New Jersey Supreme Court Holds Homeowner Can't Sue for Oil Contamination

This matter involves a homeowner (Ross), who discovered that a next door neighbor’s (Lowitz) underground storage tank leaked oil which then contaminated his property. The facts of the case revealed that when Lowitz purchased his property, testing was done to see if there was any leakage from an active underground storage tank. That test revealed no contamination. Lowitz then lived in the home for approximately five years. When Lowitz attempted to sell the property in 2003, it was discovered that the underground storage tank had leaked. Accordingly, Lowitz notified his insurance companies, State Farm and NJM, of the leak. The insurance companies then arranged and paid for the remediation of the contamination of Lowitz’s property and another adjacent property (not Ross’ property).

In 2004, Ross bought the residential property next door to Lowitz. At that time, he was unaware that there had been an oil tank leak on the Lowitz property. In 2006, Ross first learned that oil had contaminated Lowitz’s property and a different adjoining property. However, at that time, Ross did not learn that the oil had migrated onto his own property. In 2006, Ross listed his property for sale and in 2007, a contact for sale was signed. At that time, it was discovered that oil had migrated from the Lowitz property onto his property. Ross made a demand that NJM and/or State Farm remediate his property. Initially, State Farm and NJM were not responsive to Ross’ demands. Accordingly, in September 2008, Ross filed an action naming Lowitz, the prior property owner of that property and State Farm and NJM as defendants. Ross alleged claims of negligence, strict liability, nuisance, trespass and violations of the Spill Liability Act. Additionally, Lowitz asserted bad faith claims against the insurers. In July 2009, Ross filed an Order to Show Cause seeking an Order compelling the insurance companies to remediate his property. Upon the filing of the Order to Show Cause, State Farm and NJM entered into an agreement to remediate the property and return the Ross property to its pre-contaminated state. Despite this agreement, Ross continued his lawsuit.

In that lawsuit, Ross alleged that Lowitz and his predecessor were liable for private nuisance and negligence. With regard to State Farm and NJM, it was alleged that Ross was a third party beneficiary of the insurance contract and their failure to timely remediate the property entitled him to damages. The trial Court dismissed these claims. This ruling was affirmed by the Appellate Division.

In reviewing this case, the Supreme Court noted that the record was devoid of any evidence indicating negligence by the adjacent homeowners. Specifically, the Court noted that upon being made aware of the leak, Lowitz promptly notified his insurance company. Further, there was no evidence to indicate that Lowitz was aware that prior to Ross’ lawsuit that oil had migrated to the Ross property. The Court found that the private nuisance claim failed as to be successful, it must be established that the alleged tortfeasor’s actions were intentional, and unreasonable; or unintentional and otherwise actionable under the rules controlling liability for negligent or reckless conduct or for abnormally dangerous conditions or activities. The Court found that there was no intentional or unreasonable acts by the homeowners. Further, the Court found that an underground storage tank’s usage does not constitute an abnormally dangerous condition which would warrant strict liability as to the private nuisance claim.

With regard to trespass, the Court found that the defendant is liable for an intentional entry onto another’s land regardless of harm. Also, defendant may be found liable for trespass if he recklessly or negligently, or as a result of an abnormally dangerous activity, enters onto another’s land and the entry causes harm. The Court further notes that liability for a continuing trespass arises with the continued presence on another’s land of a structure, chattel or other thing which the actor has notoriously placed there. In this case, the Court found that Lowitz had not tortiously placed the oil onto the Ross property and as such, the trespass claim must fail. The Court noted that Lowitz is not liable in trespass for an unintentional and non-negligent entry on land in the possession of another regardless of the harm done. Again, strict liability is eliminated except for abnormally dangerous activities. As there is no evidence in the record that the damages derive from negligent, reckless or intentional and unreasonable conduct by the Lowitz, the Court found that the dismissal of claims against them was proper.

With regard to the insurance companies, the Court noted that those claims were premised on an alleged breach of the Covenant of Good Faith and Fair Dealing. Specifically, Ross contended that the delay in remediating the contaminated soil caused damage and as such, availed him of damages against the carriers. Further, Ross sought to assert a bad faith claim against State Farm and NJM. The Court noted that in the absence of an assignment, Ross needed to establish that he was third party beneficiary to the insurance contracts. In determining third party beneficiary status, the Court focused on whether the parties to the contract intended others to benefit from the existence of the contract, or whether the benefits so derived arises merely as an unintended incident of the agreements. If there is no intent to recognize a third party’s right, then the third person is only an incidental beneficiary having no contractual standing. In this matter, there was no proof to establish that Ross was to be deemed a beneficiary of the insurance contracts entered into between the property owners and State Farm and NJM. Accordingly, dismissal of the Covenant of Good Faith and Fair Dealing claim was proper. Further, the Court noted that the law does not recognize a bad faith claim as Ross was not the insured of State Farm and NJM.

This is an important decision as it limits the redress available to property owners in offsite contamination cases. In such actions, it is not uncommon for suit to be filed by the innocent property owner against the owners and prior owners of the adjacent contaminated property as well as their insurance companies. Undoubtedly, going forward, property owners of contaminated property and their insurers will point to this decision in seeking a quick dismissal of such claims. However, it should be noted that the decision allows for a factual inquiry as to who knew when the leaks occurred and when they were remedied. Additionally, this case is different as the insurance companies ultimately agreed to remedy the “innocent” landowner’s property. While this case gives support to contaminating property owners and their insurance companies in seeking dismissals against plaintiffs in such cases, if the decision is followed correctly, summary judgment should not be available until all fact discovery is concluded. This will allow for a determination regarding how the contamination occurred, when it was discovered and what, if anything, was done to remediate the condition.

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