The New Jersey Appellate Division recently delivered an opinion affirming a lower court’s denial of coverage for defense costs where a policy’s pollution exclusion was found unambiguously applicable. Spartan Oil Co. v. New Jersey Property-Liability Ins. Guaranty Assoc.,
In Spartan Oil Co., the policyholder, Spartan Oil Co. (Spartan), appealed from an order granting summary judgment in favor of New Jersey Property-Liability Insurance Guaranty Associations (NJPLIGA) and dismissing Spartan’s coverage action for environmental contamination.
In the early 1990s, Spartan, a heating oil delivery company, purchased and subsequently renewed a commercial motor vehicle liability policy for coverage of its oil delivery vehicles. For the period of 1992 through 1994, Spartan delivered heating oil to Plaza Cleaners in Morristown, New Jersey. Its drivers pumped heating oil from its vehicles into an external intake pipe located on the outside of Plaza Cleaners. The fuel then traveled through an internal feed line to an underground tank beneath the basement. Unbeknownst to Spartan, the fuel line was corroded and had developed holes. Over time, seepage from the fuel line caused serious environmental contamination, which the owner of the property did not discover until 2003.
The property owner filed suit against several fuel delivery companies, alleging, inter alia, common law negligence. Eventually, after spending $208,000 in legal fees, Spartan obtained a dismissal of the complaint because the statute of limitations had run. Thereafter, Spartan sought reimbursement of its defenses costs from its insurer. NJPLIGA denied Spartan’s claim for coverage based on subsection a(2) of the pollution exclusion provision of each policy, which precludes coverage for “property damage arising out of the . . . discharge, dispersal, release or escape of pollutants . . . after the pollutants . . . are moved from the covered auto to [the] place where they are finally delivered, disposed of or abandoned by the insured.”
On NJPLIGA’s motion for summary judgment, the trial court, finding no genuine issue of material fact, denied the motion and concluded that the pollution exclusion barred coverage. In particular, the court reasoned that since this “pollution . . . occurred after the oil . . . was moved from the covered auto . . . into the pipes and into the system . . . [t]hey were finally delivered.”
In its challenge to the trial court’s ruling, Spartan argued that the court improperly looked beyond the complaint to determine when the delivery was complete, when the discharge occurred, and whether the delivery was made correctly – determinations that Spartan claimed were irrelevant to the determination of whether there is a duty to defend under the policies. Spartan further claims the pollution exclusion does not apply because the complaint alleges negligence occurring “during” the delivery of heating oil.
The New Jersey Appellate Division disagreed, explaining that although the complaint did not contain explicit allegations either that Spartan’s negligence occurred “during delivery” of the heating oil or after the oil was “finally delivered,” it does allege that the negligence occurred when the fuel oil was “delivered.” While acknowledging that there was no prior legal authority explicitly defining “delivery” in the insurance context, the common definition of “deliver” means to give into another’s possession. As such, the delivery of oil occurred with the fuel entering the property and heating system of the customer. At that point, Spartan no longer had possession or control of the oil, as it had been transferred into the possession of its customer.
Consequently, the Appellate Division affirmed the trial court’s interpretation of the insurance policies and its assessment of the underlying complaint’s allegations. Because Spartan had already “finally delivered” the oil before the contamination occurred, the pollution exclusion applied and the insurance policies did not cover the duty to defend a lawsuit arising from the contamination.