Pollution Exclusion and the Commercial Auto Liability Policy
The plaintiff appeals from an order granting summary judgment to the defendant that dismissed an action for environmental contamination. This case is Spartan Oil Company v. New Jersey Property-Liability Insurance Guaranty Association, 2012 WL 2052108 (Superior Court of New Jersey, Appellate Division). Note that this is an unpublished opinion.
Spartan Oil Company was in the business of delivering heating oil. Spartan delivered heating oil to Plaza Cleaners during the period of March 1992 through March 1994. Its drivers pumped heating oil from its vehicles into an external intake pipe located on the outside of Plaza Cleaners, and the fuel traveled through an internal feed line to an underground tank under the basement. Unknown to Spartan, the fuel line was corroded and had developed holes. Over time, seepage from the fuel line caused serious environmental contamination that was not discovered until 2003.
After being sued for the contamination, Spartan was successful in obtaining summary judgment because the statute of limitations had run. Spartan then notified its insurer that it was seeking reimbursement of its defense costs based on its commercial motor vehicle liability policy that applied during the 1992 – 1994 period. The insurer was Reliance and because it was insolvent at that time, the New Jersey Property-Liability Guaranty Association (NJPLIGA) was responsible for the policies issued by Reliance. NJPLIGA denied Spartan's claim of coverage based on the pollution exclusion that stated there was no coverage for BI or PD arising out of the actual discharge or escape of pollutants “after the pollutants … are moved from the covered auto to a place where they are finally delivered … by the insured”.
Spartan filed the present action seeking a declaratory judgment that it was entitled to reimbursement but the trial court sided with the NJPLIGA. This appeal followed.
Spartan contended that the trial court erred in looking beyond the face of the original complaint against Spartan and considered underlying facts. More specifically, Spartan argued that the fundamental flaw in the trial court's reasoning was that it made determinations as to when the delivery was complete and when the discharge occurred and whether the delivery was made correctly, and these points were not relevant to the coverage determination. Spartan said that the complaint against it alleged negligence during the delivery of the heating oil and so, the pollution exclusion as worded in the auto policy did not apply.
The appeals court noted that the original complaint actually contained no explicit allegation that the negligence occurred during delivery of the oil or after the oil was finally delivered. However, the reference in the complaint to “the fuel oil delivered” implied that the delivery had already occurred. A review of the policy language showed that the exclusion unambiguously applied after final delivery of the oil. The court said that it was not aware of legal authority that explicitly defines “delivery” or “finally delivered”, but the common sense definition means “giving into another's possession”. So, although the fuel oil discharge and the resulting contamination occurred while the fuel oil was traveling through the pipes toward the tank, the court found that this occurred after Spartan Oil deposited the oil from its truck into the heating oil system. As such, Spartan Oil had already surrendered, that is, delivered, the fuel oil in any rational meaningful and unambiguous way.
Whether the term is “delivered” or “finally delivered”, the court said, delivery of the oil occurred upon the fuel entering the property and heating system of the customer. At that point, Spartan no longer had possession or control of the oil; it had been transferred into the possession of the customer. It was the discharge of the oil into the heating system that constituted final delivery and this triggered the pollution exclusion.
The ruling of the trial court was affirmed.
Editor's Note: The phrase “finally delivered” appears in many liability policies and is usually associated with an exclusion. Since the policies do not define or clarify the phrase, it is appropriate to have a court do so. The Superior Court of New Jersey , Appellate Division, held in this case that “finally delivered” means placing the property into the possession of the customer. The insured in this instance no longer had possession or control of the heating oil, and even though the actual escape of the oil occurred while the oil was flowing through the pipe, the transfer of control and possession had been made and the pollutant was “finally delivered”.