SteveK April 29th, 2010

In the recent unreported decision, Proformance Insurance Co. v. Riggins, the New Jersey Appellate Division addressed a dispute between two insurers as to the responsibility to pay for the demolition of a home necessary for implementation of cost effective environmental remediation, holding that the cost of demolition was not excluded by the owned property exclusion.  In the case, Proformance insured the property owned by Don Kolbe from 2002 until 2004, and MetLife insured it from 2004 until 2006.  A leak was discovered from the underground eating oil tank in 2006.  It was undisputed that the tank had been leaking for four to eight years prior to the discovery.

Proformance acknowledge its obligation to provide coverage, and engaged two consultants to evaluate the options to remediate the property. Each consultant provided two options, one that required demolition of the house, the other allowed the house to remain with structural supports during the process of remediation.  The cost of the demolition option cost approximately $145,000 less than the support option. Proformance elected the more cost effective option.  MetLife agreed to contribute to the remediation, but not for the costs related to demolition, arguing that it constituted damage to owned property. The Court disagreed finding that the house was not damaged by the contamination and that the destruction to the house was not due to “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Court held that the decision to destroy the house was “simply a function of the decision to employ the most cost-effective means of addressing covered claims, rather than the product of any ‘occurrence’ as defined in the MetLife policy.”  Accordingly, the Court concluded that the exclusion did not apply. The Court further stated that it saw no rational basis to extend coverage for the costs of the structural option but excluding coverage for the less expensive option of reimbursing the homeowner for the demolition of the residence.

DiFrancesco, Bateman, Coley, Yospin, Kunzman, Davis & Lehrer, PC ( www.dbnjlaw.com ) is a full service law firm in New Jersey which provides a broad range of legal services, including the representation of clients in environmental and insurance matters. For additional information about the matters in this bulletin or in the firm’s environmental  or insurance practice, please contact Steven A. Kunzman, Esq. who heads the Environmental and Insurance Coverage Practice Groups.

Tags: Environmental Law, NJ insurance law

• Environmental Law , Insurance Law
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