establish Chemical Leaman's intent to cause property damage. Our

review of jury instructions is plenary. See Hook v. Ernst &

Young, 28 F.3d 366, 370 (3d Cir. 1994). A jury charge, taken as

a whole, must "fairly and adequately" submit the issues in the

case to the jury. Id.

A. Jury Instruction on Expected/Intended

The district court instructed the jury that it should

find for Chemical Leaman if Chemical Leaman did not subjectively

expect or intend damage to the soil, groundwater, or wetlands at

the Bridgeport site. Midway through the trial, the court

instructed the jury:

There are three kinds of damage at issue in

this case--soil contamination, groundwater

contamination, and swamp contamination . . .

You must evaluate Chemical Leaman by what you

believe were its actual, subjective

expectations or intentions with regard to

causing soil, groundwater and swamp damage .

. .

At the end of the trial, the district court again instructed the

jury:

"EXPECTED OR INTENDED" -- FOCUS ON DAMAGE

In determining Chemical Leaman's

expectations and intentions in the context of

basic coverage, you are instructed to focus

on whether the specific property damage was

expected or intended. You are not to

consider whether the acts which caused that

property damage were intentional acts. I

give you this instruction because it is New

Jersey law the unintended results of

intentional acts may be covered by

defendants' insurance policies. Thus, even

though Chemical Leaman may have knowingly and

intentionally committed the acts that

ultimately led to the environmental damage at

the Bridgeport site, there still may be

insurance coverage as long as you find that

Chemical Leaman did not expect or intend the

specific property damage that is the subject

matter of this litigation, namely the

contamination of the soil, groundwater, or

wetlands.

"EXPECTED OR INTENDED" -- SPECIFIC DAMAGE STANDARD

I further instruct you that, in deciding

whether Chemical Leaman subjectively expected

or intended to cause property damage, you

must consider whether Chemical Leaman

subjectively expected or intended the very

damage that is the subject matter of this

case. Thus, it is not sufficient for you to

find that Chemical Leaman expected or

intended any injury -- such as injury to the

environment generally. Rather, you must

determine whether Chemical Leaman expected or

intended the actual property damage that it

is now required to clean-up.

In addition, special interrogatories were submitted to the jury

on Chemical Leaman's expectation and intention to cause damage to

the soil, groundwater, and wetlands.

The LMI contend the district court's final jury

instruction was erroneous because it instructed the jury "to

focus on whether the specific property damage"--namely

contamination to the soil, groundwater, or wetlands--"was

expected or intended." They argue the district should have

instructed the jury that if Chemical Leaman "expected or

intended" to cause some injury to the environment generally, then

coverage was precluded unless the extent of the injury was

improbable. The LMI rely on SL Industries, in which the New

Jersey Supreme Court stated:

Assuming the wrongdoer subjectively intends

or expects some sort of injury, that intent

will generally preclude coverage. If there

is evidence that the extent of the injuries

was improbable, however, then the court must

inquire as to whether the insured

subjectively intended or expected to cause

that injury. Lacking that intent, the injury

was "accidental" and coverage will be

provided.

SL Industries, Inc. v. American Motorists Ins. Co., 607 A.2d at

1278. The LMI contend Chemical Leaman intended to cause some

injury because Chemical Leaman knew the rinsewater contained

contaminants, and knew the contaminants would seep into the soil

when deposited in the containment ponds. They assert Chemical

Leaman also knew discharges from the overflow pipe would drain

into the swamp. Therefore, they argue, Chemical Leaman intended

"some sort of injury" as a matter of law, and coverage was

precluded unless the extent of injury was improbable.

Although the LMI's argument possesses a certain appeal,

we believe the New Jersey Supreme Court would reject it. An

insured who intentionally discharges a known pollutant generally

intends "some sort of harm," however de minimis, and the harm

that actually results is usually a probable result of the

discharge. Accordingly, the LMI's reading of SL Industries would

result in a general rule precluding coverage based on the knowing

discharge of a pollutant. But in Morton Intern., Inc. v. General

Acc. Ins. Co., 629 A.2d at 879-80, the New Jersey Supreme Court

held "a general rule . . . [precluding coverage] simply on the

basis of a knowing discharge of pollutants would be unjustified."

The LMI's reading of SL Industries' "some sort of injury"

language conflicts with Morton.

Moreover, in SL Industries, the New Jersey Supreme

Court confronted the problem of insurance coverage for injury

caused by intentional, tortious conduct, namely intentional

fraud. But intentional tort cases are an imperfect analogy in

the context of environmental pollution. The insured who commits

an intentional tort like fraud possesses some knowledge of the

nature of the harm likely to result and intends to cause such

harm. Also, most intentional torts are committed in a single,

discrete, and temporally limited incident. In the context of

environmental pollution, the insured's knowledge concerning the

harmful propensities of pollutants and the likelihood of harm to

the environment may be less complete and may vary significantly

over time. For example, it is a matter of historical fact that

many insureds, acting in accordance with standard industry

practices, intentionally discharged pollutants into unlined

containment ponds or other inadequate waste treatment systems,

but were unaware that groundwater damage would eventually result.

In Morton, the New Jersey Supreme Court acknowledged

the unsuitability of prior case law on the expected/intended

provision in environmental pollution coverage litigation.

Morton, 629 A.2d at 879 ("In applying our holding in Voorhees to

claims seeking coverage for property-damage caused by

environmental pollution under occurrence-based CGL policies, we

acknowledge the impracticality of adherence to the general rule

that `we will look to the insured's subjective intent to

determine intent to injure.'"). We believe the New Jersey

Supreme Court would similarly reject a wooden application of SL

Industries' "some sort of injury" language, and would instead

look to the general principles underlying the interpretation of

insurance-policy provisions involving intentional conduct. As

stated by the New Jersey Supreme Court:

Our goal is to interpret the insurance

provisions in light of the insured's

objectively reasonable expectations. . . .

[W]e must attempt to reconcile two goals:

that of deterring intentional wrongdoing by

precluding insurance indemnification, and

that of providing victims with compensation

to the extent that compensation will not

interfere with deterring injurious behavior.

SL Industries, Inc. v. American Motorists Ins. Co., 607 A.2d at

1278. We will apply these principles in this case.

In the environmental pollution context, the insured's

appreciation of the magnitude and nature of harm likely to be

caused by a discharge of pollutants is relevant in determining

whether insurance coverage should be precluded.

When the injury caused significantly exceeds

the injury intended or expected . . . then it

is hard to characterize the injury as truly

"intentional." . . . Moreover, if the

tortfeasor did not intend or expect to cause

the resulting harm, denying coverage will not

deter the harmful conduct. In that case,

there is no policy justification for denying

the victim the possibility of additional

compensation.

SL Industries, Inc. v. American Motorists Ins. Co., 607 A.2d at

1278. If an insured does not understand the causal connection

between the discharge of a pollutant and the property damage that

results, deterrence is not served by precluding insurance

coverage. Moreover, where an insured does not intend or expect

property damage of a particular nature to result from its

discharge of pollutants, the insured has an "objectively

reasonable expectation" of coverage should such property damage

later manifest itself. For these reasons, we cannot agree with

the LMI's contention that some intent to cause any sort of

environmental harm will preclude insurance coverage for all

environmental harm under New Jersey law. Rather we believe the

New Jersey Supreme Court would inquire into the insured's intent

or expectation to cause environmental harm of a particular sort,

for example, whether the insured intended damage to the soil,

groundwater, or wetlands. Where the insured intends or expects

such harm, coverage is precluded, unless, of course, the injury

was improbable. On the other hand, an insured's intent to cause

environmental harm of one sort will not preclude coverage for

other kinds of unintended and unexpected environmental harm. For

example, an insured's intent to cause soil damage will not

preclude coverage for unintended and unexpected damage to the

groundwater or wetlands.

The district court's jury instruction fairly and

adequately asked the jury to consider whether Chemical Leaman

expected or intended injury to the soil, groundwater, or

wetlands. The instruction also allowed the jury to consider the

nature and extent of Chemical Leaman's knowledge regarding the

likelihood of harm as that knowledge evolved over time. There

was ample evidence supporting the jury's conclusion that Chemical

Leaman did not expect or intend to cause property damage.

Chemical Leaman presented evidence that it believed the system of

unlined ponds would cleanse contaminated rinsewater. Although

Chemical Leaman intentionally discharged known pollutants, a

reasonable jury could find, and the jury here did find, Chemical

Leaman did not expect or intend damage to the soil, groundwater

or wetlands. In light of the jury's findings, Chemical Leaman is

entitled to insurance coverage for the costs of clean-up of

environmental damage. Because Chemical Leaman did not expect or

intend damage to the soil, groundwater, or wetlands, we need not

inquire whether the property damage at the Bridgeport site was an

improbable result of Chemical Leaman's actions.

B. The "Exceptional Circumstances" Exception

The LMI contend that under Voorhees' "exceptional

circumstances" exception, Chemical Leaman's intent to cause

property damage should be presumed as a matter of law.

As we have noted, in Morton the New Jersey Supreme

Court set forth several factors to be considered in evaluating

whether exceptional circumstances exist. These include:

the duration of the discharges, whether the

discharges occurred intentionally,

negligently, or innocently, the quality of

the insured's knowledge concerning the

harmful propensities of the pollutants,

whether regulatory authorities attempted to

discourage or prevent the insured's conduct,

and the existence of subjective knowledge

concerning the possibility or likelihood of

harm.

Morton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d at 879-

80. We believe the New Jersey Supreme Court designed the

"exceptional circumstances" exception to apply only to egregious

conduct. This much is apparent from the court's use of child

sexual abuse as an illustration of conduct that is "so inherently

injurious" as to warrant a presumption of intent to injure. Id.at 879.

Because "insureds held responsible for remediation of

environmental pollution vary significantly in their degree of

culpability for the harm caused by pollutant discharges," we

believe "[a] general rule in environmental-pollution coverage

litigation that would permit intent to injure to be presumed

simply on the basis of a knowing discharge of pollutants would be

unjustified." Id. at 879-880.

Instead Morton mandates "a case-by-case analysis . . .

in order to determine whether, in the context of all the

available evidence, exceptional circumstances exist." Id.

Morton is instructive in considering the level of culpability

required to allow intent to injure to be presumed in the

environmental context. In Morton, the insured intentionally

discharged mercury-laden compounds directly into streams over a

lengthy period of time. The Department of Health and state

engineers made repeated demands for compliance and the insured

consistently disregarded its own promises to remediate the

discharge. Morton, 629 A.2d at 882. "[T]he record fairly

reflect[ed] a pattern of `stonewalling' on the part of [the

insured], characterized by promises of compliance that

consistently were unfulfilled." Id.

We believe a reasonable jury could find Chemical Leaman

did not engage in a "pattern of stonewalling." On the contrary,

a jury could conclude that Chemical Leaman's behavior suggests a

good faith effort at compliance with agency demands. Chemical

Leaman initially designed the Bridgeport wastewater treatment

system to purify contaminated rinseate in 1960. The designers of

the system believed that the sandy bottom of the unlined ponds

would purify the contaminated rinsewater by acting as a natural

filter, and the overflow pipe was intended as a safety valve to

prevent a rupture in the berms of the containment ponds in the

event of heavy rain. When an inspector from the Pollution Unit

of the New Jersey Division of Fish, Game & Wildlife advised

Chemical Leaman of an unsatisfactory discharge into a neighboring

swamp in September 1961, Chemical Leaman responded by

constructing a second set of lagoons and the final settling

lagoon. Seven years later, water pollution inspectors from the

New Jersey Department of Health concluded discharges from the

lagoon were pollutional and, in February 1969, ordered Chemical

Leaman to submit plans for a system to properly treat the

effluent. In May 1969, Chemical Leaman submitted a plan for a

new rinsewater treatment system. The New Jersey Department of

Health rejected this plan and over the next four years the

parties attempted to resolve their dispute until January 1974,

when they entered into a consent judgment. This history can

hardly be described as "a pattern of `stonewalling' . . .

characterized by promises of compliance that consistently were

unfulfilled." Morton, 629 A.2d at 882. Accordingly,

"exceptional circumstances" do not exist here that would permit a

presumption of Chemical Leaman's subjective intent to cause

property damage.

IV. Pollution Exclusion Clauses

The April 1, 1971 to April 1, 1985 LMI policies

contained pollution exclusion clauses barring coverage for

discharges of pollutants, unless such discharges were "sudden and

accidental" or "sudden, unintended, and unexpected." The LMI

argued to the district court that coverage was precluded because

the discharge of pollutants at the Bridgeport site was not

"sudden." The district court rejected the LMI's argument,

relying on a line of New Jersey cases beginning with Broadwell

Realty Serv., Inc. v. Fidelity & Cas. Co., 528 A.2d 76 (N.J.

Super. App. Div. 1987). It held the word "sudden" is ambiguous--

sometimes carrying a temporal meaning and sometimes meaning

"unexpected"--and should not be interpreted to exclude coverage

for environmental harm caused by gradual discharges over a

prolonged period. It concluded, "[t]he pollution exclusion

precludes coverage when the insured has caused the discharge of

pollutants, unless the discharge was neither expected nor

intended from the standpoint of the insured." Chemical Leaman

Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1157.

The district court then granted partial summary judgment to the

insurers with respect to soil damage because Chemical Leaman

intended to discharge contaminants into the soil. At trial, the

jury found Chemical Leaman expected and intended discharges to

the swamp, but not to the groundwater. On appeal, the LMI

contest their liability for groundwater damage.

Subsequent to the district court's decision, the New

Jersey Supreme Court addressed the standard form pollution

exclusion clause in Morton Intern., Inc. v. General Acc. Ins.

Co., 629 A.2d at 847-76. The New Jersey Supreme Court expressly

overruled Broadwell, because it believed that the word "sudden"

was not ambiguous. It held "`sudden' possesses a temporal

element, generally connoting an event that begins abruptly or

without prior notice or warning," and concluded that "the phrase

`sudden and accidental' in the standard pollution-exclusion

clause describes only those discharges, dispersals, releases, and

escapes of pollutants that occur abruptly or unexpectedly and are

unintended." Id. at 847. Nevertheless, the court refused to

enforce the standard pollution exclusion as written because it

found the insurance industry had misled state regulators in

securing its approval. Instead, the court held the pollution

exclusion clause precludes coverage if the insured intentionally

discharges a known pollutant, regardless of whether the insured

expected or intended to cause property damage:

[W]e perceive that regulators would

reasonably have understood the effect of the

clause to have denied coverage for the

intentional discharge, dispersal, release, or

escape of known pollutants, whether or not

the eventual damage was intended or expected

from the standpoint of the insured. The

industry's presentation of the clause to

regulators described it as a clarification of

the "intended and expected" clause of the

basic "occurrence" definition "so as to avoid

any question of intent," and could fairly be

understood as an attempt to override the

issue whether damage was intended by

excluding coverage for intentional discharges

of known pollutants. Accordingly, we

construe and give effect to the standard

pollution-exclusion clause only to the extent

that it shall preclude coverage for

pollution-caused property damage caused by an

"occurrence" if the insured intentionally

discharged, dispersed, released, or caused

the escape of a known pollutant.

Id. at 848 (emphasis in the original).

On appeal, the LMI contend the district court

incorrectly instructed the jury that the pollution exclusion

clause precludes coverage only if Chemical Leaman intentionally

discharged known pollutants into the groundwater. First, the LMI

argue Morton established that the word "sudden" has a temporal

connotation--meaning "abrupt"--and precludes coverage for gradual

discharges, dispersals, releases, or escapes. Because Chemical

Leaman discharged contaminated rinsewater over a prolonged

period, they argue, coverage should be precluded. The LMI

acknowledge Morton's regulatory estoppel holding generally

prevents enforcement of the "sudden" requirement, but assert

Morton does not apply to the LMI because (1) several of their

policies contain the non-standard NMA 1685 pollution exclusion,

and (2), they were not party to the misrepresentations made to

regulatory authorities. Second, the LMI argue that even if

Morton's regulatory estoppel holding applies, the pollution

exclusion clause bars coverage because Chemical Leaman

intentionally discharged known pollutants. They argue the

district court erred in requiring proof that Chemical Leaman

intended discharge into the groundwater, as opposed to into the

environment generally.

A. Regulatory Estoppel

1. Non-Standard Pollution Exclusion

In Morton, the New Jersey Supreme Court applied

regulatory estoppel to the ISO standard pollution exclusion

clause and did not address coverage issues relating to non-

standard pollution exclusion clauses. Morton Intern., Inc. v.

General Acc. Ins. Co., 629 A.2d at 881. The LMI argue that

Morton's regulatory estoppel holding should not prevent

enforcement of the term "sudden" in the non-standard NMA 1685

pollution exclusion clause contained in certain of their

policies. We believe this argument lacks merit. Both the ISO

standard pollution exclusion and the non-standard NMA 1685

pollution exclusion use the term "sudden." The NMA 1685

exclusion closely tracks the language of the standard pollution

exclusion, and both pollution exclusion clauses came into use at

about the same time. Indeed, the LMI argue the NMA 1685

exclusion and the standard exclusion are identical in scope

because both exclude coverage for non-abrupt, non-sudden

discharges and releases of pollutants. See also Potomac Elec.

Power Co. v. California Union Ins. Co., 777 F. Supp. 968, 978

n.23 (D.D.C. 1991) (defendant insurers admit there is "no

material difference" between standard pollution exclusion and NMA

1685 pollution exclusion). The New Jersey Supreme Court refused

to enforce the term "sudden" in Morton because the insurance

industry mislead state regulators as to its effect when obtaining

approval for the standard pollution exclusion clause. We do not

believe the New Jersey Supreme Court would enforce the term

"sudden" in non-standard pollution exclusion clauses simply

because other language in those clauses varies slightly from that

in the standard pollution exclusion. Therefore we conclude that

Morton's regulatory estoppel holding applies to the NMA 1685

pollution exclusion as well as the standard pollution exclusion.

2. Application of Regulatory Estoppel to the LMI

The LMI also argue that Morton's regulatory estoppel

holding should not be applied to them because they did not

affirmatively deceive New Jersey regulators in securing approval

of the standard pollution exclusion. We cannot agree. The LMI's

policies contained the standard pollution exclusion precluding

coverage for non-sudden discharges or releases of pollutants.

They also contained the NMA 1685 pollution exclusion, which

closely parallels the language of the standard exclusion.

Approval of the standard pollution exclusion clause was secured

through misrepresentations to regulatory authorities. Regardless

of whether the LMI themselves directly misrepresented the effect

of the term "sudden" in the pollution exclusion clauses, they

benefitted from the misleading explanation of the effect of the

standard pollution exclusion submitted to state regulators by

insurance industry trade groups. The LMI did not independently

submit information to New Jersey regulators or attempt to explain

the full impact of the term "sudden" in the pollution exclusion

clauses they used. Under these circumstances, we believe the

New Jersey Supreme Court would not enforce the term "sudden" in

the policies issued by the LMI.

B. Intentional Discharge

The LMI also argue the district court should not have

required separate findings with regard to intent to discharge

into the soil, wetlands, and groundwater. They contend that if

Chemical Leaman intended any discharge, whether to the soil,

groundwater, or wetlands, then the pollution exclusion clauses

preclude coverage for all property damage arising from that

discharge. Because the district court granted partial summary

judgment to the insurers with respect to discharges into the

soil, the LMI argue, the district court should also have denied

coverage for all resulting property damage, including groundwater

damage. The effect of the LMI's argument would be to require

judgment in their favor as a matter of law on all policies

containing a pollution exclusion. The LMI raised this argument

before the district court in a Rule 50(b) motion. The district

court refused to consider the argument because the LMI had not

raised it in their prior Rule 50(a) motion. Chemical Leaman Tank

Lines, Inc. v. Aetna Cas. & Sur. Co., No. 89-1543, slip op. at 4

(D.N.J. November 8, 1993).

Motions for judgment as a matter of law must be made

before submission of the case to the jury and must "specify the

judgment sought and the law and facts on which the moving party

is entitled to judgment" under Fed. R. Civ. P. 50(a)(2). We

have reviewed the portions of the record cited to by the LMI in

their brief, and conclude that the LMI did not specify the "law

and facts" entitling them to judgment in their summary judgment

motion, their Joint Trial Brief, or their Rule 50(a) motion

before the district court. The LMI assert they adequately raised

the argument because they objected to the district court's jury

instruction on the pollution exclusion clauses, stating:

There was one other thing with respect to the

pollution exclusion. Just to be perfectly

clear. It's not my understanding that the

law even where it does not recognize a

temporal element for the sudden. It is not

required that there be an intent or an

expectation to discharge a particular medium,

rather it's the discharge itself and where it

goes. This should not be the subject of the

deliberation of the jury.

An objection to a jury charge can serve as a predicate for a

later Rule 50(b) motion only if the district court explicitly

treated the objection as a Rule 50(a) motion. Bonjorno v. Kaiser

Aluminum & Chemical Corp., 752 F.2d 802, 814-15 (3d Cir. 1984)

("A request for jury instructions may suffice to fulfill the

requirement that a motion for a directed verdict be made before

granting a JNOV only if it is clear the district court treated

the request as a motion for a directed verdict and ruled on it as

such."), cert. denied, 477 U.S. 908 (1986); Lowenstein v. Pepsi-

Cola Bottling Co. of Pennsauken, 536 F.2d 9, 11 (3d Cir.) (same),

cert. denied, 429 U.S. 966 (1976). The district court did not

treat the LMI's objection to the jury charge as a Rule 50(a)

motion. Accordingly, we believe the district court correctly

declined to hear the LMI's argument on their Rule 50(b) motion.

"It is clear under our jurisprudence that this court

cannot reverse the district court's decision denying [a] Rule

50(b) motion for j.n.o.v. on the basis of an argument the [a

party] failed to raise in support of its predicate Rule 50(a)

motion for a directed verdict." Simmons v. City of Philadelphia,

947 F.2d 1042, 1077 (3d Cir. 1991), cert. denied, 503 U.S. 985

(1992); see also Lightning Lube, Inc. v. Witco. Corp., 4 F.3d

1153, 1172 (3d Cir. 1993) ("In order to preserve an issue for

judgment pursuant to Rule 50(b), the moving party must timely

move for judgement as a matter of law at the close of the

nonmovant's case, pursuant to Rule 50(a), and specify the grounds

for that motion."). The LMI did not raise their argument in

their Rule 50(a) motion. Therefore we will not address it on

appeal.

We believe the LMI's objection to the district court's

jury instruction was also insufficient to preserve their argument

for appeal under Fed. R. Civ. P. 51. In order to preserve an

objection to a jury instruction, a party must "object[] thereto

before the jury retires to consider its verdict, stating

distinctly the matter objected to and the grounds of the

objection." Fed. R. Civ. P. 51. The purpose of Rule 51 is to

"afford the trial judge an opportunity to correct the error in

her charge before the jury retires to consider its verdict and to

lessen the burden on appellate courts by diminishing the number

of rulings at the trial which they may be called on to review."

Dunn v. HOVIC, 1 F.3d 1371, 1379 (3d Cir.) (in banc), modified,

13 F.3d 58, and cert. denied, 114 S. Ct. 650 (1993). We believe

the LMI's objection did not identify the issue they now argue on

appeal with sufficient clarity to give the trial judge notice of

a possible error in the instruction. Not only was the objection

difficult to understand because of its convoluted grammar, but

the objection did not specify the authority upon which it was

based. Therefore the LMI's objection failed to comply with Rule

51's requirement that an objection "stat[e] distinctly . . . the

grounds of the objection" and did not preserve the LMI's argument

for appeal. See United States v. Zannino, 895 F.2d 1, 17 (1st

Cir), ("Judges are not expected to be mindreaders. Consequently,

a litigant has an obligation to spell out its arguments squarely

and distinctly, or else forever hold its peace."), cert. denied,

494 U.S. 1082 (1990).

"In the absence of a party's preservation of an

assigned error for appeal, we review for plain error, and our

power to reverse is discretionary." Fashauer v. New Jersey

Transit Rail Operations, Inc., 57 F.3d 1269, 1289 (3d Cir. 1995).

Particularly in the civil context, we exercise our power to

reverse for plain error sparingly. Id.; see also United States

v. Carson, 52 F.3d 1173, 1188 (2d Cir. 1995) ("plain error review

is only appropriate in the civil context where the error is so

serious and flagrant that it goes to the very integrity of the

trial."), cert. denied, 116 S. Ct. 934 (1996). Because we do not

believe any mistake in the district court's jury instructions on

the pollution exclusion clause was so fundamental as to amount to

plain error, we decline to exercise our discretion to reverse.

V. Other-Site Evidence

Before trial, Chemical Leaman made a motion in limineto exclude

evidence relating to environmental problems at other

tank truck cleaning facilities it operated. The district court

granted this motion under Federal Rule of Evidence 403 because it

found the probative value of the evidence substantially

outweighed by the danger of unfair prejudice, jury confusion, and

undue waste of time. Chemical Leaman Tank Lines, Inc. v. Aetna

Cas. & Sur. Co., No. 89-1543, slip op. at 4-5 (D.N.J. March 17,

1993).

The LMI argue the district court abused it discretion

in excluding evidence of environmental pollution at other

Chemical Leaman cleaning facilities. They contend the evidence

from other sites tended to establish Chemical Leaman knew its

system of unlined ponds at Bridgeport would cause property

damage, including harm to the groundwater. They also insist that

such evidence should have been allowed to impeach the testimony

of Harry Elston, the designer of all Chemical Leaman's waste

treatment facilities, even if not allowed in their case-in-chief.

We review the district court's rulings on the admissibility of

evidence for an abuse of discretion. See Tait v. Armor Elevator

Co., 958 F.2d 563, 568 (3d Cir. 1992).

The district court noted the evidence the LMI sought to

introduce had limited probative value because its relevance

depended upon an extended chain of reasoning linking it to the

Bridgeport site:

the jury would have to evaluate the various

explanations offered by Chemical Leaman on

why its knowledge of alleged problems at

other sites did not translate into an

expectation or intention that the rinsewater

treatment system in Bridgeport would cause

damage. These explanations include, among

others, whether damage actually occurred at

the other sites; and whether the geological

and other conditions at the other sites were

significantly different or substantially the

same as at Bridgeport. . . . [T]he probative

value of the proffered other site evidence is

remote because it necessarily depends upon

these intermediate findings.

Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., No.

89-1543, slip op. at 4-5 (D.N.J. March 17, 1993). The district

court believed that for the jury properly to evaluate this

evidence, a series of mini-trials relating to each site would

have been required. Such mini-trials, the court concluded, would

cause undue delay and mislead and confuse the jury as to the

ultimate factual issue, namely Chemical Leaman's subjective

intent to cause harm at the Bridgeport site. Id. Moreover, the

district court held that the other site evidence carried with it

a significant danger of unfair prejudice. On the basis of such

evidence, the court noted, the jury might have ignored New Jersey

law on the insured's subjective intent and applied an objective

test assessing whether "Chemical Leaman should have known that

its rinsewater treatment system would cause damage." Id.

In light of the district court's balancing of the

probative value of the proffered evidence against its prejudicial

effect and the potential for jury confusion and delay, we cannot

say the district court abused its discretion in excluding the

other site evidence.

VI. Continuous Trigger

The New Jersey Supreme Court adopted the "continuous

trigger" theory to identify the time of an "occurrence" in Owens-

Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994). The

continuous trigger theory recognizes that "when progressive

indivisible injury or damage results from exposure to injurious

conditions for which civil liability may be imposed, courts may

reasonably treat the progressive injury or damage as an

occurrence within each of the years of a CGL policy." Id. at

995.

The conceptual underpinning of the

continuous-trigger theory, then, is that

injury occurs during each phase of

environmental contamination--exposure,

exposure in residence (defined as further

progression of environmental injury even

after exposure has ceased), and manifestation

of disease.

Id. at 981.

In Owens-Illinois, the New Jersey Supreme Court also

addressed the allocation of losses between multiple insurers and

the insured when the continuous trigger theory establishes an

occurrence in several different policy years. It held "[a] fair

method of allocation appears to be one that is related both to

the time on the risk and the risk assumed," id. at 995, "i.e.,

proration on the basis of policy limits, multiplied by years of

coverage," id. at 993.

Owens-Illinois involved a suit for personal injuries

resulting from exposure to asbestos, but the New Jersey Supreme

Court made clear the continuous trigger theory extends to

property damage claims resulting from long-term environmental

contamination. It concluded, "[p]roperty-damage cases are

analogous to the contraction of disease from exposure to toxic

substances like asbestos. Like a person exposed to toxic

elements, the environment does not necessarily display the

harmful effects until long after the initial exposure." Id. at

983; see also Astro Pak Corp. v. Fireman's Fund Ins. Co., 665

A.2d 1113, 1117 (N.J. Super. App. Div.) (same), certif. denied,

670 A.2d 1065 (N.J. 1995).

Although considering the issue before the New Jersey

Supreme Court's decision in Owens-Illinois, the district court

applied the continuous trigger theory, ruling all of the LMI's

policies from 1960 through 1985 had been triggered by the

environmental contamination at the Bridgeport site, unless a

policy exclusion barred coverage. Chemical Leaman Tank Lines,

Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1153-54. The

district court also held that all insurance policies activated by

a continuing occurrence are jointly and severally liable to

policy limits for property damage resulting from the occurrence.

Id.

On appeal, the LMI contend the New Jersey Supreme Court

would not recognize the continuous-trigger theory. In light of

the intervening decision in Owens-Illinois, this argument is

meritless. On the other hand, the LMI correctly dispute the

district court's holding that all policies are jointly and

severally liable under the continuous trigger theory. Because

the New Jersey Supreme Court rejected joint and several liability

in favor of a risk-based allocation of liability among applicable

insurance policies in Owens-Illinois, we will remand this matter

to the district court for a reallocation of liability between the

insurers and among the triggered policies in accordance with

Owens-Illinois.

The LMI also contend that Chemical Leaman failed to

prove property damage occurred during each policy year from 1960-

70, and therefore the district court erred in finding as a matter

of law that property damage occurred in the 1960-61 policy year,

and in denying their summary judgement motion with respect to the

1961-70 policy years. Under the continuous trigger theory,

exposure to the harm causing agent is sufficient to trigger

potential coverage. Actual manifestation of the injury is not

required, so long as there is a continuous, indivisible process

resulting in damage. Owens-Illinois, Inc. v. United Ins. Co.,

650 A.2d at 981 ("injury occurs during each phase of

environmental contamination--exposure, exposure in residence . .

. and manifestation of disease"); Morrone v. Harleysville Mut.

Ins., 662 A.2d 562, 564 (N.J. Super. App. Div. 1995) (exposure to

gasoline sufficient to trigger occurrence). It is undisputed

that Chemical Leaman discharged contaminated rinsewater into the

unlined ponds and lagoons in every year from 1960-70. Moreover,

the district court found as a factual matter that "contaminated

rinsewater from the three settling ponds started migrating

through the soil to underlying groundwater almost immediately

after beginning pond operation in 1960." Chemical Leaman Tank

Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1148.

Accordingly, the district court correctly concluded as a matter

of law that property damage occurred upon initial exposure in

1960, and should have concluded as a matter of law that property

damage occurred in each policy period from 1961-70. The LMI, of

course, were not prejudiced by the district court's error.

Finally, the LMI assert the district court incorrectly

instructed the jury on the meaning of "property damage" in the

underlying policies. Specifically, they object to the

instruction that "Chemical Leaman may be entitled to coverage

under the defendants' insurance policies for property damage that

occurs during a policy period, but that originally began during

an earlier policy period." They argue Chemical Leaman was

required to prove "actual injury" during each policy period, and

the jury incorrectly equated exposure to pollutants with property

damage. Under the continuous trigger theory, proof of actual

injury in the sense of manifestation of injury is not required.

The jury could find property damage occurred during a policy

period so long as there is proof that a continuous, indivisible

process of injury occurred during that period. The district

court's jury charge was not erroneous.

VII. Late Notice

Chemical Leaman failed notify its insurers of its claim

relating to the Bridgeport facility until 1988, four years after

it entered into a consent decree with the EPA admitting liability

under CERCLA, and even longer after the underlying events that

harmed the environment. The LMI assert this failure violated the

notice provisions of the policies and relieves them from any

obligation to provide insurance coverage.

An insurer that seeks to disclaim coverage based upon

untimely notice from its insured under an occurrence-based policy

must demonstrate that it has suffered "appreciable prejudice."

Cooper v. Government Employees Ins. Co., 237 A.2d 870 (N.J.

1968); Med. Inter Ins. Exchange v. Health Care Ins. Exchange, 651

A.2d 1029, 1033 (N.J. Super. App. Div.), certif. denied, 658 A.2d

728 (N.J. 1995). Lower courts in New Jersey have identified two

relevant factors in determining whether an insurer has suffered

prejudice justifying a denial of coverage: "whether substantial

rights have been irretrievably lost by virtue of the failure of

the insured to notify the carrier in a timely fashion," Morales

v. National Grange Mut. Ins. Co., 423 A.2d 325, 329 (N.J. Super.

Law Div. 1980), and whether "the likelihood of success of the

insurer in defending against the [underlying claim]" has been

adversely affected, id. at 330. Applying this two part test, the

district court found the LMI had suffered no prejudice because

material evidence had not been irretrievably lost, and no

meritorious defense existed to Chemical Leaman's underlying

liability under CERCLA. Chemical Leaman Tank Lines, Inc. v.

Aetna Cas. & Sur. Co., 817 F. Supp. 1136, 1158-59 (D.N.J. 1993).

The LMI contend the district court erred in holding

Chemical Leaman's contractual obligation to notify it of claims

arose, at the earliest, in 1984. They argue that obligation

arose as much as twenty years earlier, when Chemical Leaman

received complaints of environmental pollution from various

regulatory bodies. We disagree. Chemical Leaman could not have

known of the liabilities for which it seeks coverage until the

EPA placed the Bridgeport site on the Superfund National

Priorities List in 1984. Prior New Jersey state actions against

Chemical Leaman had sought only non-monetary injunctive relief.

Because 1984 was the earliest practicable date by which Chemical

Leaman could have given notice to the LMI, the LMI's assertions

that potential valuable evidence was lost prior to 1984 are

irrelevant. While the LMI also argue that evidence was lost, and

witnesses died, between 1984 and 1988, they have not disputed

that "a wealth of relevant documentary evidence remains intact."

Id. at 1159. Moreover, the LMI had extensive opportunities to

depose, and later cross-examine, Harry Elston, the designer of

the Bridgeport site. Accordingly, the district court correctly

found that the LMI had not irretrievably lost any substantial

right due to Chemical Leaman's untimely notice.

In addition, the LMI assert that Chemical Leaman's

failure to give timely notice adversely affected their ability to

defend against the underlying claim. But the district court held

no prejudice had resulted:

Chemical Leaman, as owner and operator of the

Bridgeport facility, is strictly liable under

CERCLA for damages for injury to, destruction

of, or loss of natural resources, as well as

for the reasonable costs of assessing such

damage to natural resources, and all costs of

removal, remediation, or other necessary

response costs. Chemical Leaman's liability

for these damages is retroactive, joint, and

several, and imposed regardless of fault.

Defendants do not contend that a meritorious

challenge exists to the findings, made in the

1985 consent order . . . . Nor do defendants

assert there is a meritorious defense to the

EPA's allegation that the presence of

hazardous substances at the Bridgeport

facility and their migration to surrounding

soils and groundwater constitute a release

within the meaning of section 101(22) of

CERCLA, 42 U.S.C. 9601(222). Accordingly,

the court finds that defendants have not

shown a likelihood of success in defending

Chemical Leaman against claims under CERCLA.

Defendants also ask this court to find

that timely notice would have resulted in a

likelihood that the insurance carriers would

have reached a more favorable settlement.

However, defendants fail to demonstrate what

better arrangement the insurance carriers

would have been able to obtain if they had

assumed Chemical Leaman's defense upon timely

notice.

Id. On appeal, the LMI have not advanced any arguments that

cause us to doubt the district court's conclusion.

Finally, the LMI question whether the New Jersey

Supreme Court would apply the two part Morales test in

determining whether an insurer has suffered appreciable

prejudice. But the LMI have not directed us to any New Jersey

precedent that questions the vitality of Morales. Accordingly,

their contention lacks merit.

VIII. Discovery Misconduct

The LMI assert that Chemical Leaman willfully

suppressed the identity of relevant witnesses and failed to

produce certain documents. After trial, the LMI moved for relief

from the judgment and a new trial under Federal Rule of Civil

Procedure 60(b)(3). The district court denied the motion,

although it believed a "close question" had been presented.

After reviewing the record and the arguments of the parties, we

conclude the district court did not abuse its discretion in

denying the LMI's motion.

IX. Conclusion

For the foregoing reasons, we will affirm the district

court except as to the allocation of liability among applicable

policies. We will remand to the district court for a

reallocation of damages among applicable policies in accordance

with the New Jersey Supreme Court's holding in Owens-Illinois,

650 A.2d at 993-95.

Chemical Leaman Tank Lines v. Aetna Casualty, et al.

Nos. 93-5777/5794

McKEE, Circuit Judge, concurring in part, and dissenting in part.

I must respectfully dissent from part III of the

majority opinion because I do not agree with the majority's

interpretation of Morton International, Inc. v. General Accident

Ins. Co. of America 629 A.2d 831 (N.J. 1993), cert denied, 114 S.

Ct. 2764 (1994). I believe Morton mandates an objective inquiry

in disputes such as this. Because the district court's jury

instruction improperly focused on Chemical Leaman's subjective

intent, I would remand this matter to the district court for

retrial to determine if "exceptional circumstances" objectively

established Chemical Leaman's intent to cause injury, and if so,

whether the extent of the resulting injury was foreseeable.

I. The Evolution of The "Intent" Analysis in

"Occurrence-Based" Policies

Although the majority's analysis has much to commend

it, I believe that a more thorough discussion of the evolution of

New Jersey's law in this area is necessary to fully understand

Morton. An appreciation of the development of that law casts a

different light upon the portions of Morton that control our

analysis.

A. Atlantic Employers Ins. Co. v. Tots & Toddlers Pre-

School Day Care Center, Inc.

Our analysis must begin with, and be guided by a

discussion of Atlantic Employers, because it used language that

the court would later cite and which I believe has caused my

colleagues to take an incorrect analytical turn. In Atlantic

Employers, parents of children who had been sexually abused sued

the owners and operators of a day care center where the abuse

purportedly took place. The company that insured the center then

brought a declaratory judgment action to determine its obligation

to defend or indemnify the owners for any recovery the plaintiffs

might win in their personal injury suits based upon negligence

and intentional tort.

The day care center's insurance policy insured against

damage resulting from an "occurrence." An "occurrence" included

injury or damage that was "neither expected nor intended by the

insured." Atlantic Employers, 571 A.2d at 303. The policy also

contained an exclusion for violations of penal statutes or

ordinances. The Appellate Division first noted the general rule

that "coverage does exist . . . 'for the unintended results of an

intentional act, but not for damages assessed because of an

injury intended to be inflicted.'" Id. (citation omitted). The

court stated:

There seems to be no dispute that if . . .

Robert Knighton sexually molested the

children, then he had the requisite level of

intent to be found guilty of sexual

molestation, based on the criminal statutes

of this State. But appellants insist that

this does not necessarily mean that he

intended the damages or injuries incurred by

the children as a result of such actions. . .

. Further, they insist that the existence of

such intent cannot automatically be imputed

to the other insureds under the policy so as

to exclude coverage. . . . We reject this

position.

Id. The court then examined cases from other jurisdictions in

order to analyze the insureds' argument in context with

developing law. The court noted that some jurisdictions employed

a subjective test in determining insurance coverage under these

circumstances, and some relied upon an objective test. The court

concluded that public policy mandated an objective approach.

As a matter of public policy

and logic we conclude that the

better rule warrants application of

the objective approach. A

subjective test suggests that it is

possible to molest a child and not

cause some kind of injury, an

unacceptable conclusion. . . .

. . . It is simply against

public policy to indemnify a person

for a loss incurred as a result of

his[/her] own willful wrongdoing.

Id. at 304. Thus, the court held that policy, as well as logic,

required an "objective approach" as an exception to the general

rule.

B. Prudential Property & Casualty Ins. Co. v. Karlinski

Within a year and a half of Atlantic Employers, the

Appellate Division decided Karlinski. There, insured's 13-year

old son (James) had engaged in a prearranged fight with a 14-year

old (Mark) in which Mark had fallen and suffered a broken hip.

The court was asked to determine if a homeowner's policy

obligated the plaintiff insurer to defend and indemnify the

defendant. The policy excluded coverage for "'bodily injury . .

. which is expected or intended by the insured.'" Karlinski, 598

A.2d at 919. The motion court granted the insurer's motion for

summary judgment noting that the son of the insured "'instigated

the fight and threw the first blow and started the fight. As far

as I am concerned, it is intentional conduct and the coverage

doesn't apply.'" Id. The motion judge also concluded that "a

broken 'leg' [Mark actually suffered a broken hip] was not an

extraordinary consequence of the fight." Id.

On appeal the court aptly noted, "[t]he appeal requires

that we again explore the frequently visited but still unclearly

charted area of liability coverage for intentional torts which

produce unintended results." Id. The court went on to observe:

Our review of New Jersey

authorities satisfies us that . . .

it is difficult to ascertain a

clear weight of authority on the

subject of liability insurance

coverage for unintended results of

intentional acts. Differing

combinations of variables, such as

the language of the exclusion

clause, the nature of the harm and

its relationship to the intentional

act, and the availability of relief

to the injured party, appear to

influence the extent to which our

decisions have inquired into the

nature of the intent.

Id. at 921. The court then stated:

[W]e hold that, when a coverage

exclusion is expressed in terms of

bodily injury expected or intended

by the insured, and where the

intentional act does not have an

inherent probability of causing the

degree of injury actually

inflicted, a factual inquiry into

the actual intent of the actor to

cause that injury is necessary.

Id.

C. Voorhees v. Preferred Mutual Ins. Co.

In Voorhees, a parent was sued for statements she had

made at a public meeting where she had questioned the competency

of her child's teacher. The teacher claimed she had suffered

emotional distress and mental anguish as a result of the parent's

conduct. The teacher alleged that the parent had acted

"willfully, deliberately, recklessly and negligently," in making

false accusations that had damaged the teacher professionally,

and subjected her to public ridicule. Voorhees, 607 A.2d at

1257. Medical evidence established that the emotional distress

the teacher complained of had resulted in "'an undue amount of

physical complaints,' including 'headaches, stomach pains,

nausea, . . . [and] body pains.'" Id. at 1258.

The parent had a homeowner's policy that provided

coverage for liability arising from "bodily injury" caused by an

"occurrence." The policy defined an "occurrence" as an

"accident," and excluded coverage for bodily injury intentionally

caused by the insured. The insurer relied upon this language and

refused to defend the insured against the teacher's suit,

asserting that the claims were based on the insured's intentional

act and that the complaint sought damages for a "personal" rather

than a "bodily" injury. The parent eventually sued her carrier

for damages resulting from its refusal to provide a defense and

indemnify her. Both parties moved for summary judgment.

The trial court granted the insurer's motion ruling

that the complaint did not allege the kind of "bodily injury"

that would be covered under the policy. A divided panel of the

Appellate Division reversed.

The New Jersey Supreme Court noted that the duty to

defend under the policy was not triggered "absent a potentially-

coverable occurrence." Id. at 1262. In assessing whether the

insured's statements constituted a potentially coverable

occurrence, the court first held that "the accidental nature of

an occurrence is determined by analyzing whether the alleged

wrongdoer intended or expected to cause an injury." Id. at 1264.

As to what constitutes an "intent to injure," the court noted

that the general trend in the law appeared to require an inquiry

into the actor's subjective intent to cause injury:

We adhere to the prevalent New

Jersey rule and hold that the

accidental nature of an occurrence

is determined by analyzing whether

the alleged wrongdoer intended or

expected to cause an injury. If

not, then the resulting injury is

"accidental," even if the act that

caused the injury was intentional.

That interpretation prevents those

who intentionally cause harm from

unjustly benefitting from insurance

coverage while providing injured

victims with the greatest chance of

compensation consistent with the

need to deter wrong-doing. It also

accords with an insured's

objectively-reasonable expectation

of coverage for

unintentionally-caused harm.

Even if the operative question

is the intent to injure rather than

to act, the question of what

constitutes an "intent to injure"

remains. The key issue is whether

the court must find a subjective

intent to injure, or whether it can

presume an intent to injure from

the objective circumstances. In

that regard, our inquiry parallels

that taken in interpreting policy

exclusions for intentional acts.

Those exclusions preclude coverage

for injuries expected or intended

by the insured. Case law

interpreting those policy

exclusions, in addition to that

interpreting the definition of

"occurrence," is thus relevant.

The general trend appears to

require an inquiry into the actor's

subjective intent to cause injury.

Even when the actions in question

seem foolhardy and reckless, the

courts have mandated an inquiry

into the actor's subjective intent

to cause injury.

Id. at 1264.

The court, however, recognized that:

When the actions are

particularly reprehensible, the

intent to injure can be presumed

from the act without an inquiry

into the actor's subjective intent

to injure. That objective approach

focuses on the likelihood that an

injury will result from an actor's

behavior rather than on the

wrongdoer's subjective state of

mind.

Id. at 1265. The Voorhees court reasoned that the insured's

actions there were a far cry from the type of egregious behavior

that had justified an objective approach in Atlantic Employers.

The court held that "[a]bsent exceptional circumstances that

objectively establish the insured's intent to injure," the

insured's subjective intent to injure must govern. Id. The

Voorhees court's reference to "exceptional circumstances" was

clearly intended to recognize the need for an objective test in

the specific circumstances it confronted in Atlantic Employers,

and it foreshadowed the test it would proclaim in Morton.

Although the court in Voorhees felt that there was

little evidence of a subjective intent to injure the teacher, the

court never had to address this question because the plaintiff

had also alleged that the insured had acted negligently. The

allegation of negligence presupposed the absence of a subjective

intent to injure and stated a claim for a potentially coverable

occurrence thus triggering the insurer's duty to defend. See Id.

Accordingly, the court affirmed plaintiff's award of summary

judgment.

D. SL Industries, Inc. v. American Motorists Ins. Co.

In SL Industries, an employee had filed suit against

his employer alleging age discrimination and common law fraud as

a result of the employer eliminating his position. The employee

sought recovery for the alleged bodily injury that resulted. The

employer was insured under a policy in which the insurer agreed

to defend and indemnify the employer for all sums resulting from

a bodily injury caused by an "occurrence." "Occurrence" was

defined as an "'accident . . . which results in bodily injury . .

. neither expected nor intended from the standpoint of the

insured.'" SL Industries, 607 A.2d at 1269-70.

The employer settled the suit and then brought a

declaratory judgment action against its insurer to establish its

right to indemnification. The Law Division granted the insurer

summary judgment, but the Appellate Division reversed, holding

that although intended harm was not covered under the policy, the

policy did provide coverage for the unforeseen results of

intentional conduct. The court then remanded the case to the Law

Division to determine whether the employee's emotional distress

had been intended or whether it was foreseeable.

On appeal, the New Jersey Supreme Court had to

determine if the general intent to injure that is inherent in a

claim of fraud necessarily incorporates the intent to cause the

specific injury (emotional distress), or whether proof of a

subjective intent to cause the specific injury is required. Id.at 1277-

1279. The court began its analysis of the required

intent by examining the differing approaches taken by earlier

cases.

Our courts have taken

different approaches to the

question of how specifically the

insured must have intended the

resulting injury. Employing the

"Lyons" test, some courts have

held that a subjective intent to

injure ends the inquiry and

precludes coverage. Under that

approach, if there is a subjective

intent to injure then any injury

that results from the action will

be deemed "intentional," even if

the injury is different from or

greater than that intended. . . .

On the other hand, some courts

have indicated that to preclude

coverage if the injury that

actually occurred was not a

probable outcome of the wrongful

act is unfair [discussing

Karlinski]. . . . However, in those

circumstances in which the facts

indicate that the acts in which the

insured engaged were unlikely to

result in the degree or type of

injury that in fact occurred, an

inquiry into the subjective intent

to cause the resulting injury is in

order.

A third approach is even more

likely to lead to coverage. In

Hanover Insurance Group v. Cameron,

the court rejected the insurance

company's argument that to preclude

coverage only the intent to harm

need be demonstrated. The court

indicated that "intent" would only

be found when the actual

consequences that resulted from the

act were intended, or when the

actor was substantially certain

they would result.

To determine which approach to

adopt, we refer to the general

principles underlying the

interpretation of insurance-policy

provisions involving intentional

conduct.

The Lyons test . . . precludes

coverage in some cases in which an

insured could reasonably expect

coverage. When the injury caused

significantly exceeds the injury

intended or expected and is an

improbable consequence of the

wrongful act that caused it, then

it is hard to characterize the

injury as truly 'intentional.' The

injury, from the standpoint of the

insured, is 'accidental,' and could

thus be deemed an occurrence.

Moreover, if the tortfeasor did not

intend or expect to cause the

resulting harm, denying coverage

will not deter the harmful conduct.

In that case, there is no policy

justification for denying the

victim the possibility of

additional compensation. As the

Karlinski court noted, precluding

coverage 'even if the actual harm

far exceed[s] the consequences

which might reasonably be expected

by the insured . . . diminishes

the injured party's realistic

possibility of recovery more than

it impacts upon the insured

tortfeasor.'

On the other hand, an approach

allowing coverage whenever the

adverse consequences intended by

the tortfeasor did not precisely

match the actual consequences of

their wrongful actions undermines

the basic policy against

indemnifying wrongdoers.

We believe the Karlinski test

presents the most reasonable

approach. . . . Assuming the

wrongdoer subjectively intends or

expects to cause some sort of

injury, that intent will generally

preclude coverage. If there is

evidence that the extent of the

injuries was improbable, however,

then the court must inquire as to

whether the insured subjectively

intended or expected to cause that

injury. Lacking that intent, the

injury was 'accidental' and

coverage will be provided.

Id. at 1277-78 (citations omitted).

Accordingly, the court affirmed the Appellate

Division's judgment remanding the case to the Law Division to

determine whether the employee's emotional distress had been a

probable outcome of the insured's general intent to injure, and

if not, whether the insured had the subjective intent to injure

the employee. See Id. at 1279.

E. Morton International, Inc. v. General Accident Ins.

Co.

Finally, in Morton, the New Jersey Supreme Court had to

apply the law of "occurrence-based" insurance policies to the

very different realm of injuries to the environment. There, the

insured, Morton International, sued primary and excess CGL

insurers seeking reimbursement for costs incurred in defending a

suit filed by the Department of Environmental Protection (DEP),

as well as indemnity for cleanup and remediation expenses

resulting from the DEP proceeding. Morton, 629 A.2d at 834-835.

Morton's predecessors, including Ventron Corporation, had

polluted a body of water known as Berry's Creek to such an extent

that "[f]or a stretch of several thousand feet, the concentration

of mercury in Berry's Creek [was] the highest found in fresh

water sediments in the world." Id. at 834. Morton's claims were

derived from Ventron as well as other prior owners of the land.

See Id.. The DEP sued Ventron and other prior owners to compel

them to pay for remediating the pollution of Berry's Creek and

the surrounding area. The environmental damage had been caused

by discharges from a mercury-processing plant operated for forty

years by the various defendants. See New Jersey Department of

Environmental Protection v. Ventron Corp., 468 A.2d 150 (N.J.

1983).

In the underlying suit to establish liability, the New

Jersey Supreme Court affirmed the Appellate Division's judgment

holding the defendants jointly and severally liable. The court

reasoned that the discharge of mercury constituted an abnormally

dangerous activity, and imposed strict liability against all

defendants. See Id. at 160.

Morton then commenced a declaratory judgment action to

determine its right to indemnification from the various insurers

that had provided primary and excess coverage while the mercury-

processing plant was in operation. The primary issue that the

court had to determine was whether the pollution resulted from an

"occurrence" under the applicable policies. To qualify as an

"occurrence" the environmental damage must not have been

"expected nor intended from the standpoint of the insured."

Morton, 629 A.2d at 836. The trial court granted the insurer's

motion for summary judgment. The Appellate Division reversed

holding that the trial court had "focused improperly on the

manner in which the injury had been caused and had erroneously

concluded that the policy did not provide coverage for the

unexpected result of a deliberate act." Id. at 877 (citation

omitted).

The Appellate Division also relied upon Atlantic

Employers to conclude that "'[t]he intentional character of the

act is the basis for the inference that the insured either

intended or was manifestly indifferent to the prospect of

injury.'" Id. (citation omitted). In reaching this conclusion,

the Appellate Division (without the benefit of either Voorhees or

SL Industries) noted that the "'substantial environmental

pollution over a long period'" together with the knowledge by

Morton's predecessors that "'the substance being discharged . . .

was toxic and harmful'" rendered unacceptable a conclusion that

no harm had been expected." Id. (citation omitted).

On appeal to the New Jersey Supreme Court, Morton

argued that the Appellate Division's reliance on Atlantic

Employers improperly equated the discharge of pollutants with

child molestation as acts that could be deemed intentionally

injurious as a matter of law. Morton further argued that "the

Appellate Division improperly invoked an objective standard for

determining whether harm had been intended or expected under the

`occurrence'-based policies, ignoring the long-standing principle

that coverage exists for the unintended results of intentional

acts." Id.

The court began its analysis by acknowledging the

unique circumstances that surround issues of insurance coverage

for environmental damage.

In applying our holding in

Voorhees to claims seeking coverage

for property-damage caused by

environmental pollution under

occurrence-based CGL policies, we

acknowledge the impracticality of

adherence to the general rule that

"we will look to the insured's

subjective intent to determine

intent to injure." Although

insureds may concede that

pollutants -- even known pollutants

-- had been intentionally

discharged, those insureds are

virtually certain to insist that

the resultant harm was unintended

and unexpected. Absent "smoking

gun" testimony from a disgruntled

employee, proof of subjective

intent to cause environmental harm

will rarely be available in

[environmental insurance] coverage

litigation.

We noted in Voorhees that an

alternative to proof of subjective

intent to injure existed in those

cases in which the insured's

"actions are particularly

reprehensible, [so that] the intent

to injure can be presumed from the

act without an inquiry into the

actor's subjective intent to

injure." We cited Atlantic

Employers . . . as illustrative of

conduct that was so inherently

injurious as to warrant the

conclusion that intent to injure

could be presumed. . . . We are

unpersuaded that

environmental-pollution litigation

should generally be included in

that category of cases, typified by

Atlantic Employers, in which

reprehensible conduct justifies a

presumption that injury was

intended.

Id. at 879 (citations omitted) (emphasis added).

Instead of relying upon such an unwarranted presumption

and thereby extending the "public policy and logic" of Atlantic

Employers, the court called for an individualized inquiry based

upon the facts of each case.

[I]nsureds held responsible for

remediation of environmental

pollution vary significantly in

their degree of culpability for the

harm caused by pollutant

discharges. A general rule in

environmental-pollution coverage

litigation that would permit intent

to injure to be presumed simply on

the basis of a knowing discharge of

pollutants would be unjustified.

Instead, we hold that in

environmental-coverage litigation a

case-by-case analysis is required

in order to determine whether, in

the context of all the available

evidence, "exceptional

circumstances [exist] that

objectively establish the insured's

intent to injure."

Id. at 879-80 (citation omitted) (emphasis added). The term

"exceptional circumstances" had been used in Voorhees. As noted

above, there, the court stated that, absent exceptional

circumstances, the subjective intent of the insured controlled

whether there was an "occurrence" under an occurrence-based

insurance policy. In Voorhees, the court had stated that it was

adopting the majority view that requires proof of a

transgressor's subjective intent. Voorhees at 607 A.2d at 1255.

The court, however, had also noted that "[w]hen the

actions are particularly reprehensible, the intent to injure can

be presumed from the act without an inquiry into the actor's

subjective intent to injure." Id. at 1265. In the context of

Atlantic Employers, the reprehensible actions of child

molestation did indeed "'[a]s a matter of public policy and logic

. . . warrant[] application of the objective approach.'" Id.

Then, the court used the language that separates me from my

colleagues. The court added: "[a]bsent exceptional circumstancesthat

objectively establish the insured's intent to injure, we

will look to the insured's subjective intent to determine intent

to injure." Id. (emphasis added).

III. Morton Applied to the Instant Dispute

In Morton, the court was careful to distinguish the

policy considerations in pollution coverage cases from those that

dictated an objective approach in all cases of child molestation.

"We are unpersuaded that environmental-pollution litigation

should generally be included in that category of cases, typified

by Atlantic Employers, in which reprehensible conduct justifies a

presumption that injury was intended." Morton, 629 A.2d at 879.

This does not mean, as the majority suggests, that the alleged

polluter's subjective intent controlled. It only means that the

act of polluting is not so reprehensible that "public policy and

logic" require a presumption that the resulting harm is intended

as a matter of law. Rather, the circumstances surrounding the act

of polluting must be examined in each case to determine if, in

that particular situation, they objectively establish an intent

to harm the environment, thereby negating an occurrence.

The court then listed those circumstances that would

objectively establish this intent.

Those circumstances include the

duration of the discharges, whether

the discharges occurred

intentionally, negligently, or

innocently, the quality of the

insured's knowledge concerning the

harmful propensities of the

pollutants, whether regulatory

authorities attempted to discourage

or prevent the insured's conduct,

and the existence of subjective

knowledge concerning the

possibility or likelihood of harm.

Id. at 880. Accordingly, I cannot agree when my colleagues

state, "[w]e believe the New Jersey Supreme Court designed the

'exceptional circumstances' exception to apply only to egregious

conduct." Majority Op. at 27. One can only determine if conduct

is egregious by examining the "exceptional circumstances" in

which it occurred. Indeed, an examination of those circumstances

may well establish that a particular polluter's conduct was not

egregious at all.

The majority's error is reflected in what the court in

Morton did. It did not require proof of the subjective intent to

pollute on the part of the insured or its predecessors. Rather,

it examined the record and determined that the circumstances

before it objectively established an intent to harm. "In

determining whether in the context of this record the trial court

properly concluded, as a matter of law, that Morton's

predecessors had intended or expected environmental injury, we

focus on those factors [i.e. the "exceptional circumstances"]

that we previously have identified to be significant." Morton,

629 A.2d at 882. The court then noted the duration of the

discharge, the intentional nature of the discharge, the insured's

knowledge of the likely environmental harm, and the history of

"stonewalling." In conclusion, the court noted that its

examination of these circumstances confirmed that "damage

qualitatively comparable to that found to exist . . . must have

been anticipated by Morton's predecessors on the basis of . . .

prolonged knowledge of and avoidance of compliance with

complaints by regulatory officials." Id. at 884.

This is consistent with the court's pronouncement that

the mere fact of polluting, even to the egregious extent present

in Morton, was not by itself, such reprehensible conduct that it

required a conclusive presumption of an intent to harm.

Moreover, the "exceptional circumstances" include "the existence

of subjective knowledge concerning the possibility or likelihood

of harm." However, subjective knowledge is not used to

definitively determine if the insured expected or intended

environmental damage. Rather, the insured's subjective knowledge

is but one of those "exceptional circumstances" that determine if

an "occurrence" has taken place. It is not the start and finish

of that inquiry as the majority's reasoning suggests.

The Morton court concluded that exceptional

circumstances established as a matter of law that there had been

no occurrence as Morton's predecessors had to have expected the

pollution they caused. The objective nature of this conclusion

is evident because the court clearly stated that is was not

deciding whether Morton's predecessors "intended" (i.e.

"subjectively") the damage:

Without determining that such

damage was intended, we find

inescapable the conclusion that

damage qualitatively comparable to

that found to exist in the Ventron

litigation must have been

anticipated by Morton's

predecessors on the basis of their

prolonged knowledge of and

avoidance of compliance with

complaints by regulatory officials

that the company was discharging

unacceptable emissions, including

mercury compounds, into Berry's

Creek. Based on that conclusion,.

. . as a matter of law the property

damage to Berry's Creek and the

surrounding area was not caused by

an "occurrence" within the meaning

of the term in the various CGL

policies.

Id. at 884 (emphasis added).

In adopting prior law (particularly the holding in

Karlinski) to environmental insurance coverage, the court in

Morton noted that subjective evidence of the polluter's intent

did not become relevant merely because the extent of pollution

was greater than anticipated.

Turning to the question

whether environmental injury was

intended or expected, we first

observe that although the magnitude

of the damage to Berry's Creek and

the surrounding areas may exceed

any intention or expectation

attributable to Morton's

predecessors, we do not consider

that differences in harm relating

to the severity of environmental

damage give rise to a finding of

"improbability" of harm that

invokes the need for evidence of

subjective intent. Whether

Morton's predecessors anticipated

that discharges of untreated

effluent on the plant site and into

Berry's Creek for more than forty

years would cause environmental

harm of the severity described . .

. hardly demonstrates that the

extent of the injury was

"improbable." The holding in SL

Industries was based on the

Appellate Division's ruling in

Karlinski, that in a coverage

action arising from a fight between

two young teenagers in which one

sustained a broken hip, a factual

issue of subjective intent was

presented because of the inherent

improbability that the skirmish

would result in a hip fracture. No

such inherent "improbability" can

be ascribed to the environmental

damage attributable to Morton's

predecessors.

Id. at 882 (citations omitted).

The majority notes that the district court held that

Chemical Leaman's actions were not so

reprehensible as to justify the presumption

of an intent to cause property damage under

the "exceptional circumstances" exception. It

concluded that Chemical Leaman was not

"throwing toxic waste out into the meadow-

lands" as Morton and its predecessors had

done; rather, it had "designed and built the

facility to prevent [harm to the

environment]."

Majority Op. at 20. (emphasis added). The "exceptional

circumstances" test, however, is not an "exception," but the rule

that is to be applied in environmental coverage cases. In

addition, although Chemical Leaman was not reducing Berry Creek

to one of the world's great environmental disasters as was the

case in Morton, there is nevertheless testimony from which a

reasonable jury could conclude that "exceptional circumstances"

objectively establish Chemical Leaman's intent to harm the

environment.

The majority holds that after Morton, a court can

determine that an insured is entitled to indemnification under an

occurrence-based policy as a matter of law absent "exceptional

circumstances." My colleagues suggest that "exceptional

circumstances" merely

define when no reasonable jury could find the

insured did not intend or expect to cause

property damage because objective

circumstances--evidence of prolonged,

intentional, or flagrant discharges of known

pollutants in the face of regulatory

disapproval--establish that the insured must

have intended property damage. The presence

of "exceptional circumstances" requires a

court to enter judgment as a matter of law.

Their absence, of course, does not prevent a

jury from finding an insured "expected" or

"intended" to cause property damage.

See Majority Op. at n.7. However, Morton did not quantify the

factors it identified as objectively establishing intent to

pollute. Rather, the "case-by-case analysis" was necessary for

the fact finder to make an individualized determination of

whether the nature of those factors in a particular case

justified denying coverage in lieu of the limitations contained

in the insurance contract. Thus, I agree that the absence of the

factors detailed at footnote 7 of the majority opinion "doe[] not

prevent a jury from finding an insured 'expected' or 'intended'

to cause property damage," but not for the reason stated by the

majority. Rather, it is because "subjective knowledge concerning

the possibility or likelihood of harm" is one of the "exceptional

circumstances" that a jury must also consider. Accordingly, if an

insured knows that its actions will most likely harm the

environment, just one, brief, discharge of a known pollutant by

one who had otherwise complied with regulatory authorities could

preclude coverage under an occurrence-based insurance policy.

The majority argues that Morton cannot be read as

creating an objective test for intent because an insured who

"intentional[ly] discharges a known pollutant generally intends

'some sort of harm,' however de minimis, and the harm that

actually results is usually a probable result of the discharge."

Thus, (the majority suggests) an objective test "would result in

a general rule precluding [all] coverage based on the knowing

discharge of a pollutant." Majority Op. at 23. That is,

however, precisely why it is necessary to use "exceptional

circumstances" to prove intent to harm objectively in pollution

cases. If the resulting inquiry establishes that the insured did

objectively "intend" to harm the environment, the inquiry into

the foreseeability of the actual damage makes perfect sense.

The majority expresses a further concern that reading

Morton to require anything other than subjective intent "would be

akin to a negligence standard [,and] [i]f negligent acts did not

fall within the definition of a covered occurrence, then there

would be no point in purchasing comprehensive general liability

insurance." Majority Op. at 18 (citing Pittston Co. v. Allianz

Ins. Co., 905 F. Supp. 1279, 1301 (D.N.J. 1995)). A properly

guided inquiry into "exceptional circumstances," however, does

not equate with a negligence standard. It assigns the cost of

environmental remediation not based upon negligence, but upon the

"degree of culpability for the harm caused by pollutant

discharges." Morton, 629 A.2d at 879.

IV. The Exceptional Circumstances of The Bridgeport Site.

Throughout the time the pond and lagoon system was in

use there were repeated discharges of waste through the overflow

pipe to the adjacent swamp. In fact, the very purpose of the

overflow pipe was to allow for these discharges. An Inspector

observed the discharge from the last pond during a September 12,

1961 visit and thereafter observed similar discharges on about

half of his visits to the Bridgeport site. In November 1968,

water pollution inspectors from the New Jersey Department of

Health again observed the discharge from the overflow pipe in the

last lagoon. Although it was characterized as a sporadic

"trickle", an engineer employed by Chemical Leaman (Elston), and

at least one other employee admitted that the overflow pipe did

discharge into the swamp throughout the time the pond and lagoon

system was in use. Moreover, there was evidence that by 1974,

the path of this "trickle" from the last impoundment could "be

easily seen by looking for a 75-foot wide lane of dead trees" in

the swamp.

The Morton court concluded that the discharge of

pollutants there was intentional once the polluters knew it was

unacceptable. Morton, 629 A.2d at 882. There, the repeated

demands of the Department of Health that the owner halt the

discharges or install adequate treatment facilities were

regularly ignored. Id. Here, the intentional nature of the

discharge is also evident. Chemical Leaman intentionally

designed its waste treatment system so that the overflow pipe

would discharge into the swamp. Furthermore, even under the

subjective framework that the jury was given to review the

evidence, it concluded that Chemical Leaman's releases were

intentional. That conclusion is supported by the record and

Chemical Leaman cannot now successfully argue that the discharges

were anything but intentional. Indeed, Chemical Leaman's denials

illustrate the concern expressed in Morton that a polluter may

admit to the discharge, but would never admit to intentionally

polluting the environment. That concern could only be

satisfactorily addressed by the objective test that the majority

today rejects.

Here, as in Morton, the intentional nature of the

discharge is confirmed by Chemical Leaman's continued evasion of

the State's demands to stop the discharge. The unacceptable

condition of the discharge from the overflow pipe into the swamp

was brought to Chemical Leaman's attention by a governmental

inspector in September of 1961. Although Chemical Leaman

installed three more lagoons in an attempt to alleviate this

situation, the overflow pipe remained a staple of the Bridgeport

site and in 1968, Chemical Leaman was still discharging wastes

into the lagoon.

State officials regularly informed Chemical Leaman that

the effluent flowing from the overflow pipe constituted an

unacceptable discharge into the swamp. In 1961, FGW told

Chemical Leaman that the discharge was an unacceptable condition

and that the resulting pollution should be stopped within a year.

Subsequently, in 1968, the NJDOH told Chemical Leaman that "the

waste emanating from the lagoon is highly pollutional and [that]

immediate measures [should] be taken to eliminate this discharge

or to sufficiently treat the waste prior to discharge" and in

1969, Chemical Leaman was ordered to find an alternative method

of waste treatment.

Chemical Leaman argues that it was not aware of the

harmful propensities of its pollutants because it was not

discharging pure chemicals, but rather "trace amounts" of these

chemicals in highly diluted rinsewater. The uncontroverted

evidence, however, clearly showed that at least by 1968, Chemical

Leaman was alerted that the discharge into the swamp was "highly

pollutional" even in its diluted form. Furthermore, as noted

above, however diluted the discharge may have been, it was

sufficiently potent to sculpt the 75-foot wide path of dead trees

into the environmental landscape it touched.

It is certainly true that Chemical Leaman is more

sympathetic than the polluters in Morton, who engaged in a

deliberate pattern of "stonewalling" characterized by promises of

compliance that went unfulfilled. Morton, 629 A.2d at 882. As

the majority notes, Chemical Leaman apparently thought that its

natural filtration system would reduce the danger of pollution.

In fact, it was designed to do just that. Nevertheless, the

record here could clearly support a finding that Chemical Leaman

was "stonewalling" regulatory authorities. There is a pattern of

unfulfilled promises of compliance to state agency requests to

abate the polluting discharge.

Even after officials caught Chemical Leaman discharging

into the swamp in 1968 and ordered it to find a better way to

treat wastes in 1969, Chemical Leaman did not improve the waste

treatment system until the summer of 1975, when it entered into a

disposal contract with Du Pont. In the interim, 40 to 50 million

gallons of contaminated waste water had been processed using the

same treatment system.

Thus, from 1961, when the State first notified Chemical

Leaman that the discharge to the swamp was unacceptable, until

1975, when Chemical Leaman began off-site disposal at the Du Pont

plant, Chemical Leaman responded to regulatory agencies with

promises of compliance that went unfulfilled. Chemical Leaman

was informed that the discharge to the swamp was unacceptable.

Although the state did not articulate why the discharge was

improper, it is difficult to imagine what other reason Chemical

Leaman could have attributed to the state's concern if not the

impact of the discharge upon the environment. It is clear from

Chemical Leaman's own argument in this regard that it never

attempted to ascertain the reason for the State's concern.

Nevertheless, assuming arguendo that in 1961 Chemical

Leaman could not ascertain that its system was damaging the

environment, there is no dispute that Chemical Leaman learned

that the discharges to the swamp were likely to cause harm as of

November of 1968, when it was expressly told that "the waste

emanating from the lagoon is highly pollutional and [that]

immediate measures [should] be taken to eliminate this discharge

or to sufficiently treat the waste prior to discharge." Even

more telling is Harry Elston's concession at trial that both at

the time of FGW's inspections in 1961 and 1962, and at the point

when NJDOH issued its order in 1969, he knew that Chemical

Leaman's discharge into the swamp was causing some damage to the

swamp. Finally, it should be noted that Chemical Leaman never

obtained the required permits for its waste disposal cite. Thus,

it took regulatory authorities even longer to discover the

"highly pollutional" discharge. Once the cite was discovered,

Chemical Leaman's compliance with regulatory agencies was less

than exemplary.

Chemical Leaman discharged approximately 100 million

gallons of contaminated waste water into its unlined ponds and

lagoons for the fifteen years that the Bridgeport site was in

operation. The bottom of those lagoons was only two and a half

feet above the groundwater, and the insurers' expert testified

that the soil, groundwater, and swamp contamination was the

probable result of this discharge. That testimony was not

refuted by Chemical Leaman's expert even though Chemical Leaman

argues on appeal that their unlined treatment system was the

state of the art.

I cannot say that such a course of conduct does not

negate the existence of an occurrence under New Jersey law.

V. Conclusion

Courts that have addressed the issue of the kind of

intent that would negate insurance coverage under an occurrence-

based policy have been guided by certain policy considerations.

Courts have attempted to maximize the possibility that victims be

compensated for their injuries while minimizing indemnification

of the wrongdoer. See Voorhees, 607 A.2d. at 1264. They have

also been concerned that the law in this area deterred

wrongdoers. See SL Industries, 607 A.2d at 1278. Looking to

"exceptional circumstances" to objectively determine intent to

harm the environment does just that. To the extent that those

circumstances suggest that the insured did not intend

environmental harm, and cooperated with regulatory authorities to

avoid it, the insured will likely be indemnified for the cost of

remediation under an occurrence policy even where it discharged a

known pollutant. To the extent that those circumstances

establish a protracted and/or deliberate discharge, however, a

disregard for the environment, knowledge of the properties of a

pollutant, "stonewalling" regulatory agencies and the insured's

subjective knowledge of the possibility of harm; "public policy

and logic" require that the insured, and not its insurers, pay

the cost of environmental cleanup. That allocation of cost deters

persons from closing their eyes to the environmental impact of

their activities.

Furthermore, this is consistent with the long-standing

doctrine of enforcing insurance contracts in a manner that is

consistent with the reasonable expectations of the parties. An

insured cannot reasonably expect to escape the "occurrence-based"

limits on its right to indemnification where "exceptional

circumstances" establish its culpability for pollution.

Similarly, an insurer should be able reasonably to expect that it

will not be required to reimburse such a polluter for the

environmental damage so callously caused.

This is the result the New Jersey Supreme Court sought

to promote in Morton. Yet, the rule we adopt today will give

polluters comfort and allow them to discharge pollutants in

relative safety because of the obvious impracticality of

establishing their subjective intent to harm the environment.

Since the New Jersey Supreme Court recognized the impracticality

of a subjective approach in environmental coverage disputes, I

find it difficult to believe that it intended this result. The

majority concludes that the New Jersey Supreme Court established

a subjective standard in environmental insurance disputes while

proclaiming such a rule to be so impractical as to be unworkable.

As a result, our holding places insurers in the impossible

situation the New Jersey Supreme Court sought to avoid by its

thoughtful pronouncement of an objective "exceptional

circumstances" test in disputes over liability for cleaning up

pollution.