Spartan Oil Company v. New Jersey Property-Liability Insurance Guaranty Association Superior Court of New Jersey, Appellate Division, June 8, 2012)
In this coverage dispute, the policyholder appealed an adverse summary judgment ruling dismissing its claims arising from an environmental contamination suit. Spartan was in the heating oil distribution business during the applicable coverage period when heating oil from its vehicles was pumped into an external intake pipe located on the outside of its commercial customer. The fuel traveled through an internal feed line to an underground tank within the basement. Unbeknownst to Spartan, the fuel line was corroded and had developed holes such that, over time, seepage from the fuel line caused serious environmental contamination which was not discovered until 2003.
Spartan filed the present action seeking a declaratory judgment that it was entitled to reimbursement of its defense costs for the underlying action brought by the commercial property owners. NJPLIGA filed an answer denying liability for the defense costs. Both parties moved for summary judgment on the question of whether there was coverage under the policies in light of the pollution exclusion. In an oral decision, the trial court found that no genuine issues of material fact existed, and concluded that the pollution exclusion of the policies barred coverage.
On appeal, Spartan contended that the trial court erred in looking beyond the face of the underlying complaint and considering the underlying facts. More specifically, it argued that “[t]he fundamental flaw in the trial court’s reasoning is that it made determinations — when the delivery was complete; when the discharge occurred; and whether the delivery was made correctly — not relevant to the coverage determination.
Specifically, the policies provided coverage for “property damage … caused by an accident and resulting from the ownership, maintenance or use of a covered auto,” but they excluded coverage for “discharge, dispersal, release or escape of pollutants: … [a]fter the pollutants … are moved from the covered auto to [the] place where they are finally delivered, disposed of or abandoned by the insured.” (emphasis added). Spartan argued that the complaint alleged negligence of Spartan “during” the delivery of heating oil to Plaza Cleaners and, therefore, the pollution exclusion did not apply.
In affirming the decision, the appellate court reasoned, while the allegations of the complaint may contain some ambiguity as to the specific time that the pollution occurred in relation to the oil that was delivered, the policies themselves were not ambiguous. Specifically, they excluded coverage after final delivery of the oil. While the court acknowledged there was no prior legal authority explicitly defining “delivery” whether the term is “delivered” or “finally delivered,” the delivery of the oil occurred upon the fuel entering the property and heating system of Spartan’s customer. At that point, Spartan no longer had possession or control of the oil. It had been transferred into the possession of the customer. As such, the heating oil was “finally delivered” or just “delivered” when it was placed into the possession of the customer. Here, that occurred when the oil entered the customer’s heating system, which included its intake and fill lines.
Consequently, the appellate court agreed with the trial court’s interpretation of the insurance policies and its understanding of the allegations of the underlying complaint. Because Spartan had already and finally “delivered” the oil before the contamination occurred, the pollution exclusion applied and the insurance policies did not cover liability for the contamination.
For a copy of this decision, click here.