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When property owners discover they are polluters, they want to know right away, “Are we insured?” Brick Township, N.J., waited 20 years to ask the question, and the answer was yes. Town officials said that after two decades of believing no coverage existed, they have obtained $3.8 million in eight settlements with insurers to fund the cleanup of French’s Landfill, a 42-acre site on New Jersey’s list of toxic quagmires. Brick administrator Scott MacFadden said the town didn’t seek payments from the carriers between 1980, when the pollution emerged, and 2000, when Kevin Starkey, a town lawyer with pollution insurance experience, got the idea to sue. “The attorneys that preceded Kevin didn’t think we had a cause of action and the insurance broker at the time felt the same way,” MacFadden said. “Kevin came in and said, �I think we can do something.’ He said if we pursue this, we will have some degree of success.” Starkey sued the carriers and over the past two years obtained settlements. The amounts were kept secret until recently, when the final defendant agreed to pay. The town’s net recovery after fees was $2.97 million. The town has paid $4.3 million for the cleanup. All the policies required timely notice of claims, but the carriers apparently were unable to show, under New Jersey’s consumer-friendly insurance law, that they were prejudiced by the lateness. Why the town didn’t seek coverage for 20 years remains murky. What’s certain is that Starkey clued officials in shortly after joining Starkey Kelly Bauer Kenneally & Cunningham, the firm headed by his father, Charles Starkey, who had been town attorney since 1997. Lucky for the firm and the town, Kevin Starkey picked the right practice area after graduation from Georgetown Law School and a clerkship with state Supreme Court Justice Daniel O’Hern. He worked for Anderson Kill & Olick in New York, one of the leading national firms on insurance coverage in general, and pollution coverage in particular. “I was trained to spot these possibilities,” Starkey said. “So when I got here, it was a natural thing for me to ask.” The question was, could the insurers be made to pay for the French’s Landfill cleanup? The site had been a private dump until the town bought it in 1973. Before it was shut in 1979, it accepted sewage, solids, bulk liquids and other wastes. An environmental audit showed elevated levels of cadmium and volatile organic compounds. The town was required to remediate the site under various consent agreements with the state Department of Environmental Protection in the 1980s. John Russo, the former state senator from Ocean County who is now a Trenton lobbyist, was town attorney through 1989. He said recently he can’t answer the question of why no coverage was sought. He said other lawyers in his firm handled the matter and he doesn’t recall the details. Other former town attorneys did not return calls. An insurance lawyer familiar with the case who didn’t want to be identified said there was no doubt that costs associated with closing the landfill were not covered. That being the case, the town’s advisers might have thought there was no coverage for the cleanup, too, this lawyer said. Timothy Kinsella, vice president of the town’s engineering firm, Birdsall Engineering Inc. of Eatontown, said the town may not have focused on coverage until it became aggressive about the cleanup in 1997. Only then did the magnitude of the costs become clear. Birdsall said much of the money went for assessments, continued monitoring and disconnection of private irrigation wells surrounding the site to prevent pollutants from seeping into the wells. Starkey is reluctant to talk about decisions made before he became involved. In general, he said of the town officials, “They just needed to be educated to the fact that they had coverage under their old liability policies.” Current policies have absolute pollution exclusion, he said. “What many people don’t know is that, prior to 1986, liability policies did not have that exclusion, and if the pollution occurred before 1986 there is likely coverage.” Starkey approached the insurance companies in 2000. They didn’t deny coverage but they didn’t pay either, so in 2002 he filed a declaratory judgment action in Ocean County. The defendant carriers had provided coverage from the time the town bought the landfill in 1971 to 1986. The policies after 1986 included the pollution exclusion. Starkey said the chief legal issue was whether the late notice had prejudiced the companies’ ability to defend, and the town relied on two leading cases. Sagendorf v. Selective Ins. Co. says policy exclusions for damage to owned property do not apply when pollution gets into ground water. The decision also reinforced the principle in Cooper v. Government Employees Ins. Co. that carriers can’t deny coverage without two elements: a breach of the notice provision and a likelihood of appreciable prejudice. “Given that 20 years elapsed before the township gave notice of the claim for the municipal landfill, we relied on negotiations on the difficult burden faced by the insurance companies in proving the second element,” Starkey said. Three defense counsel who returned telephone calls last week declined to comment on what impelled the carriers to settle. But the fact that none of the defendants moved for summary judgment on grounds they were prejudiced suggests that the town went to the table with a hand it could play. By settling, the carriers avoided the substantial legal costs of litigation to determine what pollution occurred on whose carrier’s watch over a period of 15 years. “I’m pleased that they worked out a case that would have been difficult to litigate,” said retired Superior Court Judge L. Anthony Gibson, the court-appointed mediator. One by one, the carriers settled with sums roughly proportional to the number of years the company served as the town’s insurer. “They didn’t cave in with huge numbers, they caved in with OK numbers,” business administrator MacFadden said. The breakdown of payments: Utica Mutual Insurance Co., $1.27 million; Granite State Insurance Co., $400,000; ACE-USA, $700,000; Continental Casualty Co., $500,000; Fireman’s Fund Insurance Co., $335,000; North River Insurance Co., $150,000; and The New Jersey Property-Liability Guaranty Association, $425,000. A carrier not named in the suit, American Empire Insurance Co., settled for $46,000. PLIGA’s settlement was the final deal. It stood in for two insolvent companies, Transit Insurance Co. and Integrity Insurance Co., and was the only defendant to move to dismiss the claims. It argued under the “known-loss-doctrine” that the town was aware it had a loss and didn’t reveal it when the policies were written to cover July 1, 1982, to July 1, 1985. The association also argued that the claim was late under PLIGA statutes. The township defeated both motions. PLIGA’s $425,000 settlement for the two claims is $175,000 less than its maximum exposure under statutes limiting payments to $300,000 per claim. This article originally appeared in the New Jersey Law Journal , a publication of ALM. •

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