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Court Refuses to Enforce Forum-Selection and Choice-of-Law Provisions in Pollution Liability Insurance Policy

October 30, 2016

New Jersey's Appellate Division recently rejected the opportunity to uphold the forum-selection and choice-of-law provisions in an "Underground Storage Tank Third-Party Liability and Corrective Action Policy." In the matter of Param Pettroleum Corp v. Commerce and Industry Insurance Company, the court held that both of these clauses were contrary to New Jersey's public policy and were therefore unenforeable against the insured.

The plaintiff, the owner of a "mom and pop" gasoline service station in southern New Jersey, had purchased this policy from a New York based insurance company in 1994 to cover on-site and off-site pollution that might emanate from the station's underground storage tanks. The policy contained a forum-selection clause establishing New York as the only place where litigation could be commenced and a choice-of-law provision requiring that the insured's rights be determined by the law of New York. When one of the tanks leaked, the station owner made a claim for coverage, which was denied by the insurer. Consequently, the station owner brought this declaratory judgment action for coverage in Burlington County, where the station was located.

Had the Appellate Division upheld either the forum-selection clause or choice-of-law clause, New York precedent would probably cause the outcome of the underlying coverage dispute to be more favorable to the insurance company than the insured. However, after reviewing the state's public policy with respect to insurance companies, as expressed in earlier opinions of the New Jersey Supreme Court and state statutes, the court ruled that it had jurisdiction over the matter and that New Jersey law would be applied to the interpretation of the insurance policy, notwithstanding the presence of the two policy provisions that dictated otherwise. The Court explained the rationale behind its ruling in the following manner:

At least when dealing with risks located wholly within this state, we are of the view that the parties to the insurance contact should not be permitted to negotiate away the protection of our courts, protection which is intended for the insured, the insurance company, and for those who may suffer damages as a result of an insured risk.

As the Param decision illustrates, New Jersey courts will go to great lengths, including interference with private contractual rights, to ensure that funds are available to clean-up hazardous waste sites within the boundaries of the state.

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