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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

Sewer Equipment Malfunctions: ACE Unit Sues to Deny Coverage

May 8, 2012 - Illinois Union Insurance Co. has sued a former client in an effort to avoid defense and indemnity in a lawsuit it presently is paying to defend.

The ACE Group unit filed suit in U.S. District Court for the Middle District of Pennsylvania against Hydro International PLC and sister companies HIL Technology Inc., Eutek Systems Inc. and Hydro International Holdings Inc.

All of the firms save for Hydro International Holdings have been sued in Pennsylvania state court by the Sewer Authority of the City of Scranton. That utility alleges that Defendants agreed to provide two “Grit Snail” units to remove grit from raw wastewater, and that the units have not worked properly and have created extra work for the authority.

The utility has asked for $1 million in damages from the Hydro companies and the contractor that hired them. In turn, the Hydro companies have notified Illinois Union of the lawsuit and the insurer to this point has paid for their defense under a full reservation of rights on a policy it issued to them effective Aug. 8, 2010.

Now, however, Illinois Union has gone to court seeking a declaration that it has no duty to defend or to indemnify the businesses under the policy.

Illinois Union said that the Sewer Authority’s lawsuit alleges a breach of contract because the defendants failed to provide equipment that performed as specified. Therefore, Illinois Union said its policy does not apply because, among other defenses, there is no coverage for a breach of contract as it is not an occurrence as defined in the policy.

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