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Innovative Mold Solutions, Inc. v. All America Insurance Co., Inc.

United States District Court, D. Massachusetts

July 12, 2016

INNOVATIVE MOLD SOLUTIONS, INC., Plaintiff,
v.
ALL AMERICA INSURANCE COMPANY, INC., CENTRAL MUTUAL INSURANCE COMPANY, INC., and CENTRAL INSURANCE COMPANIES, Defendants.

          AMENDED MEMORANDUM AND ORDER ON DEFEND ANTS' MOTION FOR JUDGMENT ON THE PLEADINGS (DOCKET NO. 32) AND PLAINTIFF'S CROSS-MOTION FOR JUDGMENT ON THE PLEADINGS (DOCKET NO. 36)

          TIMOTHY S. HILLMAN DISTRICT JUDGE.

         This is a dispute over an insurer's duty to defend in litigation brought against the insured by a third party. As explained below, I find that the insured has met its burden of showing that the underlying complaint alleged potentially covered property damage caused by an occurrence, as those terms are defined in the parties' commercial general liability policy and under applicable law. I further find that the insurer has not met its burden of showing that three of the policy's exclusionary provisions would apply to bar coverage. Accordingly, the insurer had a duty to defend the insured, and the insured is entitled to judgment on the pleadings on Count I of the complaint. Defendant's motion for judgment on the pleadings (Docket No. 32) is denied, and Plaintiffs cross-motion for judgment on the pleadings (Docket No. 36) is granted.

         Background

         The following facts are taken from the parties' pleadings and assumed true for the purposes of these motions. Innovative Mold Solutions, Inc. (IMS or Plaintiff) is an engineering and manufacturing company. All America Insurance Company, Inc. and Central Mutual Insurance Company, Inc. (collectively, All America or Defendants) are property and casualty insurance companies.[1] All America issued consecutive commercial general liability (CGL) policies to IMS, effective January 1, 2007 through December 31, 2010 (the Policies). The Policies provided coverage for "property damage" caused by an "occurrence, " as those terms were defined in the Policies and under Massachusetts law, subject to certain exclusions. The Policies further provided that All America would defend IMS in any suit in which a third party sought to recover damages for covered property damage or bodily injury.

         On February 15, 2012, IMS was served with a complaint, filed in the United States District Court in Connecticut. The action was a qui tarn False Claims Act (FCA) suit, brought against FMS and others by a relator, Michael Ladas, on behalf of the United States (the Ladas action). The complaint alleged that IMS and other defendants had violated the FCA by manufacturing contractually noncompliant and defective components of ______, which were provided to the United States for use by ______. IMS notified All America of the claim and requested that All America provide and pay for IMS's defense, but All America denied having a duty to defend or indemnify under the facts as alleged in the Ladas complaint.[2]

         The facts pled in the Ladas complaint are as follows. In 2005, the United States Army Corporation a ______ contract ______ Before the was the proposed product went through a rigorous qualification process.

         ___The electrical power is supplied through a power supply case of mechanically rigid plastic. The case has a plated metal surface that serves as the contact area for inputting power into the tube assembly.________.

         _________.

         _________.

         ITT Power Solutions, a subsidiary of ITT Corporation, designed and manufactured the _______. ITT Power IMS to manufacture the molded components of the power supply assembly. Prior to 2007, the power supplies sold under the contract were plated using the processes and materials that had been qualified by ITT, as required under the contract. During November of 2007, however, IMS changed the way that it manufactured the power supply case in two important ways. First, IMS changed the process for applying the silver epoxy material onto the power supply case _______. Second, IMS changed the composition of the silver epoxy material. This new process was not approved by the qualification procedures.

         At some point, ITT Power Solutions employees began to notice that defective power supply cases were being shipped from IMS. The defects included bubbling, flaking, and "burn" marks on the plating of the cases._____.IMS initially withheld the unauthorized process change from ITT Power Solutions, but at some point ITT personnel became aware of the change and did not take action to correct it.

         Eventually, ITT Power Solutions admitted to having knowledge of the manufacturing process changes. Thereafter, a struggle ensued between the quality control personnel at ITT Power Solutions, who wanted to disclose the manufacturing change and subject it to testing and qualification, and other high-level ITT personnel who did not wish to disclose the full nature of the problem. In March of 2010, ITT Power Solutions terminated its Director of Quality, Michael Ladas, who filed the Ladas action that underlies the instant insurance dispute.

         Meanwhile, the government continued to order ______, and ITT's quality assurance personnel continued to observe that the power supply cases were peeling and had other irregularities, ______.

         In total, approximately ______ were sold to the United States government from November of 2007 to the spring of 2011 with power supplies produced under the changed process and materials. Ladas alleged that, through the date of the complaint in late 2013, ITT Corporation and ITT Power Solutions continued to conceal the nature of the process changes.

         The Ladas complaint contained three counts: violation of the FCA, 31 U.S.C. § 3729(a)(1)(A) (count I); violation of the FCA, 31 U.S.C. § 3729(a)(1)(B) (count II); and conspiracy to violate the FCA, 31 U.S.C. § 3729(a)(1)(C) (count III). Ladas sought the following relief: enjoin the defendants from continuing to violate the FCA; order a recommended inspection of all ______ manufactured from September of 2007 through April of 2011, ______; enter judgment defendants in the amount of three times the actual damages sustained by the United States because of the defendants' actions, plus a civil penalty for each violation; and award the relator a share of the damages, plus costs.

         In September of 2014, after IMS had spent more than $400, 000 on legal fees in defense of these allegations, the Connecticut District Court dismissed the Ladas action on the grounds that (1) Ladas did not have standing to bring an FCA claim because of a release that he had executed, and (2) the complaint was not pled with sufficient particularly per Federal Rule of Civil Procedure 9(b). Ladas appealed this decision to the Second Circuit, which held oral arguments in May of 2015. At some point in 2015, IMS paid Ladas $25, 000 to settle the suit, and Ladas withdrew his appeal as to IMS.[3]

         IMS brought this suit against All America on January 9, 2015, seeking a declaratory judgment that All America had a duty to defend FMS in the Ladas action (count I). IMS also alleges breach of contract (count II); breach of implied covenant of good faith and fair dealing (count III); and violation of Chapter 93 A (count IV). IMS seeks to recover the fees it paid for its defense in the Ladas action, as well as its fees for bringing the instant action, with treble damages and interest. All America moved for judgment on the pleadings (Docket No. 32), and IMS filed a "cross-motion for judgment on the pleadings or for summary judgment." (Docket No. 36.) In their filings, the parties address only the declaratory judgment count regarding the duty to defend. In November of 2015, this Court granted the parties' joint request to file their motions under seal, with redacted copies added to the public docket.

         Standard of Review

         Pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, a party may move for judgment on the pleadings "[a]fter the pleadings are closed-but early enough not to delay trial." This Court reviews motions for judgment on the pleadings under a standard that is essentially the same as that for a motion to dismiss under Fed.R.Civ.P. 12(b)(6), except that "[a] Rule 12(c) motion, unlike a Rule 12(b)(6) motion, implicates the pleadings as a whole." Aponte-Torres v. Univ. o/P.R, 445 F.3d 50, 54-55 (1st Cir. 2006). Facts contained in the pleadings are viewed in the light most favorable to the nonmovant, and all reasonable inferences are drawn in his or her favor. Zipperer v. Raytheon Co., 493 F.3d 50, 53 (1st Cir. 2007). Judgment on the pleadings is appropriate "only if the uncontested and properly considered facts conclusively establish the movant's entitlement to a favorable judgment." Id. (quoting Aponte-Torres, 445 F.3d at 54).

         When reviewing a motion under Rule 12(c), the court "may consider 'documents the authenticity of which are not disputed by the parties; . . . documents central to plaintiffs' claim; [and] documents sufficiently referred to in the complaint.'" Curran v. Cousins, 509 F.3d 36, 44 (1st Cir. 2007) (quoting Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993)). When the court is confronted with cross-motions for judgment on the pleadings, the pertinent inquiry is "whether either of the parties deserves judgment as a matter of law on facts that are not disputed." Id. (quoting Barnes v. Fleet Natl Bank, N.A., 370 F.3d 164, 170 (1st Cir. 2004)).

         Discussion

         A. The ...


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