In what is perceived to be a victory for insurers in a battle fought recently between policyholders and their liability carriers, the New Jersey Supreme Court ruled in General Accident Insurance Co. of America v. State of New Jersey, Department of Environmental Protection, et al. that generally the cost of a remedial investigation/feasibility study (RI/FS) should be allocated to the indemnity provision of the policy, thereby eroding the policy's limits, rather than being allocated to the defense portion of the policy, which typically has no limits.
The Court went on to hold, however, that if the insured can show that its insurance company would have had to incur the expense of the RI/FS as part of its defense obligation, the expense should be allocated between the defense and indemnity portions of the policy. The Court identified four factors to be considered in this regard: (1) the relative risk that the insured bore if it did not produce the RI/FS; (2) the extent to which the details of the RI/FS may have been mandated by the environmental agencies; (3) the extent to which the RI/FS provides a means by which the insurance company or the policyholder would be relieved of or be able to mitigate potential claims for damages; and (4) the cost of producing the RI/FS in relation to the policy limits provided.
