Zurich Am. Ins. v. Lord Elec. Co. of Puerto Rico

• Decision Date: 20 December 2013
• Docket Number: Civil No. 09–1111 (SEC).
• Parties: ZURICH AMERICAN INSURANCE, et al., Plaintiffs, v. LORD ELECTRIC CO. OF PUERTO RICO, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

986 F.Supp.2d 104

ZURICH AMERICAN INSURANCE, et al., Plaintiffs,
v.
LORD ELECTRIC CO. OF PUERTO RICO, et al., Defendants.

Civil No. 09–1111 (SEC).

United States District Court,
D. Puerto Rico.

Dec. 9, 2013.
As Corrected Dec. 20, 2013.

[986 F.Supp.2d 106]

Cristina S. Belaval–Burger, Martinez Odell & Calabria, Eyck O. Lugo–Rivera, Edge Legal Strategies, PSC, San Juan, PR, PHV Douglas B. Fox, Joseph Frank Rich, Cozen O'Connor, Philadelphia, PA, for Plaintiffs.

Amexis J. Bonilla–Nieves, Eduardo J. Cobian–Roig, Cobian & Cobian Law Offices, PSC, Amancio Arias–Guardiola, Arias Cestero & Arias Guardiola, Jeannette M. Lopez, Pinto–Lugo, Oliveras & Ortiz, PSC, Jose A. Andreu–Fuentes, Andreu & Sagardia Law Office, Nelson N. Cordova–Morales, Cordova Morales Law Offices, San Juan, PR, for Defendants.

OPINION AND ORDER
SALVADOR E. CASELLAS, Senior District Judge.

Before the Court are third-party plaintiff and the third-party defendant's cross-motions for summary judgment (Dockets # 340 & 425), and the parties' respective responses and reply memoranda. Dockets # 425, 433, 444. Also pending are third-party defendant's motion under Rule 56(d) (Docket # 382), the third-party plaintiff's opposition thereto (Docket # 395), and their respective replies. Dockets # 409 & 415. After reviewing the filings and applicable law, all of third-party defendant's motions are DENIED, while the third-party plaintiff's motion for summary judgment is GRANTED in part and DENIED in part.

Factual and Procedural Background

The present instance is the latest saga of this protracted litigation, which concerns a diesel fuel spill at American International Plaza (AI Plaza), an office building in San Juan, Puerto Rico. The background facts of this case are recounted in prior, published opinions. See Zurich Am. Ins. v. Lord Elec. Co. of P.R., 828 F.Supp.2d 462 (D.P.R.2011); Wells Real Estate Inv. Trust II, Inc. v. Chardon/Hato Rey P'ship, S.E., 615 F.3d 45, 47 (1st Cir.2010). Assuming familiarity with those opinions, the Court recites only the facts necessary to resolve the untimely dispute between third-party plaintiff Alarm & Control System Co. (Acotrol), and its insurer, third-party defendant Real Legacy Assurance Company (Real Legacy). Their quarrel boils down to whether or not the insurance policy Real Legacy issued to Acotrol obliges it to defend and indemnify Acotrol in the

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underlying tort suit filed against the latter. Based on the insurance policy's total pollution exclusion clause, Real Legacy has denied coverage, and has refused to continue defending Acotrol from the underlying suit.

I

At all times relevant to the events giving rise to this suit (i.e., February 2008), Acotrol was covered by a commercial general liability (CGL) insurance policy issued by Real Legacy.¹ The policy obliged Real Legacy to defend and indemnify Acotrol for property damage and bodily injuries caused by Acotrol in the course of its business, see Docket # 425–2, p. 52, but contained a total pollution exclusion providing that:

This insurance does not apply to ... “[b]odily injury” or “property damage” which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time....

Pollutants means any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned or reclaimed.

Id., p. 65.

II.

The facts leading up to the AI Plaza spill are neatly summarized by the First Circuit:

Prior to closing, the transformer for AI Plaza's main electrical service failed on February 10, 2008, and the building's two diesel-powered back-up generators began operating. Late on February 11 or early on February 12, a large diesel fuel spill occurred. [F]uel spilled from the maintenance room on the building's top floor into other parts of the building. As a result of the spill, AI Plaza required significant remediation, repair, cleaning and restoration, and its tenants were forced to vacate the building. Chardón obtained the necessary clearances to reopen the building for occupancy on March 26, and the majority of tenants returned by the end of May.

Wells Real Estate Inv. Trust II, Inc., 615 F.3d at 48. This diversity tort suit under Article 1802, P.R. Laws Ann. tit. 31, § 5141, ensued. Docket # 1. In it, the plaintiffs seek to recoup from the alleged tortfeasors the damages caused to their properties and businesses. See generally id.

Third-party plaintiff Acotrol, a company that provides services related to the installation and maintenance of alarm systems, see Docket # 433–5, was named as a defendant. Docket # 1, ¶ 18. The plaintiffs contend, essentially, that Acotrol failed to install, inspect, or otherwise maintain the alarm systems that malfunctioned. Id. ¶¶ 18–19, 78. Acotrol promptly referred the complaint to Real Legacy for defense and coverage. Although Real Legacy assigned defense counsel to represent Acotrol, it had also sent (in July 2008) a reservation-of-rights letter citing the total pollution exclusions contained in the CGL policy. Docket # 439–1.²

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Then, in July 2009, the attorney assigned by Real Legacy filed an appearance and answered the underlying complaint on behalf of Acotrol. Dockets # 11, 17, 28. Since then Real Legacy, as the entity controlling and paying for the legal defense of Acotrol, has (1) been kept apprised of the proceedings in this case; (2) authorized the retention of an expert witness on behalf of Acotrol, see Dockets # 312 & 343–6; (3) filed a third-party complaint, Docket # 134; and (4) even authorized the participation of its insured and its designated legal representative in the court-annexed mediation proceedings, see, e.g., Docket # 273.

But on December 19, 2012—over three years since Real Legacy assigned counsel to represent, while the mediation proceedings and discovery were still ongoing, and before Acotrol's retained expert submitted a rebuttal report, see Docket # 312—Real Legacy unilaterally withdrew legal defense and denied coverage. That day, a Real Legacy representative sent a letter to Acotrol's president, notifying him that it was denying coverage and withdrawing defense. Docket # 342–4. Real Legacy explained that, after conducting an “investigation” (more on this later) and receiving the report submitted by plaintiffs' expert witness, it determined that the total pollution and professional liability exclusions barred coverage. Id., pp. 1–2. In its letter, Real Legacy gave full faith and credit (citing verbatim) each and every one of the alleged findings asserted against Acotrol in the report submitted by plaintiffs' expert. See id. The letter, however, contained no information whatsoever regarding the “investigation” Real Legacy says it conducted. See id.³

III.

After successfully securing leave of court, Acotrol filed a third-party complaint, seeFed.R.Civ.P. 14, against Real Legacy. Docket # 339. Seeking a declaratory judgment, see28 U.S.C. § 2201(a), Acotrol “requests a determination as the propriety of Real Legacy's belated denial and withdrawal of legal defense and coverage; and the breach of the insurance contract....” Docket # 339, ¶ 3.1. Acotrol then moved for summary judgment, requesting a declaration that Real Legacy (1) owes defense and coverage to Acotrol; and (2) breached its duties to Acotrol when it withdrew defense and denied coverage. On May 29, 2013, Real Legacy was duly served with a copy of the third-party complaint and the summary-judgment motion. Docket # 353.

After failing to sever Acotrol's third-party complaint, see Docket # 379, on July

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12, 2013, Real Legacy filed its answer thereto. Docket # 380.⁴ After several procedural nuances, Real Legacy opposed Acotrol's motion for summary judgment and moved for summary judgment, seeking a declaratory judgment in its favor. Docket # 425, p. 2. Contending that it “does not owe any duty towards its insured,” Real Legacy maintains the policy “does not cover the allegations of the Complaint ... pursuant to its terms, conditions and exclusions.” Id., p. 2.

A preliminary ruling is in order. Procedurally speaking, Real Legacy is not entitled to a declaratory judgment in its favor. That is so because “it did not file a counterclaim seeking affirmative relief.” Vermont Mut. Ins. Co. v. Zamsky, No. 11–11869, 2012 WL 6864702, at *1 (D.Mass. Dec. 17, 2012), report and recommendation adopted (Jan. 11, 2013); see Missouri, K. & T. Ry. Co. v. Early, 74 F.R.D. 60, 61 (E.D.Okla.1977) (holding that affirmative relief in the form of declaratory judgments was improperly requested in the answers, and should have been sought by counterclaim). The upshot is that Real Legacy is “only entitled to a ruling by the Court denying ... [Acotrol's] prayer for a declaratory judgment; ... [Real Legacy is] not entitled to a declaratory judgment in ... [its] favor.” Vermont Mut. Ins. Co., 2012 WL 6864702, at *1.⁵

Standard of Review

The Court may grant a motion for summary judgment if the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Kelley v. Correctional Medical Services, Inc., 707 F.3d 108, 115 (1st Cir.2013). At this stage, it is axiomatic that courts “may not weigh the evidence,” Casas Office Machs., Inc. v. Mita Copystar Am., Inc., 42 F.3d 668 (1st Cir.1994), but must construe the record in the “light most flattering” to the nonmovant. Soto–Padro v. Public Bldgs. Authority, 675 F.3d 1 (1st Cir.2012). Courts must similarly resolve all reasonable inferences in favor of the party opposing summary judgment. Id.

Because the summary judgment inquiry is grounded in the factual evidence available, one of its principal purposes “is to isolate and dispose of factually unsupported claims or defenses.” Celotex Corp. v. Catrett, 477 U.S....