New Jersey Appellate Court Bars Homeowners From Collecting Judgment From Developer’s Insurance Carrier After They Were Sold Houses Built On Toxic Ground
By: Carl L. Engel
After fifteen years of litigation, the New Jersey Appellate Division, in the case Rosario v. The Hartford Fire Insurance Co., has barred a couple from collecting a judgment from the insurance carriers of the developer that built and sold their two houses. The homeowners had sued the developer in January 2008 because it had not disclosed toxic contamination on the land before selling them the properties. In October 2014, after nearly seven years of litigation, a trial court awarded the homeowners a judgment of nearly two million dollars against the developer. The homeowners soon discovered, however, that the developer did not have funds to pay the judgment and, in November 2018, they sued its insurance carriers to force them to cover the amount under certain insurance policies. Now, another four years later, the Appellate Division has ruled that the insurance policies do not provide the homeowners with coverage, because they contain pollution exclusions that plainly bar claims for soil contamination. This case highlights the importance of conducting research into the collectability and insurability of a potential judgment at the beginning of litigation because, after fifteen years, all these plaintiffs have to show for their trouble is an uncollectable paper judgment.
In February 2006, Victor Rosario and Nilda Maldonado purchased a single-family home in Vineland, New Jersey, from a developer, Marco Construction and Management, Inc. Five months later, they purchased another single-family home on an adjacent lot, also from Marco Construction. Mr. Rosario and Ms. Maldonado did not know at the time, however, that both lots had been used by the previous owner and Marco Construction’s co-developer, Stephan Musey, Jr., for commercial purposes which had contaminated the land.
Mr. Musey had purchased the property in 1972, and used the site to operate a car dealership, mechanics garage, and gas station. The facility was equipped with underground gasoline and waste-oil tanks, and automotive fluids and waste were discharged into floor drains and the soil. In 1988, the underground storage tanks were removed without proper notice to government authorities. The New Jersey Department of Environmental Protection (the “DEP”) ordered Mr. Musey to conduct a remedial investigation, but it was never completed.
In 2002, a prospective purchaser hired an environmental consultant to assess the property. The assessment revealed widespread contamination, and the consultant notified the DEP. Mr. Musey told the DEP that he would remediate the site, but instead leveled the property with contaminated soil.
On December 31, 2004, Mr. Musey and Marco Construction entered into a joint-venture agreement to develop the property into single-family homes. Before Marco Construction took title to the properties, it was informed that the soil on the property was contaminated. Marco Construction nevertheless built two single-family homes there, and did not disclose the environmental issues to realtors or prospective purchasers.
At the time Marco Construction sold the properties to Mr. Rosario and Ms. Maldonado, it was insured under two commercial general liability (“CGL”) policies, one issued by Hartford Fire Insurance Company, and another issued by Western World Insurance Company. Each policy, however, included virtually identical pollution exclusions, which barred all claims for damages caused by the release of “pollutants” into the land.
In January 2008, Mr. Rosario and Ms. Maldonado filed a lawsuit against Marco Construction and Mr. Musey for violations of the New Jersey Consumer Fraud Act and New Jersey Spill Compensation and Control Act, and brought also claims for fraud, negligence, and breach of contract. Marco Construction made a claim for coverage under its CGL policies from Hartford and Western World, but both carriers rejected the claim based on the pollution exclusions.
On October 16, 2014, after a five-day trial, the court entered judgment in favor of Mr. Rosario and Ms. Maldonado in the amount of $1,930,118.86, plus interest. In November 2018, after trying and failing to collect the judgment from Mr. Musey and Marco Construction, they brought a lawsuit against Hartford for breaching the CGL policy it had issued. On July 20, 2020, they filed an amended complaint to bring also a claim against Western World for breaching the CGL policy issued by it.
On February 8, 2021, pursuant to motions filed by the insurance carriers, the trial court dismissed the homeowners' claims against them, because the claims were barred by the policies’ pollution exclusions. The homeowners appealed to the Appellate Division.
On January 4, 2023, the Appellate Division affirmed the trial court’s decision to dismiss Mr. Rosario’s and Ms. Maldonado’s claims against the insurance carriers. In support of its decision, the Appellate Division found that the pollution exclusions plainly excluded coverage for “'[b]odily injury' or 'property damage' arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants'” at the property. The contamination of the property with automobile waste and gasoline, it concluded, was a release of pollutants covered by the exclusion.
As a result of the Appellate Division’s decision, Mr. Rosario and Ms. Maldonado are left with a two-million-dollar judgment that they cannot collect. One wonders if, with a little more research into the developer’s financial condition and insurance policies, the homeowners could have avoided fifteen years of fruitless litigation.