The New Jersey Supreme Court considered the appropriate allocation for costs of the cleanup of contaminated property when one of the two insurers became insolvent. Farmers Mut. Fire Ins. Co v. N.J. Prop. Liab. Ins. Guar. Ass'n, 2013 N.J. LEXIS 902 (N.J. Sept. 24, 2013).

   Newark Insurance Company issued a homeowner's policy to the insureds for three successive one-year periods, from August 29, 1999 to August 29, 2002. Newark's policies provided coverage for damage caused by environmental contamination, to a maximum of $300,000. From August 29, 2002 to August 29, 2003, Farmers Mutual insured the homeowners with a maximum limit of $500,000. 

   On August 29, 2002, soil and groundwater contamination caused by an oil leak from an underground storage tank was discovered on the insureds' property. Farmers Mutual paid all remediation costs, amounting to $112,165.13. 

   Newark became insolvent in 2007. The New Jersey Guaranty Association took over the administration of Newark's claims, pursuant to its obligations under New Jersey law. In 2009, Farmers Mutual sued the Guaranty Association for reimbursement of the remediation expenses for the homeowners' property. The trial court held that Farmers Mutual had  a right to contribution from the Guaranty Association for remediation costs under Newark's policy. 

   The Appellate Division reversed, finding that the New Jersey statute required the exhaustion of all solvent insurers' policies before the Guaranty Association had to pay benefits on behalf of an insolvent insurer. 

   The New Jersey Supreme Court agreed with the Appellate Division. The conservation of the Guaranty's Association's resources was an objective of the New Jersey law creating the entity. Despite the requirements for allocation of costs in long-tail environmental property damage cases where solvent insurers were involved, the statute required the insureds to exhaust the limits of the policies issued by solvent insurers before applying to the Guaranty Association for statutory benefits.