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Crum & Forster Specialty Insurance Co. v. GHD Inc.

United States District Court, E.D. Wisconsin

July 5, 2018

GHD INC. n/k/a DVO INC., Defendant.



         Plaintiff Crum & Forster Specialty Insurance Company brought this diversity action for declaratory relief against Defendant GHD Inc., now known as DVO Inc., seeking a determination that Crum & Forster has no duty to defend DVO under the Errors and Omissions (E&O) coverage of the primary and excess insurance policies (collectively, the Policy) it issued to DVO in an underlying lawsuit. Crum & Forster is a Delaware corporation with its principal place of business in New Jersey. ECF No. 2 at 1; 19-4 at 1. DVO is a Wisconsin corporation with its principal place of business in Chilton, Wisconsin. ECF No. 1 ¶ 3. The amount in controversy exceeds $75, 000. Presently before the court is Crum & Forster's motion for summary judgment. For the reasons set forth below, the motion will be granted.

         I. BACKGROUND

         A. Underlying Lawsuit

         DVO is engaged in the business of designing and building anaerobic digesters, which use microorganisms to break down biodegradable material in the absence of oxygen to create biogas. ECF No. 19-1 ¶ 2, Ex. A. In August 2013, WTE-S&S AG Enterprises, LLC filed a complaint against DVO in the Circuit Court for Door County, Wisconsin. WTE-S&S AG Enters., LLC v. GHD, Inc. n/k/a DVO, Inc., No. 13CV166. In this underlying action, WTE alleged that it entered into a Standard Form of Agreement created by the Engineers Joint Contract Documents Committee for the construction of an anaerobic digester in Sturgeon Bay, Wisconsin, which was to generate electricity from cow manure. The electricity generated by the converter would then be sold to the electric power utility. Id.; Pl.'s Proposed Findings of Fact (PPFOF), ECF No. 18 at ¶ 2. WTE asserted a single cause of action in its lawsuit against DVO: breach of contract. Id. at ¶ 4. It claimed DVO failed to fulfill its design duties, responsibilities and obligations under the contract because it did not properly design substantial portions of the structural, mechanical and operational systems of the anaerobic digester, which caused substantial damages to WTE.

         On October 2, 2013, Crum & Forster provided a defense to DVO under a reservation of rights. Id. at ¶ 10. On December 21, 2015, Crum & Forster advised DVO that it would no longer provide a defense to DVO, effective December 31, 2015. Def.'s Proposed Finding of Fact (DPFOF), ECF No. 22, at ¶¶ 1-2. WTE later filed for bankruptcy and the case was transferred to the United States Bankruptcy Court for the Northern District of Illinois. ECF No. 18 ¶¶ 11-12. On August 18, 2017, following an eight-day trial, the Bankruptcy Court found in favor of WTE and ordered DVO to pay over $65, 000 in damages. The Court later added attorneys fees and costs in the amount of $198, 000. ECF No. 22, ¶¶ 5-7.

         B. Insurance

         Crum & Forster issued primary and excess insurance policies to DVO for the following policy periods: June 1, 2011 to April 1, 2012; April 1, 2012 to April 1, 2013; and April 1, 2013 to April 1, 2014. PPFOF, ECF No. 18, at ¶ 13. The primary policies contained various coverages, including commercial general liability (CGL) coverage, contractors pollution liability coverage, E&O coverage, third party pollution coverage, and onsite cleanup pollution liability coverage. Id. at ¶ 15; see also Policy Exh. C., D. and E, ECF Nos. 19-3, 19-4, 19-5.

         In the E&O liability coverage part of the Policy, Crum & Forster agreed to pay, in excess of the deductible amount, “those sums the insured becomes legally obligated to pay as ‘damages' or ‘cleanup costs' because of a ‘wrongful act' to which this insurance applies.” ECF No. 19-3 at 48. The term “wrongful act” was defined as: “an act, error or omission in the rendering or failure to render ‘professional services' by any insured.” Id. at 31. “Professional services” were defined as “those functions performed for others by you or by others on your behalf that are related to your practice as a consultant, engineer, architect, surveyor, laboratory or construction manager.” Id. at 30. The Policy also provided that Crum & Forster had the “right and duty to defend the insured against any ‘suit' seeking ‘damages' to which this insurance applies.” Id. at 4.

         The Policy also contained numerous exclusions of coverage. The exclusion at issue in this case is the breach of contract exclusion that was added by an endorsement. As amended by the endorsement, the contractual liability exclusion reads:

         This Policy does not apply to ‘damages', ‘defense expenses', ‘cleanup costs', or any loss, cost or expense, or any ‘claim' or ‘suit':

         Based upon or arising out of:

a. breach of contract, whether express or oral, nor any “claim” for breach of an implied in law or an implied in fact contracts, regardless of whether “bodily injury”, “property damage”, “personal and ...

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