State Supreme Court Extends Liabilities for Environmental Damages

Top court rules that insurers remain liable for cleaning up pollution even if original policy has been reassigned due to corporate mergers or restructuring

Members of the New Jersey Supreme Court
The state Supreme Court yesterday ruled that insurers can be held liable for cleaning up environmental pollution at a site even though the policy was subsequently assigned without approval to a successor.

In the unanimous decision, the court upheld an appellate court ruling that found Travelers Casualty & Surety Company and other insurers were responsible for claims involving hazardous discharges at the former Givaudan Corp. fragrance manufacturing facility in Clifton.

The case involves a long history of corporate mergers and restructurings that the court ruled had no effect on the insurers’ obligations to pay under the policies, originally written for the Givaudan Corp.

The defendants had prevailed in trial court, which ruled that the assignment of the policy to Givaudan Fragrances was invalid because it added a second party to the policy, increasing the insurers’ liability. The appellate court reversed that decision.

The damages in the pollution case stem from 2006, when the state Department of Environmental Protection and later the U.S. Environmental Protection Agency sued Fragrances for removal of contaminated soil and groundwater and damages for the discharge.

The company was later named as a so-called responsible party in another pollution case involving dioxin contamination in the Passaic River and Newark Bay by a defendant in that litigation. Total claims against Fragrances could range in the hundreds of millions of dollars, according to some reports.

In a 41-page decision, the state’s highest court affirmed the lower court’s ruling, relying on previous trial and appellate division decisions in the state. Essentially, it found that an insurer’s risk amount could not be increased by a change in the insured’s identity.

The court found the policies at issue are occurrence policies and they provide coverage based on liability for an occurrence to which the policy applied.

“The risk of exposure that was contractually undertaken by the insurer occurred prior to the assignment, and it occurred due to the actions or inactions of the entity that the insurer insured when the loss incurred,’’ the court wrote.

The environmental contamination, the justices said, took place during the relevant policy period. The assignment does not alter the insurers’ liability for indemnifying the underlying insured event, according to the court.

“In sum, we are unpersuaded that this assignment increases the risk undertaken by the insurers for the policy periods for which they wrote coverage, in specific amounts, for occurrence-based claims pertaining to the Givaudan site in Clifton,’’ the court said.