Most-Significant-Contacts Rule Trumps Location-of-the-Risk Rule.


General Ceramics manufactured ceramics at its plan in New Jersey.  A number of shipments of contaminated waste were transported from this facility by private waste haulers to a resource recovery and processing facility in Pennsylvania. General Ceramics was named in a civil action filed by the Environmental Protection Agency (EPA) pursuant to the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) seeking damages and other relief relating to the remediation of contamination at the Pennsylvania site.


General Ceramics filed an action against Home Indemnity Company (Home) seeking declaratory judgment that liability in connection with the environmental claims was covered by comprehensive general liability policies issued to General Ceramics by Home from December 1972 through December 1978.  The district court granted Home’s motion for summary judgment, holding that Pennsylvania law applied and the discharge of pollutants in this case had been gradual and not abrupt.  Under Pennsylvania law, the gradual discharge of pollutants was not covered under the sudden and accidental exception to the pollution exclusion clause. 


On appeal, General Ceramics argued that the district court had erred in determining that under New Jersey’s choice of law rules, Pennsylvania law applied to the interpretation of the insurance contract provisions.  The court relied on the holding in Gilbert Spruance v Pennsylvania Mfrs. Assn., 629 A2d 885 (NJ 1993) [see summary at (6) 180-5*], which rejected the mechanical and inflexible lex loci contractus rule in cases concerning liability insurance contracts in favor of a more flexible approach that focuses on the state with the most significant connections to the parties and transactions.  Even though Gilbert Spruance held that the state where the contaminated wastes were located had the most significant contacts, the court declined to follow that result as a bright-line test.


The court held that the interests to be taken into account included commerce, the relevant states, the parties, the contract law, and judicial administration.  The court held that the particular law at issue was each state’s judicial interpretation of the sudden and accidental exception.  Because New Jersey interprets the sudden and accidental exception in a pro-coverage fashion, prompted by its policy of protecting New Jersey insured’s, and Pennsylvania courts have rejected the inclusion of gradual discharges in the sudden and accidental exception, the court held that New Jersey had shown a stronger policy interest than Pennsylvania.


Based on this analysis, the court held that only New Jersey’s purposes were furthered by application of its law, thus New Jersey law should govern the parties’ dispute.


General Ceramics, Inc. v. Fireman’s Fund Insurance Co., 66 F3d 647 (3d Cir 1995).