Travelers Cas. & Sur. Co. of Am. v. Netherlands Ins. Co.

• Decision Date: 05 August 2014
• Docket Number: No. 19089.,19089.
• Citation: 312 Conn. 714,95 A.3d 1031
• Court: Connecticut Supreme Court
• Parties: TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA et al. v. The NETHERLANDS INSURANCE COMPANY et al.

312 Conn. 714

95 A.3d 1031

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA et al.

v.The NETHERLANDS INSURANCE COMPANY et al.

No. 19089.

Supreme Court of Connecticut.

Argued Feb. 25, 2014.

Decided Aug. 5, 2014.

Susan L. Miller, West Hartford, with whom was Margaret A. Casey, for the appellants (named defendant et al.).

Jane I. Milas, New Haven, with whom was Anita C. DiGioia, for the appellee (defendant Lombardo Brothers Mason Contractors, Inc.).

Lee H. Ogburn, pro hac vice, with whom, on the brief, was Laura Pascale Zaino, Hartford, for the appellees (plaintiffs).

ROGERS, C.J., and PALMER, ZARELLA, EVELEIGH, McDONALD, ESPINOSA and ROBINSON, Js.

ROBINSON, J.

The plaintiffs, Travelers Casualty and Surety Company of America and Travelers Indemnity Company (collectively, Travelers), brought this declaratory judgment action against the defendants, who include The Netherlands Insurance Company (Netherlands) and Lombardo Brothers Mason Contractors, Inc. (Lombardo).¹ Travelers sought and received a judgment from the trial court declaring, inter alia, that Netherlands was obligated to defend Lombardo, and pay to Travelers its pro rata share of the costs incurred in defending Lombardo in the civil action arising from Lombardo's role in the construction of the leak prone library at the University of Connecticut School of Law (law library), chronicled in our recent decision in State v. Lombardo Bros. Mason Contractors, Inc., 307 Conn. 412, 420–21, 54 A.3d 1005 (2012) (underlying action). Netherlands appeals ² from that declaratory judgment, and raises a plethora of appellate issues, namely, that the trial court improperly: (1) concluded that Travelers had standing to bring this action because it was not a party to the commercial general liability insurance policies (CGL policies) that Netherlands had issued to Lombardo; (2) determined that the allegations recited in the complaint in the underlying action (underlying complaint), constituted an occurrence under the CGL policies; (3) concluded that the exclusion for “known injury or damage” in the CGL policies did not preclude coverage; (4) found that the pro rata allocation period for defense costs was 144 months; (5) denied Netherlands' motion for permission to amend its answer and special defenses to assert the special defense of unclean hands; and (6) prohibited it from presenting evidence of unclean hands. We disagree and, accordingly, we affirm the judgment of the trial court.

The record reveals the following background facts, as set forth in the trial court's memorandum of decision, and procedural history. “In 1994, the state of Connecticut (state) contracted with Lombardo to perform masonry for the construction of the [law library], which was completed in 1996. In the underlying complaint, the state alleges that in the months and years following the completion of the project, the state began to experience problems with water intrusion in the [law] library. Over the years, the alleged water intrusion proved to be continuing and progressive, to the point where the state retained forensic engineers to investigate the full extent and likely cause of the problem. On February 14, 2008, the state initiated a lawsuit against Lombardo and other entities seeking to recover approximately $18 million that it alleged was necessary to repair defects in the law library.³

“From 1994 to 2008, the following insurance carriers assumed Lombardo's risk: September 30, 1994 to August 31, 1998, Travelers, [CGL] Policies; August 31, 1998 to August 31, 2000, Lumbermens [Insurance Company (Lumbermens) ], [CGL] Policies; August 31, 2000 to June 30, 2006, Netherlands, [CGL] Policies and Peerless [Insurance Company (Peerless) ], umbrella general liability policies.

“In late 2005, Lombardo notified its insurance carriers of the state's potential claim against it and Travelers agreed to participate in the investigation and related defense. Lumbermens ... and Netherlands refused, however, to participate in the investigation and defense. Prior to trial, Travelers spent over $482,855 defending Lombardo.” (Footnotes altered.)

In July, 2009, Travelers filed a two count complaint against Netherlands, Peerless, Lumbermens and Lombardo.⁴ In the first count, Travelers sought, inter alia, a declaratory judgment that: (1) Peerless, Netherlands ⁵ and Lumbermens “are obligated to pay their pro rata shares of the cost of Lombardo's defense”; and (2) “Lombardo is required to pay the pro rata share of its defense costs allocated to any uninsured period in the underlying action going forward....” In the second count, alleging “equitable subrogation,” Travelers alleged that it had paid the full cost of defending Lombardo, and sought reimbursement from Netherlands and Lumbermens of their pro rata share of the defense costs with respect to the underlying claim and underlying action. In response, Netherlands filed an answer and five special defenses wherein it contended that coverage was unavailable under both the primary CGL policies issued by Netherlands and the umbrella policies issued by Peerless.

With respect to the special defense that is at issue in this appeal, Netherlands pleaded that it had no obligation to reimbursedefense costs because Lombardo had been on notice of problems with the law library “on or before January, 2000,” and, therefore, prior to the issuance of the first Netherlands CGL policy in August, 2000, meaning that “the exclusion for prior known occurrences or claims ... applies and no coverage is available for Lombardo under any of the policies listed in paragraph 1a of this first special defense.” ⁶

The matter proceeded to a one day court trial before the court, Hon. Joseph Q. Koletsky, judge trial referee.⁷ At trial, Travelers withdrew the second count of its complaint claiming a right to equitable subrogation. Shortly thereafter, Netherlands moved to dismiss this case for lack of subject matter jurisdiction, claiming that Travelers, which was not a party to Lombardo's insurance contracts, now lacked standing to assert the remaining declaratory judgment claim in the complaint. The trial court denied that motion to dismiss, concluding that Travelers had standing to bring this declaratory judgment action.

The trial court then issued a memorandum of decision rendering judgment for Travelers, declaring that: “Netherlands had a duty to defend based on the underlying complaint.” In reaching this conclusion, the trial court first determined that the factual allegations in the underlying complaint “state that the damage potentially falls within the dates of Netherlands' coverage.” ⁸ The trial court held that the “occurrence which triggered the duty to defend was the water intrusion into the law library,” ⁹ and rejected Netherlands' reliance on the known injury or damage clause, noting that “the underlying complaint does not state with certainty when Lombardo was aware of the actual damage.” ¹⁰ In a subsequent articulation; see Practice Book § 66–5; the trial court found that Netherlands was obligated to pay 48.6 percent of Lombardo's defense costs, which it determined by dividing the 70 month coverage period, from August 31, 2000 to June 30, 2006, “by the entire allocation period of 144 months.” This appeal followed.

On appeal, Netherlands claims that the trial court improperly: (1) denied its motion to dismiss this declaratory judgment action; (2) concluded that the facts recited in the underlying complaint constituted an occurrence under the CGL policies; (3) concluded that the exclusion for “known injury or damage” in the CGL policies did not preclude coverage; (4) determined that the allocation period for the insurers' pro rata share of the defense costs was 144 months; (5) denied its motion for permission to amend the answer and special defenses to assert the special defense of unclean hands; and (6) precluded it from introducing evidence of unclean hands. We address each claim in turn, setting forth additional relevant facts and procedural history where necessary.

IMOTION TO DISMISS

We begin with Netherlands' claim that the trial court improperly denied its motion to dismiss this declaratory judgment action and, specifically, the first and only remaining count in the complaint, for lack of subject matter jurisdiction. Netherlands relies on Wilson v. Kelley, 224 Conn. 110, 116, 617 A.2d 433 (1992), as standing for the proposition that General Statutes § 52–29,¹¹ the declaratory judgment statute, does not create an independent cause of action or “substantive rights that did not otherwise exist.” Citing, inter alia, Dow & Condon, Inc. v. Brookfield Development Corp., 266 Conn. 572, 833 A.2d 908 (2003), Netherlands contends that the first count alleges breach of contract between it and Lombardo and that, because Travelers is neither a party to Netherlands' insurance contracts with Lombardo nor an intended third party beneficiary thereof, Travelers lacks standing to bring this claim. To this end, Netherlands cites a Superior Court decision, Century Indemnity Co. v. Northeast Utilities, Superior Court, judicial district of New Britain, Docket No. CV–98–0495496–S, 1999 WL 417309 (May 24, 1999), as holding that “an insurer does not have standing to sue to enforce insurance contracts between its insured and other insurers, although, under certain circumstance[s], it may have a claim for equitable contribution.” Thus, Netherlands contends that Travelers “deprived itself” of standing when it withdrew its equitable claims at trial.

In response, Travelers, joined by Lombardo, first contends that subject matter jurisdiction exists because it withdrew the equitable subrogation claim for the sole reason that the parties had agreed that the case would be tried only under the first count, seeking only a percentage determinationas to the parties' pro rata responsibility for defense; the parties agreed to this litigation posture because attorney-client privilege issues arising from the pending...