BENJAMIN et al v. STATE FARM INSURANCE COMPANY et al

Filing 40

OPINION FILED. Signed by Judge Jerome B. Simandle on 8/17/17. (js)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

NIMROD BENJAMIN and MARNIE
BENJAMIN,
Plaintiffs,

HONORABLE JEROME B. SIMANDLE

Civil No. 15-4123 (JBS/AMD)

v.
STATE FARM INSURANCE COMPANY
and CLARENDON NATIONAL
INSURANCE,

OPINION

Defendants.

APPEARANCES:
Jonathan Wheeler, Esq.
LAW OFFICES OF JONATHAN WHEELER
1617 JFK Boulevard, Ste. 1270
One Penn Center
Philadelphia, PA 19103
Attorney for Plaintiffs
Craig D. Gottilla, Esq., and David F. Swerdlow, Esq.
WINDELS MARX LANE & MITTENDORF
120 Albany Street Plaza, 6th Floor
New Brunswick, NJ 08901
Attorneys for Defendant State Farm Insurance Company
John Donovan Shea, Esq., and William Wendell Cheney, III, Esq.
LITCHFIELD CAVO LLP
1800 Chapel Ave. West, Ste. 360
Cherry Hill, NJ 08002
Attorneys for Defendant Clarendon National Insurance
SIMANDLE, District Judge:
Table of Contents
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . .2
II. PROCEDURAL AND FACTUAL BACKGROUND . . . . . . . . . . . . .3
A. Procedural Background . . . . . . . . . . . . . . . . .4
B. Factual Background . . . . . . . . . . . . . . . . . . 6

1. The Underground Storage Tank and Remediation . . .6
2. Clarendon Policy, Claim, and Denial . . . . . . .10
3. State Farm Policy, Claim, and Denial . . . . . . 16
4. Defendants' Expert Report . . . . . . . . . . . .22
III. STANDARD OF REVIEW . . . . . . . . . . . . . . . . . . . 25
IV. ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . .26
A. Clarendon . . . . . . . . . . . . . . . . . . . . . . 28
1. Section I: "Land" not covered under Coverage A . 29
2. Section II: “Occurrence” during the policy period .
. . . . . . . . . . . . . . . . . . . . . . . . . . 32
3. Section II: Pollution Exclusion . . . . . . . . .37
4. Section II: Owned Property Exclusion . . . . . . 46
5. Pro-Rata, Time on the Risk Allocation . . . . . .53
6. Bad Faith Claim . . . . . . . . . . . . . . . . .55
B. State Farm . . . . . . . . . . . . . . . . . . . . . .56
1. Section I: “Land” not covered . . . . . . . . . .57
2. Section II: “Occurrence” during the policy period .
. . . . . . . . . . . . . . . . . . . . . . . . . . 60
3. Section II: Pollution Exclusion . . . . . . . . .64
4. Bad Faith Claim and Punitive Damages . . . . . . 67
V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . 68

I. INTRODUCTION
This is an action by husband and wife Plaintiffs Nimrod and
Marnie Benjamin against two insurance companies, Defendant State
Farm Insurance Company (“State Farm”) and Defendant Clarendon
National Insurance (“Clarendon”), as the holders of policies of
insurance issued by the Defendants for premises located at 72
Wynnewood Drive, Voorhees, New Jersey 08043. Plaintiffs allege
that the Defendants breached their contractual obligations to
pay benefits to Plaintiffs for a physical loss to the insured
premises, concerning leakage of heating oil from a previously
unknown underground storage tank, under their respective
policies of insurance. [Docket Item 1-2 at 5-6.] Unbeknownst to
2

Plaintiffs when they purchased this residential property and
obtained these insurance policies, the underground leakage had
occurred many years prior.
Pending before the Court are State Farm’s Motion for
Summary Judgment [Docket Item 27] and Clarendon’s Motion for
Summary Judgment [Docket Item 28].
For the reasons set forth below, the Court will grant in
part and deny in part State Farm’s Motion for Summary Judgment
and will grant in part and deny in part Clarendon’s Motion for
Summary Judgment.

II. PROCEDURAL AND FACTUAL BACKGROUND1

1

For purposes of the instant motion and pursuant to Local Civil
Rule 56.1, the Court looks to Plaintiffs’ Complaint [Docket Item
1-2] when appropriate, State Farm’s Statement of Undisputed
Material Facts [Docket Item 27-4], Plaintiff’s related CounterStatement of Undisputed Material Facts [Docket Item 30 at 3-4],
State Farm’s Response to the Counter-Statement [Docket Item 351], Clarendon’s Statement of Undisputed Material Facts [Docket
Item 28-2], Plaintiff’s related Counter-Statement of Undisputed
Material Facts [Docket Item 29 at 3-4], Clarendon’s Response to
the Counter-Statement [Docket Item 36 at 4-5], and related
exhibits and documents.
The Court notes with disapproval Plaintiffs’ counsel’s
apparent disregard of Local Civil Rule 56.1(a), which requires
the “opponent of summary judgment” to “furnish, with its
opposition papers, a responsive statement of material facts,
addressing each paragraph of the movant’s statement, indicating
agreement or disagreement and, if not agreed, stating each
material fact in dispute and citing to the affidavits and other
documents submitted in connection with the motion; any material
fact not disputed shall be deemed undisputed for purposes of the
summary judgment.” Plaintiffs’ counsel filed no such statement.
3

A. Procedural Background
On or about April 29, 2015, Plaintiffs filed a complaint in
the Superior Court of New Jersey, Law Division, Camden County
against three parties: State Farm, Clarendon, and the U.S.
Department of Housing and Urban Development (“HUD”). [Docket
Item 1-2 at 2.] Plaintiffs alleged that both State Farm and
Clarendon had issued policies of insurance covering Plaintiffs’
premises located at 72 Wynnewood Drive, Voorhees, New Jersey
(“the Property”) and wrongfully failed to pay benefits under
those policies after “a release of heating oil from a previously
unknown underground heating oil tank.” [Id. at 5-6.] Plaintiffs
alleged that HUD “was the record owner of [those] premises . . .
prior to ownership by Plaintiffs” and knew or should have known
about the tank and breached its duty to disclose the presence of

Rule 56.1(a) also provides that the opponent may furnish “a
supplemental statement of disputed material facts,” which
Plaintiffs’ counsel did here. [Docket Items 30 at 3-4; 29 at 34.] Defendants submitted responses to the respective CounterStatements. [Docket Items 35-1 and 36 at 4-5.]
Accordingly, because Plaintiffs did “not dispute[]” the
statements of material fact submitted by Clarendon and State
Farm by furnishing “responsive statement[s] of material facts,
addressing each paragraph of the movant[s’] statement[s],”
Defendants’ statements “shall be deemed undisputed for purposes
of the summary judgment,” L. Civ. R. 56.1(a), unless the record
clearly discloses a dispute of material fact. It is not the
Court’s obligation, however, to comb the extensive record of
this case to identify a material factual dispute where the party
opposing summary judgment has not done so under Local Civil Rule
56.1(a).
4

the tank to Plaintiffs. [Id. at 5-7.]
HUD removed the case to federal court on June 17, 2015,
pursuant to 28 U.S.C. §§ 1442(a)(1) on the grounds that it had
“federal defenses to raise against the action against it,
including but not limited to sovereign immunity from suit in
state courts, sovereign immunity from suits of this type,
absence of privity of contract with Plaintiffs under federal
law, [and] failure to state a claim upon which relief may be
granted under federal law.” [Docket Item 1 at 4.] No party filed
a motion to remand at that time.
HUD filed its answer on July 8, 2015. [Docket Item 5.]
State Farm, in its answer, filed a cross-claim for contribution
“from all other parties, presently named or later impleaded, in
the event that State Farm is determined to be liable to
plaintiffs.” [Docket Item 11 at 6.] HUD filed its answer to the
cross-claim on July 28, 2015. [Docket Item 14.]
On November 25, 2015, HUD filed a Motion to Dismiss for
lack of jurisdiction. [Docket Item 19.] In lieu of filing a
response in opposition, Plaintiffs’ counsel filed a letter
indicating that “Plaintiffs [did] not oppose entry of an Order
granting dismissal of the claims against federal Defendant
HUD[.]” [Docket Item 21.] The Court subsequently granted the
Motion to Dismiss [Docket Item 22]; ordered dismissal of the
5

cross-claim against HUD [Docket Item 26]; and terminated HUD as
a party on February 26, 2016.
In due course, State Farm filed a Motion for Summary
Judgment. [Docket Item 27.] Clarendon filed its Motion for
Summary Judgment on the same day. [Docket Item 28.] Plaintiffs
filed their respective Responses in Opposition [Docket Items 29,
30]. State Farm filed its Reply [Docket Item 35], as did
Clarendon [Docket Item 36.]
B. Factual Background
1. The Underground Storage Tank and Remediation
Plaintiff Nimrod Benjamin purchased the Property, a
foreclosed townhouse, on January 2, 2004. [Docket Item 27-4
¶ 1.] He and Marnie Benjamin married in 2008. [Docket Item 28-2
¶ 4.] The Property was constructed in 1976-77; “[a]t the time it
was constructed, it was reportedly equipped with an underground
heating oil tank ([underground storage tank or] UST) system”
(hereinafter “UST”). [Id. ¶¶ 2-3.] Plaintiffs were unaware, at
least until 2012 and possibly until May 2014, that the
underground heating oil tank existed on the Property. [Docket
Item 27-4 ¶¶ 2, 4; 28-2 ¶ 7.]2 At all times during Plaintiffs’

2

To the extent that it is relevant, the Court finds that there
is a genuine dispute of material fact as to when Plaintiffs
became aware of the existence of the underground heating oil
tank, whether 2012 or later, but there is no dispute that
Plaintiffs were unaware of the underground tank prior to 2012.
6

ownership of the Property, it was heated by oil drawn from an
above-ground oil tank, which had been previously installed in
the garage in 2002. [Docket Items 27-4 ¶ 3; 28-2 ¶¶ 9-10.]
Although a Voorhees township official notified Mr. Benjamin by
letter on January 3, 2012 that the Property contained a UST
“that did not appear to be in use,” the Benjamins did not
believe that the instructions regarding the UST in that letter
were applicable to them since they did not know a UST was on the
property and were aware only of the above-ground tank. [Docket
Item 28-2 ¶¶ 12-14.]
In late May of 2014, Plaintiffs hired Superior Tank and
Energy Company of Bristol, Pennsylvania, to remove the UST and
dispose of it. [Docket Item 27-4 ¶ 5.] When it was removed, 200
gallons of oil were reportedly pumped out of the UST and
transported to be recycled. [Docket Item 28-2 ¶ 18.] At that
time, a municipal inspector who was present suspected a fuel oil
discharge, the New Jersey Department of Environmental Protection
(“NJDEP”) was notified, and Plaintiffs were directed to
remediate the Property by notice dated May 30, 2014. [Docket
Item 27-4 ¶ 6.]
Plaintiffs subsequently hired Moore’s Tank Services, Inc.
(“Moore’s”) to investigate potential soil and groundwater
contamination in the area where the UST had been; on July 21,
7

2014, Moore’s collected soil samples and subsequently found
fuel-oil impacted soil in the side yard and under the garage.
[Docket Item 28-2 ¶¶ 21-22.] Moore’s also determined that
groundwater had been contaminated by fuel oil. [Id. ¶ 23.]
Moore’s issued a report to the Benjamins on August 27, 2014,
wherein it stated:
(1)

Soil contamination extended from the location of the
UST along the side of the house, about 12 feet into
the yard toward the midpoint of the house, ended “near
at the rear of the house,” and extended under the
house;

(2)

Contamination did not migrate toward the street or the
garage in the vicinity of the former tank;

(3)

Contaminated soil appeared to increase away from the
location of the UST toward the rear of the property
and was encountered closer to the surface further from
that location (Mr. Moore believed this suggested “the
possibility of a second source of contamination or an
older spill that has migrated”;

(4)

Elevated benzene levels indicated apparent degradation
of the heating oil and “suggest[ed] an older spill”;

(5)

The Benjamins should immediately begin remediation;
and
8

(6)

“Age dating at least one sample, but three are
recommended, will indicate the age of the plume.”

[Docket Items 28-2 ¶¶ 24-26; 27-4 ¶ 8, citing Docket Item 27-2
at 67-69.]
Plaintiffs had Precision Testing Labs, Inc., test the soil
as recommended by Moore’s. Precision issued a report on
September 4, 2014, stating that the “C&L age of the petroleum on
[the relevant sample] is estimated to be greater than 20 years
old.” [Docket Items 28-2 ¶ 28; 27-4 ¶ 9, citing Docket Item 27-2
at 71 (emphasis in original).] Precision’s report continued:
“The model [we used to determine this] can estimate the age of
#2 heating oil (or diesel fuel) up to 20 years old within a
range of plus or minus two years.” [Docket Item 27-2 at 72.]
Plaintiffs hired Moore’s to remediate the soil and
groundwater that reflected the existence of the heating oil and
to prepare a Remedial Action Report. [Docket Items 28-2 ¶ 30;
28-5 at 4-23.] In the course of the remediation process, Moore’s
excavated and replaced 221.2 tons of impacted soil (reflecting
an area of 35’ x 20’ x 10.5’ deep or a volume of approximately
272 cubic yards [Docket Item 27-2 at 114]) and another
contractor, Monarch Environmental Services, pumped out 278
gallons of groundwater from the excavation site. [Docket Item
28-5 at 10-12.] The area excavated was entirely within
9

Plaintiffs’ property; there was no evidence uncovered by Moore’s
that heating oil had spread to either soil or groundwater beyond
the property line. [Docket Item 28-5 at 19.]
The NJDEP issued a No Further Action Letter on May 15,
2015, and Plaintiffs sold the townhouse on July 6, 2015. [Docket
Item 28-2 ¶¶ 39-40.]
2. Clarendon Policy, Claim, and Denial
Clarendon issued a homeowner’s insurance policy (“Clarendon
Policy”) to Plaintiff Nimrod Benjamin with a policy period of
January 2, 2005 to January 2, 2006 for the Property. [Docket
Item 28-5 at 48.] The Clarendon Policy was divided into Section
I, “Property Coverages,” and Section II, “Liability Coverages.”
[Docket Item 28-5 at 51, 60.] Before both sections the policy
included a “Definitions” section. [Id. at 50.]
Section I included five subsections, A through D and
“Additional Coverages”; Coverage A covered the “Dwelling,”
Coverage B, “Other Structures,” Coverage C, “Personal Property,”
Coverage D, “Loss of Use,” and the fifth subsection, “Additional
Coverages.” [Id. at 51-55.] Section I also contained further
subsections as follows: “Perils Insured Against” [id. at 55],
“Exclusions” [id. at 57], and “Conditions” [id. at 58-60].
Section II included two subsections, E and F; Coverage E
covered “Personal Liability,” and Coverage F, “Medical Payments
10

to Others.” [Id. at 60.] Section II also contained further
subsections as follows: “Exclusions” [id. at 61-63], “Additional
Coverages” [id. at 63], and “Conditions” [id. at 64].
The Clarendon Policy also contained a further subsection,
entitled “Sections I and II--Conditions.” [Id. at 64.]
After Section I, Section II, and “Sections I and II-Conditions,” the Clarendon Policy contained a number of
endorsements which changed the policy. [Id. at 66-81.] They were
as follows:
(a)

“Replacement or Repair Cost Protection Endorsement”
[id. at 66];

(b)

“Personal Property Replacement Cost” [id. at 67];

(c)

“Amendatory Endorsement - New Jersey” [id. at 68-69];

(d)

“Special Provisions - New Jersey” [id. at 70-76];

(e)

“Limited Fungi, Wet or Dry Rot, or Bacteria Coverage”
[id. at 77-79]; and

(f)

“Workers’ Compensation - Residence Employees, New
Jersey” [id. at 80-81].

The provisions in the Clarendon Policy relevant to this
action are outlined as follows, in the order in which they
appear within the Policy:
Definitions:
. . .
5. “Occurrence” means an accident, including
continuous or repeated exposure to substantially the
11

same general harmful conditions, which results, during
the policy period, in:
a. “Bodily injury”; or
b. “Property damage.”
6. “Property damage” means physical injury to,
destruction of, or loss of use of tangible property.
. . .
Section I - Property Coverages
Coverage A - Dwelling
We cover:
1. The dwelling on the “residence premises” shown in
the Declarations, including structures attached to
the dwelling; and
2. Materials and supplies located on or next to the
“residence premises” used to construct, alter or
repair the dwelling or other structures on the
“residence premises.”
This coverage does not apply to land, including land
on which the dwelling is located.
. . .
Section I - Perils Insured Against
Coverage A - Dwelling and Coverage B - Other
Structures
We insure against risk of direct loss to property
described in Coverages A and B only if that loss is a
physical loss to property. We do not insure, however,
for loss:
. . .
2. Caused by:
. . .
e. Any of the following:
(1) Wear and tear, marring, deterioration;
(2) Inherent vice, latent defect, mechanical
breakdown;
(3) Smog, rust or other corrosion, mold, wet
or dry rot;
. . .
(5) Discharge, dispersal, seepage,
migration, release or escape of pollutants
unless the discharge, dispersal, seepage,
migration, release or escape is itself
caused by a Peril Insured Against under
Coverage C of this policy.
Pollutants means any solid, liquid, gaseous
or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids,
12

alkalis, chemicals and waste. Waste includes
materials to be recycled, reconditioned or
reclaimed;
. . .
3. Excluded under Section I - Exclusions.
Under Items 1. And 2., any ensuing loss to property
described in Coverages A and B not excluded or
excepted in this policy is covered.
. . .
Section I - Exclusions
1. We do not insure for loss caused directly or
indirectly by any of the following. Such loss is
excluded regardless of any other cause or event
contributing concurrently or in any sequence to the
loss.
a. Ordinance or Law, meaning enforcement of any
ordinance or law regulating the construction,
repair, or demolition of a building or other
structure, unless specifically provided under
this policy.
. . .
Section I - Conditions
. . .
7. Other Insurance. If a loss covered by this policy
is also covered by other insurance, we will pay only
the proportion of the loss that the limit of liability
that applies under this policy bears to the total
amount of insurance covering the loss.
8. Suit Against Us. No action can be brought unless
the policy provisions have been complied with and the
action is started within one year after the date of
loss.
. . .
Section II - Liability Coverages
Coverage E - Personal Liability
If a claim is made or a suit is brought against an
“insured” for damages because of “bodily injury” or
“property damages” caused by an “occurrence” to which
this coverage applies, we will:
1. Pay up to our limit of liability for the damages
for which the “insured” is legally liable. Damages
include prejudgment interest awarded against the
“insured”; and
2. Provide a defense at our expense by counsel of our
choice, even if the suit is groundless, false or
fraudulent. We may investigate and settle any claim or
13

suit that we decide is appropriate. Our duty to settle
or defend ends when the amount we pay for damages
resulting from the “occurrence” equals our limit of
liability.
. . .
Section II - Exclusions
1. Coverage E - Personal Liability and Coverage F Medical Payments to Others do not apply to “bodily
injury” or “property damage”:
. . .
c. Arising out of the rental or holding for
rental of any part of any premises by an “insured.”
This exclusion does not apply to the rental or holding
for rental of an “insured location”:
(1) On an occasional basis if used only as a
residence;
(2) In part for use only as a residence,
unless a single family unit is intended for
use by the occupying family to lodge more
than two roomers or boarders; or
(3) In part, as an office, school, studio or
private garage;
. . .
2. Coverage E - Personal Liability, does not apply to:
. . .
b. “Property damage” to property owned by the
“insured”;
. . .
Amendatory Endorsement - New Jersey
This endorsement changes the policy. Please read it
carefully.
Under Item 2. Coverage E - Personal Liability,
exclusion g. is added:
g. A loss caused by dumping, discharge or escape of
irritants, pollutants or contaminants. Any loss, cost
or expense arising out of any governmental direction
or request that you test for pollutants. Any loss,
cost or expense arising out of any governmental
direction or request that you watch for pollutants.
Any loss, cost or expense arising out of any
governmental direction or request that you clean up or
remove pollutants. Any loss, cost or expense arising
out of any governmental direction or request that you
control or treat pollutants. Any loss, cost or expense
arising out of any governmental direction or request
that you detoxify or neutralize pollutants.
14

A pollutant is any solid or liquid irritant or
contaminant.
A pollutant is also any gaseous or thermal irritant or
contaminant. A pollutant can be smoke, vapor, soot,
fumes, acids, alkalis, chemicals and waste. The
definition of waste includes materials that can be
recycled, reconditioned or reclaimed.
These exclusions are not valid if the loss was sudden
and accidental.
. . .
This endorsement changes the policy. Please read it
carefully.
Special Provisions - New Jersey
. . .
Section I - Exclusions
1. Ordinance or Law is deleted and replaced by the
following:
1. Ordinance or Law, meaning any ordinance or law:
. . .
c. Requiring any “insured” or others to test for,
monitor, clean up, remove, contain, treat,
detoxify or neutralize, or in any respond to, or
assess the effects of, pollutants.
Pollutants means any solid, liquid, gaseous or
thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled,
reconditioned or reclaimed.
[Docket Item 28-5 at 50-73.]
Plaintiffs contacted American Claims Management, the third
party administrator for Clarendon, in August 2014 to report a
claim under the Clarendon Policy for removal of the UST and the
attendant remediation. Clarendon acknowledged the claim and
requested additional documentation, which Plaintiffs provided.
This information included Moore’s initial report. On November
24, 2014, American Claims Management, on behalf of Clarendon,
15

denied Plaintiffs’ claim. [Docket Item 28-2 ¶¶ 47-50.] The claim
was denied because:
Our [American Claims Management’s] investigation has
concluded that the damage to the UST was due to wear
and tear, deterioration, rust or other corrosion of
the oil storage tank. The Policy excludes loss to
property caused by wear and tear, deterioration or
rust or other corrosion. Any discharge, dispersal,
seepage, migration, release or escape of pollutants
would likewise not be covered by the policy. Given
that the Policy does not apply to land, including land
on which the dwelling is located, the remediation of
soils likewise would fall outside the coverage
provided by the policy. The loss was not a sudden and
accidental occurrence.
Lastly, the Policy excludes the costs to comply with
any ordinance or law which requires you to test,
monitor, clean up or in any way respond to pollutants
on any covered building or your property.
Accordingly, the claim for the cost of loss or damage
associated from your underground storage tank is not a
covered loss under the policy.
[Docket Item 28-5 at 93-94.] Plaintiffs did not submit any
further records or documents to Clarendon after their claim was
denied. [Docket Item 28-2 ¶ 56.]
3. State Farm Policy, Claim, and Denial
State Farm issued a Rental Dwelling Policy – Special Form 3
(“State Farm Policy”) to Plaintiffs that was in effect from July
1, 2009 to July 1, 2015. [Docket Items 27-4 ¶ 12; 27-3 at 3-33.]
The State Farm Policy was divided into Section I, “Your
Property,” and Section II, “Your Liability.” [Docket Item 27-3
at 7-33.] Before both sections the policy included a
16

“Definitions” section. [Id. at 8-9.]
Section I included four major subsections: “Coverages,”
“Losses Insured,” “Losses Not Insured,” and “Conditions.” [Id.
at 9-16.] The “Coverages” subsection included five further
subsections: Coverage A covered the “Dwelling,” Coverage B,
“Personal Property,” Coverage C, “Loss of Rents,” the fourth,
“Additional Coverages,” and the fifth, “Inflation Coverage.”
[Id. at 9-12.]
Section II included four major subsections: “Coverages,”
“Exclusions,” “Additional Coverages,” and “Conditions.” [Id. at
16-21.] The “Coverages” subsection included two further
subsections: Coverage L covered “Business Liability,” and
Coverage M, “Premises Medical Payments.” [Id. at 16-17.]
The State Farm Policy also contained two further sections
after Sections I and II: the first was “Section I and II –
Conditions,” and the second was “Optional Provisions.” [Id. at
21-23.]
After those four sections, the State Farm Policy contained
a number of endorsements which changed the policy. [Id. at 2433.] They were as follows:
(a)

Amendatory Endorsement – New Jersey [id. at 24];

(b)

Debris Removal Endorsement [id. at 25];

(c)

Lead Poisoning Exclusion Endorsement [id. at 26];
17

(d)

Fungus (Including Mold) Exclusion Endorsement [id. at
27];

(e)

FE-6854 Civil Union Endorsement [id. at 28];

(f)

Fungus (Including Mold) Limited Coverage Endorsement
($10,000) [id. at 29-30];

(g)

FE-5801 Mandatory Reporting Endorsement [id. at 31];
and

(h)

FE-5610 Rental Dwelling Policy Endorsement [id. at 3233].

The provisions in the State Farm Policy relevant to this
action are outlined as follows, in the order in which they
appear within the Policy:
Definitions:
. . .
8. “occurrence,” when used in Section II of this
policy, means an accident, including exposure to
conditions, which results in:
a. bodily injury;
b. property damage; or
c. personal injury;
during the policy period. Repeated or continuous
exposure to the same general conditions is considered
to be one occurrence.
. . .
10. “property damage” means physical damage to or
destruction of tangible property, including loss of
use of this property. Theft or conversion of property
by any insured is not considered to be property
damage.
. . .
Section I - Coverages
Coverage A - Dwelling
We cover:
1. the dwelling on the residence premises shown in the
18

Declarations used principally as a private
residence, including structures attached to the
dwelling;
2. materials and supplies located on or adjacent to the
residence premises for use in the construction,
alteration or repair of the dwelling or other
structures on the residence premises;
. . .
Except as specifically provided for in the Section I
Additional Coverages, for Land, we do not cover land
or any costs required to replace, rebuild, stabilize
or otherwise restore the land.
. . .
Additional Coverages
. . .
9. Land. We will pay up to $10,000 for the cost
required to replace, rebuild, stabilize or otherwise
restore the land necessary to support the insured
dwelling sustaining a covered loss. This may increase
the limit applying to the property.
. . .
Section I – Losses Not Insured
1. We do not insure for loss to the property described
in Coverage A and Coverage B either consisting of, or
directly and immediately caused by, one or more of the
following:
. . .
i. wear, tear, marring, scratching,
deterioration, inherent vice, latent defect and
mechanical breakdown;
j. rust, mold, or wet or dry rot;
k. contamination;
. . .
Section I – Conditions
. . .
8. Suit Against Us. No action shall be brought unless
there has been compliance with the policy provisions
and the action is started within one year after the
date of loss or damage.
. . .
Section II – Liability Coverages
Coverage L – Business Liability
If a claim is made or a suit is brought against any
insured for damages because of bodily injury, personal
injury, or property damage to which this coverage
applies, caused by an occurrence, and which arises
19

from the ownership, maintenance, or use of the insured
premises, we will:
1. pay up to our limit of liability for the damages
for which the insured is legally liable; and
2. provide a defense at our expense by counsel of our
choice. We may make any investigation and settle any
claim or suit that we decide is appropriate. Our
obligation to defend any claim or suit ends when the
amount we pay for damages, to effect settlement or
satisfy a judgment resulting from the occurrence,
equals our limit of liability.
. . .
Section II – Exclusions
1. Coverage L – Business Liability and Coverage M –
Premises Medical Payments do not apply to:
. . .
i. bodily injury or property damage arising out
of the actual, alleged or threatened discharge
dispersal, spill, release or escape of
pollutants:
(1) at or from premises owned, rented or
occupied by the named insured;
. . .
In addition, Coverage L and Coverage M do not
apply to loss, cost or expense arising out of any
governmental direction or request that the named
insured test for, monitor, clean up, remove,
contain, treat, detoxify, or neutralize
pollutants;
As used in this exclusion:
. . .
“pollutants” means any solid, liquid, gaseous or
thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and
waste.
“waste” includes materials to be recycled,
reconditioned or reclaimed.
2. Coverage L – Business Liability, does not apply to:
. . .
b. property damage to property owned by any
insured;
. . .
Section II – Conditions
. . .
6. Suit Against Us. No action shall be brought against
us unless there has been compliance with the policy
20

provisions.
. . .
8. Other Insurance – Coverage L – Business Liability.
This insurance is excess over any other valid and
collectible insurance except insurance written
specifically to cover as excess over the limits of
liability that apply in this policy.
Section I and Section II – Conditions
1. Policy Period. This policy applies only to loss
under Section I or bodily injury, personal injury, or
property damage under Section II which occurs during
the period this policy is in effect.
. . .
10. Conformity to State Law. When a policy provision
is in conflict with the applicable law of the State in
which this policy is issued, the law of the State will
apply.
. . .
Amendatory Endorsement (New Jersey)
. . .
Section II – Exclusions
The following is added to exclusions 1.i.:
This exclusion does not apply to pollution which
occurs quickly and abruptly and is accidental.
[Docket Item 27-3 at 8-24.]
Plaintiffs subsequently submitted a claim to State Farm,
which State Farm denied by letter dated June 19, 2014. [Docket
Item 27-4 ¶¶ 13-14.] State Farm denied the claim because, under
Section I,
[l]and is not included in property covered under
Coverage A – Dwelling or Dwelling extension.
Additional coverage for land requires that fi[r]st a
loss otherwise insured occurs and then coverage would
be extended up to $10,000 for the cost to restore the
land to the extent that it is necessary to support the
dwelling. Since there has been no covered loss to your
dwelling, the additional coverage for land does not
apply. Additionally, under Section I of your policy,
losses as a result of wear, tear, deterioration, rust
and contamination are specifically excluded.
21

[Docket Item 27-3 at 37.] State Farm next turned to Section II
of the Policy and denied the claim under that Section because it
covered Plaintiffs
for claims made against you by third parties for which
you may be liable which meet our insuring agreement
with you subject to certain conditions and exclusions.
There must be damage to third party property, such as
neighboring property or groundwater, before coverage
is provided under Section II of your policy. . . .
Please be advised that since there are no claims
against you for damages by a third party, our insuring
agreement with you had not been met. Additionally, if
the insuring agreement had been met, this loss did not
occur quickly and abruptly and accidentally, therefore
the pollution exclusions would apply. The loss to the
tank itself is the result of wear, tear and
deterioration. Under Section II of your policy, the
exclusions for owned property and pollution would
apply.
As stated above, there is no coverage for any first
party damage. Furthermore, no coverage also applies
under the Liability section of your policy for any
third party damage. Since your loss is excluded under
this section, therefore your claim must be denied.
[Id. at 37-39.]
4. Defendants’ Expert Report
Plaintiffs have not produced any expert reports in this
action, nor disclosed any expert witnesses. [Docket Item 28-2
¶ 65.] Defendants timely produced an expert report prepared by
Daniel G. Sullivan, P.G. of Roux Associates, Inc., who has
thirty-two years of professional experience in hydrogeology and
the investigation and remediation of sites with contaminated
22

soil and groundwater. [Id. at ¶¶ 66-67.] Mr. Sullivan’s expert
report is included in the evidentiary record before the Court,
wherein he states that he was retained “to evaluate available
data and provide an opinion regarding the timing of the onset of
the contaminant release from an improperly abandoned underground
fuel oil storage tank” at the Property. [Docket Item 27-2 at
108.] At the close of his report, he offers his opinions “with a
reasonable degree of scientific certainty” and states as
follows:
2. There is no data or information available that
would allow me to contest, refute, or contradict [the
Precision’s report’s opinion of September 4, 2014]
that the fuel oil release at the Benjamin townhome is
more than 20 years old, as of the time the sample was
collected in August 2014. Based on the available age
dating analysis by [Precision], the petroleum in the
sample was released more than 20 years prior to sample
collection. This means that the age dating analysis
indicates the fuel oil in Sample HA-17 from the
Benjamins’ residence was released prior to 1994.
3. The life expectancy of unprotected steel
underground storage tank systems is generally
estimated to be between 10 and 20 years. Since the UST
system at 72 Wynnewood Drive was installed in 1976 or
1977, its 20-year useful life would have ended in
about 1997. This date is consistent with Precision
Testing Lab’s age dating analysis.
4. The fact that the UST contained about 200 gallons
of oil when it was pumped out on May 28, 2014
demonstrates that the release from this UST system was
not from the UST itself, but was instead from the fuel
line(s) or fittings going from the UST to the
townhome. Therefore, once the UST was replaced by the
aboveground tank in the garage, the UST and its fuel
lines were no longer pressurized by the furnace’s fuel
23

pump and no longer carried fuel from the UST to the
furnace and/or back to the UST. Once there was no
longer fuel oil traveling through the lines, they were
no longer capable of causing releases of oil (i.e.,
they were empty). Mr. Benjamin has testified that the
aboveground tank in the garage was already in place
and in use when he bought the house in 2004;
therefore, no releases from the fuel lines could have
occurred after his date of purchase in 2004. This date
is also consistent with both Precision Testing Lab’s
age dating analysis and the average life expectancy of
residential UST systems.
5. Based on the three lines of evidence described
above . . . , it is my opinion that the release from
the UST system at 72 Wynnewood Drive occurred in the
mid- to late- 1990s. The release from the UST system
ended at the time the UST and its fuel lines were
abandoned (some unknown time prior to 2004).
Therefore, it is my opinion, with a reasonable degree
of scientific certainty, that the release from the UST
at 72 Wynnewood Drive began and ended prior to 2004,
when Mr. Benjamin purchased this townhome.
6. The fact that the UST contained about 200 gallons
of oil when it was pumped out on May 28, 2014
demonstrates that the release from this UST system did
not result from a quick, abrupt, or catastrophic
event. Instead, the presence of significant amounts of
oil and very little water at least ten years after
abandonment indicates a gradual and protracted release
that occurred only during the time period when the UST
system was in operation. There is no evidence of any
continuing releases after 2004.
7. Based on my review of the reports prepared by
Moore’s describing the limited area of soil and
groundwater impacted by fuel oil at 72 Wynnewood
Drive, there is no evidence of continued migration of
contaminants after the UST was abandoned at some time
prior to 2004. Soil contamination was limited to a
distance of 35 feet or less from the UST and
groundwater was reportedly only impacted directly
beneath the UST excavation.
[Docket Item 27-2 at 116-17.]
24

III. STANDARD OF REVIEW3
At summary judgment, the moving party bears the initial
burden of demonstrating that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a
matter of law. Fed. R. Civ. P. 56(a); accord Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). Once a properly supported
motion for summary judgment is made, the burden shifts to the
non-moving party, who must set forth specific facts showing that
there is a genuine issue for trial. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 250 (1986). In reviewing a motion for
summary judgment, the court is required to examine the evidence
in light most favorable to the non-moving party, and resolve all
reasonable inferences in that party's favor. Hunt v. Cromartie,

3

The Court exercises diversity jurisdiction over this action
pursuant to 28 U.S.C. § 1332(a). On June 13, 2017, the Court
inquired of the parties as to whether diversity jurisdiction
exists in this action under 28 U.S.C. § 1332(a) and (c) and
asked Defendants to provide their respective states of
incorporation and the states of their respective principal
places of doing business. [Docket Item 37.] Clarendon’s counsel
responded that Clarendon is an Illinois corporation with its
principal place of business in New York. [Docket Item 38.] State
Farm’s counsel responded that State Farm is incorporated in
Illinois and has its principal place of business in Illinois.
[Docket Item 39.] Plaintiffs are citizens of New Jersey. [Docket
Item 1-2 at 2.] A review of the evidentiary record suggests that
the amount in controversy here exceeds $75,000 [Docket Item 28-5
at 14]; accordingly, the Court exercises diversity jurisdiction
although the case was removed here on the basis of federal
question jurisdiction and no such federal question remains.
25

526 U.S. 541, 552 (1999); Wishkin v. Potter, 476 F.3d 180, 184
(3d Cir. 2007). Credibility determinations are not appropriate
for the court to make at the summary judgment stage. Davis v.
Portlines Transportes Maritime Internacional, 16 F.3d 532, 536
n.3 (3d Cir. 1994).
A factual dispute is material when it “might affect the
outcome of the suit under the governing law,” and genuine when
“the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson, 477 U.S. at 248. The
non-moving party “‘need not match, item for item, each piece of
evidence proffered by the movant,’” but must simply present more
than a “mere scintilla” of evidence on which a jury could
reasonably find for the non-moving party. Boyle v. Cnty. of
Allegheny Pennsylvania, 139 F.3d 386, 393 (3d Cir. 1998)
(quoting Anderson, 477 U.S. at 252).

IV. ANALYSIS
Both of Defendants’ motions will be analyzed under New
Jersey law because the Property is located in New Jersey. See
Unisys Corp. v. Insurance Co. of North America, 154 N.J. 217,
222-23 (1998) (“in the case of New Jersey sites, New Jersey law
should govern”).
Under New Jersey law, a court interpreting an insurance
26

policy “must enforce the policy as written when its meaning and
language is clear and unambiguous. . . . The court should read
policy provisions so as to avoid ambiguities, if the plain
language of the contract permits. . . . [W]hen a court finds an
insurance policy to be clear and unambiguous, the matter may be
properly resolved on summary judgment. ” U.S. Bronze Powders,
Inc. v. Commerce and Industry Ins. Co., 259 N.J. Super 109, 11516 (Law Div. 1992), aff’d, 293 N.J. Super 12 (App. Div. 1996)
(internal citations omitted). “[T]he words of an insurance
policy are to be given their plain, ordinary meaning.” Gibson v.
Callaghan, 158 N.J. 662, 670 (1999). “When there is doubt,
however, regarding the existence of coverage, that doubt is
ordinarily resolved in favor of the insured[,]” Benjamin Moore &
Co. v. Aetna Cas. & Sur. Co., 179 N.J. 87, 102 (2004), “in order
to give effect to the insured’s reasonable expectations. This is
so even if a ‘close reading’ might yield a different outcome, or
if a ‘painstaking’ analysis would have alerted the insured that
there would be no coverage.” Flomerfelt v. Cardiello, 202 N.J.
432, 441 (2010).
“Exclusionary clauses are presumptively valid and are
enforced if they are specific, plain, clear, prominent, and not
contrary to public policy. . . . If the words used in an
exclusionary clause are clear and unambiguous, a court should
27

not engage in a strained construction to support the imposition
of liability. . . . [E]xclusions are ordinarily strictly
construed against the insurer[.]” Id. at 441-42. “Conversely,
clauses that extend coverage are to be viewed broadly and
liberally.” Gibson, 158 N.J. at 671.
The Third Circuit has stated: “[W]hen the terms of an
insurance contract are clear, it is the function of a court to
enforce it as written and not make a better contract for either
of the parties. Thus, we must not torture the language of a
contract to create ambiguity where none exists in order to
impose liability, and we must construe the words of an insurance
policy so as to adhere to their ordinary meaning.” Resolution
Trust Corp v. Fidelity and Deposit Co. of Md., 205 F.3d 615, 643
(3d Cir. 2000) (internal citations and quotations omitted).
“Generally, an insured bears the burden of establishing
that a claim is within the basic policy terms. The insurer has
the burden of establishing application of an exclusion.” Cobra
Prods., Inc. v. Federal Ins. Co., 317 N.J. Super 392, 401 (App.
Div. 1998)(internal citations omitted).

A. Clarendon
Clarendon argues that there is no genuine dispute of
material fact that Clarendon is responsible for any of the
28

damages claimed by Plaintiffs because its policy does not cover
the release of fuel oil from the UST and that no reasonable
finder of fact could conclude, on this evidentiary record, that
it does. The Court does not agree and will deny Clarendon’s
motion for summary judgment on Count I (breach of contract).
In the alternative, Clarendon moves for summary judgment as
to Plaintiffs’ claim of bad faith, Count III, and for an order
declaring that the allocation of Plaintiffs’ remediation costs
be assessed on a pro-rata, time on the risk allocation analysis
basis and, for that reason, limit Clarendon’s coverage to onetwentieth (1/20) of the covered remediation costs.
Clarendon presents five major reasons why the Clarendon
Policy does not provide coverage for the release of fuel oil
from the UST. The Court will address these in turn, starting
with those arguments relating to Section I of the Clarendon
Policy, implicating first party coverage, and then turning to
those relating to Section II of the Clarendon Policy,
implicating liability coverage.
1. Section I: “Land” not covered under Coverage A
Clarendon argues that Coverage A, the subsection within
Section I that Plaintiffs must argue is applicable to their
claim, in fact does not extend coverage to that claim where
Coverage A states:
29

Coverage A - Dwelling
We cover:
1. The dwelling on the “residence premises” shown in the
Declarations, including structures attached to the
dwelling; and
2. Materials and supplies located on or next to the
“residence premises” used to construct, alter or repair the
dwelling or other structures on the “residence premises.”
This coverage does not apply to land, including land on
which the dwelling is located.
Clarendon asserts that this is because the “soil remediation
conducted on the insured premises was the result of damage to
the land. Accordingly, any costs associated with the remediation
of the land and/or soil” would not be covered” under Coverage A
or Section I. [Docket Item 28-1 at 27.]
In response, Plaintiffs argue that they “are not seeking
coverage for the cost of repairing the land. Plaintiffs have not
yet taken any steps to replace, rebuild, stabilize or otherwise
restore the land; rather immediately following the date of
discovery, Plaintiffs hired Moore’s . . . to remediate the soil
and groundwater. This policy does not specifically exclude the
remediation of soil and groundwater, and therefore, this cost is
covered.” [Docket item 29 at 10.]
The Court cannot agree with Plaintiffs’ position. The
provision regarding “land” in Coverage A is not an exclusion,
but rather a limitation on the extent of coverage. Coverage A
clearly and unambiguously states that it covers “the Dwelling,”
30

structures attached to the dwelling, and nearby materials and
supplies used to construct, alter or repair the dwelling or
those structures. In contrast, Coverage A “does not apply to
land, including land on which the dwelling is located.” This
language sets a boundary on the extent of Coverage A; it does
not purport to exclude certain costs or damages incurred (e.g.,
the cost of replacing, rebuilding or restoring land, rather than
soil remediation). Whether Section I of the Clarendon Policy
specifically excludes soil remediation is of no moment, when it
expressly “does not apply to land” and there is no dispute of
fact that the injury suffered by Plaintiffs was to the land and
not to the dwelling or related structures or materials.
Furthermore, the factual record suggests that Plaintiffs did
“take[] steps to replace . . . or otherwise restore the land,”
inasmuch as over two hundred tons of contaminated soil were
removed from the Property and replaced with clean fill. [Docket
Item 28-5 at 10-11.]
For that reason, the Court agrees with Clarendon that
Coverage A of the Clarendon Policy does not apply to the damages
suffered by Plaintiffs. As no other coverages in Section I would
apply to Plaintiffs’ claim, the Court accordingly finds that
Section I of the Clarendon Policy does not provide first party
coverage for Plaintiffs’ claim as a matter of law.
31

Accordingly, because the Court finds that Coverage A does
not apply to Plaintiffs’ claim, the Court need not address
whether Coverage A’s exclusion for “actions undertaken in
compliance with law or ordinance” is applicable. [Docket Items
28-1 at 27; 29 at 11.]
The Court will grant partial summary judgment in
Clarendon’s favor, determining that Plaintiffs are not entitled
to recover a first party claim under Section I, Coverage A of
the Clarendon Policy. However, the finding that the Clarendon
Policy did not provide first party coverage for Plaintiffs’
claim does not mandate full summary judgment to Clarendon. The
Court next turns to the liability coverage portion of the Policy
under Section II.
2. Section II: “Occurrence” during the policy period
Clarendon states that Coverage E, the relevant coverage
subsection of Section II of the Clarendon Policy, does not apply
to Plaintiffs’ claim because it applies only to claims or suits
for bodily injury or property damage caused by an “occurrence.”
An “occurrence” is defined within the Clarendon Policy as “an
accident, including continuous and repeated exposure to
substantially the same general harmful conditions, which
results, during the policy period, in a) bodily injury; or b)
property damage[,]” meaning “physical injury to, destruction of,
32

or loss of use of tangible property.” Clarendon argues that
Plaintiffs’ claim was not for an “occurrence” within the meaning
of Coverage E because “the age of the release” of the fuel oil
was greater than 20 years old as of 2014 and must have occurred
prior to the time that Mr. Benjamin purchased the Property in
2004: “Accordingly, there could have been no occurrence during
the policy period that resulted in property damage, and
therefore, no coverage under the Clarendon Policy incepting on
January 1, 2005.” [Docket Item 28-1 at 26-27.] However, the
Court does not agree.
The Court reads the definition of “occurrence” within the
Clarendon Policy as follows: “an accident . . . which results,
during the policy period, . . . in property damage.” The
modifying phrase “during the policy period” appears, to the
Court, to modify the second part of that definition, rather than
the first. In other words, the Court reads the definition not to
state that, in order to qualify as an occurrence, the accident
must happen during the policy period, but rather that, in order
to qualify as an occurrence, the results of the accident must
happen during the policy period. See Appalachian Ins. Co. v.
Liberty Mut. Ins. Co., 676 F.2d 56, 61-62 (3d Cir. 1982) (“We
hold that the determination of when an occurrence happens must
be made by reference to the time when the injurious effects of
33

the occurrence took place. There can be no question but that the
aspect of the occurrence which must take place within the policy
period is the ‘result,’ that is, the time when the accident or
injurious exposure produces . . . injury”) (internal citations
omitted).
The Third Circuit, applying similar language, has held
that, in a case where the “injurious effects” of an event
(there, the adoption of discriminatory employment policies)
“began immediately . . . and continued at least to some extent
into the period of coverage” provided by the insurance policy,
“the occurrence takes place when the injuries first manifest
themselves.” Id. at 62. See also Owens-Illinois, Inc. v. United
Ins. Co., 138 N.J. 437, 452, 456, 478-79 (1994) (describing as
“well settled” the “general rule” that “the time of the
occurrence of an accident within the meaning of an indemnity
policy is not the time the wrongful act is committed but the
time when the complaining party is actually damaged”). In
Appalachian, the Third Circuit ruled that the injuries to the
employees occurred immediately upon the adoption of the
policies, before the effective date of the insurance policy,
noting that a “contrary result in this case would contravene the
rule that an insured cannot insure against something which has
already begun. The rule is based on the realization that the
34

purpose of insurance is to protect insureds against unknown
risks.” Appalachian, 676 F.2d at 63. The court found that “the
risk of liability was no longer unknown” on the policy’s
effective date “because injuries resulted immediately[,]” i.e.,
before that date, and because “the complaint to the EEOC
preceded the effective date” of the policy. Id. Although some
injured employees “did not begin their employment” until after
the effective date of the policy, the court found that
immaterial: “Once we established there was but one occurrence it
either took place before or after the effective date of the
policy”--otherwise, there would have to have been multiple
occurrences. Id. at 63 n.17.
This Court was confronted with a similar situation in UTI
Corp. v. Fireman’s Fund Ins. Co., 896 F. Supp. 362, 383 (D.N.J.
1995), where the Court stated: “The policies do not tell us that
it is the toxic leak which, in the pollution context, triggers
coverage; the policies tell us only that coverage is triggered
by an accident or continuous or repeated exposure to conditions
which results in (bodily injury or) ‘property damage’ during the
term of the policy. If ‘property damage’ occurred after the date
of the last leak of TCE from the USTs, there could conceivably
be coverage under the policies.” In UTI Corp., this Court looked
to the earlier case of Chemical Leaman Tank Lines v. Aetna Cas.
35

& Sur. Co., 817 F. Supp. 1136, 1153-54 (D.N.J. 1993), wherein
that court “predicted that the New Jersey Supreme Court would
apply, as a matter of law, the ‘continuous trigger’ theory of
coverage for pollution claims[.]” UTI Corp., 896 F. Supp. at
383. If that were the case, such a holding would have allowed
the plaintiff in UTI Corp. to “recover under each policy in
force from the date the insured began operating . . . its plant
through the date the resulting soil and groundwater
contamination damage manifested itself”; therefore, the Court
stated, the “policies would thus be continuously triggered if
the insured could show (1) that some kind of property damage
occurred during each policy period for which the insured seeks
coverage, and (2) that the property damage was part of a
continuous and indivisible process of injury.” Id. at 383.
In fact, the New Jersey Supreme Court did subsequently
apply the “continuous trigger” theory of coverage for pollution
claims, and Chemical Leaman was affirmed on this ground. See
Chemical Leaman Tank Lines, Inc. v. Aetna Cas. and Sur. Co., 89
F.3d 976, 995 (3d Cir. 1996) (citing Owens-Illinois, 138 N.J. at
455). “Under the continuous trigger theory, exposure to the harm
causing agent is sufficient to trigger potential coverage.
Actual manifestation of the injury is not required, so long as
there is a continuous, indivisible process resulting in damage.
36

. . . The jury could find property damage occurred during a
policy period so long as there is proof that a continuous,
indivisible process of injury occurred during that period.”
Chemical Leaman, 89 F.3d at 995-96.
The undisputed evidence in this case tends to show, in the
Court’s view, only when the leak began and ended (at some point
in the mid- to late-1990s, and at some undetermined point before
2004, respectively). If, as was seen by the Court as possible in
UTI Corp., “property damage occurred after the date of the last
leak,” “there could conceivably be coverage” under the Clarendon
Policy. The Court finds that there remains a genuine dispute of
material fact as to when the property damage, rather than the
leak, occurred, and therefore, the date of the “occurrence”
under the policy.
Accordingly, the Court declines to adopt Clarendon’s
proposed interpretation seeking a determination, as a matter of
law, that there was no “occurrence,” within the meaning of the
Clarendon Policy, during the policy period.
3. Section II: Pollution Exclusion
Clarendon next argues that the pollution exclusion
endorsement within the Policy under the heading “Amendatory
Endorsement - New Jersey” excludes Plaintiffs’ claim from
coverage. The Court does not agree.
37

Under “Section II - Exclusions,” Item 2 states that
“Coverage E - Personal Liability does not apply to” a number of
claims. The Amendatory Endorsement adds “exclusion g.” to Item 2
as follows:
g. A loss caused by dumping, discharge or escape of
irritants, pollutants or contaminants. Any loss, cost or
expense arising out of any governmental direction or
request that you test for pollutants. Any loss, cost or
expense arising out of any governmental direction or
request that you watch for pollutants. Any loss, cost or
expense arising out of any governmental direction or
request that you clean up or remove pollutants. Any loss,
cost or expense arising out of any governmental direction
or request that you control or treat pollutants. Any loss,
cost or expense arising out of any governmental direction
or request that you detoxify or neutralize pollutants.
A pollutant is any solid or liquid irritant or contaminant.
A pollutant is also any gaseous or thermal irritant or
contaminant. A pollutant can be smoke, vapor, soot, fumes,
acids, alkalis, chemicals and waste. The definition of
waste includes materials that can be recycled,
reconditioned or reclaimed.
These exclusions are not valid if the loss was sudden and
accidental.
Clarendon argues that this exclusion applies to Plaintiffs’
claim, and that the loss was not “sudden and accidental” under
New Jersey law. Accordingly, it urges that the Court find that
exclusion g. be found applicable, rendering Plaintiffs’ claim
not covered under Coverage E. [Docket Item 28-1 at 28-30.]
The Court finds instructive the Third Circuit’s explanation
of the treatment of pollution exclusion clauses under New Jersey
law:
38

[T]he New Jersey Supreme Court addressed the standard
form pollution exclusion clause in Morton Int’l, Inc.
v. General Accident Ins. Co. of America, [134 N.J. 1,
28-31 (1993).] . . . It held “‘sudden’ possesses a
temporal element, generally connoting an event that
begins abruptly or without prior notice or warning”
and concluded that “the phrase ‘sudden and accidental’
in the standard pollution-exclusion clause describes
only those discharges, dispersals, releases, and
escapes of pollutants that occur abruptly or
unexpectedly and are unintended.” Nevertheless, the
court refused to enforce the standard pollution
exclusion as written because it found the insurance
industry had misled state regulators in securing its
approval. Instead, the court held the pollution
exclusion clause precludes coverage if the insured
intentionally discharges a known pollutant, regardless
of whether the insured expected or intended to cause
property damage[.] . . . [“]Accordingly, we construe
and give effect to the standard pollution-exclusion
clause only to the extent that it shall preclude
coverage for pollution-caused property damage caused
by an ‘occurrence’ if the insured intentionally
discharged, dispersed, released, or caused the escape
of a known pollutant.”
Chemical Leaman, 89 F.3d at 990-91 (quoting Morton, 134 N.J. at
29, 31 (emphasis in original)). In Chemical Leaman, the insurer
argued that Morton’s regulatory estoppel-based holding shouldn’t
apply to its policy because its policies contained non-standard
pollution exclusions and “because it was not party to the
misrepresentations made to regulatory authorities.” Chemical
Leaman, 89 F.3d at 991. The Third Circuit rejected that
argument, stating: “We do not believe the New Jersey Supreme
Court would enforce the term ‘sudden’ in non-standard pollution
exclusion clauses simply because other language in those clauses
39

varies slightly from that in the standard pollution exclusion”
and enforced Morton’s regulatory estoppel holding; the court
also found that the insurer “benefitted from the misleading
explanation of the effect of the standard pollution exclusion
submitted to state regulators by insurance industry trade
groups” and believed that “the New Jersey Supreme Court would
not enforce the term ‘sudden’ in the policies issued by the”
insurer. Id. at 991-92.
The Appellate Division, interpreting Morton, stated as
follows: “Unless the insurer establishes that the insured
intentionally discharged a known pollutant or had specifically
authorized an agent to act for it in intentionally discharging a
known pollutant, the pollution exclusion clause will not bar
coverage.” J. Josephson, Inc. v. Crum & Forster Ins. Co., 293
N.J. Super. 170, 200 (App. Div. 1996). This is so even though
“the phrase ‘sudden and accidental’ related not to the damage
caused by the pollution, but only to the ‘discharge, dispersal,
release or escape’ of pollutants for which coverage was
provided.” Id. at 191 (citing Morton, 134 N.J. at 28-29).
The New Jersey Supreme Court reexamined pollution
exclusions in Nav-Its, Inc. v. Selective Ins. Co. of America,
183 N.J. 110 (2005). There, the court looked at both the
standard pollution exclusion discussed in Morton as well as “a
40

new pollution exclusion, first appearing in 1985, and commonly
known as the absolute exclusion clause.” Two differences between
the standard exclusion and the absolute exclusion “were the
elimination of the reference to an exception for the sudden and
accidental release of pollution, and the elimination of the
requirement that the pollution be discharged into or upon land,
the atmosphere or any watercourse or body of water.” Nav-Its,
183 N.J. at 121-22. The court concluded that “the pollutionexclusion clause in its various forms demonstrates that its
purpose was to have a broad exclusion for traditional
environmentally related damages.” Id. at 123. In holding that
the exclusion did not apply to a case about paint or sealant
fumes causing personal injury, the court ruled that “the scope
of the pollution exclusion should be limited to injury or
property damage arising from activity commonly thought of as
traditional environmental pollution” and that the exclusion
“should be limited to traditional environmental pollution.” Id.
at 124, 126. The court cited with approval the following
observation: “‘The drafters’ utilization of environmental law
terms of art (“discharge,” “dispersal,” . . . “release” or
“escape” of pollutants) reflects the exclusion’s historical
objective--avoidance of liability for environmental catastrophe
related to intentional industrial pollution.’” Id. at 124
41

(citing Motorists Mut. Ins. Co. v. RSJ, Inc., 926 S.W.2d, 679,
681 (Ky. Ct. App. 1996)).
Since Nav-Its, other courts have examined various
situations to determine whether they constitute “traditional
environmental pollution,” and, therefore, whether pollution
exclusions should be found applicable.
This Court, in finding a pollution exclusion inapplicable
to mercury contamination inside a building later used as a
daycare center, examined Morton and Nav-Its, stating: “The NavIts court does not provide much specific guidance on the meaning
of ‘traditional environmental pollution,’ beyond the observation
that the exclusion was intended to avoid liability for
‘environmental catastrophe related to intentional industrial
pollution.’ [Nav-Its, 183 N.J. at 124, citing Motorists, 926
S.W.2d at 681] . . . [S]ee Merchants Ins. Co. of N.H., Inc. v.
Hessler, No. 03-5857, 2005 WL 2009902, at *3 (D.N.J. Aug. 18,
2005) (‘Traditional environmental pollution was defined . . . as
‘“environmental catastrophe related to intentional industrial
pollution.”’).” Baughman v. U.S. Liability Ins. Co., 662 F.
Supp. 2d 386, 397 (D.N.J. 2009). In Baughman, this Court found
that the pollution exclusion did not apply to cases where
“toxins [were] released in a contained space,” but found that
“the mere presence of contaminant outdoors is not necessarily
42

sufficient” to establish a situation involving “traditional
environmental pollution” and therefore, one in which a pollution
exclusion may be applicable. 662 F. Supp. 2d at 397, 398.
In Merchants Ins. Co. of N.H., cited by the Court in
Baughman, the court found that the activity that the insurer
proposed was excluded by the pollution exclusion did not
constitute “traditional environmental pollution” even where the
insured “was requested by the health department to remediate the
lead paint chips by removing the top layer of soil off the
property and laying down fresh soil[,]” because “the act of
removing the top layer of soil does not constitute an
‘environmental catastrophe related to intentional industrial
pollution.’ [Nav-Its, 183 N.J.] at 124[.] Therefore, the total
pollution exclusion endorsement does not apply in this case.”
2005 WL 2009902, at *3.
More recently, a court has reiterated that pollution
exclusions (even “Absolute Pollution Exclusions”) “only apply to
intentional pollution,” and denied summary judgment where the
insured was “a ‘mom & pop contracting business attempting to
fill a mined-out sand pit to grade[,]’ . . . the materials it
left on its site ‘seemed innocuous at the time[,]’ . . .
‘[t]here [was] no intentional pollution[, and]’ the pollution
level was too low to constitute ‘catastrophe[,]’” but it was
43

undisputed that the insured “used the [site] as a disposal site
for a variety of waste materials from local construction sites,”
the NJDEP investigated the site repeatedly, the site was tested
for contaminants under the direction of the E.P.A., and the
NJDEP identified the insured “as the sole party responsible for
the contamination at the site.” Castoro v. Hartford Accident and
Indemnity Co., Inc., No. 14-1305, 2016 WL 5660438, at *7, *3, *2
(D.N.J. Sept. 29, 2016). The court ruled that, pursuant to NavIts, “even when a pollution exclusion’s language does not
require intent, New Jersey public policy requires intent to
avoid unregulated and sweeping elimination of pollution-caused
damage coverage. . . . Due to this intent requirement,
[comprehensive general liability] policies that attempt to
exclude all pollution damage actually ‘include[ ] coverage for
continuous or repeated exposure to conditions, provided that the
property damage -- not the discharge – was “neither expected nor
intended from the standpoint of the insured.”’” [Morton, 134
N.J. at 29]; see also Nav-Its, [183 N.J. at 124] (applying the
intent requirement in Morton, even though the absolute pollution
exclusion in Morton was expressly limited to ‘sudden’ and
‘accidental’ injuries, unlike the pollution exclusion in NavIts).” Castoro, 2016 WL 5660438, at *7. The court stated that
the insurer “failed to demonstrate that there is no genuine
44

dispute of material fact that would satisfy New Jersey’s intent
requirement” because the insurer failed “to allege that
Plaintiff intentionally polluted” the site and the insured
contended that “its polluting conduct was unintentional because
the ‘materials seemed innocuous at the time.’” Id.
If the court in Castoro can find that there is a genuine
issue of material fact as to whether a pollution exclusion
should apply under Morton and Nav-Its, where the situation much
more greatly resembles, in the Court’s opinion, “traditional
environmental pollution,” the Court here finds that such an
analysis only applies with greater strength to the present
facts. Here, Plaintiffs had no part in the release of the
heating oil; nor can knowledge (or reason to know or suspect)
thereof be imputed to them at the time they bought the Clarendon
Policy.
Given the applicability of the pollution exclusion only in
a context involving “traditional environmental pollution” under
Nav-Its and the failure of Clarendon to allege (let alone
demonstrate the existence of evidence from which a reasonable
fact-finder could find) that Plaintiffs intended to pollute the
Property, the Court declines to grant summary judgment at this
time on the grounds that the Pollution Exclusion applies under
Coverage E.
45

4. Section II: Owned Property Exclusion
Clarendon argues that the “owned property” exclusion
contained in “Section II - Exclusions” applies to Plaintiffs’
claim and bars their recovery for the costs of the remediation.
[Docket Item 28-1 at 30-34.] In response, Plaintiffs argue that
there is a “genuine issue of material fact regarding the effects
of the damaged groundwater on third parties,” that the soil
remediation and groundwater remediation should be viewed as a
unit because they “were made necessary by the same damage,” and
that the property of third parties would have suffered imminent
damage had the Plaintiffs not undertaken the remediation
efforts. [Docket Item 29 at 10.] Clarendon notes in reply that
Plaintiffs do “not cite to a single document, statement, report
or opinion contained in the record” to support the proposition
that there was an imminent threat to the property of third
parties. [Docket Item 36 at 7.]
The relevant exclusion states as follows:
Section II - Exclusions
1. Coverage E - Personal Liability and Coverage F - Medical
Payments to Others do not apply to “bodily injury” or
“property damage”:
. . .
c. Arising out of the rental or holding for rental of
any part of any premises by an “insured.” This exclusion
does not apply to the rental or holding for rental of an
“insured location”:
(1) On an occasional basis if used only as a
residence;
(2) In part for use only as a residence, unless a
46

single family unit is intended for use by the
occupying family to lodge more than two roomers
or boarders; or
(3) In part, as an office, school, studio or
private garage;
. . .
2. Coverage E - Personal Liability, does not apply to:
. . .
b. “Property damage” to property owned by the
“insured”[.]
Under New Jersey law, the owned property exclusion has been
found to exclude indemnification where there was only a threat
of damage to the property of a third party and no actual damage
manifested. State v. Signo Trading Int’l, 130 N.J. 51, 65
(1992). While the trial court there made a finding that
potential contamination to the property of third parties was
imminent, the New Jersey Supreme Court nevertheless found that
the “policy’s definition of property damage does not encompass
‘threatened harm’ even if that threat is ‘imminent’ and
‘immediate.’ Thus, under its clear terms, the policy does not
cover the costs of cleanup performed by or on behalf of an
insured on its own property when those costs are incurred to
alleviate damage to the insured’s own property and not to the
property of a third party.” Id. at 62-63. The Signo court
distinguished both cases that “fall within the narrow exception
allowing recovery for the cost of measures intended to prevent
imminent or immediate future damage when a present injury has
already been demonstrated,” citing Western World Ins. Co. v.
47

Dana, 765 F. Supp. 1011 (E.D. Cal. 1991), and cases where
expenses had been incurred to remedy groundwater, which under
the relevant state law, constituted not “damage to property of
the occupier of the land, but rather” “damage to the property of
third persons,” citing Intel Corp. v. Hartford Accid. & Indem.
Co., 952 F.2d 1551 (9th Cir. 1991).
Subsequent New Jersey case law has held that “groundwater
does not clearly fall within the category of ‘owned property’
for the purposes of the exclusion[,]” because “groundwater is
unique. Unlike other property that is normally considered as
being within the four corners of one’s deed, groundwater not
only flows or trickles or runs or oozes through the land from
one place to another, but, other than being a source of potable
water, it is certainly not susceptible to the custody or control
of a property owner. To this extent, we agree with the
description in UMC[/Stamford v. Allianz Underwriters Ins. Co.,
276 N.J. Super. 52, 61 (Law Div. 1994)] that it is by its very
nature, a migratory fluid which uncontrollably seeps through
porous soil particles which is nearly impossible to naturally
contain[.]” Morrone v. Harleysville Mut. Ins. Co., 283 N.J.
Super. 411, 420 (App. Div. 1995) (internal citations and
quotations omitted).
As this Court stated in Federal Ins. Co. By and Through
48

Assoc. Aviation Underwriters v. Purex Industries, Inc.,: “New
Jersey courts have held that groundwater below real property is
not owned by the property owner. This proposition of law is
upheld and supported by a series of eight opinions issued by the
appellate division [in 1996, applying Morrone].” 972 F. Supp.
872, 883 (D.N.J. 1997). Although the defendants in Purex claimed
that Morrone was “ill-considered” and that the New Jersey
Supreme Court would “most likely reverse the appellate division
decisions in whole or in part,” the Court did “not share that
view”: “Morrone does not contradict any New Jersey Supreme Court
precedent, including [Signo], and has not itself been overruled
or distinguished.” Purex at 883-84.
Purex continues that, although Morrone itself dealt with a
“duty to defend” context and not a claim for indemnification of
remediation of groundwater, “[t]he appellate division cases
which follow Morrone . . . apply to a variety of contexts,
including those for indemnification of remediation costs.” Id.
at 884. The Court found, as a matter of law, that “the owned
property exclusion does not apply to remediation of contaminated
groundwater.” Id.
The Court notes that, twenty years later, Morrone still has
not been overruled or distinguished by the New Jersey Supreme
Court. Indeed, the Appellate Division has squared any apparent
49

tension between Morrone and Signo: “Under the law, groundwater
is not considered property owned by the insured. [Morrone, 283
N.J. Super. at 420.] Therefore, groundwater contamination is not
excluded under the owned property exclusion, Kentopp v. Franklin
Mut. Ins. Co., 293 N.J. Super. 66, 77 (App. Div. 1996), and
groundwater remediation costs are considered property damage.
Morton, 124 N.J. at 27 . . . On the other hand, a mere threat of
future groundwater contamination is insufficient to establish
property damage. [Signo, 130 N.J. at 63-64.]” Mid-Monmouth
Realty Assocs. v. Metallurgical Industries, Inc., No. L-2422-00,
2017 WL 1422848, at *9 (App. Div. N.J. Sup. Ct. Apr. 21, 2017).4
Clarendon urges the Court to take note of the divide
“between the extensive soil remediation effort and the very
limited groundwater remediation” as well as the alleged paucity
of evidence showing either immediate or imminent harm to
neighboring third parties, and conclude that there is no genuine
dispute of material fact in this evidentiary record showing that

4

Clarendon cites the Law Division case UMC/Stamford, 276 N.J.
Super. at 62, for the proposition that “coverage should not be
barred” only if a plaintiff proves “the actual existence of
pollutants in the groundwater as well as a substantial risk that
a third-party’s property will be contaminated.” [Docket Item 281 at 31.] To the extent that this constitutes an additional
required showing, the Court finds that Morrone (which expressly
cited and addressed UMC/Stamford) and its progeny, including
Mid-Monmouth Realty, which do not require any such additional
showing, overrule this case, and that the New Jersey Supreme
Court would not impose such an additional requirement.
50

the owned property exclusion is inapplicable. [Docket Item 28-1
at 32.] The Court disagrees. The evidentiary record clearly
shows that groundwater was in fact contaminated and was
remediated; accordingly, under New Jersey law, the evidentiary
record demonstrates injury to third parties, and such injury
(i.e., to the common groundwater) in fact occurred, and was not
merely threatened or imminent. The owned property exclusion does
not apply to groundwater.
Clarendon asks the Court, in the alternative, to apply the
owned property exclusion “to the costs for remediation of the
soil contamination when those costs are not ‘reasonably
associated with remediating groundwater.’” [Docket Item 28-1 at
33, citing Purex, 972 F. Supp. at 884 (internal citations
omitted).]
In Purex, the defendants asked the court to apply the owned
property exclusion to the costs of soil remediation as unrelated
to groundwater contamination on the basis that “‘other costs
associated with remediating the site--for example soil
excavation, and fill and tank removal--should not be considered
covered damages except to the extent that they are deemed costs
reasonably associated with groundwater remediation. The soil and
tanks were clearly “owned property.”’” Purex, 972 F. Supp. at
884 (citing Strnad v. North River Ins. Co., 292 N.J. Super 476,
51

482 (App. Div. 1996)). However, the plaintiff in Purex countered
that “soil remediation was necessary to prevent further damage
to groundwater,” citing F.K. Smidth & Co. v. The Travelers Ins.
Co., 292 N.J. Super 483, 489 (App. Div. 1996) for the
proposition that “the costs of remediating the soil pollution
causing the groundwater contamination may be covered.” The court
agreed that the plaintiff had presented evidence that the “soil
contamination [at issue] was identified as the source of
groundwater contamination” and found that the insurers “failed
to present evidence that any of the remediation costs . . . ,
including those costs incurred for soil remediation, . . . are
not costs ‘reasonably associated with remediating groundwater.’
Sagendorf v. Selective Ins. Co., 293 N.J. Super 81, 98 (App.
Div. 1996)[.]” Purex, 972 F. Supp. at 884.
In Purex, the court in fact granted summary judgment to the
insured on the claim that the owned property exclusion did not
apply to the costs of soil remediation, because the insurers did
not raise a genuine dispute of material fact that such costs
were not reasonably associated with remediating the groundwater.
Id. at 884-85. Here, the Court will simply find that there does
exist a genuine issue of material fact as to which of
Plaintiffs’ asserted soil remediation and associated costs were
“reasonably associated with remediating groundwater.” See also
52

Universal-Rundle Corp. v. Commercial Union Ins. Co., 319 N.J.
Super. 223, 241 (App. Div. 1999) (allowing insurer “to present
evidence of the proper allocation of remediation expenses
between soil and groundwater cleanup” at trial). Accordingly,
the Court will deny Clarendon’s motion for summary judgment on
the basis of the owned property exclusion.
5. Pro-Rata, Time on the Risk Allocation
Clarendon argues that “New Jersey case law dictates that
the allocation of remediation costs must be assessed on a prorata, time on the risk allocation analysis.” [Docket Item 28-1
at 34, citing Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J.
312, 326 (1998).] Plaintiff does not contest this argument, and
the Court finds it well-founded. See also Quincy Mut. Fire Ins.
Co. v. Borough of Bellmawr, 172 N.J. 409, 435-36 (2002)(“‘[A]
fairer method of allocation appears to be one that is related to
both the time on the risk and the degree of risk assumed’” and
that a “‘better formula’ would allocate the ‘losses among the
carriers on the basis of the extent of the risk assumed, i.e.,
proration on the basis of policy limits, multiplied by years of
coverage.’”) (citing Owens-Illinois, 138 N.J. at 479, 475).
Clarendon urges that, under this analysis, because the leak
was likely to have commenced as early as 1994, and Clarendon
only insured the Property for one year between 1994 and 2014
53

when the remediation was performed, Clarendon’s potential
coverage liability should be limited to 1/20 of the total
covered remediation costs. [Docket Item 28-1 at 36.]
The Court is not persuaded that this is an accurate
implementation of the Carter-Wallace/Owens-Illinois analysis.
Plaintiffs’ ownership of the Property began in January of 2004
(the Court will use months for simplification purposes) and
ended after approximately half of 2015. Arguably, the damage to
Plaintiffs ended at roughly the same time, in May of 2015 when
the NJDEP issued the No Further Action letter.
The Court finds that Plaintiffs’ damages occurred beginning
in 2004, when their exposure to the harm (namely, contamination
in the Property and the groundwater beneath) began, and not in
1994, when Plaintiffs were not damaged by the fuel oil below 72
Wynnewood Drive. Those damages continued, arguably, for the
period from January of 2004 until May of 2015.
Clarendon provided insurance for one of those years under
Coverage E for $300,000 and in total for $569,200. [Docket Item
28-5 at 48.] In contrast, State Farm insured the Property for
six of those 11.5 years for $852,930 plus the actual loss of
rents, with the business liability component of that coverage
constituting $600,000 annually--at least, those were the
coverage amounts for the State Farm Policy from 2013 to 2014.
54

[Docket Item 27-3 at 4.] It is not known which insurer insured
the Property for the remaining four and a half years, although
Plaintiffs and Defendants appear to agree that “the Benjamins
maintained insurance coverage on the home for the entire time of
their ownership.” [Docket Item 28-1 at 35.]
The Court agrees that an allocation prorating on the basis
of policy limits multiplied by time on the risk is appropriate
in this case. However, there are disputes of material fact as to
the appropriate allocation of the costs of remediation, due to
the uncertainty of the record at this juncture of the policy
limits for the relevant times as allocated among Defendants, as
well as other insurers on the risk during this eleven-year
period. The Court will therefore deny Clarendon’s motion to the
extent that it asks the Court to determine, as a matter of law,
that Clarendon is responsible for no more than 1/20 of those
costs.
6. Bad Faith Claim
Finally, Clarendon seeks summary judgment on Plaintiffs’
claim of bad faith in Count III of the Complaint. [Docket Item
28-1 at 36-37, citing Docket Item 1-2 at 7-8.]
Under New Jersey law, “to show a claim for bad faith, a
plaintiff must show the absence of a reasonable basis for
denying benefits of the policy and the defendant’s knowledge or
55

reckless disregard of the lack of a reasonable basis for denying
the claim”; “if a claim is fairly debatable, no liability” for
bad faith will arise. Pickett v. Lloyd’s, 131 N.J. 457, 473
(1993) (internal citations omitted). “Under the ‘fairly
debatable’ standard, a claimant who could not have established
as a matter of law a right to summary judgment on the
substantive claim would not be entitled to assert a claim for an
insurer’s bad-faith refusal to pay the claim.” Id. Unreasonable
delay in processing a claim can also serve as the basis of a
bad-faith claim. Id. at 474.
In their Response, Plaintiffs do not contest Clarendon’s
argument that they have failed to show that Clarendon’s position
was not “fairly debatable.” [Docket Item 29.] Accordingly, “the
Court deems the issue conceded.” Moorestown Tp. Bd. of Educ. v.
S.D., 811 F. Supp. 2d 1057, 1085 (D.N.J. 2011). The Court agrees
that Plaintiffs have not met their burden of establishing that
Clarendon’s position with regard to denying their claim was not
fairly debatable. For that reason, the Court will grant
Clarendon’s motion for summary judgment as to Plaintiffs’ claim
of bad faith in Count III with regard to Clarendon.

B. State Farm
The Court next turns to State Farm’s Motion for Summary
56

Judgment. State Farm makes many of the same arguments as
Clarendon; where appropriate, the Court will refer to the
relevant discussion supra.
State Farm asserts four major arguments in support of its
motion for summary judgment: first, that there was no
“occurrence” within the policy period under Section II; second,
that the pollution exclusion in Section II excludes Plaintiffs’
claim from coverage; third, that Section I does not cover
Plaintiffs’ claim for three separate reasons; and fourth, in the
alternative, that Plaintiffs have not met their burden to
demonstrate bad faith and that summary judgment should be
granted to State Farm as to that claim.
The Court will first address the arguments made as to
Section I of the State Farm Policy, and then turn to Section II.
1. Section I: “Land” not covered
State Farm argues that there is no first party coverage
under Section I of the State Farm Policy because by its terms,
and subject only to one irrelevant exception, the Policy does
not cover land. [Docket Item 27-1 at 21.] The Court agrees.
The relevant portion of Section I of the State Farm Policy
provides as follows:
Section I - Coverages
Coverage A - Dwelling
We cover:
1. the dwelling on the residence premises shown in the
57

Declarations used principally as a private residence,
including structures attached to the dwelling;
2. materials and supplies located on or adjacent to
the residence premises for use in the construction,
alteration or repair of the dwelling or other
structures on the residence premises;
. . .
Except as specifically provided for in the Section I
Additional Coverages, for Land, we do not cover land
or any costs required to replace, rebuild, stabilize
or otherwise restore the land.
. . .
Additional Coverages
. . .
9. Land. We will pay up to $10,000 for the cost
required to replace, rebuild, stabilize or otherwise
restore the land necessary to support the insured
dwelling sustaining a covered loss. This may increase
the limit applying to the property.
[Docket Item 27-3 at 9-11.] None of the other Coverage
subsections in Section I would be relevant to Plaintiffs’ claims
except Coverage A.
Coverage A, by its terms, covers only the dwelling,
structures attached to the dwelling, and adjacent materials and
supplies for use in the construction, alteration, or repair of
those structures or the dwelling. Furthermore, Coverage A
specifically withholds coverage for land or any costs required
to replace, rebuild, stabilize or otherwise restore the land. As
above, see supra at IV.A.1., the Court finds that there is no
genuine dispute of material fact as to whether this withholding
of coverage encompasses the costs of remediation incurred by
Plaintiffs to remove the heating oil from the soil and
58

groundwater on the Property. The Court further finds that the
Additional Coverages provision with regard to land is
inapplicable, as there is no claim here that “the insured
dwelling sustain[ed] a covered loss” to render that remediation
“necessary.”
Accordingly, as with the Clarendon Policy, see supra at
IV.A.1., the Court finds that there is no first party coverage
under Coverage A. Because this is the only applicable coverage
provision in Section I, the Court need not address State Farm’s
other contentions that Section I does not cover the claim
because its “coverage provisions expressly exclude coverage for
damage consisting of or caused by ‘contamination,’” [Docket Item
27-1 at 21, citing Docket Item 27-3 at 13] or because Section I
“‘applies only to loss . . . which occurs during the period this
policy is in effect.’” [Docket Item 27-1 at 21, citing Docket
Item 27-3 at 21.] Partial summary judgment will be granted in
favor of State Farm upon Plaintiffs’ claim for Section I,
Coverage A coverage.
However, as with Clarendon, see supra IV.A.1., the finding
that the State Farm Policy did not provide first party coverage
to Plaintiffs’ claim does not mandate summary judgment to State
Farm. The Court next turns to the liability coverage portion of
the Policy under Section II.
59

2. Section II: “Occurrence” during the policy period
State Farm argues that Plaintiffs’ claim is not covered
because “to trigger liability coverage under the policy, there
must be an ‘occurrence’ during the period the policy is in
effect.” [Docket Item 27-1 at 16.] According to State Farm, its
policy defines “occurrence” under Section II as “an accident,
including exposure to conditions, which results in: a. bodily
injury; b. property damage; or c. personal injury; during the
policy period. Repeated or continuous exposure to the same
general conditions is considered to be one occurrence.” [Docket
Item 27-3 at 9 (emphasis in original).] State Farm also notes
that the “‘Conditions’ section of the policy also makes clear
that the policy applies only to damage ‘which occurs during the
period this policy is in effect.’” [Docket Item 27-1 at 16,
citing Docket Item 27-3 at 21.] State Farm argues that because
“there is no evidence of any oil release after 2009” and “there
was no oil release during the period of State Farm’s insurance,”
it is not responsible for paying Plaintiffs’ claim. [Docket Item
27-1 at 16.]
The Court disagrees. First, as a matter of the language of
the Policy, the Court finds that the “Conditions” section of the
Policy in fact states: “This policy applies only to . . .
property damage under Section II which occurs during the period
60

this policy is in effect.” [Docket Item 27-3 at 21 (emphasis
added).] Such language is reasonably clear, and in fact,
unambiguous, that what must occur during the policy period is
not the act that causes the damage but rather the damage itself.
As such, where there is at least a genuine dispute of material
fact as to the property damage encompassing not just the initial
leak but also the subsequent spread of heating oil throughout
the Property’s soil and the groundwater beneath, State Farm
cannot be entitled to summary judgment where the evidence only
shows the timing of the release from the UST.
To the extent that the language of Coverage L conflicts
with this reading, the Court finds it ambiguous. The phrasing of
the definition of “occurrence” defines it as “an accident, . . .
which results in . . . property damage; . . . during the policy
period.” [Docket Item 27-3 at 9.] The modifying phrase “during
the policy period” could perhaps be read to modify the phrase
“an accident”; however, it is equally susceptible of an
interpretation which reads it to modify the phrase “which
results in property damage.” The Court finds that such a
phrasing is ambiguous: in Coverage L, “the phrasing of the
policy is so confusing that the average policyholder cannot make
out the boundaries of coverage.” Weedo v. Stone-E-Brick, Inc.,
81 N.J. 233, 247 (1979).
61

Furthermore, the Court finds that the continuous trigger
theory is applicable. See supra IV.A.2. State Farm suggests that
the continuous trigger theory “has been employed when ‘the date
of the occurrence of the injury cannot be pinpointed[,]’” citing
Franklin Mut. Ins. Co. v. Metropolitan Property & Cas. Ins. Co.,
406 N.J. Super. 586, 592 (App. Div. 2009), and states that it is
therefore inapplicable to the instant case because “the evidence
is undisputed that the oil release began and ended prior to
2004.” [Docket Item 27-1 at 17.]
The Court believes that State Farm misreads Franklin. That
case states that the continuous trigger theory is applicable as
a method of “allocat[ing] damages between insurers” “if the date
of the occurrence of the injury cannot be pinpointed.” Franklin,
306 N.J. Super at 592 (emphasis added). State Farm’s argument
that the date of the oil release can be “pinpointed” to a range
of years before its Policy incepted assumes incorrectly that the
“date of the occurrence of the injury” is the date of the oil
release, and not the date of the property damage to Plaintiffs’
property. The Court in Franklin recognized that the continuous
trigger theory was appropriate because the “difficulty with
environmental contamination claims is that the damage that
triggers insurance liability does not occur as the result of a
single event, but usually is attributable to events that begin,
62

develop and intensify over a sustained period of time and
therefore, the damages have ‘occurred’ or been ‘triggered’ along
a continuous timeline during which several successive policies
issued to the insured were in effect.” 406 N.J. Super. at 591
(internal citations omitted; emphasis added).
“Under the continuous trigger theory, exposure to the harm
causing agent is sufficient to trigger potential coverage.
Actual manifestation of the injury is not required, so long as
there is a continuous, indivisible process resulting in damage.
. . . The jury could find property damage occurred during a
policy period so long as there is proof that a continuous,
indivisible process of injury occurred during that period.”
Chemical Leaman, 89 F.3d at 995-96.
Because the case law supports an interpretation where the
phrase “during the policy period” modifies “which results in
property damage,” see supra IV.A.2. (citing Appalachian Ins. Co.
v. Liberty Mut. Ins. Co., 676 F.2d 56 (3d Cir. 1982); OwensIllinois v. United Ins. Co., 138 N.J. 437 (1994); UTI Corp. v.
Fireman’s Fund Ins. Co., 896 F. Supp. 362 (D.N.J. 1995));
because the Policy itself supports that interpretation in its
“Conditions” section; and because such an interpretation would
reflect an insured’s reasonable expectations, see Voorhees v.
Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992), the Court
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will deny summary judgment to State Farm on this point. There
is, at least, a genuine dispute of material fact as to whether
the property damage Plaintiffs suffered happened during the
policy period of the State Farm Policy, especially under the
continuous trigger theory, and summary judgment in State Farm’s
favor is inappropriate.
3. Section II: Pollution Exclusion
State Farm argues that its Pollution Exclusion clause in
Section II excludes Plaintiffs’ claim from coverage under
Coverage L. [Docket Item 27-1 at 18-20.] The Court disagrees.
The relevant exclusion of the Policy reads as follows:
Section II – Exclusions
1. Coverage L – Business Liability and Coverage M –
Premises Medical Payments do not apply to:
. . .
i. bodily injury or property damage arising out of the
actual, alleged or threatened discharge dispersal,
spill, release or escape of pollutants:
(1) at or from premises owned, rented or occupied
by the named insured;
. . .
In addition, Coverage L and Coverage M do not apply to
loss, cost or expense arising out of any governmental
direction or request that the named insured test for,
monitor, clean up, remove, contain, treat, detoxify,
or neutralize pollutants;
As used in this exclusion:
. . .
“pollutants” means any solid, liquid, gaseous or
thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and
waste.
“waste” includes materials to be recycled,
reconditioned or reclaimed.
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It continues:
Amendatory Endorsement (New Jersey)
. . .
Section II – Exclusions
The following is added to exclusions 1.i.:
This exclusion does not apply to pollution which
occurs quickly and abruptly and is accidental.
State Farm focuses the bulk of its argument on the claim that
the Amendatory Endorsement does not apply because there is no
genuine dispute of material fact that the oil leak here
“occurred quickly and abruptly,” when the undisputed evidence
allegedly shows that it occurred gradually. [Docket Item 27-1 at
19-20.] State Farm cites to a number of cases applying
substantive state law other than that of New Jersey in support
of this position. [Id.]
However, State Farm does not address the Morton and Nav-Its
line of cases, which holds that, under New Jersey law, pollution
exclusions will not be enforced on the grounds of regulatory
estoppel, except in some cases where the circumstances
constitute “traditional environmental pollution,” and the
insurer demonstrates intent on the part of the insured. See
supra IV.A.3. State Farm cites Morton in “accord” with its
position that “sudden” has a temporal component excluding
gradual leaks or contamination, but ignores the applicability of
the actual holding of Morton. [Docket Item 27-1 at 19-20.] To
the extent it attempts to distinguish Morton, State Farm appears
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to claim that the language in the State Farm Policy is different
because it does not require the pollution to be “sudden and
accidental” but rather to have “occurred quickly and abruptly”
and be “accidental.” [Id. at 20 n.3.] This is not persuasive.
See Castoro, 2016 WL 5660438, at *7 (citing Nav-Its, 183 N.J. at
123-24, and describing its holding as “applying the intent
requirement in Morton, even though the absolute pollution
exclusion in Morton was expressly limited to ‘sudden’ and
‘accidental’ injuries, unlike the pollution exclusion in NavIts”); Chemical Leaman, 89 F.3d at 991-92 (applying Morton
because it “did not believe the New Jersey Supreme Court would
enforce the term ‘sudden’ in non-standard pollution exclusion
clauses simply because other language in those clauses varies
slightly from that in the standard pollution exclusion.”).
The Court will adopt the approach of the Court in Nav-Its
in finding that there is no need to address “the ramifications
of the” Amendatory Endorsement exception: “[I]f the pollution
exclusion is not applicable, neither is the exception to the
pollution exclusion.” Nav-Its, 183 N.J. at 127.
For the reasons stated above and at IV.A.3., supra, the
Court declines to grant State Farm’s motion for summary judgment
on the basis of the pollution exclusion. The Court finds that
there is a genuine dispute of material fact as to whether the
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pollution exclusion can apply to the instant case given that it
only applies in contexts involving “traditional environmental
pollution” and given the failure of State Farm to demonstrate
any factual basis from which a reasonable finder of fact could
infer that Plaintiffs intended to pollute the Property.
Accordingly, the Court declines to rule that Plaintiffs’ claim
cannot be covered under Coverage L as a matter of law. This
issue remains for trial.
4. Bad Faith Claim and Punitive Damages
Finally, State Farm alleges that Plaintiffs have not met
their burden of showing that State Farm’s denial of their claim
was made in bad faith, because Plaintiffs have not demonstrated
that State Farm’s position was not fairly debatable under
Pickett v. Lloyd’s, 131 N.J. 457 (1993). [Docket Item 27-1.]
Plaintiffs did not respond to this argument in their Response
[Docket Item 30] and the Court deems it conceded.
Furthermore, the Court agrees, as it did with regard to the
bad faith claim against Clarendon, see supra IV.A.6., that
Plaintiffs have not adduced circumstances from which a
reasonable factfinder could determine that State Farm’s position
was not fairly debatable. The Court will grant summary judgment
to State Farm as to Plaintiffs’ claim of bad faith in Count III
[Docket Item 1-2 at 7-8].
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State Farm also urges that it should be granted summary
judgment for Plaintiffs’ claim for punitive damages because the
standard for punitive damages in this type of case is a showing
by clear and convincing evidence of some egregious circumstances
or wantonly reckless or malicious conduct by the insurer. This
standard for punitive damage liability is obviously “even more
exacting than the ‘fairly debatable’ standard used for
establishing a claim for bad faith.” [Docket Item 27-1 at 23.]
The Court agrees. See Berrol ex. rel. Estate of Berrol v. AIG,
No. 07-1565, 2007 WL 3349763, at *2 (D.N.J. July 13, 2007).
Accordingly, the Court will also grant State Farm’s motion for
summary judgment as to Plaintiffs’ claims for punitive damages
within Count III.

V. CONCLUSION
For the foregoing reasons, the Court will grant in part
Clarendon’s motion as to Count I (declaring that Plaintiffs are
not entitled to recover a first party claim under Section I,
Coverage A) and otherwise deny summary judgment as to Count I;
grant Clarendon’s motion as to Count III (bad faith) of
Plaintiffs’ Complaint; and deny Clarendon’s motion to limit
Clarendon’s potential coverage liability to 1/20 of the total
covered remediation costs. The Court will also grant in part
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State Farm’s motion as to Count I (declaring that Plaintiffs are
not entitled to recover a first party claim under Section I,
Coverage A) and otherwise deny State Farm’s motion as to Count
I; and grant State Farm’s motion as to Count III (bad faith) and
punitive damages. The accompanying Order will be entered.

August 17, 2017
Date

s/ Jerome B. Simandle
JEROME B. SIMANDLE
U.S. District Judge

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