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United States v. S. Jersey Clothing Co. - 976 F. Supp. 2d 577 (D.N.J. 2013)

Rule:

Where there is no pre-existing claim asserted and no protected property interest recognized in some third-party, a Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) settlement can and does foreclose the later assertion of a claim against an insurance policy that no longer provides coverage to the potentially responsible parties (PRPs) due to the compromise settlement agreement. Where the public benefit of remediation and cost recovery is at stake, the finality of the respective obligations of the PRPs (subject to the statutory reopeners) and their insurers becomes a necessary element driving a CERCLA settlement. That the terms of such a release may diminish or eliminate policy coverage for future claims, and thus impair the prospects of recovery by innocent third parties, is no different from the operation of a settlement or judgment that uses up the tortfeasor's assets. 

Facts:

The United States against South Jersey Clothing Company (which named Garden State Cleaners as a third-party defendant) pursuant to Section 107 of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) seeking reimbursement of response costs for release of hazardous substances incurred at the South Jersey Clothing Company/Garden State Cleaners Superfund Sites in Minotola, New Jersey. The case was ultimately settled in 2002 via a consent decree which incorporated settlement agreements between South Jersey Clothing Company, Garden State Cleaners, and their respective insurers. These settlement agreements purported to release the insurers from any past, present or future liability with regard to the site. The insurance companies funded the settlement but were never made parties to the CERCLA action. The Maroldas, who likewise were not parties to the CERCLA case, discovered that their farm had contaminated groundwater as a result of South Jersey Clothing Company and Garden State Cleaners' contamination. The Maroldas brought suit against these potentially responsible parties (PRPs) and obtained a default judgment, which was returned unsatisfied. The Maroldas then moved in state court to enforce the judgment directly against the insurance companies, but in the interest of comity, the state court declined to interpret the Consent Decree and directed the Maroldas to file for relief from the consent decree in federal court. The case was filed in federal court.

Issue:

Does the 2002 Consent Decree and its incorporated settlement bar recovery upon the underlying insurance policies by the Maroldas, who were non-parties to the original CERCLA action?

Answer:

No

Conclusion:

The United States District Court held that Maroldas' alleged interests in insurance policies that were included in CERCLA settlement were sufficiently connected to the previous federal litigation so as to confer standing. Because they did not have actual or constructive notice of the settlements incorporated into the consent decree, the consent decree and incorporated settlements did not foreclose any protected right plaintiffs may have had in the policies at issue pursuant to N.J. Stat. Ann. § 17:28-2 at the time the consent decree was approved. Likewise, the consent decree was not res judicata to their claims. The Court however noted that the Maroldas had protected interest in policies under New Jersey law at time of consent decree was issue for state court to decide.

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