Suez Treatment Solutions, Inc. v. ACE American Insurance Company

Background

Suez purchased two insurance policies for its work developing a pollution-treatment system for the City of High Point, North Carolina. ACE American Insurance Company, which the opinion calls “Chubb,” issued a contractors pollution liability and errors-and-omissions policy. Liberty Mutual Fire Insurance Company issued a commercial general liability policy.

The underlying lawsuit alleged that the treatment system suffered two fires or high-temperature incidents after startup. The allegations included failures involving the system’s design, installation, supervision, operation, and training. High Point sued Suez under North Carolina law for breach of contract, breach of warranties, negligence, negligent misrepresentations, fraud, and unfair and deceptive trade practices.

Suez sought a declaration that ACE and Liberty each had a duty to defend it in that underlying case. ACE had initially agreed to defend Suez but later invoked policy exclusions and disclaimed coverage. Liberty denied coverage and refused to defend.

Legal standard

The court considered motions for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). At this stage, the court accepted the allegations in the underlying complaint as true and considered whether those allegations arguably fell within the policies’ coverage. Under the applicable New York and New Jersey law discussed by the court, an insurer generally must defend when the allegations create any reasonable possibility of coverage. The insurer avoids that duty only if it shows that the allegations fall entirely outside coverage or entirely within an exclusion as a matter of law.

ACE policy

The ACE policy contained errors-and-omissions coverage for professional services involving water and wastewater systems. ACE argued that its products-liability exclusion barred coverage because the underlying claims arose from the mercury-removal system that Suez supplied.

The court concluded that the exclusion did not eliminate ACE’s duty to defend. Although the underlying complaint alleged that Suez supplied the system, it also alleged that Suez provided professional services, including design, oversight, supervision, and training. The complaint also alleged that Suez modified the system’s design after the first fire. Those allegations created a factual question about whether the damage arose entirely from excluded products or also from professional services outside the exclusion.

The court therefore granted Suez’s motion against ACE for partial judgment on the pleadings and granted declaratory relief concerning the duty to defend. The court denied ACE’s motion for judgment on the pleadings.

The court did not decide whether ACE had a duty to defend under the policy’s separate pollution and emergency-response coverage. Suez had raised that coverage in its motion papers, but the court determined that Suez’s complaint had requested relief under the professional-services coverage, not the separate pollution coverage. The court stated that Suez could amend its complaint if it wished to pursue that issue and set April 29, 2022, as the deadline for any amendment.

Liberty policy

Liberty argued that the underlying events were not an “occurrence” under its commercial general liability policy and that multiple exclusions barred coverage. The court rejected those arguments for purposes of the duty to defend because the underlying allegations did not eliminate the possibility of coverage as a matter of law.

The allegations described fires that damaged the mercury-removal unit and other components of the larger treatment system. The court concluded that these allegations could constitute an occurrence and could involve damage to property other than the property Suez supplied. That possibility was enough to trigger Liberty’s duty to defend at this stage.

The court also found that Liberty had not shown that its “Your Work” and “Your Product” exclusions completely barred coverage. The underlying complaint alleged damage beyond Suez’s own work or product, and the complaint did not clearly establish that Suez manufactured the entire system.

The court rejected Liberty’s argument that Suez expected or intended the damage. The underlying complaint did not allege that Suez intended or expected to cause the damage, and Liberty offered no evidence establishing such intent at this stage.

The pollution exclusion also did not eliminate the defense obligation because the underlying complaint alleged property damage from causes other than sludge, including damage from the fires. Similarly, the impaired-property and damage-to-property exclusions did not apply conclusively because the complaint alleged damage to other parts of the system and raised factual questions about whether the policy’s exceptions or completed-operations coverage applied.

Finally, the professional-liability exclusion did not eliminate Liberty’s duty to defend because the underlying complaint did not allege that the property damage arose solely from professional services.

The court therefore granted Suez’s motion against Liberty for partial judgment on the pleadings and granted declaratory relief concerning the duty to defend. Judge Vyskocil denied Liberty’s motion for judgment on the pleadings.

Disposition and limits of the ruling

The court granted Suez’s motion for judgment on the pleadings against both Liberty and ACE concerning the duty to defend. It denied the cross-motions filed by Liberty and ACE. The ruling determined that the underlying complaint arguably triggered coverage and that both insurers owed a defense. It did not finally decide whether either insurer owed indemnity for a settlement or judgment, and it did not decide ACE’s separate pollution-coverage issue. The court also stated that the insurers could seek permission to move for summary judgment if later developments showed that the underlying claims had become confined to matters outside coverage.