In Woodcliff Lake Board of Education v. Zurich American Insurance Co., ___ A.3d ___, 2013 WL 4081012 (N.J. Super. App. Div. Aug. 14, 2013), the Appellate Division of the Superior Court of New Jersey, applying New Jersey law, affirmed the trial court’s summary judgment order holding that the pollution and faulty workmanship exclusions of a first-party property barred coverage of a policyholder’s claims associated with an asbestos cleanup of its property.
In 2005, despite the policyholder’s orders to halt asbestos removal on one of its properties, its contractors disturbed newly discovered asbestos, leading to a suit over the disturbance by the U.S. Environmental Protection Agency and an eventual $18,200 fine, as well as an additional $150,000 for the emergency removal costs. Id. at *1-2. After the insurer denied coverage, the policyholder brought a declaratory judgment action against the insurer, asserting that the pollution exclusion was inapplicable because the asbestos disturbance resulted from “vandalism,” one of the exceptions to the pollution exclusion under the policy. Id. at *3.
Reviewing de novo, the court noted that the pollution exclusion in the policy was unambiguous, and that the loss was caused by “the disturbance of an acknowledged pollutant.” Id. at *5. The issue was, therefore, how the pollution exclusion was to be interpreted in light of the “vandalism” exception to the exclusion. Id. The court stated that, under New Jersey law, an exception to an exclusion did not, in and of itself, render the exclusion language ambiguous. Id. Rather, the court’s task was to consider the insurance contract as a whole. Id. Turning to the “vandalism” exception, the court declined to accept the policyholder’s definition of vandalism, which would be “satisfied by mere damage.” Id. Instead, based on the term vandalism’s “ordinary meaning” derived from Webster’s New Collegiate Dictionary and Black’s Law Dictionary, the court concluded that damage “must be caused intentionally, with malice, or at least, with reckless or wanton disregard for the rights of others” in order to be attributable to vandalism. Id. Accordingly, based on the lack of any evidentiary support in the record that the disturbance was the result of a malicious act, “whether by a contractor or anyone else,” the court held that the pollution exclusion applied and barred coverage of the policyholder’s claims. Id. at *6.
The decision confirms the general principle that insurance contracts are to be construed as a whole, and the fact that such a contract contains an exception to the exclusion does not, in and of itself, render the exclusion provisions ambiguous. Additionally, the court’s opinion provides a reference point for future litigation involving exceptions to insurance contract exclusions generally, and “vandalism” exceptions specifically. In particular, the court’s decision reinforces that terms such as “vandalism” should be given their ordinary meaning and that such a term should not be completely redefined in an effort to create coverage that was clearly intended to be excluded.