Hsb Group, Inc. v. Svb Underwriting, Ltd.

Decision Date30 September 2009
Docket NumberNo. 3:04cv2127 (SRU).,3:04cv2127 (SRU).
Citation664 F.Supp.2d 158
CourtU.S. District Court — District of Connecticut
PartiesHSB GROUP, INC., Plaintiff, v. SVB UNDERWRITING, LTD., Defendant.

Ernest J. Mattei, Robert E. Koosa, Day Pitney LLP, Wystan M. Ackerman, Robinson & Cole, Hartford, CT, for Plaintiff.

Daniel J. Layden, Ronald P. Schiller, DLA Piper Rudnick Gray Cary, Philadelphia, PA, Ellen D. Jenkins, Boundas, Skarzynski, Walsh & Black, LLP, Peter F. Lovato, III, Patrick W. Carlson, Boundas, Skarzynski, Walsh & Black, LLC, Chicago, IL, Rhonda J. Tobin, Wystan M. Ackerman, Robinson & Cole, Hartford, CT, for Defendant.


STEFAN R. UNDERHILL, District Judge.

This insurance coverage dispute arises out of an explosion that originated in the boiler room at the Clara Barton Convalescent Center (the "Nursing Home") in Flint, Michigan, on November 10, 1999. The explosion destroyed the Nursing Home and caused the deaths of five people and injured numerous others. The explosion was caused by a natural gas leak, but the precise cause of the gas leak remains unknown.

Numerous personal injury and wrongful death lawsuits were filed in Michigan state court, including seventeen suits alleging, inter alia, negligence by HSB Group, Inc. ("HSB") in its inspection of the boiler, and one subrogation suit by the Nursing Home's property and casualty insurer against HSB (the "Lawsuits"). In 2004, HSB settled the personal injury and wrongful death suits on the eve of trial for $7.35 million.1 HSB now seeks to recover the settlement amounts from SVB Underwriting, Ltd. ("SVB") under an extended reporting period insurance policy (the "Policy") issued after the explosion and effective as of December 1, 2000. SVB has denied coverage based upon a prior knowledge exclusion in the Policy and HSB's failure to disclose the claims prior to issuance of the Policy.

HSB then filed this action, invoking diversity jurisdiction under 28 U.S.C. § 1332. HSB seeks compensatory damages for SVB's alleged breach of contract and a declaration, pursuant to 28 U.S.C. § 2201, of the rights and legal obligations of HSB and SVB under the Policy. SVB answered the complaint and asserted an eight-count counterclaim seeking reformation of the Policy to exclude coverage for all claims arising out of the explosion2 and for various other forms of declaratory relief. The parties filed cross-motions for summary judgment. HSB has moved for summary judgment on all counts of its Second Amended Complaint and all eight counts of SVB's Counterclaim [Doc. # 123]. SVB has cross-moved for summary judgment on Counts I through VII of its Counterclaim [Doc. # 118].

Standard of Review

Summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In considering a motion for summary judgment, this court is required to view the evidence in the light most favorable to the nonmoving party and to resolve all ambiguities and draw all reasonable inferences against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court's function is not to resolve disputed factual issues but rather to determine if there exists a genuine issue for trial. Id. at 249, 106 S.Ct. 2505. The party seeking summary judgment bears the burden of showing that no genuine issue of material fact exists. Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 202 (2d Cir.1995). The substantive law governing the case identifies those facts that are material on a motion for summary judgment. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. A dispute regarding a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

Once a motion for summary judgment has been properly made and supported, the nonmoving party may not rely on mere allegations or denials in the pleadings. Rather, "its response must—by affidavits or as otherwise provided in [Rule 56]—set out specific facts showing a genuine issue for trial." Fed.R.Civ.P. 56(e)(2); see Anderson, 477 U.S. at 256, 106 S.Ct. 2505.

When cross-motions are presented to the court, the same standard is applied as in the case of individual motions for summary judgment. Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d Cir. 2001). "[E]ach party's motion must be examined on its own merits, and in each case all reasonable inferences must be drawn against the party whose motion is under consideration." Id.; see also Make the Road by Walking, Inc. v. Turner, 378 F.3d 133, 142 (2d Cir.2004); Scholastic Inc. v. Harris, 259 F.3d 73, 81 (2d Cir. 2001). "[N]either side is barred from asserting that there are issues of fact, sufficient to prevent the entry of judgment, as a matter of law, against it. When faced with cross-motions for summary judgment, a district court is not required to grant judgment as a matter of law for one side or the other." Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir.1993); see also Otis Elevator Co. v. Factory Mut. Ins. Co., 353 F.Supp.2d 274, 279 (D.Conn. 2005). Rather, summary judgment should not be granted "unless one of the moving parties is entitled to judgment as a matter of law upon facts that are not genuinely disputed." Heyman v. Commerce & Indus. Ins. Co., 524 F.2d 1317, 1320 (2d Cir.1975); see also Green Party of Conn. v. Garfield, 590 F.Supp.2d 288, 299-300 (D.Conn.2008).

The Parties and Insurance Policies at Issue

HSB is a Connecticut corporation with its principal place of business in Hartford, Connecticut. HSB is in the business of providing equipment and machinery breakdown insurance, other specialty insurance and reinsurance products, inspection services, and engineering consulting services to its customers. It is one of the largest equipment and machinery insurers in the United States. Equipment insurance coverage, such as that offered by HSB, is often purchased to complement property and casualty insurance, because property and casualty policies often exclude coverage for equipment breakdowns. Additionally, in connection with its issuance of equipment breakdown policies, HSB conducts boiler and pressure vessel certification inspections of insured equipment in accordance with applicable state and city codes. Those inspections are commonly referred to in the industry as "jurisdictional inspections." HSB performs approximately 500,000 jurisdictional inspections a year.

For a number of years, HSB issued equipment breakdown policies to Clara Barton Terrace Home. Those policies insured against certain losses at the Nursing Home caused as a direct result of an "accident" to "covered equipment," including the Nursing Home's cast iron heating boiler (the "boiler" or the "heating boiler") and two hot water boilers.4 In 1999, HSB issued policy number FBP2249697 (the "Equipment Breakdown Policy") (Pl.'s Summ. J. Ex. E), which was in effect at the time of the explosion. In connection with the insurance policies issued to the Nursing Home, and pursuant to the laws and regulations of the State of Michigan,5 HSB conducted jurisdictional inspections of the Nursing Home's heating boiler. The last such inspection was performed by HSB's inspector, Herbert Wathan, on November 24, 1998, nearly one year prior to the explosion. Wathan reported that the boiler was not leaking.6 Reinspection Report—All Boilers dated 11/24/98 (Pl.'s Summ. J. Ex. F). The boiler operated without incident during the entire heating season following the November 1998 inspection. After that inspection, no representative of HSB returned to the Nursing Home prior to the explosion.

From the late 1980s through December 1, 2000, HSB maintained "claims-made"7 errors and omissions professional liability insurance through the Lloyd's of London insurance market, to cover, among other things, potential risks arising from or relating to its jurisdictional inspection activities. During this time period, Jean Cooper, HSB's insurance agent and—after 1990—its risk manager, was responsible for obtaining HSB's professional liability insurance. Cooper did so through Dan Barton, a London insurance broker with Cooper Gay & Company, Ltd. ("Cooper Gay & Co."). In 2000, for business reasons relating to AIG's acquisition of HSB, instead of buying another such policy, HSB opted to purchase extended reporting period coverage, also referred to as "tail" or "run-off" coverage,8 subscribed to by a number of underwriting syndicates at Lloyd's of London.9 The purpose of the extended reporting period insurance was to cover claims that would have been covered under the regular claims-made term policy but which came to light after the end of the term. HSB's expiring claims-made policy, Policy No. 738/UU048250T (Pl.'s Summ. J. Ex. T), effective September 1, 1999, to November 1, 2000, was extended to December 1, 2000, and thereafter certain underwriters ("the Underwriters") issued the Policy, No. 738/UU048250U (Pl.'s Summ. J. Ex. A), to HSB for the policy period December 1, 2000, through December 1, 2005. The Policy provided HSB with $35 million in errors and omissions insurance coverage, inclusive of defense costs, in excess of HSB's self-insured retention amount of $5 million. SVB, organized under the laws of England with its registered office and principal place of business in London, is an underwriting member of the lead syndicate, Syndicate 1241, underwriting the Policy.10

The Nursing Home Explosion and Investigation

On November 10, 1999, an explosion occurred inside the boiler room at the Nursing Home, destroying a...

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