Industrial property owners and operators have scored a significant victory in a New Jersey Court room. The issue: what happens when a national insurance carrier wrongfully refuses to provide coverage for an environmental insurance claim. In the eyes of many, insurance carriers have long avoided paying claims with impunity that they otherwise should be paying. The recent Court decision in Princeton Gamma-Tech v. The Hartford Insurance Group (PGT case, decided June 5, 1997) may alter the manner in which insurance companies treat environmental claims.

BACKGROUND
PGT is a manufacturer of various instrumentation devices located in central New Jersey. The U.S. EPA alleged that EPA used a popular solvent, TCE, as part of its production process. The government alleged that PGT improperly disposed of the solvent in such manner that it contaminated a municipal well field and several homeowner wells. The cost to fix this problem by cleaning the contaminated groundwater would be millions of dollars.

PGT did what any company would do, it filed an insurance claim with its carriers: Hartford, Federal and North River. All three insurers denied coverage and PGT sued them in what is called a declaratory judgement action. Suit was filed in a State Court in New Jersey.

RULING
After three months of trial, the Court held that the method in which the carriers handled PGT's claim proved that they acted in bad faith. The judge ruled that punitive damages, in other words, damages designed to punish the insurers, was in order. This might be the first time that a New Jersey Court has ordered an insurer to pay punitive damages based on a wrongful denial.

The Court found that the three carriers used form denials, not related to the facts in the case. It questioned whether any of these carriers ever planned to pay the claim -- no matter how good of a job PGT did in proving that it was entitled to coverage.

NATIONWIDE SIGNIFICANCE OF DECISION
New Jersey is often considered to be a progressive State in terms of generating novel, cutting edge legal decisions. Many believe that for years, insurance carriers have developed a pattern of avoiding paying legitimate environmental insurance claims. It might very well be that the PGT case will persuade insurance carriers that there can be a hefty price tag associated with this kind of behavior. Judges from other States may likely refer to this significant New Jersey decision as well.

Industrial property owners and operators need to concern themselves with issues relating to environmental cleanup liability. The PGT decision suggests that from an insurance coverage perspective, carriers might be willing to take a second look at previously denied environmental claims to avoid the prospect of bad faith claims similar to those successfully asserted by PGT.

The information provided in this column is written by Stuart Lieberman,a practicing environmental attorney, and is for general information purposes only. It is not legal advice and should not be used in place of legal advice.

Stuart Lieberman, Esq., and IRED.Com, Inc., will not accept any responsibilty for any reliance on the information in this column or any damages whatsoever resulting from reading this column.