The Connecticut Supreme Court recently held that insurers can bring declaratory judgment suits over fellow insurers' coverage obligations. Travelers Cas. and Sur. Co. of America v. The Netherlands Ins. Co. et. al., SC 19089 (Conn. July 28, 2014).
The underlying case arose in 1994, when the State of Connecticut contracted with Lombardo Brothers Mason Contractors (“Lombardo”) to build the law library at the University Of Connecticut School Of Law. In the months and years following the completion of the project, water intruded into the law library. The State retained forensic engineers to investigate the extent of the damage and the likely cause of the problem. In 2008, the State initiated suit against Lombardo seeking to recover approximately $18 million to repair the defects in the law library.
Lombardo sought coverage in the underlying action under various policies it had in place from 1994 to 2008. Specifically, from September 1994 to August 1998, Lombardo was insured under a Commercial General Liability (“CGL”) Policy issued by Travelers Casualty and Surety Company of America (“Travelers”). From August 1998 to August 2000, Lombardo was insured under a CGL Policy issued by Lumbermens Insurance Company (“Lumbermans”), and from August 2001 to June 2006, Lombardo was insured under a CGL Policy issued by Netherland Insurance Company (“Netherlands”), and an umbrella general liability policy issued by Peerless Insurance Company (“Peerless”).
Travelers agreed to participate in the investigation and related defense of Lombardo in the underlying action. Lumbermans and Netherlands refused. Thereafter, Travelers filed a declaratory judgment action against Lumbermans and Netherlands, seeking a determination that Lumbermans and Netherlands were obligated to pay their pro rata shares of the cost of Lombardo’s defense. Shortly thereafter, Netherlands moved to dismiss the declaratory judgment action, claiming that Travelers, which was not a party to Lombardo’s insurance contracts, lacked standing to bring the action. Netherlands also contended that it had no obligation to reimburse for defense costs because Lombardo had been on notice of the problems with the law library or before January 2000, and therefore, prior to the issuance of the first Netherlands CGL policy in August 2000. The trial court denied the motion to dismiss and held that Netherlands had a duty to defend in the underlying suit. Netherlands appealed.
On appeal to the Supreme Court of Connecticut, Netherlands claims the trial court improperly denied its motion to dismiss and improperly found it had a duty to defend. The Supreme Court disagreed, finding Travelers had standing to commence a declaratory judgment action against Netherlands because Travelers demonstrated a “specific, personal, and legal interest” in Netherland’s insurance policy. Specifically, Travelers claim of injury was more than colorable, in that it had provided more than its fair share of Lombard’s defense because of Netherland’s refusal to contribute to the defense. The Supreme Court also held Netherland’s had a duty to defend in the underlying suit because the property damage alleged in the underlying complaint extended into Netherland’s policy periods.