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Pierce Associates, Inc. v. St. Paul Mercury Insurance Co.

March 13, 2006


The opinion of the court was delivered by: John D. Bates United States District Judge


Pending before the Court in this insurance-coverage dispute are cross-motions for partial summary judgment. Resolution of the motions turns on whether the terms of a commercial general liability policy imposed on the insurer, St. Paul Mercury Insurance Co. ("St. Paul"), a duty to continue to defend the interests of an insured, Pierce Associates, Inc. ("Pierce"), in litigation after the insured was dismissed from the suit but where the insured's conduct remained at issue and the insured's surety, Liberty Mutual Insurance Co. ("Liberty"), was still a defendant in the case. Having reviewed the policy and carefully considered the submissions of the parties and the entire record herein, including the arguments made at the motions hearing on February 10, 2006, the Court concludes, for the reasons that follow, that the language of this particular policy does support the imposition of such a duty on St. Paul. Accordingly, the Court will grant plaintiff Pierce's motion for partial summary judgment and will further declare that St. Paul is liable to Pierce for breach of the duty to defend under the insurance policy (i.e., St. Paul must reimburse Pierce for the contested defense costs it incurred).


This civil action arises out of the construction of the Ritz-Carlton Hotel and Condominiums at Millennium Square in Washington, D.C. ("the project") -- specifically the work of Pierce, a plumbing and heating, ventilation, and air-conditioning ("HVAC") subcontractor on the project. The developer of the project was 2200 M Street, LLC ("2200 M"), and Bovis Lend/Lease, Inc. ("Bovis"), was the construction manager. On June 15, 1999, Pierce entered into a subcontract with Bovis in which Pierce pledged to indemnify Bovis and 2200 M against "any claim, cost, expense, or liability ... caused by, arising out of, resulting from, or occurring in connection with" the performance of Pierce on the project. J.A. Ex. 1 at ¶ 12.

Pursuant to the subcontract, Pierce was required to secure a performance bond for its work on the project, and it obtained such a bond, in the amount of $16,177,261, from Liberty on July 19, 1999. The bond indemnifies Bovis from "any and all loss, damage, and expense" that Bovis may sustain by Pierce's failure to "truly perform all the undertakings, covenants, terms, conditions, and agreements" of the subcontract. J.A. Ex. 2 at 1. In exchange for Liberty's issuance of the bond and corresponding pledge to serve as Pierce's surety, Pierce agreed to indemnify Liberty against any liability related to the bond. J.A. Ex. 3 at 1.

Pierce also was included as a "protected person" on a commercial general liability insurance policy ("the policy") that was purchased by 2200 M and underwritten by St. Paul. It provides that "[St. Paul will] pay amounts any protected person is legally required to pay as damages for covered bodily injury or property damage that: happens while this agreement is in effect; and is caused by an event." J.A. Ex. 9 at 2-3. The policy further provides that "[St. Paul will] have the right and duty to defend any protected person against a claim or suit for injury or damage covered by this agreement" and that it will "have such right and duty even if all the allegations of the claim or suit are groundless, false, or fraudulent." Id. at 4. The policy, however, excludes from coverage "injury or damage for which the protected person has assumed liability under any contract or agreement," except when "the protected person would have liability [for the injury or damage] without the contract or agreement." Id. at 12.

Following Pierce's asserted completion of its work on the project, 2200 M and Bovis were sued in a series of lawsuits filed by condominium owners and other tenants of the Millennium Square complex. The suits alleged defects in the construction of the project, including alleged defects in plumbing and mechanical work, and claimed that the defects caused property damage and bodily injury. In a November 19, 2002, letter to Pierce, 2200 M made a demand for (a) all of the costs and expenses [associated with "responding to claims asserted by owners and tenants at Millennium Square and in correcting defects in the plumbing, HVAC, roofing and waterproofing systems"], (b) additional consequential damages sustained by 2200 M, including lost income attributable to its inability to market units due to the pervasive plumbing and HVAC defects discovered at Millennium Square; (c) all future costs and expenses incurred by 2200 M in connection with the investigation and remediation of plumbing/HVAC defects and property damage caused by associated water leaks at Millennium Square, and (d) any liability imposed on 2200 M for alleged personal injuries.

J.A. Ex. 6 at 2. Bovis received a similar demand letter from 2200 M and tendered that demand to Pierce for indemnification in a December 9, 2002, letter. Bovis likewise demanded that Liberty "honor its obligations under the Subcontract and Bond ... to protect the interests of [2200 M] and Bovis by indemnifying [2200 M] and Bovis and by holding [2200 M] and Bovis harmless against the claims in [2200 M's] Demand." J.A. Ex. 5 at 1.

Subsequently, 2200 M filed a lawsuit in New York Supreme Court ("the New York action") that, among other things, asserted claims of negligence, see J.A. Ex. 8 at 24 ("Count II"), and breach of contract, see id. at 36 ("Count IX"), against Pierce and alleged that Pierce's conduct resulted in leaks and water intrusions in the Project ... [that] in turn caused damage, including but not limited to damage to certain common areas, residential units, areas of the Ritz-Carlton Hotel, and to other property located in certain common areas and residential units, as well as to furnishings in the property, including carpeting, drywall, and other furnishings and equipment.

Id. at 24-25. Count XI of the suit named Liberty as a defendant and alleged that Liberty, as the surety on Pierce's performance bond, was responsible for Pierce's failure "to perform [its] work on the Project in a good, workmanlike and timely manner, and in accordance with contract documents"*fn2 and that, because of that failure, 2200 M was forced to spend a substantial amount of money on, among other things, "investigating water intrusion and mold damage at the Project," resolving claims by residential unit owners of resulting damage to their property and furnishings, and "performing necessary repairs to mitigate damages." See id. at 39.

Pierce provided notice of these claims to St. Paul and requested that St. Paul provide defense and indemnity coverage to Pierce and Liberty under the policy. St. Paul agreed, under a reservation of rights, to defend Pierce against the New York action and with respect to the demands from 2200 M and Bovis, but it refused to pay for any costs incurred by Pierce in defending Liberty against the New York action. Pierce succeeded in obtaining dismissal from the New York action on personal-jurisdiction grounds, but the claim against Liberty remained until the New York Supreme Court dismissed the entire action on grounds of forum non conveniens. In the interim between Pierce's dismissal from the New York action and the dismissal of the entire action, Pierce spent approximately $240,000 on legal representation for Liberty in the case.*fn3

On November 2, 2004, Pierce commenced this action, which, among other things, alleges that St. Paul breached its contractual duty to defend Pierce when it refused to pay the defense costs of Liberty in the New York action. The parties have filed cross-motions for partial summary judgment on the issue of St. Paul's liability to Pierce, and the Court held a hearing on the motions on February 10, 2006.


Summary judgment is appropriate when the pleadings and the evidence demonstrate that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Where, as here, the parties have filed cross-motions for summary judgment and neither party has contested the other's assertion that there is an absence of any genuine issue of material fact, see Agreed Stmt., the Court's inquiry is limited to whether either party is entitled to judgment as a matter of law based on the undisputed material facts.

Under New York law,*fn4 a court may render judgment as a matter of law in a case involving interpretation of an insurance contract if either the terms of the policy are unambiguous or there is no extrinsic evidence from which a jury could draw a factual conclusion about the parties' actual intent in adopting an ambiguous policy provision. See Alexander & Alexander Servs., Inc., v. These Certain Underwriters at Lloyd's, London, 136 F.3d 82, 86 (2d Cir. 1998). In the latter case, where extrinsic evidence "does not shed light upon the intent of the parties," the court should "construe any ambiguities in the contract against the insurer as a matter of law." Canada Life Assurance Co. v. Guardian Life Ins. Co. of Am., 242 F.Supp. 2d 344, 358 (S.D.N.Y. 2003); New York v. Home Indem. Co., 486 N.E. 2d 827, 829 (N.Y. 1985) ("[I]f the tendered extrinsic ...

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