Opinion
X04HHDCV126069237S
02-06-2017
O& G Industries, Inc. v. Litchfield Insurance Group, Inc. et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION RE DEFENDANTS' MOTIONS FOR PARTIAL SUMMARY JUDGMENT (#460 AND #463)
David M. Sheridan, J.
Before the court are motions for partial summary judgment filed by the defendants Litchfield Insurance Group, Inc. (" LIG") and defendant Aon Risk Services Northeast, Inc. (" Aon").
I. FACTS
This action arises out of an explosion that occurred during a construction project for which Kleen Energy Systems, LLC (Kleen) had hired the plaintiff O& G Industries, Inc. (" O& G") as the general contractor in connection with Kleen's development of a power generation facility (the " Kleen Energy project"). On November 30, 2007, the plaintiff and Kleen entered into an " Engineering, Procurement and Construction Agreement" (" EPC"). The EPC contained certain requirements for commercial general liability and umbrella insurance to be maintained by O& G. At the time the EPC was entered into O& G satisfied the EPC's commercial general liability and umbrella insurance requirements under its then-existing non-project-specific corporate program of liability insurance.
O& G's corporate program of liability insurance consisted of standard form CGL policies with a total of $102 Million in coverage, including (1) a Travelers primary CGL policy with per occurrence limits of $2 Million, (2) a Commerce & Industry Insurance Company (an AIG-affiliated company) umbrella policy with per occurrence limits of $25 Million (the " AIG Policy"), and (3) three additional levels of excess liability coverage totaling $75 Million in per occurrence limits, which " followed form" to the AIG Policy.
The EPC also allowed O& G to secure some or all of the required insurance coverage through an insurance product known as a Contractor Controlled Insurance Program, or " CCIP." Under a CCIP, the general contractor procures insurance coverage with respect to a specific project through one or more master policies for itself, the owner and all enrolled subcontractors. The CCIP is designed to reduce or control overall project costs associated with purchasing insurance and managing claims. As work on the power generation facility progressed, O& G began to consider implementing a CCIP. O& G discussed a CCIP with Aon, a company which holds itself out as an expert broker of CCIP's. O& G eventually hired Aon to be its CCIP broker and advisor.
O& G decided to satisfy the $102 Million coverage obligation in the EPC by placing $51 Million of coverage through a CCIP and using O& G's existing corporate liability insurance program coverage to provide the balance. At the time, the corporate program insurance policies contained a standard " wrap-up exclusion" that excluded from coverage any construction project that was insured by a CCIP. Aon's implementation of a CCIP for the Kleen Energy project would trigger the application of those exclusions, so that the corporate program policies would no longer provide coverage for the Kleen Energy project, unless those insurers specifically agreed to exempt the project from the exclusion.
Thus, in order to have the combination of the CCIP and the corporate program policies provide the $102 Million of coverage required by the EPC, it would be necessary to obtain excess of wrap-up endorsements on the corporate policies so that the wrap-up exclusions would not apply to the Kleen Energy project.
In April of 2009, prior to the binding of coverage under the CCIP, O& G asked LIG to have the corporate program policies endorsed at policy renewal to provide coverage excess of the CCIP for the Kleen Energy Project, so that O& G could meet and exceed its contractual insurance requirements under the EPC.
LIG secured excess of wrap coverage only for the $2 Million Travelers policy, but not for the AIG Policy or any of the excess policies that followed form to the AIG Policy. On April 29, 2009, Aon bound a CCIP for the Kleen Energy project with limits of $51 Million. Aon's act of binding the CCIP triggered the wrap exclusions in the excess layers of the corporate program insurance policies. As a result, O& G only had $53 Million in liability insurance coverage for the Kleen Energy project, which was $49 Million less than the limits required under the EPC and $100 Million less than it requested.
On February 7, 2010, an explosion occurred at the Kleen Energy project site, causing multiple deaths and injuries, as well as millions of dollars in property damage and project delays for which O& G and its subcontractors may ultimately be found liable.
After the explosion, AIG and the other carriers issuing the excess policies for the corporate program declined coverage for any claims arising from the explosion because the policies did not include the endorsement necessary to provide liability insurance coverage in excess of the CCIP. In order to mitigate the gap in coverage caused by the lack of a wrap-up endorsement, O& G was forced to purchase retroactive liability insurance coverage at a cost of $3.85 Million. That coverage is subject to a deductible of $7 Million.
The EPC contained a contractual indemnity provision, Section 9.1.1, which provided in relevant part as follows:
Subject to this ARTICLE 9, Contractor shall defend, indemnify and save Owner Group harmless from and against any and all Losses resulting from or directly or indirectly arising out of the negligence or willful misconduct of Contractor, or its employees, subcontractors, vendors, or agents in the performance of the Work under this Agreement. This indemnification shall survive the termination of this Agreement.
By letters dated August 10, 2011, February 10, 2012 and April 15, 2015, pursuant to its indemnification rights set forth in Section 9.1.1 of the EPC, Kleen made demand on O& G for indemnification of losses up to $35 Million that Kleen allegedly incurred in part because of the property damage and bodily injuries at the Project caused by the explosion.
Kleen demanded that O& G indemnify it for a number of financial losses including: 1) builder's risk insurance premiums for additional work needed because of damage caused by the explosion; 2) Connecticut Light & Power fees for additional work needed because of damage caused by the explosion; 3) engineering consulting fees that Kleen's lenders paid for reconstruction work, for which Kleen reimbursed the Lenders; 4) fees paid to a consulting contractor in connection with the reconstruction work; 5) increased administrative agent fees that Kleen's lenders paid, for which Kleen reimbursed the Lenders; 6) legal fees paid by Kleen in connection with defending and prosecuting governmental enforcement actions, personal injury and property damage lawsuits; 7) legal fees paid by Kleen for insurance coverage matters; and 8) legal fees that Kleen's lenders paid, for which Kleen reimbursed the Lenders.
At the same time, O& G made demand upon Kleen for a number of project-related claims based on increased costs due to modifications or additions to the scope of the work specified under the EPC, with a total amount in excess of $14 Million.
On November 11, 2015, a confidential settlement was reached between O& G and Kleen as to the claims they had asserted against each other, whereby certain payments were made and certain claims were released, in full and final settlement of Kleen's claims for indemnity and O& G's project related claims.
The present action is one for breach of contract, negligence, professional malpractice and misrepresentation against LIG, based on its acts and omissions in advising the plaintiff with respect to insurance coverage. The action is also one for breach of contract, negligence and professional malpractice against Aon, based on its acts and omissions in its role as the plaintiff's broker with respect to the liability coverage procured for the plaintiff.
Counts One and Two seek a declaratory judgment. O& G seeks a judgment declaring that LIG and Aon are liable to pay O& G's financial losses associated with Kleen's claims for indemnity. O& G contends that had LIG and Aon properly placed the O& G corporate program insurance coverage (by securing wrap-up endorsements) before binding the CCIP coverage, some or all of the losses associated with Kleen's indemnity claim would have been covered by the excess liability policies which " followed form" to the AIG Policy. Counts Three and Four are claims for breach of contract; Counts Five and Six are claims for negligence; Counts Seven and Eight are claims for professional malpractice; and Counts Nine and Ten are claims for misrepresentation and violations of the Connecticut Unfair Trade Practices Act (" CUTPA") as to LIG only.
As to the plaintiff's claims for financial losses associated with indemnifying, LIG and Aon maintain that O& G has no basis for recovery because the AIG Policy, by its plain terms, would never have provided insurance coverage for O& G's financial losses associated with Kleen's indemnity claim.
On July 18, 2016, LIG filed a motion for partial summary judgment, arguing that " the policy issued by AIG and placed by LIG never would have provided O& G with insurance coverage for any portion of the Kleen Indemnity Claim." The motion was accompanied by a memorandum of law and several exhibits. Aon joined in LIG's motion and filed its own memorandum of law, which incorporated all of O& G's memoranda, " with the exception of Part III of the Facts section." For convenience, unless otherwise noted, the court hereinafter refers to the arguments advanced by both defendants as LIG's arguments.
O& G filed a memorandum of law in opposition accompanied by an affidavit and several exhibits on August 15, 2016. LIG and Aon filed replies on September 8, 2016. The court heard oral argument on the motion on September 12, 2016. O& G filed a surreply on September 19, 2016.
The court expresses its gratitude for the parties' willingness to waive the 120-day requirement of Practice Book Section 11-19.
II. STANDARD OF REVIEW
A. Summary Judgment-Generally
" In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact. The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law. The courts hold the movant to a strict standard." (Internal quotation marks omitted.) Romprey v. Safeco Ins. Co. of America, 310 Conn. 304, 319-20, 77 A.3d 726 (2013).
" To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact . . . As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent . . . When documents submitted in support of a motion for summary judgment fail to establish that there is no genuine issue of material fact, the nonmoving party has no obligation to submit documents establishing the existence of such an issue . . . Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue . . . It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue. Mere assertions of fact . . . are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17-45]." (Internal quotation marks omitted.) Ferri v. Powell-Ferri, 317 Conn. 223, 228, 116 A.3d 297 (2015).
" The movant has the burden of showing the nonexistence of such issues but the evidence thus presented, if otherwise sufficient, is not rebutted by the bald statement that an issue of fact does exist . . . To oppose a motion for summary judgment successfully, the nonmovant must recite specific facts . . . which contradict those stated in the movant's affidavits and documents." (Internal quotation marks omitted.) Bank of America, N.A. v. Aubut, 167 Conn.App. 347, 358, 143 A.3d 638 (2016).
B. Interpretation of an Insurance Policy
Regarding the interpretation of an insurance policy, our Supreme Court has stated:
[C]onstruction of a contract of insurance presents a question of law for the court . . . An insurance policy is to be interpreted by the same general rules that govern the construction of any written contract . . . In accordance with those principles, [t]he determinative question is the intent of the parties, that is, what coverage the . . . [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy . . . If the terms of the policy are clear and unambiguous, then the language, from which the intention of the parties is to be deduced, must be accorded its natural and ordinary meaning . . . Under those circumstances, the policy is to be given effect according to its terms . . . When interpreting [an insurance policy], we must look at the contract as a whole, consider all relevant portions together and, if possible, give operative effect to every provision in order to reach a reasonable overall result . . .
In determining whether the terms of an insurance policy are clear and unambiguous, [a] court will not torture words to import ambiguity where the ordinary meaning leaves no room for ambiguity . . . Similarly, any ambiguity in a contract must emanate from the language used in the contract rather than from one party's subjective perception of the terms . . . As with contracts generally, a provision in an insurance policy is ambiguous when it is reasonably susceptible to more than one reading . . . Under those circumstances, " any ambiguity in the terms of an insurance policy must be construed in favor of the insured because the insurance company drafted the policy . . . This rule of construction may not be applied, however, unless the policy terms are indeed ambiguous. (Citations omitted; internal quotation marks omitted.)Connecticut Medical Ins. Co. v. Kulikowski, 286 Conn. 1, 5-6, 942 A.2d 334 (2008).
" When properly incorporated into the policy, the policy and the rider or endorsement together constitute the contract of insurance, and are to be read together to determine the contract actually intended by the parties. In construing an endorsement to an insurance policy, the endorsement and policy must be read together, and the policy remains in full force and effect except as altered by the words of the endorsement." (Citations omitted internal quotation marks omitted.) Lexington Ins. Co. v. Lexington Healthcare Grp., Inc., 311 Conn. 29, 55-56, 84 A.3d 1167, 1183 (2014).
" When the words of an insurance contract are, without violence, susceptible of two [equally responsible] interpretations, that which will sustain the claim and cover the loss must, in preference, be adopted . . . [T]his rule of construction favorable to the insured extends to exclusion clauses." (Citations omitted; internal quotation marks omitted.) Vermont Mutual Ins. Co. v. Walukiewicz, 290 Conn. 582, 591-92, 966 A.2d 672 (2009).
III. ANALYSIS
LIG argues that there is no genuine issue of material fact that coverage for the indemnity claim is excluded under the AIG Policy for four reasons: 1) the indemnity claim is barred under the contractual liability exclusion and none of the exceptions to that exclusion would apply; 2) O& G was not legally obligated to pay the indemnity claim; 3) the occupancy exclusion bars coverage for the property damage that comprises of the indemnity claim; and 4) the particular part exclusion also bars coverage for the property damage that comprises of the indemnity claim.
For its part, O& G opposes the summary judgment motion, arguing that both the insured contract exception and tort liability exceptions apply to bar the application of the contractual liability exclusion, that O& G was legally obligated to pay the indemnity claim, and that neither the occupancy exclusion nor the particular part exclusion apply. The court will address each of these issues in turn.
A. Contractual Liability Exclusion
LIG contends that there is no genuine issue of material fact that coverage for the indemnity claim is barred under the contractual liability exclusion in the AIG Policy. The contractual liability exclusion is contained in Section V.C of the policy, and provides:
This insurance does not apply to any liability for which the Insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:
1. That the Insured would have in the absence of a contract or agreement; or
2. Assumed in an Insured Contract, provided Bodily Injury or Property Damage occurs subsequent to the execution of the Insured Contract. Solely for the purposes of liability assumed in an Insured Contract, reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an Insured are deemed to be damages because of Bodily Injury or Property Damage and included in the Limits of Insurance of this policy, provided:
a. liability to such party for, or for the cost of, that party's defense has also been assumed in the same Insured Contract; and
b. such attorney fees and litigation expenses are for the defense of that party against a civil or alternative dispute resolution proceeding in which damages to which this policy applies are alleged.
Subsection V.C.2 is hereinafter referred to as the " insured contract exception."
This policy language has the effect of eliminating coverage for any liability assumed in a contract unless one or more of the two listed exceptions apply; in that event, any liability assumed in a contract would be within the coverage. Compare, Colony Nat. Ins. Co. v. Manitex, L.L.C., 461 Fed.Appx. 401, 403 (5th Cir. 2012); Travelers Prop. Cas. Co. of Am. v. Peaker Servs., Inc., 306 Mich.App. 178, 186, 855 N.W.2d 523, 528 (2014).
There seems to be little doubt that the O& G's liability for Kleen's losses was voluntarily incurred by O& G based upon the obligations of its contract. The EPC required O& G to indemnify and hold Kleen harmless for all losses arising from bodily injury or property damage resulting from the negligence of O& G's subcontractors in causing the explosion. Article 9.1.1 of the EPC provides:
Subject to this ARTICLE 9, Contractor shall defend, indemnify and save Owner Group harmless from and against any and all Losses resulting from or directly or indirectly arising out of the negligence or willful misconduct of Contractor, or its employees, subcontractors, vendors, or agents in the performance of the Work under this Agreement. This indemnification shall survive the termination of this Agreement.
O& G's liability based on its contractual assumption of Kleen's losses arising from the negligence or misconduct of O& G's subcontractors was excluded from coverage by the AIG Policy's Contractual Liability Exclusion, unless O& G contractually assumed liability for damages it would have been legally obligated to pay independent of any terms in the EPC agreement, or the assumption of liability was made pursuant to an " insured contract."
1) The Exception for Legal Liability Independent of Contract
LIG argues that first exception based on assumption of liability for damages that the insured would have to pay even in the absence of a contract or agreement does not apply for two reasons: (1) the true basis of Kleen's indemnity claim is contract rather than tort, as evidenced by the additional liability which O& G assumed beyond that it would have faced in the absence of an agreement; (2) the exception does not apply because any tort-based theory of recovery was barred by the statute of limitations.
In response, O& G maintains that a tort-based theory of liability under which Kleen could have made its claim " co-existed" with the EPC-based contractual theory under which Kleen chose to make its claim. Even in the absence of the EPC, the tort-based claim could have been made directly against O& G alleging that its negligent conduct caused the explosion, or it could have been a common law claim for indemnification based on a theory of active-passive negligence. As far as the statute of limitations, O& G maintains that there is no authority for the proposition that this exception is rendered inoperative when the " liability for damages that the Insured may have in the absence of a contract or agreement" may (in other words, it is not yet adjudicated) be barred by the statute of limitations.
An exclusion from coverage must be strictly construed in favor of the insured-that is, an exclusion " should be construed in favor of the insured unless [the court] has a high degree of certainty that the policy language clearly and unambiguously excludes the claim." Connecticut Ins. Guar. Ass'n v. Drown, 314 Conn. 161, 187-88, 101 A.3d 200 (2014).
LIG has failed to meet its burden of establishing quite clearly that the claim asserted against O& G by Kleen was based solely on the existence of a contractual right of indemnification. Compare Soria v. Necatera, No. FSTCV136017134S, 2015 WL 9911485, at *5 (Conn.Super.Ct. Dec. 29, 2015) (" The existence of two independent routes to liability means that negating one does not entitle the defendant, as moving party, to summary judgment. In a somewhat simplistic restatement: negation of coverage for a claim predicated on the plaintiffs' contractual liability to their customer cannot be dispositive when there may be tort-based liability of the plaintiffs to that same customer that is not so precluded"). LIG has also failed to establish conclusively that, as a matter of law, the provision unambiguously excludes tort-based claims that are potentially barred by the statute of limitations.
Having reviewed the documentation and case law authority submitted by the parties, the court concludes that Kleen's claim for indemnity is based upon liability that O& G may have had " in the absence of a contract or agreement, " and therefore the exception overrides the contractual liability exclusion and brings the claim back within the coverage.
The court could end its analysis of the contractual liability exclusion here. However, the court will state its findings and conclusions as to the alternative argument that the insured contract exception does not apply so that, if appellate review is sought, all potentially dispositive issues might be considered.
2) The Exception for Liability Assumed in an Insured Contract
LIG maintains that the Kleen Indemnity Claim was not incurred pursuant to an " insured contract." Endorsement No. 29 to the AIG Policy defines " insured contract" as follows:
Insured Contract means that part of any contract or agreement pertaining to your business under which any Insured assumes the tort liability of another party to pay for Bodily Injury, Property Damage or Personal Injury and Advertising Injury to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contact or agreement . . .
Solely for the purposes of liability assumed in an Insured Contract for a third party, reasonable attorney fees and necessary litigation expenses incurred by or for that third party are deemed to be damages because of Personal and Advertising Injury provided:
1. Liability for such third party, or for the cost of that third party's defense has also been assumed in the same Insured Contract, and
2. Such attorney fees and litigation expenses are for defenses of that third party against a civil or alternative dispute resolution proceeding in which damages to which this policy applies are alleged.
Under the AIG Policy, an " insured contract" is that part of any contract by which the insured (O& G) agrees to assume the " tort liability" of another party (Kleen) to a " third person or organization. LIG argues that the indemnity claim was for Kleen's first-party economic losses, or for contractual payments Kleen made to its lenders, and not for Kleen's tort liability to a third person. Therefore, as a matter of law, the insured contract exception does not apply and the contractual liability exclusion bars coverage. LIG cites with approval the reasoning of an unpublished decision of the Ninth Circuit Court of Appeals, APL Co. Pte. v. Valley Forge Ins. Co., 541 Fed.Appx. 770, 773 (9th Cir. 2013) (" the 'insured contract' exception protects the contracting party from liability for suits filed by a third party; it does not cover the reverse situation when the contracting party's own damages are caused by a third party").
O& G contends that the evidence strongly supports a conclusion that (or creates a material dispute of fact as to the question of whether) the explosion was in fact caused by the acts or omissions one or more O& G subcontractors. O& G suggests that it contractually assumed the tort liability of a third party-its subcontractors-to Kleen under Section 9.1.1 of the EPC, thereby satisfying the policy's definition of an " insured contract" (i.e., " a contract or agreement pertaining to your business under which any Insured assumes the tort liability of another party to pay for Bodily Injury, Property Damage or Personal Injury and Advertising Injury to a third person or organization"). O& G relies upon an unpublished decision of the Fifth Circuit Court of Appeals, Colony National Ins. Co. v. Manitex, L.L.C., 461 Fed.Appx. 401, 405 n.1 (5th Cir. 2012) which commented (in discussing an alternative argument that was not the basis for the court's holding) that that the insured contract exception conceivably applies to situations where a contracting party's damages are caused by a third party (" an insured contract could be one in which the insured assumed the tort liability of any other person or entity, not just the other party to the contract." [Emphasis in original.]) Id., 405, n.1.
Both parties also point to this court's previous discussion of the contractual liability exclusion in a prior ruling. See May 15, 2015 " Memorandum of Decision Re: Litchfield Insurance Group, Inc.'s Motion for Partial Summary Judgment [#203] and O& G Industries Inc.'s Cross Motion For Partial Summary Judgment [#226], " pp. 7-8. The court noted the split in authorities from other jurisdictions as to whether the contractual liability exclusion language of a commercial general liability policy applies to any contractually assumed liability by the insured or is limited to a contractual obligation to indemnify a third party. This court ultimately concluded that the " broader definition" of the contractual liability exclusion " makes more sense in the context of a general liability policy." Id.
Upon close scrutiny it appears the prior decision, although well-reasoned, does not control the outcome of the present motion. At the outset, the analysis in that case centered on whether an " insured contract" includes any contractually assumed liability by the insured or is strictly limited to a contractual obligation to indemnify a third party." That does not appear to be the objection posed by LIG in this motion. LIG contends that this claim is not based on an assumption of Kleen's tort liability to a third person; it is based on an assumption of financial losses which a third person caused to Kleen, and for which that third person is responsible. Moreover, the prior decision considered coverage for Kleen's liquidated damages claims arising from a completely different provision of the EPC: Section 5.9.1. Section 5.9.1 entitles Kleen to make a claim for damages based on a delay in completion of the project, regardless of whether the delay is the result of negligence. The court reasoned that " [t]he liquidated damages provision can more properly be categorized as an agreement by O& G to pay damages for failure to perform under its construction contract by the deadline specified by the parties. Therefore, the liquidated damages provision is not an [insured contract] as defined in the policy." Section 9.1.1, on the other hand, specifies that Kleen's right to seek indemnity is based on, and arises solely out of, the " negligence or willful misconduct" of O& G or one of its subcontractors.
This court believes that the decision of the Ninth Circuit Court of Appeals in APL Co. Pte. v. Valley Forge Ins. Co., 541 Fed.Appx. 770, 773 (9th Cir. 2013) is the better reasoning on this question and concludes that in order to invoke the " insured contract" exception to the contractual liability exclusion and have insurance coverage attach, an insured must assume the other contracting party's tort liability to third parties. Since it is undisputed in this case that O& G did not assume Kleen's tort liability to third parties, the " insured contract" exception is not operative.
However, it is only necessary that one exception apply in order to override the contractual liability exclusion and bring the claim back within the coverage. Kleen has demonstrated the applicability of the other exception for assuming a liability that exists " in the absence of a contract or agreement."
LIG is therefore not entitled to summary judgment with respect to its contention that the contractual liability exclusion operates to preclude coverage for Kleen's indemnity claim
B. Legal Obligation to Pay Provision
LIG next contends that coverage is barred because, under the AIG Policy, the indemnity claim was not a sum the insured became legally obligated to pay. Coverage is triggered by section I.A of the policy, which provides, in relevant part:
We will pay on behalf of the Insured those sums in excess of the Retained Limit that the Insured becomes legally obligated to pay as damages by reason of liability imposed by law because of Bodily Injury, Property Damage, or Personal Injury and Advertising Injury to which this insurance applies or because of Bodily Injury or Property Damage to which this insurance applies assumed by the Insured under an Insured Contract.
LIG makes three different arguments for why O& G was not " legally obligated to pay" the indemnity claim: (1) the indemnification provision only applies to third party claims and the indemnity claim is a first party claim for which O& G had no legal duty to indemnify Kleen; (2) the EPC limited O& G's liability for consequential damages and all of the losses in the indemnity claim were consequential losses; and (3) Kleen failed to notify O& G of the indemnity claim, as required by the policy.
1) Whether Indemnity Claim is an Uncovered First Party Claim
The indemnification provision at issue in the EPC provides: " Contractor shall defend, indemnify and save Owner Group harmless from and against any and all Losses resulting from or directly or indirectly arising out of the negligence or willful misconduct of Contractor, or its employees, subcontractors, vendors, or agents in the performance of the Work under this Agreement." LIG argues that this provision restricts indemnity obligations to third party claims against Kleen and that the claims comprising the indemnity claim are first party claims, not third party claims. O& G contends in opposition that the EPC's language encompasses first party claims and that LIG has failed to present evidence showing the indemnity claim was comprised of first party claims as opposed to third party claims.
LIG's argument that the indemnification provision applies only to third party claims is based, in part, on the statement in Amoco Oil Co. v. Liberty Auto & Electric Co., 262 Conn. 142, 148, 810 A.2d 259, 263 (2002), that " [t]he logic and rationale underlying our indemnity case law are based on the premise that an action for indemnification is one in which one party seeks reimbursement from another party for losses incurred in connection with the first party's liability to a third party." As O& G points out, however, the Amoco court did not rule out recovery for first party damages under the provision at issue. As the court characterized Amoco's claims in that case, " [a]lthough Amoco seeks 'indemnification' from Liberty in the first count of its complaint, Amoco effectively seeks enforcement of a specific contract provision that provides reimbursement for loss. Thus, the claim that Amoco asserts in count one of its complaint constitutes a breach of contract claim." Id., 152. The Amoco court did not hold that the claims were barred under the specific provision in that case, but that, for the purposes of the applicable statute of limitations, they were contract claims not indemnification claims. Id., 154. The issue is therefore, whether the particular provision in the EPC allowed for first party loss claims and whether there is any genuine issue of material fact that the indemnity claim was composed entirely of first party losses.
In support of its contention that the provision at issue in this case does not allow for first party loss claims, LIG points to Connecticut Resources Recovery Authority v. Murtha Cullina, LLP, Superior Court, judicial district of Waterbury, Complex Litigation Docket, Docket No. X02-CV-02-0174569-S (May 23, 2006, Eveleigh, J.) (41 Conn.L.Rptr. 349, ), where the court stated: " It has been held that the phase 'defend, indemnify and hold harmless' is not applicable to claims between contracting parties, but rather is intended to protect one contracting party against liability from third party claims when the other contracting party is at fault . . . Indeed, it does not make sense that either consultant, herein, would agree to 'protect, defend, indemnify and hold harmless CRRA' from a lawsuit brought by CRRA itself against the consultant."
However, in Heyman Assocs. No. 5, L.P. v. FelCor TRS Guarantor, L.P., 153 Conn.App. 387, 414, 102 A.3d 87, 104, cert. denied, 315 Conn. 901, 104 A.3d 106 (2014), our Appellate Court addressed whether a similar provision covered claims between the contracting parties. The court wrote, that " [o]n the basis of our review of the existing case law, our Supreme Court has decided that an action for indemnification is 'one in which one party seeks reimbursement from another party for losses incurred in connection with the first party's liability to a third party.' Amoco Oil Co. v. Liberty Auto & Electric Co., supra, 262 Conn. at 148, 810 A.2d 259. Less clear, however, is whether contractual language like in the present case that utilizes the phrase 'indemnify and hold . . . harmless, ' is limited to an action for indemnification, or whether that language may support a claim between the contracting parties." (Emphasis in original.) Id.
The Heyman court went on to write:
Our review of the relevant case law does not suggest that the language is talismanic and automatically dictates that the provision allows only an action for indemnification limited to the coverage of only third party claims. Rather, [i]n reviewing a claim that attorneys fees are authorized by contract, we apply the well-established principle that [a] contract must be construed to effectuate the intent of the parties, which is determined from [its] language . . . interpreted in the light of the situation of the parties and the circumstances connected with the transaction . . . [T]he intent of the parties is to be ascertained by a fair and reasonable construction of the written words and . . . the language used must be accorded its common, natural, and ordinary meaning and usage where it can be sensibly applied to the subject matter of the [writing] . . .
In this case, on the basis of our plenary review, we conclude that the plain language of the sublease assignment agreement supports the plaintiffs' contention that the provision is not limited to third-party claims. According to Black's Law Dictionary, " to indemnify" is " [t]o reimburse (another) for a loss suffered because of a third-party's or one's own act or default ." (Emphasis added.) Black's Law Dictionary (9th Ed. 2009); see also 1 D. Dobbs, Law of Remedies (2d Ed. 1993), § 3.10(3), p. 402 (indemnity and hold harmless agreements " often provide that one of the parties will protect the other from litigation costs or claims brought by third persons as well as from claims between themselves").
Given the broad language of the sublease assignment agreement, which by its own terms is not expressly limited to third party claims, we conclude that the provision allows for the recovery of attorneys fees arising from the defendant's breach of the restrictive covenant. The language clearly provides in relevant part: " [Holiday Inn] agrees to and does hereby indemnify and hold [BRS] harmless hereunder from all . . . losses . . . expenses and costs including, but not limited to, reasonable attorneys fees and expenses, arising out of . . . [Holiday Inn's] failure, from and after the delivery of this instrument, to observe, perform, and discharge . . . each and every one of the covenants . . . assumed by [Holiday Inn] in this instrument . . ." (Emphasis added.)
This interpretation is consistent with the circumstances of the parties, the nature of the restrictive covenant, and the foreseeable claims that might accrue under the sublease assignment agreement. If we were to adopt the defendant's interpretation, we would be, in effect, judicially grafting a limitation that is not supported by the plain language of the indemnification provision nor our case law. (Citations omitted; emphasis in original; internal quotation marks omitted.) Id., 415-16.
The provision at issue in the present case-" Contractor shall defend, indemnify and save Owner Group harmless from and against any and all Losses resulting from or directly or indirectly arising out of the negligence or willful misconduct of Contractor, or its employees, subcontractors, vendors, or agents in the performance of the Work under this Agreement" -is similar to the provision at issue in Heyman in that it is broadly worded, contains a " save . . . harmless" provision in addition to a defend and indemnify provision, and is not explicitly limited to claims by third parties. It is therefore cannot be said that, as a matter of law, the provision unambiguously excludes first party claims.
Furthermore, even if the indemnification provision could be construed to prohibit first-party claims, LIG has failed to show that Kleen's claim is composed entirely of first-party claims. The only evidence put forward in support of that proposition is that O& G, in letters to Kleen, characterized the indemnity claims as first-party claims. Those characterizations, even if admitted as evidence, do not conclusively establish the first-party nature of the entirety of the indemnity claim. Without facts establishing that it is quite clear that the indemnity claim is entirely comprised of first-party claims, the court cannot conclude that LIG is entitled to summary judgment as to all indemnity claims, even assuming first-party claims are excluded.
2) Whether Indemnity Claim is not Covered as Consequential Damages
LIG argues the indemnity claim is comprised of consequential damages that are excluded under a provision in section 9.5 of the EPC, which provides in relevant part:
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY PUNITIVE, INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL LOSS OR DAMAGES, INCLUDING LOSS OF USE, LOST PROFITS OR REVENUES, COST OF CAPITAL, INCREASED OPERATING COSTS, CLAIMS OF CUSTOMERS, REPLACEMENT EQUIPMENT, OR LOSS OF GOODWILL, EXCEPT WITH RESPECT TO LIQUIDATED DAMAGES . . .
According to LIG, because the indemnity claim was entirely made up of consequential damages, O& G was not legally obligated to pay the indemnity claim. O& G responds that there is at least an ambiguity as to whether the word " including" limits the exclusion of consequential damages to " loss of use, lost profits or revenues, cost of capital, increased operating costs, claims of customers, replacement equipment, or loss of goodwill."
" Consequential damages . . . include those damages that, although not an invariable result of every breach of this sort, were reasonably foreseeable or contemplated by the parties at the time the contract was entered into as a probable result of a breach. These, too, must be proximately caused by the breach, and the difference is that they do not always follow a breach of this particular character." (Citation omitted; internal quotation marks omitted.) Milford v. Coppola Construction Co., 93 Conn.App. 704, 714-15, 891 A.2d 31, 39 (2006) (damages for equipment downtime and unused materials are generally not consequential damages because they naturally follow from type of breach at issue).
LIG has failed to put forward evidence showing it is quite clear that the indemnity claim is comprised of damages that would not follow any breach of similar character in the usual course of events as would be required to show that they are consequential damages as opposed to general damages. LIG has also failed to put forward evidence that the indemnity claim comprises items specifically listed in the consequential damages exclusion, namely " loss of use, lost profits or revenues, cost of capital, increased operating costs, claims of customers, replacement equipment, or loss of goodwill."
LIG relies upon only two items of evidence: paragraph 42 of the operative complaint, which provides a list of claims that, among other things, comprise the indemnity claim, and a letter dated February 1, 2013, from O& G's president to Kleen, in which O& G claimed that a $250,000 deductible and the " economic impacts" Kleen claimed in a February 10, 2012 letter, were excluded under the above provision. With regard to the February 1 letter, it is unclear whether that communication even pertains to the same damages that make up the indemnity claim, and LIG has provided no law that the arguments made to Kleen in that letter would preclude O& G from asserting that the indemnity claim is not comprised of consequential damages. LIG provides neither evidence nor argument as to why the specific claims comprising the indemnity claim do not naturally and usually flow from the breach at issue in this case or are otherwise excluded by the provision at issue. It is therefore not entitled to summary judgment based on this claim.
3) Notice of Claim or Action
LIG also asserts that there is no genuine issue of material fact that O& G was not legally obligated to pay the indemnity claim because the EPC " required Kleen to give O& G notice 'after receipt of written notice of the commencement of any legal action or of any claims against such indemnitee'" and Kleen never notified O& G of those claims before settling them. The court disagrees.
The provision at issue provides:
An indemnitee under this ARTICLE 9 or any other indemnification provision set forth in this Agreement shall, within ten (10) Business Days after the receipt of written notice of the commencement of any legal action or of any claims against such indemnitee in respect of which indemnification will be sought, notify the indemnitor with a written notice thereof. Failure of the indemnitee to give such written notice will reduce the liability of the indemnitor by the amount of damages attributable to the failure of the indemnitee to give such written notice to the indemnitor . . .
The court agrees with O& G that, under the agreement, even if Kleen was required to notify the defendant of the indemnity claim, the failure to do so would not totally obviate O& G's legal obligations under the EPC but would " reduce the liability of [O& G] by the amount of damages attributable to the failure of [Kleen] to give such written notice . . ." LIG has put forward no evidence showing any amount of damages attributable to Kleen's failure to give O& G notice of any of the claims comprising the indemnity claim, much less evidence sufficient to show there is no genuine issue of material fact that the failure to notify left O& G with no legal obligation to pay for the any of the indemnity claim.
LIG is therefore not entitled to summary judgment with respect to its contention that there is no genuine issue of material fact that O& G was not legally obligated to pay Kleen the indemnity claim.
C. Occupancy Exclusion
LIG argues that the occupancy exclusion provision of the AIG Policy-which provides " This insurance does not apply to Property Damage to . . . property you own, rent, or occupy, including any costs or expenses incurred by you, or any other persons, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another's property" -excludes coverage for the indemnity claim because there is no genuine issue of material fact that the entire job site was property O& G occupied under the policy. O& G objects and asserts that " occupy" has a narrower meaning of formal occupancy for one's own use and that LIG has not presented evidence that O& G formally occupied the whole job site as to exclude coverage.
With regard to the meaning of " occupy, " the parties advance different interpretations. LIG argues that Judge Pickard's May 15, 2015 memorandum of decision in this case " adopted the reasoning of C.O. Falter v. Crum & Forster Ins. Cos., 79 Misc.2d 981, 361 N.Y.S.2d 968 (1976), " which according to LIG stands for the proposition that continued physical presence is sufficient to " occupy" a property under the AIG Policy's occupation exception. O& G argues in response that the occupancy exclusion is much more limited. In support, O& G relies upon, inter alia, a circular from " the Insurance Services Office, Inc. (" ISO"), the entity that drafts the standard insurance forms used industry-wide and which promulgated the Occupancy Exclusion contained in the AIG Policy. That circular states that the exclusion 'is not intended to apply to occupancy in the sense of the insured's mere presence therein. The exclusion applies only to property which is formally occupied over a specific period of time for a specific purpose, as in the case where a general contractor is given the exclusive use of an area in a building as headquarters for his construction operations.'"
As an initial matter, it does not appear that Judge Pickard adopted the reasoning of C.O. Falter, as LIG claims. He wrote in his decision that " [b]oth parties cite to C.O. Falter . . . in support of their position, " that " [a]pplying the analysis from C.O. Falter to the present case, the fact that Kleen Energy had not deemed the project substantially completed may not be dispositive of the issue of whether O& G occupied the job site" and that there was " a genuine issue of material fact whether 0& G was occupying the entire job site at the time of the accident." Judge Pickard neither formally adopted C.O. Falter as correctly interpreting " occupy" in the contract nor granted summary judgment based on that interpretation. Rather, Judge Pickard determined that, even under the interpretation of " occupy" in C.O. Falter, which was relied upon by both parties, there was a genuine issue of material fact.
Furthermore, C.O. Falter itself does not support LIG's interpretation of the occupancy exclusion. The C.O. Falter court was addressing the particular argument made in that case that the plaintiff was an occupant " due to final certification not being received and the failure of the Building's owner to take complete possession" and determined that " 'occupy' suggests (a) continued physical presence in the Building" and that the " [p]laintiff's occasional trips to the Building in October and/or November to make minor improvements do not suggest that it 'occupied' the damaged property within the intent of the exclusion." C.O. Falter v. Crum & Forster Ins. Cos., supra, 79 Misc.2d 985. Thus, C.O. Falter stands for the proposition that continued physical presence is necessary for the exclusion to apply, not the proposition that physical presence is sufficient to come under the occupancy exclusion. See Id.
The court determines that the term occupied is ambiguous as to whether it means formal occupancy as described in the ISO circular or a broader sense of mere continuous physical presence. As ambiguities in insurance policy should be resolved in favor of the insured, the narrower interpretation should prevail. The court finds persuasive the interpretation of " occupy" put forward by ISO, which LIG has not disputed is the drafter of the provision in question, instead hinging its argument for a broader interpretation of " occupy" on the erroneous assertion that the law of the case is that continued physical presence is sufficient for occupancy.
The evidence put forward by LIG shows that there were 700 to 800 workers and 35 O& G managers on the job site, that work was going on in most of the areas of the site, that workers for O& G and its contractors logged 169, 000 hours in the month before the explosion, that 11 percent of the construction had yet to be completed, that O& G had control of the job site, and that O& G had comprehensive security with a fence, guardhouse, restricted access, and enforced speed limits. Despite these facts, there is a genuine issue of material fact as to whether the entire job site was " formally occupied [by O& G] over a specific period of time for a specific purpose . . ." Although, O& G had control of the job site and there were O& G workers or subcontractors throughout most of the site, there are no facts showing it was physically present at the site and in control of it for anything other than the general purpose of completing the project as general contractor, as opposed to a specific purpose analogous to " the exclusive use of an area in a building as headquarters for his construction operations." Furthermore, the facts presented in opposition by O& G establish a genuine factual dispute as to whether O& G had completed and been paid for certain parts of the job site such as the cooling tower, whether those parts had been accepted by Kleen, and therefore as to whether, even under a broader definition of occupy, O& G occupied the entire job site, as claimed as the basis for summary judgment by LIG. LIG is therefore not entitled to summary judgment based on its claim that there is no genuine issue of material fact that the occupancy exclusion barred recovery for the indemnity claim.
D. Particular Part Exclusion
LIG argues that the particular part exclusion also excludes coverage for the indemnity claim. According to LIG, there is no genuine issue of material fact that under the particular part exception in section V.E.5 of the AIG Policy, which provides " This insurance does not apply to Property Damage to . . . that particular part of real property on which you or any contractor working directly or indirectly on your behalf are performing operations, if the property damage arises out of those operations . . ." O& G, in its objection, counters that LIG is advancing a " straw-man argument that if the property damage was within O& G's scope of work, then the 'particular part' exclusion applies, which " would exclude coverage in every instance in which a claim for property damage occurring on a project site is asserted against an insured general contractor." O& G contends that, " in order for summary judgment to be warranted, the evidence must establish the specific property that was damaged and whether O& G was working on that property at the time it was damaged . . . [and] nowhere in its renewed motion does LIG establish facts regarding either of these elements." O& G argues additionally that " LIG does not address the evidence elicited during discovery demonstrating that many sections of the Project that were damaged in the Incident were fully complete, paid for and accepted by Kleen and, therefore, were not being worked on by O& G at the time of the Incident."
As an initial matter, LIG relies considerably upon the application of the holding of Candid Corp. v. Assurance Co. of America, Superior Court, judicial district of New Haven, Docket No. CV-05-4008138 (March 29, 2007, Skolnick, J.) (42 Conn.L.Rptr. 180, ), in Judge Pickard's May 15, 2015 memorandum of decision granting summary judgment in this case. The court notes that LIG's statement that " [t]he Candid court found that the 'particular part' language was not ambiguous" but found instead that " the exclusion applies to any property a party contracted to perform work on, " although not incorrect, is not directly applicable to the exclusion LIG is attempting to apply in this case.
The exclusion at issue in Candid Corp . was a " your work" exclusion, which excluded " 'property damage' to . . . (6) that particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." Notably a similar provision exists at section V.E.6 in the AIG Policy, but LIG has not moved for summary judgment based on that exclusion, instead making sole and explicit reference to section V.E.5 in its memorandum in support. Thus, Candid does not expand the meaning of the exclusion covering " that particular part of real property on which you or any contractor working directly or indirectly on your behalf are performing operations, if the property damage arises out of those operations" to apply to " any property a party contracted to perform work on." Rather, in order to be entitled to summary judgment based on section V.E.5. of the memorandum, LIG must put forward evidence which removes any genuine issue of material fact that the indemnity claim is comprised entirely of property damage that arises out of operations on " that particular part of real property" on which O& G or its subcontractors were performing operations, " if the property damage arises out of those operations . . ." This is a much narrower provision limiting exclusion to the particular part of real property on which the operations that gave rise to the property damages were performed.
LIG has put forward evidence that, at the time of the incident, O& G was in control of the entire job site, that construction was not substantially completed, and that there were still hundreds of workers on the site. None of this evidence speaks to whether the indemnity claims comprise property damages arising out of operations on the particular part of real property O& G or its contractors were working on that gave rise to the explosion upon which the indemnity claim is based. And certainly none of it establishes that the whole job site was the particular part upon which O& G and its contractors were working that gave rise to the explosion and resulting damages. LIG has failed to satisfy its burden of showing the absence of any genuine issue as to all the material facts regarding the applicability of Section V.E.5 of the policy and is therefore not entitled to judgment as a matter of law based on the particular part exclusion.
IV. CONCLUSION
For the reasons stated, the Motions for Partial Summary Judgment filed by the Litchfield Insurance Group, Inc. [#460] and Aon Risk Services Northeast, Inc. [#463] are denied.