# Appendix — Jackson v. Chemical Leaman Tank Lines, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_1669%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1996 - **Citation:** 519 U.S. 994 ## Text A-l 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 A-2 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 CGMPANY 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 LTS.; 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 A-3 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 (D.C. Civ. No. 89-cv-1543) SUR PETITION FOR REHEARING Present: BECKER, STAPLETON, MANSMANN, SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS, McKEE and SAROKIN, Circuit Judges. The petition for rehearing filed by appellants Robin An- thony Gildart Jackson, an Underwriter at Lloyds, London, et al. in the above-entitled case having been submitted to the judges who participated in the decision of this Court and to all the other available circuit judges of the circuit in regular ac- tive service, and no judge who concurred in the decision having asked for rehearing, and a majority of the circuit judges of the circuit in regular service not having voted for rehearing, the petition for rehearing by the panel and the Court in banc, is denied. Judge McKee would grant rehearing. BY THE COURT, /s/ Scirica CIRCUIT JUDGE Dated: July 22, 1996 A-4 CHEMICAL LEAMAN TANK LINES, INC. Vv. The AETNA CASUALTY AND SURETY COMPANY; and Certain Underwriters At Lloyds, London, subscrib- ing 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 rep- resentative Underwriter at Lloyds, London for certain subscribing Underwriters at Lloyds, London who sub- scribed 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 Interna- tional Insurance PLC, Formerly Known as Allianz In- ternational Insurance Company Ltd.; Anglo-French Insurance Company Ltd.; Argonaut Northwest Insur- ance Company; Assicurazioni Generali Spa; Baloise Fire Insurance Company; Bellefonte Insurance Com- pany 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 Insur- ance Company Ltd.; Drake Insurance Company Ltd.; Edinburgh Insurance Company; Excess Insurance Company Ltd.; Fidelidade Insurance Company; Folk- sam International Insurance Company (U.K.) Ltd.; A-5 Helvetia Accident Swiss Insurance Company; Indem- nity Marine Assurance Company, Ltd.; Lexington In- surance Company Ltd.; London & Overseas Insurance Company, Ltd.; London & Edinburgh Insurance Com- pany, 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., For- merly Known as British National Insurance Co. Ltd.; Orioa Insurance Company Ltd.; Pine Tup 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 Stan- dard Insurance Company Ltd.; Winterthur Swiss In- surance 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. No. 93-5777, 93-5794. United States Court of Appeals, Third Circuit. Argued Sept. 26, 1994. Decided Oct. 12, 1995. A-6 Petition for Panel Rehearing Granted and Opinion and Judgment Vacated Dec. 15, 1995. Submitted on Petition for Panel Rehearing Dec. 15, 1995. Decided June 20, 1996. Order Denying Rehearing and Rehearing In Banc July 22, 1996. insured sought declaration that its primary and excess comprehensive general liability (CGL) policies provided cov- erage for costs of cleaning up environmental contamination at and around its tank-truck cleaning facility. In separate opin- ions, the United States District Court for the District of New Jersey, Stanley S. Brotman, J., 788 F.Supp. 846 and 817 F.Supp. 1136, granted some motions for summary judgment and denied others, and after jury trial resulted in verdict of partial coverage, insurers appealed. On panel rehearing, the Court of Appeals, Scirica, Circuit Judge, held that: (1) in- struction on “occurrence” issue properly directed jury to focus on whether specific property damage at issue was expected or intended by insured; (2) Voorhees “exceptional circum- stances” rule allowing insured’s intent to injure to be pre- sumed did not apply; (3) Morton regulatory estoppel rule applied to nonstandard pollution exclusion in insured’s excess policies; (4) insurers did not preserve error as to jury instruc- tion on pollution exclusion, and instruction was not plain er- ror; (5) evidence of environmental problems at other facilities operated by insured was inadmissible; (6) under continuous trigger, allocation cf liability among the policies had to be risk-based, rather than joint and several; (7) property damage occurred as matter of law during ten successive policy periods following insured’s initial discharge of contaminants; and (8) insured’s four-year delay in providing notice of claim did not relieve insurers of their coverage obligations. Affirmed in part and remanded. A-7 McKee, Circuit Judge, concurred in part, dissented in part, and filed opinion. Opinion superseded, 68 F.3d 658. 1. Insurance k437.1(1) Under New Jersey law, insured had burden of proving that it did not expect or intend to cause property damage in order to establish coverage under its occurrence-based comprehen- sive general liability (CGL) policies for costs of cleaning up environmental contamination at and around its tank-truck cleaning facility. 2. Federal Courts k754.1 Court of Appeals’ review of jury instructions is plenary. 3. Federal Civil Procedure k2182.1 Jury charge, taken as whole, must fairly and adequately submit issues in case to jury. 4. Insurance k669.6(3) Under New Jersey law, instruction properly directed jury to focus on whether specific property damage at issue — namely, contamination to soil, groundwater, and wetlands at and around insured’s tank-truck cleaning facility — was ex- pected or intended by insured, with respect to issue of whether there had been “occurrence” as required for coverage for costs of cleaning up the contamination under insured’s comprehensive general liability (CGL) policies; focus on whether insured intended some sort of injury would have been improper. 5. Insurance k433.2 Under New Jersey law, “occurrence” requirement for li- ability insurance coverage for costs of cleaning up environ- mental contamination is not satisfied when insured intended Or expected its actions to cause environmental harm of A-8 particular sort, unless the harm that actually resulted was im- probable. 6. Insurance k433.2 Under New Jersey law, “occurrence” requirement does not operate to preclude liability insurance coverage for costs of cleaning up environmental contamination where insured had intent to cause environmental harm of one sort but other kinds of unintended and unexpected environmental harm resulted. 7. Insurance k433.2 Under New Jersey law, Voorhees “exceptional circum- stances” rule for determining whether “occurrence” require- ment for coverage under liability insurance policy is satisfied, which allows insured’s intent to injure to be presumed with- out inquiry into insured’s subjective intent in cases of egre- gious conduct, did not apply to insured’s conduct leading to contamination of soil, groundwater, and wetlands at and around its tank-truck cleaning facility, where insured did not engage in pattern of stonewalling characterized by promises of compliance that consistently were unfulfilled. 8. Insurance k138(4) Under New Jersey law, Morton regulatory estoppel rule, which bars liability insurers from enforcing standard-form pollution exclusion containing exception for “sudden and ac- cidental” discharges on grounds that insurance industry mis- led state regulators in securing approval of exclusion, applied to nonstandard pollution exclusion in insured’s excess com- prehensive general liability (CGL) policies, where it used word “sudden,” it closely tracked language of standard ex- clusion, and it came into use at about same time as standard exclusion, regardless of whether insurers who issued the policies containing the nonstandard exclusion directly made misrepresentations to regulators. A-9 9. Federal Civil Procedure k2602 Defendant liability insurers’ objection to jury charge on scope of pollution exclusion could not serve as predicate for renewed motion for judgment after trial, or motion for j.n.o.v., where district court did not explicitly treat the objection as motion for judgment as matter of law, or directed verdict mo- tion. Fed.Rules Civ.Proc.Rule 50(a), (a)(2), (b), 28 U.S.C.A. 10. Federal Courts k637 Defendant liability insurers’ objection to jury charge on scope of pollution exclusion was insufficient to preserve ar- gument for appeal, in insured’s action seeking coverage for costs of cleaning up environmental contamination, where ob- jection was difficult to understand due to convoluted grammar and did not specify authority upon which it was based. Fed.Rules Civ.Proc.Rule 51, 28 U.S.C.A. 11. Federal Courts k621 In absence of party’s preservation of assigned error for ap- peal, Court of Appeals reviews for plain error, and its power to reverse is discretionary. 12. Federal Courts k621 Particularly in civil context, Court of Appeals exercises its power to reverse for plain error sparingly. 13. Federal Courts k630.1 Plain error warranting exercise of Court of Appeals’ dis- cretionary power to reverse was not presented by instruction requiring proof that insured intended discharge of known pollutants into groundwater, as opposed to into environment generally, in order for pollution exclusion in its comprehen- sive general liability (CGL) policies to preclude coverage for costs of cleaning up groundwater damage. g i A-10 14. Evidence k146 Evidence of environmental problems at other tank-truck cleaning facilities operated by insured was inadmissible, due to its probative value being substantially outweighed by dan- ger of prejudice and jury confusion and delay, in insured’s action seeking liability coverage for costs of cleaning up envi- ronmental contamination at and around one particular facility, where series of minitrials relating to each facility would have been required for jury to properly evaluate the evidence. Fed.Rules Evid.Rule 403, 28 U.S.C.A. 15. Insurance k178.6 Under New Jersey law, continuous trigger theory for identi- fying time of “occurrence” for purposes of liability insurance coverage extends to property damage claims resulting from long-term environmental contamination. 16. Insurance k178.6 Under New Jersey law, continuous trigger theory for identi- fying time of “occurrence” for purposes of liability insurance coverage did not make all of insured’s successive, applicable liability policies jointly and severally liable for long-term en- vironmental contamination at and around its tank-truck cleaning facility, but rather required risk-based allocation of liability among the policies in accordance with Owens- Illinois. 17. Insurance k178.6 Under New Jersey’s continuous trigger theory for identify- ing time of “occurrence” for purposes of liability insurance coverage, exposure to harm-causing agent is sufficient to trig- ger potential coverage, and actual manifestation of injury is not required, so long as there is continuous, indivisible proc- ess resulting in damage. 1%. Insurance k178.6 Under New Jersey’s continuous trigger theory for identify- ing time of “occurrence” for purposes of liability insurance A-11 coverage, property damage occurred as matter of law during each of ten successive comprehensive general liability (CGL) policy period, in connection with environmental contamina- tion at and around insured’s tank-truck cleaning facility, where insured discharged contaminated rinsewater into un- lined ponds and lagoons in every year at issue, and contami- nated rinsewater from three settling ponds started migrating through soil to underlying groundwater almost immediately after pond operation began. 19. Insurance k669.2 Jury instruction stating that insured could be entitled to coverage under comprehensive general liability (CGL) poli- cies for environmental property damage that occurred during policy period but that originally began during earlier policy period was proper under New Jersey’s continuous trigger the- ory for identifying time of “occurrence” for purposes of li- ability insurance coverage. 20. Insurance k539.8 Under New Jersey law, insured’s four-year delay in provid- ing notice to its comprehensive general liability (CGL) insur- ers of claim for costs of cleaning up environmental contamination at and around insured’s tank-truck cleaning facility did not relieve insurers of their coverage obligations, where the untimely notice did not leave insurers with inade- quate evidentiary record or otherwise cause them to irre- trievably lose any substantial right, and insurers’ ability to defend against underlying claim was not adversely affected. 21. Insurance k539.1 Under New Jersey law, insured’s contractual obligation to notify its comprehensive general liability (CGL) insurers of environmental contamination at and around insured’s tank- truck cleaning facility did not arise until Environmental Pro- tection Agency (EPA) placed site on Superfund National Pri- orities List, which ultimately led to the clean-up cost liability for which insured was seeking coverage, and did not arise some 20 years earlier when insured first received complaints A-12 from various regulatory bodies, especially since prior New Jersey state actions had sought only nonmonetary injunctive relief. Henry Lee (Argued), Gary P. Schulz, John G. McAndrews, Hannah M. O'Driscoll, Mendes & Mount, New York City, William J. Hanley, Ronca, McDonald & Hanley, Livingston, New Jersey, for Appellants at No. 93-5777. Brian J. Coyle (Argued), Peter E. Mueller, Harwood Lloyd, Hackensack, New Jersey, William H. Jeffress, Jr., Miller, Cassidy, Larroca & Lewin, Washington, DC, Edward M. Dunham, Jr., Miller, Dunham & Doering, Philadelphia, Penn- sylvania, for Appellant, Aetna Casualty and Surety Company. Kevin B. Clark (Argued), John P. Dean, Conrad J. Smucker, Willkie, Farr & Gallagher, Washington, DC, for Appellee, Chemical Leaman Tank Lines, Inc. Thomas W. Brunner, Wiley, Rein & F ielding, Washington, DC, for Amicus Curiae Appellant, Insurance Environmental Litigation Association. Karen L. Jordan, Office of Attorney General of New Jer- sey, Department of Law & Public Safety, Trenton, New Jer- sey, for Amicus Curiae Appellee, State of New Jersey, New Jersey Department of Environmental Protection & Energy. Before SCIRICA, NYGAARD and McKEE, Circuit Judges. 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 environ- mental clean-up at Chemical Leaman’s Bridgeport, New Jer- sey facility. After a three week trial, a jury found Chemical A-13 Leaman was entitled to partial coverage under several poli- cies. Thereafter the New Jersey Supreme Court decided Mor- ton Intern., Inc. v. General Acc. Ins. Co., 134.N.J. 1,629 A.2d 831 (1993), cert. denied, U.S. , 114 S.Ct. 2764, 129 L.Ed.2d 878 (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 Morton requires an inquiry into the insured’s subjective intent to cause environmental harm, unless “exceptional circum- stances” support a presumption of the insured’s subjective intent. Therefore we conclude the district court’s jury instruc- tions were proper. Defendant insurers raise several other issues on appeal. They argue the district court mistakenly limited the applica- bility 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 fail- ure 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 dis- trict court. ' The district court’s opinions granting partial summary judgment are re- ported at Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 788 F.Supp. 846 (D.N.J.1992), and Chemical Leaman Tank Lines, Inc. v. Aetna Cas. and Sur. Co., 817 F.Supp. 1136 (D.N.J.1993). Our initial opinion in this case was vacated on a petition for rehearing in banc. See Chemical Leaman Tank Lines, Inc. v. Aetna Cas. and Sur Co., 68 F.3d 658 (3d Cir.1995), vacated 68 F.3d 685 (3d Cir.1995). A-14 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 proc- ess 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 sepa- rate contaminates from the rinsewater, and that natural proc- esses 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 ad- jacent swamp in order to allow water to escape in the case of heavy rains. In September 1961, an Inspector with the New Jersey Di- vision of Fish Game & Wildlife informed Chemical Leaman that its water treatment system was “not satisfactory.” In re- sponse, Chemical Leaman constructed two additional aeration lagoons and a settling lagoon with a limestone bed. The la- goons 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 ne: ghboring 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 A-15 Chemical Leaman unsuccessfully attempted to reach agree- ment. 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 la- goons, 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 contami- nation at and around the Bridgeport site. Subsequent investi- gations 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 con- taminated or threatened with contamination. The federal Envi- ronmental 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 liabil- ity 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 A-16 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 de- fined 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 rea- son of the liability ... imposed upon the Assured by law, ... for damages ... on account of: ... (ii) Property Damage ... caused by or arising out of each occur- rence. 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 prop- erty damage that is expected or intended by the insured. On appeal, the LMI contend the district court incorrectly in- structed 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 con- tained 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 * The LMI’s earlier policies insured against “accidents” as opposed to “occurrences.” New Jersey law defines an “accident” in the same manner as an “occurrence;” namely, as an event neither expected nor intended by the insured. The district court therefore held that Chemical Leaman bore the same burden of proof under both types of policies. See Chemical Lea- man Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F.Supp. 1136, 1148 (D.N.J.1993). The LMI do not challenge this holding on appeal. ie a eGo Lay ea nly ae ena TE aos Bet Ra LA, eb aes es A-17 property damage caused by seepage, pollution, or contamina- tion 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 ef- fect from April 1, 1974 to April 1, 1977 contained the stan- dard 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 ex- clusion 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 pollu- tion 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 occur- rence. 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 sum- mary judginent 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. See A-18 Chemical 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 objec- tively 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. /d. 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. Jd. Rather, it ruled that New Jersey follows the “continuous trigger” theory and that factual issues remained as to whether Chemical Lea- man 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 cover- age “when the insured has caused the discharge of contami- nants or pollutants, unless the discharge was neither expected nor intended from the standpoint of the insured.” /d at 1157. On the basis of the pollution exclusion clauses, the district court granted partial summary judgment in favor of defen- dants as to soil damage on the post-1971 policies. It denied summary judgment with respect to groundwater contamina- tion, and did not address contamination to the surrounding wetlands. /d. Finally, the district court held Chemical * The date on which the insured suffers property damage is important be- cause it determines whether an “occurrence” has taken place under the applicable insurance policies. See Hartford Acc. & Indem. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. 18, 483 A.2d 402, 409 (1984). The district court granted the insurers summary judgment on the April 1, 1959 to April 1, 1960 policy, because Chemical Leaman produced no evidence that damage occurred during that time period. SOA A-19 Leaman’s failure to give timely notice of its claims did not preclude insurance coverage because the delay had not preju- diced the defendant insurers. /d. at 1157-58. Before trial, Chemical Leaman filed a motion in limine to 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 un- duly time consuming. After a three week trial, the jury found that Chemical Lea- man was entitled to coverage for damage to the soil and wet- lands 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 dis- charge 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. Piece Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir.1992). Our re- view 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). * The parties appear to agree that Chemical Leaman has dismissed its claims against the LMI on the 1981-85 policies, although it is unclear from the record when or why this occurred. * Aetna and the LMI each incorporated the arguments advanced by the other, and so, accordingly, we must still address the issues raised by Aetna as they relate to the LMI. A-20 III. Occurrence-Based Insurance Policies and “Expected or Intended” [1] Chemical Leaman purchased “occurrence-based” com- prehensive general liability insurance from the LMI that pro- vided coverage for “[a]n accident or a happening or event or a continuous or repeated exposure to conditions which unex- pectedly 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 in- terpret 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 in- tentional wrongdoing by denying coverage for its conse- quences. In companion cases, Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 607 A.2d 1255 (1992), and SL Industries, Inc. v. American Motorists Ins. Co., 128 N.J. 188, 607 A.2d 1266 (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 acci- dental 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 * Under New Jersey law, an insured must prove that a coverable loss has occurred. Diamond Shamrock Chem. Co. v. Aetna Cas. & Sur. Co., 258 N.J.Super. 167, 609 A.2d 440, 464 (App.Div.1992), certif. denied, 134 N.J. 481, 634 A.2d 528 (1993). Accordingly, the district court correctly required Chemical Leaman to prove it did not expect or intend to cause property damage in order to establish coverage under the applicable insur- ance policies. Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F.Supp. at 1144. P| 2 } } 3 A-21 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 expecta- tion 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.” Jd. 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 with- out an inquiry into the actor’s subjective intent to injure. That objective approach focuses on the like- lihood that an injury will result from an actor’s be- havior 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. /d. : 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 Indus- tries, 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 subjeciively intends or expects some sort of injury, that intent will gener- ally 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 A-22 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 in- tended or expected the victim’s actual injuries. /d. at 1279. The court noted this approach “conforms to an insured’s ob- jectively-reasonable expectations and provides the victim the - greatest possibility of additional compensation consistent with the goal of deterring intentional wrongdoing.” /d. The New Jersey Supreme Court addressed the ex- pected/intended clause of comprehensive general liability policies in the environmental pollution context in Morton In- tern., Inc. v. General Acc. Ins. Co., 134 N.J. 1, 629 A.2d 831 (1993), cert. denied, —— U.S. ——, 114 S.Ct. 2764, 129 L.Ed.2d 878 (1994). It attempted to apply the principles es- tablished in Voorhees and SL Industries, but was forced to “acknowledge the impracticality of adherence to the general rule that ‘we will lock to the insured’s subjective intent to determine intent to injure.’” Jd, 629 A.2d 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 litiga- tion 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 A-23 subjective knowledge concerning the possibility or likelihood of harm. Id., 629 A.2d 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 envi- ronmental-pollution coverage litigation that would permit in- tent to injure to be presumed simply on the basis of a knowing discharge of pollutants would be unjustified.” /d. 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 “[flor a stretch of several thousand feet, the concentration of mercury ... [was] the high- est found in fresh water sediments in the world.” /d. 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. Jd. at 882. Moreo- ver, for at least eighteen years the discharges had been inten- tional, even though the company knew they would cause environmental harm. Despite repeated complaints by regula- tory agencies, Morton engaged in “a pattern of ‘stonewalling’ ... Characterized by promises of compliance that consistently were unfulfilled.” Jd. 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.” Jd. 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 insur- ance 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 in- tended to cause injury. This would be akin to a negligence standard. If negligent acts did not fall within the definition of A-24 a covered occurrence, then there would be no point in pur- chasing 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 envi- ronmental 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 in- tent. SL Industries, supra. ... The holding of SL Jn- dustries 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 skir- mish would result in a hip fracture. No such inher- ent “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 Su- preme Court’s decision in Morton. Nevertheless, it instructed A-25 the jury to determine whether Chemical Leaman subjectively expected or intended to cause property damage at the Bridge- port 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 dis- trict 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. [2, 3] On appeal, the LMI argue the district court’s jury in- structions 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 dam- age. 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. /d. 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 in- structed 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 ac- tual, subjective expectations or intentions with A-26 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 inten- tions 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’ in- surance policies. Thus, even though Chemical Leaman may have knowingly and intentionally committed the acts that ul- timately 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, cr wet- lands. “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 sub- _ jectively 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 in- tended 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. A-27 [4] The LMI contend the district court’s final jury instruc- tion was erroneous because it instructed the jury “to focus on whether the specific property damage” — namely contamina- tion 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 gener- ally 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 in- jury. 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 rinse- water 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. There- fore, 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 gen- erally 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 Indus- tries would result in a general rule precluding coverage based on the knowing discharge of a pollutant. But in Morton In- tern., Inc. v. General Acc. Ins. Co., 629 A.2d at 879-80, the ; Le A-28 New Jersey Supreme Court held “a general rule ... [precluding coverage] simply on the basis of a knowing discharge of pol- lutants would be unjustified.” The LMI’s reading of SL Indus- tries’ “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 knowl- edge 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 accor- dance with standard industry practices, intentionally dis- charged 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 Voor- hees 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 re‘ect a wooden appli- cation of SL Industries’ “some sort of injury” language, and would instead look to the general principles underlying the interpretation of insurance-policy provisions involving inten- tional conduct. As stated by the New Jersey Supreme Court: ‘ 4 aj 4 x 3 2 : 3 1 A-29 Our goal is to interpret the insurance provisions in light of the insured’s objectively reasonable expec- tations.... [W]e must attempt to reconcile two goals: that of deterring intentional wrongdoing by preclud- ing insurance indemnification, and that of providing victims with compensation to the extent that com- pensation 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. [5, 6] 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. vy. American Motorists Ins. Co., 607 A.2d at 1278. If an insured does not understand the causal connec- tion 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 in- tend 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 in- quire into the insured’s intent or expectation to cause envi- ronmental harm of a particular sort, for example, whether the A-30 insured intended damage to the soil, groundwater, or wet- lands. Where the insured intends or expects such harm, cover- age 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 exam- ple, 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 ex- pected or intended injury to the soil, groundwater, or wet- lands. 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 prop- erty damage. Chemical Leaman presented evidence that it be- lieved the system of unlined ponds would cleanse contaminated rinsewater. Although Chemical Leaman inten- tionally discharged known pollutants, a reasonable jury could find, and the jury here did find, Chemical Leaman did not ex- pect 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 [7] 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: A-31 the duration of the discharges, whether the dis- charges occurred intentionally, negligently, or inno- cently, the quality of the insured’s knowledge concerning the harmful propensities of the pollut- ants, 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. Jd. 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.” /d. at 879-880. ’ The dissent would apply the “exceptional circumstances” test in all envi- ronmental pollution insurance coverage cases. See Dissent at 1004 (“The ‘exceptional circumstances’ test, however, is not an ‘exception,’ but the rule that is to be applied in environmental coverage cases.”). It would have the court, rather than the jury, decide whether an insured “expected” or “intended” to cause property damage. We believe Morton did not displace the usual relationship between the court and the jury. It remains the unique province of the jury to resolve disputed issues of fact — such as the intentions or expectations of the in- sured. Only in cases where there is no legally sufficient evidentiary basis for a reasonable jury to find for a party may the court enter judgment as a matter of law. Morton refines the test for when a court may enter judg- ment as a matter of law in environmental pollution coverage cases. Its “exceptional circumstances” 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 — (Footnote continued) A-32 Instead Morton mandates “a case-by-case analysis ... in or- der to determine whether, in the context of all the available evidence, exceptional circumstances exist.” Jd. Morton is in- structive 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 mer- cury-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 con- sistently disregarded its own promises to remediate the dis- charge. Morton, 629 A.2d at 882. “[T]he record fairly reflect[ed] a pattern of ‘stonewalling’ on the part of [the in- sured], characterized by promises of compliance that consis- tently were unfulfilled.” /d. 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 sug- gests a good faith effort at compliance with agency demands. Chemical Leaman initially designed the Bridgeport wastewa- ter 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 in- tended 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 Sep- tember 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 establish that the insured must have intended property damage. The pres- ence 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. “iis rae ee ae ° SEALE RITE TN DS aR AEDS ABE « AH lt tears Seite aren oitas balan AR eines 5 RLS EAP ER Re A-33 Leaman to submit plans for a system to properly treat the ef- fluent. In May 1969, Chemical Leaman submitted a plan for a new rinsewater treatment system. The New Jersey Depart- ment 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 acciden- tal” or “sudden, unintended, and unexpected.”® The LMI * The policies sold by the LMI to Chemical Leaman covering the April 1, 1974 to April 1, 1977 period contained the standard ISO pollution exclu- sion clause, which provides: This insurance does not apply to ... Property Damage arising out of the Discharge, Dispersal, Release or Escape of ... Con- taminants or Pollutants into or upon Land, the Atmosphere or any Watercourse or Body of Water, but this exclusion does not apply if such Discharge, Dispersal, Release or Escape is sudden and accidental. The April 1, 1971 to April 1, 1974 and the April 1, 1977 to April 1, 1985 policies contained the NMA 1685 pollution exclusion, which provides: This Insurance does not cover any liability for: (1) Personal Injury or Bodily Injury or loss of, damage to, or loss of use of property directly or indirectly caused by seepage, pollution, or contamination, provided always that this Paragraph (1) shall not apply to liability for Personal Injury or Bodily Injury or loss of or physical damage to or destruction of tangible prop- erty, or loss of use of such property damaged or destroyed where such seepage, pollution, or contamination is caused by a sudden, unintended and unexpected happening during the period of this insurance. (Footnote continued) A-34 argued to the district court that coverage was precluded be- cause 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 Broad- well Realty Serv., Inc. v. Fidelity & Cas. Co., 218 N.J.Super. 516, 528 A.2d 76 (App.Div.1987). It held the word “sudden” is ambiguous — sometimes carrying a temporal meaning and sometimes meaning “unexpected” — and should not be inter- preted to exclude coverage for environmental harm caused by gradual discharges over a prolonged period. It concluded, “[t]he pollution exclusion precludes coverage when the in- sured has caused the discharge of pollutants, unless the dis- charge 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 dis- charge 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 con- test their liability for groundwater damage. Subsequent to the district court’s decision, the New Jersey Supreme Court addressed the standard form pollution exclu- sion clause in Morton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d at 847-76. The New Jersey Supreme Court ex- pressly 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 The district court held both pollution exclusions were identical in scope. It interpreted “accidental” to mean unintended and unexpected, and there- fore concluded that the “sudden, unintended, and unexpected” exception in the NMA 1685 exclusion should be construed in the same manner as the “sudden and accidental” exception in the standard ISO pollution ex- clusion. See Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F.Supp. at 1156 n. 17. In any case, the dispute in this case revolves around application of the term “sudden,” which appears in both clauses. A-35 pollution-exclusion clause describes only those discharges, dispersals, releases, and escapes of pollutants that occur abruptly or unexpectedly and are unintended.” /d., at 847. Nevertheless, the court refused to enforce the standard pollu- tion exclusion as written because it found the insurance indus- try had misled state regulators in securing its approval. Instead, the court held the pollution exclusion clause pre- cludes 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 de- nied coverage for the intentional discharge, disper- sal, release, or escape of known pollutants, whether or not the eventual damage was intended or ex- pected from the standpoint of the insured. The in- dustry’s presentation of the clause to regulators described it as a clarification of the “intended and expected” clause of the basic “occurrence” defini- tion “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 exclud- ing 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 pollu- tion-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 pre- cludes coverage only if Chemical Leaman intentionally dis- charged known pollutants into the groundwater. First, the LMI argue Morton established that the word “sudden” has a temporal connotation — meaning “abrupt” — and precludes A-36 coverage for gradual discharges, dispersals, releases, or es- capes. Because Chemical Leaman discharged contaminated rinsewater over a prolonged period, they argue, coverage should be precluded. The LMI acknowledge Morton's regula- tory 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 dis- charge into the groundwater, as opposed to into the environ- ment generally. A. Regulatory Estoppel 1. Non-Standard Pollution Exclusion [8] 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 en- forcement 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 eR oA st Tere ee CD A ee PON EROS AO BM Sh tials, ChE has © SENG IAL Bante Ps ae ate EE, A-37 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 ex- clusion. Therefore we conclude that Morton's regulatory es- toppel 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 ap- proval 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 ex- clusion, 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 di- rectly misrepresented the effect of the term “sudden” in the pollution exclusion clauses, they benefitted from the mislead- ing explanation of the effect of the standard pollution exclu- sion 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 ” In Morton, the New Jersey Supreme Court noted the failure of the insur- ance industry to reduce rates on comprehensive general liability insurance policies containing pollution exclusion clauses, even though such policies dramatically reduced coverage previously offered for property damage caused by poilution. See Morton Intern., Inc. v. General Acc. Ins. Co., 629 (Footnote continued) A-38 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 re- quired 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). [9] 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 A.2d at 872. Chemical Leaman contends that the LMI did not reduce the rates they charged on policies containing pollution exclusion clauses. This factor would support applying Morton's regulatory estoppel rule to the LMI, although we do not rely on it in reaching our holding. '° Fed. R.Civ.P. 50(a) provides: (a) Judgment as a Matter of Law (1) If during a trial by a jury a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to (Footnote continued) bb MBSE ESSE LN oA aid, CAT A cat Bea Pee See foes.) hs ConA ae SANG SEP oe eck A-39 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 as- sert they adequately raised the argument because they ob- jected to the district court’s jury instruction on the pollution exclusion clauses, stating: There was one other thing with respect to the pollu- tion 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 dis- charge 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. Kai- ser 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 US. 908, 106 S.Ct. 3284, 91 L.Ed.2d 572 (1986); Lowenstein v. Pepsi-Cola Bot- tling Co. of Pennsauken, 536 F.2d 9, 11 (3d Cir.) (same), cert. denied, 429 U.S. 966, 97 S.Ct. 396, 50 L.Ed.2d 334 (1976). The district court did not treat the LMI’s objection to the jury find for that party on the issue, the court may determine the issue against that party and may grant a motion for judgment as a matter of law against that party with respect to a claim or defense that cannot under the control- ling law be maintained or defeated without a favorable finding on that issue. (2) Motions for judgment as a matter of law may be made at any time before submission of the case to the jury. Such a motion shall specify the judgment sought and the law and facts on which the moving party is enti- tled to judgment. A-40 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, 112 S.Ct. 1671, 118 L.Ed.2d 391 (1992); see also Lightning Lube, Inc. v. Witco. Corp., 4 F.3d 1153, 1172 (3d Cir.1993) (“In or- der 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. There- fore we will not address it on appeal. [10] We believe the LMI’s objection to the district court’s jury instruction was also insufficient to preserve their argu- ment 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 objec- tion.” 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 rul- ings at the trial which they may be called on to review.” Dunn vy. HOVIC, 1 F.3d 1371, 1379 (3d Cir.) (in banc), modified, 13 F.3d 58, and cert. denied, 510 U.S. 1031, 114 S.Ct. 650, 126 L.Ed.2d 608 (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 kwh r be hse ONY aba SED T EES Be VIN ai i ibe ie I nS De en : 4 3 £ a 4 - ‘ ¢ i a | s - x A-41 objection” and did not preserve the LMI’s argument for ap- peal. See United States v. Zannino, 895 F.2d 1, 17 (ist 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, 110 S.Ct. 1814, 108 L.Ed.2d 944 (1990). [11-13] “In the absence of a party’s preservation of an as- signed 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. /d.; 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 —— US. , 116 S.Ct. 934, 133 L.Ed.2d 861 (1996). Because we do not believe any mis- take 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 [14] Before trial, Chemical Leaman made a motion in lim- ine to 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 substan- tially outweighed by the danger of unfair prejudice, jury con- fusion, 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 ex- cluding evidence of environmental pollution at other Chemi- cal 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 prop- erty damage, including harm to the groundwater. They also insist that such evidence should have been allowed to A-42 impeach the testimony of Harry Elston, the designer of all Chemical Leaman’s waste treatment facilities, even if not al- lowed in their case-in-chief. We review the district court’s rulings on the admissibility of evidence for an abuse of dis- cretion. See Tait v. Armor Elevator Co., 958 F.2d 563, 568 (3d Cir.1992). The district court noted the evidence the LMI sought to in- troduce had limited probative value because its relevance de- pended upon an extended chain of reasoning linking it to the Bridgeport site: the jury would have to evaluate the various expla- nations 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 dif- ferent 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 con- cluded, would cause undue delay and mislead and confuse the jury as to the ultimate factual issue, namely Chemical Lea- man’s subjective intent to cause harm at the Bridgeport site. Id. Moreover, the district court held that the other site evi- dence 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 in- tent and applied an objective test assessing whether = ar A-43 “Chemical Leaman should have known that its rinsewater treatment system would cause damage.” /d 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., 138 N.J. 437, 650 A.2d 974 (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.” /d., 650 A.2d at 995, The conceptual underpinning of the continuous- trigger theory, then, is that injury occurs during each phase of environmental! contamination — ex- posure, exposure in residence (defined as further progression of environmental injury even after ex- posure has ceased), and manifestation of disease. Id. at 981. In Owens-Illinois, the New Jersey Supreme Court also ad- dressed 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, “ie, proration on the basis of policy limits, multiplied by years of coverage,” id. at 993. [15] Owens-Illinois involved a suit for personal injuries resulting from exposure to asbestos, but the New Jersey Su- preme Court made clear the continuous trigger theory extends A-44 to property damage claims resulting from long-term environ- mental contamination. It concluded, “(pjroperty-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.” /d. at 983: see also Astro Pak Corp. v. Fireman 's Fund Ins. Co., 284 N.J.Super. 491, 665 A.2d 1113, 1117 (App.Div.) (same), certif. denied, 143 N.J. 323, 670 A.2d 1065 (1995). Although considering the issue before the New Jersey Su- preme 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 acti- vated by a continuing occurrence are jointly and severally li- able to policy limits for property damage resulting from the occurrence. Id. [16] 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 argu- ment is meritless. On the other hand, the LMI correctly dis- pute 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 li- ability in favor of a risk-based allocation of liability among applicable insurance policies in Owens-Illinois, we will re- mand this matter to the district court for a reallocation of li- ability between the insurers and among the triggered policies in accordance with Owens-Illinois. [17, 18] 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 OOO eee A-45 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. Ac- tual 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 contami- nation —- exposure, exposure in residence ... and manifesta- tion of disease”); Morrone v. Harleysville Mut. Ins., 283 N.J.Super. 411, 662 A.2d 562, 564 (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.” Chemi- cal 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 preju- diced by the district court’s error. [19] 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 in- struction 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 Lea- man 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 continu- ous, indivisible process of injury occurred during that period. The district court’s jury charge was not erroneous. A-46 VII. Late Notice [20] 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 vio- lated 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 un- timely notice from its insured under an occurrence-based policy must demonstrate that it has suffered “appreciable prejudice.” Cooper v. Government Employees Ins. Co., 51 N.J. 86, 237 A.2d 870 (1968); Med. Inter Ins. Exchange v. Health Care Ins. Exchange, 278 N.J.Super. 513, 651 A.2d 1029, 1033 (App.Div.), certif, denied, 140 N.J. 329, 658 A.2d 728 (1995). Lower courts in New Jersey have identified two relevant factors in determining whether an insurer has suf- fered prejudice justifying a denial of coverage: “whether sub- stantial 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., 176 N.J.Super. 347, 423 A.2d 325, 329 (Law Div.1980), and whether “the likelihood of success of the insurer in defending against the [underlying claim]” has been adversely affected, id., 423 A.2d 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). [21] 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 obliga- tion 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 A-47 coverage until the EPA placed the Bridgeport site on the Su- perfund 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 rele- vant documentary evidence remains intact.” Jd at 1159. Moreover, the LMI had extensive opportunities to depose, and later cross-examine, Harry Elston, the designer of the Bridge- port 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 mi- gration to surrounding soils and groundwater consti- tute a release within the meaning of section 101(22) of CERCLA, 42 U.S.C. § 9601(22). Accordingly, the court finds that defendants have not shown a A-48 likelihood of success in defending Chemical Lea- man 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 fa- vorable 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 ‘ourt 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 conten- tion 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 Proce- dure 60(b)(3). The district court denied the motion, although it believed a “close question” had been presented. After re- viewing the record and the arguments of the parties, we con- clude the district court did not abuse its discretion in denying the LMI’s motion. 1X. Conclusion For the foregoing reasons, we will affirm the district court except as to the allocation of liability among applicable poli- cies. 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. A-49 McKEE, Circuit Judge, concurring in part, and dissenting in part. [ must respectfully dissent from part [If of the majority opinion because | do not agree with the majority’s interpreta- tion of Morton International, Inc. v. General Accident Ins. Co. of America 134 N.J. 1, 629 A.2d 831 (1993), cert denied U.S. » 114 S.Ct. 2764, 129 L.Ed.2d 878 (1994). | believe Morton mandates an objective inquiry in disputes such as this. Because the district court’s jury instruction im- properly focused on Chemical Leaman’s subjective intent, | would remand this matter to the district court for retrial to determine if “exceptional circumstances” objectively estab- lished 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 discus- sion of Atlantic Employers, because it used language that the court would later cite and which I believe has caused my col- leagues to take an incorrect analytical turn. In Atlantic Em- ployers, 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 ' 239 N.J.Super. 276, 571 A.2d 300 (App.Div.), cert. denied 122 NJ 147, 584 A.2d 218 (1990). A-50 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” in- cluded injury or damage that was “neither expected nor in- tended 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 be- cause of an injury intended to be inflicted.’” /d. (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 de- veloping law. The court noted that some jurisdictions em- ployed 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 ob- jective approach. As a matter of public policy and logic we con- clude 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.... A-51 ... 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 gen- eral rule. B. Prudential Property & Casualty Ins. Co. v. Karlinski’ Within a year and a half of Atlantic Employers, the Appel- late 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 pol- icy 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 mo- tion 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.’” Jd. The motion judge also con- cluded that “a broken ‘leg’ [Mark actually suffered a broken hip] was not an extraordinary consequence of the fight.” /d. 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.” Jd. The court went on to ob- serve: 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 cover- age for unintended results of intentional acts. Differ- ing combinations of variables, such as the language of the exclusion clause, the nature of the harm and * 251 N.J.Super. 457, 598 A.2d 918 (App.Div.1991). A-52 its relationship to the intentional act, and the avail- ability of relief to the injured party, appear to influ- ence 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 ex- pressed in terms of bodily injury expected or in- tended 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. C 0. In Voorhees, a parent was sued for statements she had made at a public meeting where she had questioned the com- petency 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 pro- fessionally, and subjected her to public ridicule. Voorhees, 607 A.2d at 1257. Medical evidence established that the emo- tional distress the teacher complained of had resulted in “*an undue amount of physical complaints,’ including ‘headaches, stomach pains, nausea, ... [and] body pains.’” /d. at 1258. The parent had a homeowner's policy that provided cover- age for liability arising from “bodily injury” caused by an “occurrence.” The policy defined an “occurrence” as an “accident,” and excluded coverage for bodily injury inten- tionally caused by the insured. The insurer relied upon this language and refused to defend the insured against the 3 198 NJ. 165, 607 A.2d 1255 (1992). ae ae er A-53 teacher’s suit, asserting that the claims were based on the in- sured’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 re- fusal 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 de- fend under the policy was not triggered “absent a potentially- coverable occurrence.” /d. at 1262. In assessing whether the insured’s statements constituted a potentially coverable occur- rence, the court first held that “the accidental nature of an oc- currence is determined by analyzing whether the alleged wrongdoer intended or expected to cause an injury.” /d. 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 insur- ance 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 in- jure rather than to act, the question of what consti- tutes an “intent to injure” remains. The key issue is whether the court must find a subjective intent to A-54 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 preciude 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 with- out an inquiry into the actor’s subjective intent to injure. That objective approach focuses on the like- lihood that an injury will result from an actor’s be- havior 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 behav- ior that had justified an objective approach in Atlantic Em- ployers. 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 circum- stances” 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 A-55 also alleged that the insured had acted negligently. The alle- gation 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 em- ployee sought recovery for the alleged bodily injury that re- sulted. 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 declara- tory judgment action against its insurer to establish its right to indemnification. The Law Division granted the insurer sum- mary 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 deter- mine if the general intent to injure that is inherent in a claim of fraud necessarily incorporates the intent to cause the * 128 NJ. 188, 607 A.2d 1266 (1992). SL Industries summarizes and ex- plains the evolution of the law of coverage under “occurrence-based” policies in New Jersey, and | will therefore take the liberty of quoting at length from that opinion. A-56 specific injury (emotional distress), or whether proof of a subjective intent to cause the specific injury is required. /d. 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 subjec- tive intent to injure ends the inquiry and precludes coverage. Under that approach, if there is a subjec- tive 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 in- tended... 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 wrong- ful act is unfair [discussing Karlinski ].... However, in those circumstances in which the facts indicate that the acts in which the insured engaged were un- likely 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 {122 N.J.Super. 51, 298 A.2d 715 (Ch.Div.1973)], the court rejected the insurance company’s argu- ment 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 in- tended, or when the actor was substantially certain they would result. * The test derives its name from Lyons v. Hartford Ins. Group, 125 N.J.Super. 239, 310 A.2d 485, 488-89 (App.Div.1973). : & ‘4 : = > discs ox wens es 1. Ce Creatine Sales be ade Ba ce A-57 To determine which approach to adopt, we refer to the general principles underlying the interpreta- tion of insurance-policy provisions involving inten- tional conduct. The Lyons test ... precludes coverage in some cases in which an insured could reasonably expect coverage. When the injury caused significantly ex- ceeds the injury intended or expected and is an im- probable 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 con- duct. In that case, there is no policy justification for denying the victim the possibility of additional compensation. As the Karlinski court noted, pre- cluding coverage ‘even if the actual harm far ex- ceed[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 cover- age 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 in- quire as to whether the insured subjectively in- tended or expected to cause that injury. Lacking that a aan inc LN eK ni pot A-58 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 deter- mine 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 Jd. 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 defend- ing a suit filed by the Department of Environmental Protec- tion (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 “[flor a stretch of several thou- sand feet, the concentration of mercury in Berry’s Creek [was] the highest found in fresh water sediments in the world.” Jd. at 834. Morton’s claims were derived from Ven- tron as well as other prior owners of the land. See Jd. 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 * 134 .N.J. 1, 629 A.2d 831 (1993), cert. denied, —— U.S. —, 114 S.Ct. 2764, 129 L.Ed.2d 878 (1994). The majority and | agree on the signifi- cance of certain portions of the opinion in Morton, but disagree as to the meaning of the language. Since it is difficult to eliminate all repetition in explaining why I disagree, | will be somewhat redundant in discussing Morton. A-59 by discharges from a mercury-processing plant operated for forty years by the various defendants. See New Jersey De- partment of Environmental Protection v. Ventron C orp., 94 N.J. 473, 468 A.2d 150 (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 abnor- mally dangerous activity, and imposed strict liability against all defendants. See Id, 468 A.2d at 160. Morton then commenced a declaratory judgment action to determine its right to indemnification from the various insur- ers 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 re- sulted 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.” Jd. at 877 (citation omitted). The Appellate Division also relied upon Aflaniic Employ- ers 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.’” /d (citation omitted). In reaching this conclusion, the Appellate Division (without the benefit of either Voorhees or SL Indus- tries) noted that the “‘substantial environmental pollution over a long period’” together with the knowledge by Mor- ton’s predecessors that “‘the substance being discharged ... was toxic and harmful’” rendered unacceptable a conclusion that no harm had been expected. /d. (citation omitted). A-60 On appeal to the New Jersey Supreme Court, Morton ar- gued that the Appellate Division’s reliance on Aflantic Em- ployers 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 re- sults of intentional acts.” Jd. 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 pollut- ants —- even known pollutants — had been inten- tionally discharged, those insureds are virtually certain to insist that the resultant harm was unin- tended and unexpected. Absent “smoking gun’ tes- timony from a disgruntled empluyee, 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 rep- rehensible, [so that] the intent to injure can be pre- sumed from the act without an inquiry into the actor’s subjective intent to injure.” We cited Atlan- tic Employers ... as illustrative of conduct that was so inherently injurious as to warrant the conclusion that intent to injure could be presumed.... We are A-61 unpersuaded that environmental-pollution litigation should generally be included in that category of cases, typified by Atlantic Employers, in which rep- rehensible conduct justifies a presumption that in- jury was intended. Jd, 629 A.2d at 879 (citations omitted) (emphasis added). Instead of relying upon such an unwarranted presumption and thereby extending the “public policy and logic” of Atlan- tic Employers, the court called for an individualized inquiry based upon the facts of each case. [I]nsureds held responsible for remediation of envi- ronmental pollution vary significantly in their de- gree of culpability for the harm caused by pollutant discharges. A general rule in environmental- pollution coverage litigation that would permit in- tent to injure to be presumed simply on the basis of a knowing discharge of pollutants would be unjus- tified. Instead, we hold that in environmental-coverage litigation a case-by-case analysis is required in or- der 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 transgres- sor’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 pre- sumed from the act without an inquiry into the actor’s subjec- tive intent to injure.” Jd. at 1265. In the context of Atlantic A-62 Employers, the r [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_1669%3A2. Public record. Not legal advice.