CLEANUP COVERAGE DISPUTES DENIED JURY TRIAL IN NEW JERSEY

TRENTON, N.J.-Policyholders that sue general liability insurers in New Jersey for a defense and for coverage of future pollution cleanup costs no longer can obtain jury trials.

As a result of a state Supreme Court's May 12 decision, policyholders facing environmental liabilities no longer will be able to play the morality issue with jurors by portraying themselves as the victims of unresponsive insurers, said policyholder attorney William Greany of Covington & Burling in Washington.

And, insurers now may litigate rather than settle more coverage disputes, he said. That is because bench trials are less expensive than jury trials and can be brought to trial more quickly.

But, the attorney for one of two policyholders involved in the case was unsure which side the decision would help. Many insurers also prefer jury trials, said the attorney, Vincent R. FitzPatrick of Dewey Ballantine in New York, who represented Ciba-Geigy Corp.

He noted that among the dozens of insurers for the policyholders, most sat on the sidelines, and a handful sided with the policyholders. Only a few insurers, led by CIGNA Corp. subsidiary Insurance Co. of North America, opposed jury trials, he said.

Either way, the 5-2 ruling "puts New Jersey in a kind of unique position as far as these cases are concerned" compared with other states, he and Mr. Greany agreed.

The ruling upholds decisions by two lower courts in separate disputes that Ciba-Geigy and another policyholder, GEI International Inc., filed against their respective insurers. The New Jersey Supreme Court considered both cases together.

Although the Seventh Amendment to the U.S. Constitution guarantees jury trials in civil cases, state courts are not bound by that guarantee, the New Jersey

Supreme Court said. Under a New Jersey statute, the right to a jury trial depends on whether a policyholder's claim for relief is legal or equitable in nature, the court ruled.

There is no right to a jury trial in equitable relief actions, the court noted.

The court determined that a policyholder claim for a defense and pollution coverage for future liabilities is an equitable action for a specific performance.

Legal actions include claims for specified damages, the court ruled.

But, jury trials are not permissible even in those cases if policyholders also seek a defense and coverage for future liabilities, the court ruled.

Likewise, the Supreme Court ruled that a jury sometimes should not hear factual issues that juries typically consider. Jury trials are barred in those cases when such issues, including whether a policyholder intentionally polluted, are "ancillary and incidental to and subsumed within the main cause of action for equitable relief in the coverage trial," according to the court, quoting from an appellate court's decision in the litigation.

The Supreme Court majority said its ruling would help policyholders avoid multiple lawsuits with their insurers.

If policyholders had prevailed, they "would be required to file multiple future breach-of-contract actions each time an insurer refuses to defend or indemnify them," it reasoned.

Mr. FitzPatrick said that because insurance companies likely will continue to deny such claims, he "can't understand" the court's reasoning.

Ciba-Geigy is seeking approximately $525 million of compensatory damages to cover current and future environmental liabilities.

GEI International is seeking at least $2 million in cleanup costs from several of its insurers and the former owners of a site it purchased in 1983.

Ciba-Geigy Corp. vs. Liberty Mutual Insurance Co. et al., and GEI International Inc. vs. St. Paul Fire & Marine Insurance Co. et al., New Jersey Supreme Court; No. A-28-29/30/31