MACTEC v. OneBeacon 06-CV-466-JD 8/8/07 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

MACTEC Engineering & Consulting, Inc.

v. Civil No. 06-CV-466-JD Opinion No.

OneBeacon Insurance Company

O R D E R

MACTEC Engineering & Consulting, Inc. brought suit in state

court, seeking a declaratory judgment that OneBeacon Insurance

Company had a duty to defend and indemnify MACTEC against claims

brought in an arbitration proceeding. OneBeacon removed the case

to this court and filed a counterclaim, seeking a declaration

that it does not owe a duty to defend or indemnify MACTEC in the

arbitration action. MACTEC moves for partial summary judgment on

the duty to defend, and OneBeacon seeks summary judgment on both

its duty to defend and to indemnify.

Standard of Review

Summary judgment is appropriate when "the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The party seeking summary judgment must first demonstrate

the absence of a genuine issue of material fact in the record.

See Celotex Corp. v. Catrett,

(1986). All

reasonable inferences and all credibility issues are resolved in

favor of the nonmoving party. See Anderson v. Liberty Lobby.

Inc.,

(1986).

When parties file cross-motions for summary judgment,

ordinarily the court must consider the motions separately to

determine whether summary judgment may be entered under the Rule

56 standard. Pac. Ins. Co.. Ltd. v. Eaton Vance Mgmt..

(1st Cir. 2004); Bienkowski v. Northeastern Univ..

(1st Cir. 2002). When parties submit cross motions

for summary judgment in a non-jury case on stipulated or

materially undisputed facts, the case is submitted and the court

must determine the inferences to be drawn from those facts. See

Garcia-Avala v. Lederle Parenterals, Inc..

(1st Cir. 2000).

In this case, the parties submitted a statement of agreed

facts. In addition, OneBeacon filed a "Concise Statement of

Material Facts to Which There is No Genuine Issue." MACTEC filed

a response in which it objected to and qualified some of

OneBeacon's factual statements and admitted others. Therefore,

to the extent summary judgment may be entered based upon the

2 parties' agreed facts, the case is deemed submitted. Otherwise

the usual summary judgment standard applies.

Background

MACTEC is an engineering firm that was hired to provide

engineering and consulting services to Hitchiner Manufacturing

Company and Thomas & Betts Corporation (referred to collectively

as "Hitchiner") for a groundwater remediation system at a

superfund site in Milford, New Hampshire. MACTEC hired Dragin

Drilling, Inc. on January 21, 2003, as a subcontractor to provide

services that included construction and installation of certain

extraction and injection wells at the site. Under the terms of

their agreement, Dragin was required to name MACTEC as an

additional insured on its commercial general liability ("CGL")

policies, which it did in three CGL policies issued by OneBeacon

for one year terms from June 1, 2002, through July 1, 2005.

After the remediation system at the site failed in late

2004, MACTEC brought claims seeking payment from Hitchiner in an

arbitration proceeding. Hitchiner filed counterclaims,

asserting, among other things, that the remediation system failed

due to improper construction of the wells by Dragin and improper

design and supervision of the project by MACTEC. MACTEC sought

insurance coverage from OneBeacon, which was denied.

3 Discussion

MACTEC contends that OneBeacon owes it a defense against the

Hitchiner counterclaims and seeks partial summary judgment on

that issue. OneBeacon asserts that it does not have a duty to

defend or indemnify MACTEC because the property damage asserted

by Hitchiner did not occur while MACTEC was an additional insured

under its policies and because MACTEC1s services were excluded

from coverage. MACTEC argues that the issue of indemnification

cannot be resolved before liability on the underlying

counterclaim is determined.

"It is well-settled law in New Hampshire that an insurer's

obligation to defend its insured is determined by whether the

cause of action against the insured alleges sufficient facts in

the pleadings to bring it within the express terms of the

policy." Broom v. Cont'1 Cas. Co..

(2005).

Any doubt or ambiguity in the allegations in the underlying

complaint must be resolved in favor of the insured.

.

"The interpretation of the language of an insurance policy, like

any contract language, is ultimately an issue for the court to

decide." Merchants Mut. Ins. Co. v. Laighton Homes. LLC,

(2006) .

OneBeacon issued three separate CGL policies to Dragin, each

covering a one year period between June of 2002 and July of 2005.

4 Each policy covers "those sums that the insured becomes legally

obligated to pay as damages because of bodily injury or property

damage to which this insurance applies." The insurance applies

"only if . . . [t]he 'bodily injury1 or 'property damage' occurs

during the policy period."

MACTEC was named as an additional insured in each policy.

The definitions of an insured in the 2002 and 2003 policies are

the same: "the person or organization shown in the Schedule, but

only with respect to liability arising out of your ongoing

operations performed for that insured." The 2004-2005 policy

limited coverage for an additional insured to "liability arising

out of your ongoing operations performed for that insured" so

that coverage "ends when your operations for that insured are

completed." The additional insured endorsement also includes an

exclusion for liability arising from professional and other

services.

A. Coverage

The coverage dispute in this case primarily focuses on the

parties' differing views of when the property damage that is at

issue in the Hitchiner counterclaims occurred. MACTEC asserts

that the complained-of property damage occurred when the

allegedly defective wells were constructed, which began in

5 February of 2003 and continued until the system was shut down in

December of 2004. OneBeacon asserts that the complained-of

property damage occurred when the remediation system was first

operated, failed, and then was shut down, which was between

October 25 and December 6, 2004.

Under New Hampshire law, "'the time of the occurrence

resulting in the loss or damage, and not the time of the

negligence, determines whether there is coverage under the

policy.1" EnerqyNorth Nat. Gas. Inc. v. Underwriters at Lloyd's.

London.

(2004). That rule is known as an

"injury-in-fact trigger" for insurance coverage.

.

Under that rule, property damage occurs when the injury happened,

not when the predicate negligence occurred or when a hidden

injury is subsequently discovered.

. Defective

workmanship does not constitute an occurrence of property damage

for purposes of CGL coverage.1 McAllister v. Peerless Ins. Co..

(1984).

1In McAllister. the plaintiff sought coverage under a CGL policy for claims brought against him by a customer after the plaintiff allegedly improperly constructed a leach field.

. The New Hampshire Supreme Court held that defective workmanship is complete before the affected system is put into service.

The court also held that claims of defective workmanship in an underlying complaint do not allege an occurrence. Id.; see also High Country Assocs. v. N.H. Ins. Co..

(1994) (distinguishing defective work and negligent construction from actual damage).

6 The Hitchiner counterclaims allege that MACTEC failed to

design and construct the wells so that the remediation system

would meet the required standard and operate properly. Hitchiner

alleges that "MACTEC retained Dragin to construct and install the

extraction and injection wells in February and March 2003" and

that MACTEC breached its duties to hire a competent subcontractor

and to supervise Dragin to ensure that its work was done

correctly. Counterclaims 5 24. The counterclaims state that

Dragin improperly constructed the wells which "caused or

contributed to cause the injection wells not to perform as

designed."

5 28. Hitchiner states that the remedial system

MACTEC designed did not meet the required standards "as evidenced

by the fact that it simply and immediately failed following

start-up."

5 20.

During November of 2004, after the system was started,

"groundwater seepage and water inflow was observed at injection

well #3, . . . [and] by the end of November [#3] was shut down

because water and sand were bubbling into it, and soil around it

was subsiding."

5 49. Additional problems are alleged to

have occurred in December of 2004 when the system was shut down

completely.

5 50. "As a result, since the failure in

November 2004, Hitchiner and Thomas & Betts have had to engage

other environmental consultants to assess the problems with the

7 remedy, and to design and implement a different, costly,

temporary and permanent remedy."

5 21.

Hitchiner alleges negligence and defective workmanship by

MACTEC, which resulted in a system that did not meet the required

standards when it was constructed or work when it was put into

operation. Hitchiner also alleges that MACTEC1s negligence

caused the system to fail and alleges resulting damage to the

system after start-up. Under New Hampshire law, MACTEC1s

negligence prior to the system failure was not an occurrence that

triggered coverage. Therefore, only the 2004 policy is triggered

by the allegations in the Hitchiner counterclaims.

B. Additional Insured

The additional insured endorsement in the 2004 policy limits

coverage to "liability arising out of your ongoing operations

performed for that Insured. A person's organization status as an

Additional Insured under this Endorsement ends when your

operations for that insured are completed." The endorsement

excluded coverage for property damage arising out of professional

and engineering services, among other services.

OneBeacon contends that Dragin had completed its operations

before the system was put into operation in October of 2004. As

a result, OneBeacon asserts, MACTEC was no longer an additional insured covered by the 2004 policy when the alleged property

damage occurred. MACTEC argues that because the Hitchiner

counterclaims do not allege when Dragin's operations were

complete, there is no basis to conclude that the operations were

not ongoing through 2004. MACTEC also argues that Dragin was

hired to construct wells that met design and performance

requirements, so that Dragin's operations were ongoing until it

met those contractual obligations.

Dragin's exact completion date is uncertain based on the

record presented.2 Because Hitchiner alleges that Dragin was

hired to construct and install extraction and injection wells for

the project, that is the scope of Dragin1s work at issue here.3

Dragin's construction and installation of the wells would

necessarily have been complete before the system was first put

into operation in October of 2004. See also McAllister,

(defective workmanship is complete when the work is

complete). Therefore, at the time of the property damage alleged

2Hitchiner alleges that Dragin was hired to construct the wells in February and March of 2003. OneBeacon provides evidence that Dragin's operations were complete by August of 2003. In either case, Dragin was not engaged in ongoing work on the project in October of 2004.

3MACTEC insists that the allegations in the Hitchiner counterclaims control for all purposes of determining coverage. Although the court takes no position on that theory, it will be followed here based on MACTEC1s position.

9 in the Hitchiner counterclaimsA MACTEC was no longer an

additional insured under the 2004 policy.

In the absence of coverage under one of its policies^

OneBeacon is not obligated to provide a defense to MACTEC in the

underlying arbitration action or to indemnify MACTEC for any

liability arising from that proceeding.

Conclusion

For the foregoing reasons, the plaintifffs motion for

partial summary judgment (document no. 30) is denied. The

defendant's motion for summary judgment (document no. 29) is

granted. The clerk of court shall enter judgment in favor of the

defendant and close the case.

SO ORDERED.

(Joseph A. DiClerico, Jrv. United States District Judge

August 8, 2007

cc: Jeffrey T. Edwards, Esquire Peter G. Hermes, Esquire Daniel P. Luker, Esquire Joshua E. Menard, Esquire Roy T. Pierce, Esquire Erica E. Sullivan, Esquire

10