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Plaistow Project, LLC v. Ace Property & Casualty Insurance Co.

United States District Court, D. Massachusetts

September 13, 2018

PLAISTOW PROJECT, LLC, Plaintiff,
v.
ACE PROPERTY & CASUALTY INSURANCE COMPANY, Defendant.

          MEMORANDUM & ORDER

          Indira Talwani United States District Judge

         After considering the Magistrate Judge's Report and Recommendation on Plaintiff's Motion for Partial Summary Judgment as to Liability and Defendant's Cross Motion for Summary Judgment Pursuant to Fed.R.Civ.P. 56 (“R&R”) [#71], to which Plaintiff has filed no objections, and considering de novo Defendant ACE Property and Casualty Insurance Company's Objections to Report and Recommendation (“Def.'s Obj.”) [#73], and Plaintiff Plaistow Project, LLC's Memorandum in Response [#77], the court hereby ACCEPTS and ADOPTS the Report and Recommendation [#71] for the reasons set forth therein and below.

         Specifically, Plaintiff's Motion for Partial Summary Judgment as to Liability [#46] is GRANTED as to Defendant's breach of its duty to defend its insured, State Line Laundry Services, and DENIED as to Defendant's potential breach of the duty of good faith and fair dealing, and Defendant's Cross Motion for Summary Judgment (“Def.'s Cross-Mot.”) [#52] is

         DENIED.

         1. Defendant's Objections as to Plaintiff's Motion for Partial Summary Judgment as to the Duty to Defend Claim

         Defendant does not dispute that, as a general matter, an insurance company's duty to defend is broader than its duty to indemnify, and that if the allegations of the complaint are reasonably susceptible of an interpretation that they state or adumbrate a claim covered by the policy terms, the insurer must undertake the defense, at least until a court determines that no potential for coverage exists. See R&R at 14 and cases cited therein [#71]. Defendant also does not disagree that under this general rule the allegations in the complaint containing general allegations of negligent releases would be reasonably susceptible of an interpretation that they state or adumbrate a claim of “sudden and accidental” release falling under the exception to the pollution exclusion. Defendant argues, however, that the Magistrate Judge should have applied a different rule because the claim involves the “sudden and accidental” exception. Def.'s Obj. at 11-14 [#73]. In Defendant's view, in such cases, where a complaint contains general allegations of negligent releases, the insured has the burden of proving coverage for the duty to defend to apply, and the Magistrate Judge misinterpreted or ignored precedent in rejecting this argument. Id. The Magistrate Judge's analysis was correct.

         Defendant relies heavily on Great Northern Industries, Inc. v. Harford Accident & Indemnity Co., 666 N.E.2d 1320 (1996). Defendant asserts that “the allegations at issue in Great Northern were general, nonspecific assertions that the insured was responsible for contamination” and that the Massachusetts Appeals Court “unambiguously held that the burden of proof on the ‘sudden and accidental' exception is on the insured with respect to both the duty to defend and the duty to indemnify.” Def.'s Obj. at 11-12 [#73]. But the assertions against the insured were quite specific, namely, that the insured had shipped 132 drums of solvent waste to the reclamation site. 666 N.E.2d at 1321. It was against the backdrop of the assertions that the insured had disposed of solvent waste in this manner that the court noted that “[a]t no place in the present record was a contention made or supported that any relevant release was of that character” - sudden or accidental. Id. at 1322.

         The Appeals Court's subsequent reference to burden-shifting is in no way “unambiguous” as Defendant contends. The Appeals Court, after stating that no such “sudden or accidental” contention had been made, opined that such a contention “if it was to be made at all, apparently must be made and proved by the insured as part of its burden of establishing coverage, ” id. at 1322, without specifying whether such coverage was as to the duty to defend or the duty to indemnify. As authority for this “apparent” conclusion, the Appeals Court relies on several federal cases that offer little support for the conclusion that the purported burden-shifting applies to a duty to defend case where the claims against the insured contain general allegations of negligent releases that are reasonably susceptible of an interpretation that they state or adumbrate a claim of “sudden and accidental” release.[1]

         Defendant's reliance on the Appeals Court's decision in Great Northern as to the duty to defend is further undermined by prior and subsequent decisions of the Massachusetts Supreme Judicial Court (“SJC”) addressing the burden of proof in duty to indemnify cases. In Polaroid Corporation v. Travelers Indemnity Company, 610 N.E.2d 912 (1993), the SJC held that where the duty to defend had been breached, the SJC placed the burden of proving whether the “sudden and accidental” release exception applied in duty to indemnify claims on the insurer. Highlands Ins. Co. v. Aerovox Inc., 676 N.E.2d 801, 804 n.6 (1997) (citing Polaroid Corp., 610 N.E.2d at 922 n.22). The SJC explained that this “determination was made irrespective of which party would normally bear that burden in the absence of a breach of the duty to defend, ” and that “[t]he shifting of the burden to the insurer in those cases is necessary to protect the insured because the failure to defend might make it more difficult for the insured to prove that the underlying claim falls within the insurance coverage.” Id. (citing Polaroid Corp., 610 N.E.2d at 922). One year after Great Northern, in Highlands, the SJC resolved the “open question” of who bears the burden on a duty to indemnify claim where there has been no breach of the duty to defend, finding that in that circumstance, the burden is appropriately placed on the insured. Id. at 805. The SJC explained that the policy here, as to duty to indemnify claims where there was no breach of the duty to defend, was consistent with the general rule that the insured must prove that coverage applied, absolve the insurer from bearing the burden of proving the negative and, if the burden was otherwise, “the property owner would have an incentive to avoid finding out whether pollutants are being gradually discharged.” Id. Under this pair of SJC decisions, which party has the burden to prove a “sudden and accidental” release for purposes of indemnity depends on whether the insurer met its duty to defend. To suggest that an insured, faced with a complaint containing general allegations of negligent releases must first prove a “sudden and accidental” release in order to establish a duty to defend is inconsistent with these carefully crafted distinctions.

         Defendant argues further that in Simplex Technologies, Inc. v. Liberty Mutual Insurance Company, 706 N.E.2d 1135 (1999), the SJC recognized the unique burden of proof allocation in “sudden and accidental” cases. But Simplex merely reiterated the SJC's reasoning in Highlands in resolving a duty to indemnify claim.

         Defendant asserts further that House of Clean, Inc. v. St. Paul Fire and Marine Insurance Company, Inc., 705 F.Supp.2d 102, 109 (D. Mass. 2010) supports Defendant's view that State Line was obligated to provide additional information to Defendant to trigger coverage. But that decision reiterated the general rule if the allegations against an insured are “‘reasonably susceptible of an interpretation that they state or adumbrate a claim covered by the policy terms, the insurer must undertake the defense'” unless the insurer demonstrates “'with conclusive effect' that the third-party cannot establish a claim within the policy. House of Clean, Inc. v. St. Paul Fire & Marine Ins. Co., 705 F.Supp.2d 102, 107 (D. Mass. 2010) (internal citations omitted). The court there did not require any extrinsic material where a complaint sufficiently triggered a duty to defend, but stated only that additional facts known or reasonably known to the insurer that could “add substance and meaning to otherwise skeletal . . . claims” only adumbrated in the complaint could be considered in imposing a duty to defend on an insurer. Id. at 109.

         In sum, on de novo review, Defendant's objections regarding the legal standard for imposing a duty to defend are overruled.

         2. Defendant's Objection as to Plaintiff's Motion for Partial Summary Judgment as to the Good Faith and Fair Dealing Claim

         On Plaintiff's motion for summary judgment on liability as to Count II of its Amended Complaint [#33], “Breach of Implied Obligation of Good Faith, ” the Magistrate Judge recommended summary judgment be denied. Defendant now objects that the Magistrate Judge did not recommend dismissal of that count. Although Defendant argued in opposition to Plaintiff's motion that the claim failed as a matter of law, Defendant's cross-motion [#52] did not seek dismissal of the claim. Accordingly, this objection is ...


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