TRAVELERS CASUALTY AND SURETY COMPANY et al. v. NETHERLANDS INSURANCE COMPANY et al., SC 19089
Judicial District of Hartford
Insurance; Declaratory Judgment; Whether Plaintiff Insurer had Standing to Seek a Declaration as to Defendant Insurers' Contractual Duties to Defend a Mutual Insured; Whether Insurer had a Duty to Defend. This case stems from an underlying action in which the state sued Lombardo Brothers Mason Contractors, Inc. (Lombardo), alleging defective masonry work on the UConn School of Law’s library. A number of carriers insured Lombardo's work on the project, including plaintiff Travelers Casualty and Surety Company (Travelers) and defendants Netherlands Insurance Company (Netherlands) and Peerless Insurance Company (Peerless). After Travelers' coverage ceased, Netherlands provided primary liability coverage to Lombardo and Peerless provided umbrella coverage over and above that provided by Netherlands. Travelers defended Lombardo in the underlying action, and it brought this action seeking a declaration that Netherlands and Peerless breached their duties to defend Lombardo in the underlying suit. It also sought a declaration as to the defendants' pro rata shares of Lombardo's defense. The defendants moved to dismiss the action, arguing that Travelers lacked standing to pursue a claim based on their contractual rights because it was not a party to their insurance policies and had no rights under their policies. In denying the motion to dismiss, the trial court found that while there was no contractual relationship between Travelers and the defendants, each party had certain rights and responsibilities with regard to their respective insurance policies with Lombardo. It stated that Travelers had a very practical interest in a declaration of the defendants' obligations under their policies with Lombardo because a determination of the defendants' obligations would affect Travelers’ obligations to Lombardo. The trial court then ruled that Netherlands had a duty to defend Lombardo because the underlying action alleged that there was damage to the project that potentially occurred within the dates of Netherlands' coverage. In so ruling, it rejected Netherlands' claim that it had no duty to defend under the "known loss" provision in its policies, which provides that there is no duty to defend where the insured has knowledge that property damage occurred before coverage begins. The court found that neither the state nor Lombardo had knowledge of actual losses prior to the start of Netherlands' coverage. It also noted that Peerless' duty to defend would have been triggered only if it had found that Netherlands had no duty to defend under the "known loss" provision. The defendants appeal, claiming that the trial court improperly denied their motion to dismiss and improperly found that Netherlands had a duty to defend. They also argue that the court improperly determined the allocation period in calculating Netherlands' pro rata share of Lombardo's defense and improperly prohibited them from presenting evidence of Travelers’ unclean hands.