In March 1999, the New Jersey Appellate Division affirmed that coverage is precluded to knowing polluters under occurrence-based Comprehensive General Liability policies ("CGL"), but carriers cannot limit coverage to pollution resulting only from aberrant events. In Universal-Rundle Corporation v. Commercial Union Insurance Company, the Appellate Division upheld the trial court's decision entitling the policyholder to defense and indemnity from its insurance carrier for cleanup costs resulting from the policyholder's routine, intentional and long-standing practice of discharging process wastes on its property. The pollution exclusion clause, which precludes coverage when there is an intentional discharge of a known pollutant, was held inapplicable because the discharge, while intentional, was believed at the time to be innocuous.
The policyholder, Universal-Rundle Corporation ("Universal"), owned property where it had conducted manufacturing operations from 1929 until 1972. Universal manufactured bathtubs, sinks and lavatories and, as part of its operations, discharged by-products and waste from the manufacturing process in an area between the manufacturing building and the Delaware River. Universal had two main manufacturing processes: the iron foundry, where metal forms for the tubs, sinks and lavatories were made, and the enameling unit, where the castings were coated. The waste from the enameling process, which constituted approximately 2-5% of the total waste generated, contained antimony, arsenic and lead.
Upon being sued by the subsequent owner of the property for costs to remediate soil and groundwater pollution alleged to have resulted from Universal's operations, Universal put its carriers on notice of a claim. After receiving coverage denials, Universal filed suit seeking declaratory judgment against its carriers. Universal settled with all but one carrier, Commercial Union Insurance Company ("Commercial Union"), prior to trial.
Citing the pollution exclusion in standard CGL policies, Commercial Union argued that Universal's claims were barred because it intentionally discharged a known pollutant. In support of its argument, Commercial Union presented expert testimony to support its assertion that the waste material was a known pollutant at the time of Universal's discharge. Commercial Union, however, in its attempt to establish the insured's knowledge concerning the contaminating propensities of the material, applied current state-of-the-art knowledge regarding pollutants and their propensities, even though Universal's conduct occurred decades ago.
The trial court, however, found that even though Universal's employees were aware of the dangers associated with inhalation of lead and antimony dust, that knowledge did not translate into knowledge that the waste was dangerous to groundwater. No government regulatory authority contacted Universal to warn of the dangers posed by its dumping practices. In addition, Universal's practice was an accepted method of disposal in the industry during the time period it occurred. Thus, Universal's operations did not involve the intentional discharge of a known pollutant, because Universal was simply unaware that the discharge of its factory waste was environmentally unacceptable.
In its decision, the Appellate Division noted that an insured cannot knowingly pollute if it does not realize that the discharged waste contains pollutants. Thus, even though Universal's discharges were routine and intentional as part of its operations, there was no evidence that Universal was aware that the materials disposed of were harmful to either people or the environment. Accordingly, the pollution exclusion would not preclude coverage for the resulting contamination. The Appellate Division confirmed, for purposes of evaluating whether there has been a discharge of a known pollutant, knowledge regarding the propensity of a substance to contaminate should be evaluated based upon the knowledge existing during the time of disposal and not with hindsight.
