Suez Treatment Sols. v. ACE Am. Ins. Co.
| Decision Date | 30 March 2022 |
| Docket Number | 1:20-cv-06082 (MKV) |
| Parties | SUEZ TREATMENT SOLUTIONS, INC., Plaintiff, v. ACE AMERICAN INSURANCE COMPANY and LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendants. |
| Court | U.S. District Court — Southern District of New York |
ORDER GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS
This case involves a dispute about coverage under two separate insurance policies. Plaintiff Suez Treatment Solutions, Inc. (“Suez”) separately purchased from ACE American Insurance Company (“Chubb”) and Liberty Mutual Fire Insurance Company (“Liberty”) (together “Defendants”) insurance to cover its operations in connection with the development of a pollution treatment system in North Carolina. When that project ultimately failed, an underlying action sought damages from Suez, among others, for breach of contract, negligence, and fraud. [ECF No. 39-4, the “Underlying Complaint”]. In this case, Suez seeks a declaratory judgment that, under the insurance policies, Chubb and Liberty are each obligated to defend and indemnify Suez in connection with the underlying case. [ECF No. 1, the “Complaint”].
Suez moves for partial judgment on the pleadings with respect to the Defendants' duty to defend [ECF No. 37] and filed its memorandum of law in support [ECF No. 38, “Suez Mem.”]. Liberty filed a memorandum of law in opposition, stylized in part as its own request for judgment on the pleadings, seeking a determination that Liberty does not owe Suez a duty to defend. [ECF No. 41, “Liberty Mem.”]. Chubb then separately moved for judgment on the pleadings, requesting that the Court determine that Chubb owes no duty to defend [ECF No. 43] and filed a memorandum in support [ECF No. 44, “Chubb Mem.”]. Suez filed an omnibus reply to both the Chubb and Liberty papers [ECF No. 46, “Suez Reply”]. Chubb and Liberty each subsequently filed a reply, [ECF No 47, “Chubb Reply”; ECF No. 48, “Liberty Reply”].
On a Federal Rule of Civil Procedure 12(c) motion for judgment on the pleadings-an unusual procedural posture for a duty to defend case-the Court may consider the Chubb and Liberty Policies annexed to the Complaint. L-7 Designs, Inc. v Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011). A complaint is also “deemed to include . . . materials incorporated in it by reference [and] documents that, although not incorporated by reference, are ‘integral.'” Sira v. Morton, 380 F.3d 57, 67 (2d Cir. 2004). The Complaint here explicitly references the underlying litigation, Compl. ¶ 1, and summarizes the allegations in the Underlying Complaint, Compl. ¶¶ 41-44. Because the Complaint explicitly refers to and relies upon the allegations contained in the Underlying Complaint, it is incorporated by reference, and is otherwise integral. Sira, 380 F.3d at 67. The Court therefore considers the Underlying Complaint and the Policies on these Motions.
For the reasons discussed herein, the Court grants Suez's motion as to both insurers, declaring that Chubb and Liberty each owe a duty to defend Suez in the Underlying Action.
The underlying case arises from work that Suez performed for the City of High Point, North Carolina (“High Point” or “the City”) to upgrade the facilities at its wastewater treatment plant starting in 2012. See Underlying Compl. ¶¶ 11, 19-20. Updated federal standards had imposed a limit of acceptable mercury emissions from sewage-sludge incinerators. Underlying Compl. ¶¶ 14, 18, 25. After initial tests revealed that High Point's then-existing systems would not comply with new federal standards, Underlying Compl. ¶ 18, the city's agent “began working with [Suez on] the installation of a Mercury Removal System.” Underlying Compl. ¶ 19. It is alleged that as part of the process, Suez represented that Carbon Process & Plant Engineering S.A.'s (“CPPE”) “products and its unique [] mercury removal process in [its system] would best enable” High Point to comply with federal standards and “needed to be the manufacturer of the portions of the [mercury removal system] that CPPE was able to supply and design.” Underlying Compl. ¶ 20. Suez represented to the City “that a granulated activated carbon adsorber [the “GAC unit”] designed and manufactured by CPPE” needed to be included as part of the entire treatment system. Underlying Compl. ¶ 21.
According to High Point, “GAC units had rarely, if ever, been used to treat mercury emissions from” sewage-sludge incinerators. Underlying Compl. ¶ 25. Nonetheless the GAC unit was installed in the system “under the supervision of [Suez.]” See Underlying Compl. ¶¶ 25, 70. After installation, and before the system “had [] been turned over to [High Point], ” Suez and CCPE “undertook to start up” the system in late July 2016. Underlying Compl. ¶¶ 72-73. On August 2, 2016, less than a month later, “a serious leak was discovered in a component [known] as the ‘heat exchanger.'” Underlying Compl. ¶ 75. That leak forced the system to shut down, and weeks-long repairs began. Underlying Compl. ¶ 76.
The Underlying Complaint alleges that the day after the system shut down for repairs, “[Suez] and CPPE left” and did not instruct High Point or the plant's operators how the system should be monitored during the shutdown. Underlying Compl. ¶ 80. Shortly thereafter, a plant operator noticed unusually high temperatures in the GAC unit. Underlying Compl. ¶ 81. The shutdown had apparently caused an increase of the carbon monoxide [(“CO”)] levels inside the GAC. Underlying Compl. ¶ 77. Increased CO levels “indicate that a fire or high-temperature incident is taking place inside the GAC unit.” Underlying Compl. ¶ 78. High Point contacted Suez who instructed the plant to “open an outlet damper on the GAC unit in order to evacuate the heat from the GAC unit.” Underlying Compl. ¶ 82. This action had the opposite effect. Underlying Compl. ¶ 83.
The City alleges that the next day “computer readings indicated that the temperature inside the GAC unit had increased even more.” Underlying Compl. ¶ 83. CCPE instructed operators to turn on a “startup blower” to cool the GAC unit down. Underlying Compl. ¶ 84. When this only further increased the temperature, CCPE told operators “to drench the carbon inside the GAC unit with water, ” which they did for the next two weeks. Underlying Compl. ¶¶ 84-85. Underlying Compl. ¶ 86. The fire inside the GAC unit was finally extinguished almost a month after the shutdown by dumping the carbon “out of the bottom of the GAC unit.” Underlying Compl. ¶ 87.
According to the City “[f]or months, no work was done on-site by [Suez] or CPPE to repair or replace the GAC unit.” Underlying Compl. ¶ 99. High Point further alleges that when work resumed four months after the fire “[Suez] and/or CPPE began a disorganized, poorly planned effort” that “consisted primarily of patching a portion of the fiberglass[, ] replacing the destroyed filters[, ] and placing new carbon into the GAC unit.” Underlying Compl. ¶ 101. This work proved fruitless, as about two months later “the GAC unit experienced a second fire or high-temperature incident during a planned start-up.” Underlying Compl. ¶ 110.
Apparently learning from the first fire, High Point this time opted to “dump[] the carbon from the bottom of the GAC unit.” Underlying Compl. ¶ 111. Nonetheless, the second fire caused extensive damage to the unit and the system. Underlying Compl. ¶ 112. High Point launched an investigation into the fires and the roles that Suez and CPPE respectively played in the breakdown of the system. Underlying Compl. ¶ 118.
The City ultimately sued Suez for breach of contract, breach of warranties, negligence, negligent misrepresentations, fraud, and unfair and deceptive trade practices under North Carolina state law. Underlying Compl. at 22-32 (the “Underlying Case”).
Before the issues giving rise to the Underlying Complaint, Suez had purchased two separate insurance policies: one from Chubb, and one from Liberty Mutual. The Chubb Policy [ECF No. 39-1] was a “Contractors Pollution Liability and Errors & Omission Insurance Policy.” Chubb Policy at SUEZ000005; Chubb Mem. at 3. The Chubb Policy had a coverage period running from July 24, 2016 to July 24, 2017. Chubb Policy at SUEZ000067. The Liberty Policy [ECF No. 39-2] was a “Commercial General Liability” insurance policy with a policy period from March 1, 2016 to March 1, 2017. See Liberty Policy at SUEZ000074; Liberty Mem. at 3.[1]Suez maintains that it purchased the Chubb and Liberty Policies “to protect itself from both professional liability-related claims and products liability-related claims such as those alleged in the Underlying Complaint.” Suez Mem. at 1. Suez now seeks a declaratory judgment that under the two policies, Chubb and Liberty each independently have a duty to defend Suez in connection with the Underlying Case.
The Chubb Policy states that Chubb has “the right and duty to defend [Suez] against a ‘claim' to which this insurance applies.” Chubb Policy at SUEZ000007. The Chubb Policy has two separate coverage provisions. “Coverage A” is the “Errors and Omissions Coverage, ” Chubb Policy at SUEZ000005, while “Coverage B” is the “Contractors Pollution and Emergency Response Coverage, ” Chubb Policy at SUEZ000005.
Coverage A provides that the Chubb Policy applies to “professional loss, ” and “any related ‘legal defense expense,' . . ....
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