Narragansett Elec. Co. v. Am. Home Assurance Co.

• Decision Date: 01 April 2013
• Docket Number: No. 11 Civ. 8299 (PKC).,11 Civ. 8299 (PKC).
• Citation: 921 F.Supp.2d 166
• Parties: The NARRAGANSETT ELECTRIC COMPANY, Plaintiff, v. AMERICAN HOME ASSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

921 F.Supp.2d 166

The NARRAGANSETT ELECTRIC COMPANY, Plaintiff,

v.AMERICAN HOME ASSURANCE COMPANY, et al., Defendants.

No. 11 Civ. 8299 (PKC).

United States District Court,

S.D. New York.

Feb. 1, 2013.

Order Denying Reconsideration April 1, 2013.

Andrew Arthur Ruffino, Covington & Burling LLP, New York, NY, Jay T. Smith, Michael E. Lechliter, William F. Greaney, Covington & Burling, L.L.P., Washington, DC, for Plaintiff.

Julie S. Selesnick, Marie L. Vandam, Richard W. Bryan, Timothy P. Kilgore, Jackson & Campbell, P.C., Jack B. Gordon, Joseph Lawrence Ruby, Kurt Hirsch, Martin Richard Baach, Lewis Baach PLLC, Washington, DC, Steven Gary Adams, Law Offices of Michael F. Klag, Brooklyn, NY, Guy A. Cellucci, Katten Muchin Rosenman, LLP, Matthew B. Anderson, Mendes & Mount, LLP, New York, NY, Thomas M. Going, White and Williams LLP, Philadelphia, PA, for Defendants.

MEMORANDUM AND ORDER

CASTEL, District Judge.

Plaintiff The Narragansett Electric Company (“Narragansett”) brings this action for damages and declaratory relief against defendants American Home Assurance Company (“American Home”), Century Indemnity Company (“Century”), Equitas Insurance Limited (“EIL”), and Dominion Insurance Company Ltd., Excess Insurance Company Ltd., National Casualty Company, the London & Edinburgh Insurance Company Ltd. and World Auxiliary Insurance Corp. Ltd. (collectively the “London Market Companies”). Narragansett alleges that defendants breached their contractual obligations under various insurance policies by refusing to defend and indemnify Narragansett in an environmental lawsuit (the “Commonwealth Action”).

Counts I through V of the First Amended Complaint allege that Century breached its duties to defend and indemnify under one of the Century policies at issue in this action (the “Century Primary Policy”) and acted in bad faith by refusing to defend Narragansett in the Commonwealth Action.¹ Century now moves to dismiss Counts I through V of the First Amended Complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P., asserting that the First Amended Complaint fails to state a claim upon which relief can be granted. Narragansett filed both an opposition to Century's motion, (Docket No. 80), as well as its own motion for partial summary judgment, pursuant to Rule 56(a), Fed.R.Civ.P., as to Count I of the First Amended Complaint, which concerns Century's duty to defend. (Docket No. 75.) Century filed a cross-motion for partial summary judgment as to Counts I through V of the First Amended Complaint. (Docket No. 88.)

A principal issue presented on these motions is which jurisdiction's law applies to the Century Primary Policy. For the reasons explained, the Court concludes that Massachusetts law applies. Applying Massachusetts law, Century had a duty to defend Narragansett if the allegations in the Commonwealth Action are reasonably susceptible to an interpretation that (1) there was an occurrence during the policy period and (2) a release of pollutants falls within the “sudden and accidental” exception to the Policy's pollution exclusion. The Court concludes that the allegations of the complaint in the Commonwealth Action triggered Century's duty to defend Narragansett.

Counts VI and VII of the First Amended Complaint allege that certain defendants had a duty to indemnify Narragansett under numerous excess insurance policies issued between 1945 and 1985. The London Market Companies, American Home, and EIL move to dismiss Counts VI and VII of the First Amended Complaint under Rule 12(b)(6), Fed.R.Civ.P., asserting that the First Amended Complaint fails to state a claim upon which relief can be granted because it does not plausibly allege an “occurrence” that would trigger the policies at issue. (Docket No. 65.) One of the defendant excess insurers, American Home, also joins portions of Century's motion to dismiss, (Docket No. 68), and asserts that Counts VI and VII of the First Amended Complaint fail to state a claim upon which relief can be granted for the additional reason that the American Home policies contain a pollution exclusion. (Docket No. 71.) The Court concludes that Counts VI and VII plausibly allege an occurrence that is not excluded.

I. BACKGROUNDA. Parties and Policies

Narragansett is a Rhode Island public utility company with its principal place of business in Rhode Island. (Lechliter Decl. Ex. 3.) ² Narragansett is the successor by merger to Blackstone Valley Electric Company (“BVEC”), which itself is the successor to Blackstone Valley Gas & Electric Company (“BVG & E”). ( Id. Exs. 3, 4.) In 1985, BVEC's principal place of business was Lincoln, Rhode Island. ( Id. Exs. 5, 6.) From 1936 until 2000, BVG & E and later BVEC were wholly-owned subsidiaries of Eastern Utilities Associates (“EUA”), a voluntary association in Massachusetts with its principal place of business in Boston. (Docket No. 95 at 4; see also Going Aff. Ex. 1 at D–264783, D–264786; id. Ex. 2 at D–208179.) In 2000, BVEC merged with Narragansett. (Lechliter Decl. Ex. 3.)

1. The Century Primary Policy

Defendant Century is a Pennsylvania corporation with its principal place of business in Philadelphia, Pennsylvania. ( Id. Ex. 7 ¶ 4.) Century is successor to Insurance Company of North America (“ICNA”). ( Id.)

In or about 1985, ICNA issued a general liability insurance policy, the Century Primary Policy, to EUA and certain subsidiaries, including BVEC, for the policy period January 1, 1985 through January 1, 1986. ( Id. Ex. 1.) The Century Primary Policy identifies the “Named Insured” as:

Eastern Utilities Associates, EUA Service Corporation[,] Blackstone Valley Electric Company, Montaup Electric Company, Eastern Edison Company, and/or any subsidiary, associated, allied, or affiliated company which is majority owned and now existing or which may hereafter appear.( Id. at D–264786.) Immediately below this paragraph is listed a single post office box in Boston, Massachusetts. ( Id.) Separate premiums were calculated for each insured entity by “using a different payroll basis for each company, while applying the same ‘rates.’ ” (Docket No. 95 at 9 (citing id. at D–264783).) As explained at oral argument, the size of an insured's payroll factored into the determination of its premium. (Tr. 24.) ³ The Century Primary Policy specifies that “[t]he insurance afforded applies separately to each insured against whom claim is made or suit is brought, except with respect to the limits of the Company's liability.” (Lechliter Decl. Ex. 1 at D–264780.) Accordingly, the Policy provides an “aggregate limit to indemnity.” (Tr. 22.)

Each insured receives liability coverage under the Century Primary Policy, which explains that:

[t]he Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such ... property damage, even if any of the allegations of the suit are groundless, false, or fraudulent ....

(Lechliter Decl. Ex. 1 at D–264788.) The policy thus provides liability coverage for property damage caused by an occurrence. (Docket No. 95 at 7.) The Century Primary Policy defines “occurrence” as “an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the Insured.” (Lechliter Decl. Ex. 1 at D–264780.)

The Century Primary Policy also contains a pollution exclusion. ( Id. at D–264788.) The pollution exclusion provides that the policy does not cover “bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water” unless “such discharge, dispersal, release or escape is sudden and accidental.” ( Id. (emphasis added).)

As successor to ICNA, Century succeeded to ICNA's liabilities and obligations to BVEC under the Century Primary Policy. (Lechliter Decl. Ex. 7 ¶¶ 4, 7.) Narragansett now alleges that Century's predecessor was obligated to defend and indemnify Narragansett under the Century Primary Policy. To date, Century has not reimbursed Narragansett for its litigation costs and liabilities related to the Commonwealth Action. (Leone Decl. ¶¶ 3–4.)

According to Narragansett, ICNA “repeatedly and in bad faith ignored Narragansett's requests for a defense of the Commonwealth Action.” (First Am. Compl. ¶ 52.) In particular, representatives of ICNA, “explicitly and in bad faith instructed the claims investigator responsible for the Commonwealth Action claim and other related claims not to contact [ICNA's] policyholder, BVEC.” ( Id.) As a result, Narragansett incurred substantial litigation costs in the Commonwealth Action. ( Id. ¶ 53.)

2. The Excess Policies

Narragansett asserts that defendants American Home, the London Market Companies and EIL must indemnify Narragansett for the expenses incurred in connection with the Commonwealth Action. ( Id. ¶ 69.) Defendant American Home is a New York corporation engaged in the insurance business. ( Id. ¶ 3.) The London Market Companies are English, Welsh and Scottish entities also engaged in the insurance business. ( Id. ¶¶ 5, 7–10.) EIL is an English and Welsh company engaged in the insurance business.⁴ ( Id. ¶ 6.)

The insurance policies at issue include four American Home policies, which were in effect at various times between 1973 and 1985, ( id. ¶ 20; id. Ex. A), as well as certain policies issued by the London Market Companies, which were in effect at various times between 1948 and 1968. ( Id. ¶ 23; id. Ex. A.) EIL has obligations under the London Market excess policies, ( id. ¶ 31), as well as several other...