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

COMFORT SYSTEMS USA, INC. v. ACE AMERICAN INSURANCE COMPANY

ATTENTION: It is possible that this information may no longer be current and therefore may be inaccurate. The index contains both open and closed cases and is not a complete list of cases in which an ACE Insurance Group company is involved. This information is provided to give interested persons an idea of the issues disputed in the indexed cases. For a full understanding of a case, one should read the rest of the court file, including the response. For the most up-to-date and complete information on a case, visit www.pacer.gov or contact the clerk of the relevant court.

Case Number: 
4:14-cv-02030 Search Pacer
ACE Group party(s): 
Opposing Party: 
Comfort Systems USA, Inc.
Court Type: 
Federal
US District Court: 
Southern District of Texas
Date Filed: 
Jul 16 2014

THE HONORABLE JUDGE OF SAID COURT:
COMES NOW Plaintiff Comfort Systems USA, Inc. ("CSUSA"), by and through its
counsel, and files its Original Petition complaining of Defendant ACE American Insurance
Company ("ACE") and as grounds therefore would respectfully show this Court as follows:

I.
DISCOVERY LEVEL
1. Discovery will be conducted under Level 3 of the Texas Rules of Civil Procedure.

II.
THE PARTIES
2. CSUSA is one of the largest providers of commercial and industrial heating,
ventilation, air conditioning and related services in the United States. It is a publically traded
Delaware corporation, with its principal place of business in Houston, Texas.
3. CSUSA is informed and believes and thereupon alleges that Defendant ACE is an
g insurer incorporated in Pennsylvania, with its principal place of business in Philadelphia,
o Pennsylvania, and ACE conducts business in Texas. Defendant ACE may be served with
citation by serving its registered agent C T Corporation System, 1999 Bryan Street, Suite 900,
B Dallas TX 75201-3136.

III.
JURISDICTION AND VENUE
4. Jurisdiction is proper in this Court under Section 17.042 of the Texas Civil
Practice & Remedies Code.
5. On information and belief, the contracts at issue between ACE and CSUSA were
negotiated in part and delivered in Houston, Texas. Likewise, Plaintiffs principal place of
business is in Houston and, on information and belief, Defendant is authorized to do business in
Texas and regularly conducts business in Houston.

IV.
OVERVIEW
6. CSUSA brings this Complaint to resolve a dispute with ACE over its failure to
pay defense costs as agreed by ACE after the claim was tendered. The underlying construction
defect actions for which ACE agreed to pay defense costs concern an apartment complex
development for which a CSUSA subsidiary, Atlas LLC (as successor to Atlas Comfort Systems
USA, LP)1, was a subcontractor (the "Archstone Actions").

V.
THE ACE POLICIES
7. ACE issued certain general liability policies to CSUSA under which CSUSA and
various CSUSA subsidiaries, including Atlas, are insureds. The policy numbers include, but are
not limited to, HDO G21736545 (at least November 1, 2006 to November 1, 2007) and HDO
G2374941 (at least November 1, 2007 to November 1, 2008) (collectively, the "ACE Policies").2
Together referred to herein as "Atlas". Copies of the ACE Policies are not attached as they are voluminous. Plaintiff is informed and believes that ACE
has copies of these documents.

VI.
THE ARCHSTONE ACTIONS
8. Starting in 2007, various construction defect lawsuits were filed relating to a
residential development by Archstone in Westbury, New York (the "Project"), first by tenants of
the Project and then by Archstone. Atlas was a subcontractor involved in the Project and was
named as a third-party defendant in one or more of these lawsuits, including the lawsuit
captioned Archstone v. Tocci Building et al., Index No. 001018/2008 (Supreme Court, Nassau
County) (referred to above and again herein as the "Archstone Actions").
9. Atlas has and continues to actively defend itself in the Archstone Actions.

VII.
FAILURE TO PAY DEFENSE COSTS AS AGREED
10. On October 17, 2012, ACE agreed, in a letter to CSUSA, to pay Atlas' defense
costs in the Archstone Actions, under an alleged reservation of rights (the "October 2012
Agreement to Defend").
11. Despite its agreement to pay Atlas' defense costs, between October 2012 and the
present, ACE has failed to timely and fully pay such costs. For example:
a. ACE paid less than half of Atlas' defense costs, invoiced between May
2012 and May 2013, by checks dated June 25, 2013, leaving over $55,000 unpaid.
b. ACE paid less than half of Atlas' defense costs, invoiced between August
2013 and December 2013, by checks dated April 1, 2014, leaving over $35,000 unpaid.
c. ACE has failed to pay over $71,000 in outstanding defense costs invoiced in 2014.
12. At times, ACE attempted to justify significant delays with repeated and belated
requests for additional irrelevant information and revised budgets.
13. Off the top, ACE also declined to pay half of Atlas' defense costs, stating that
ACE has a contribution agreement with another insurer, Zurich-American Insurance Company
("Zurich") whereby Zurich would be issuing the payments for the other half. However, CSUSA
never agreed that ACE's obligations could be met by Zurich and, in any event, Zurich has not
contributed any of its money to pay the defense.3
14. Thus, CSUSA has received no payments for the half of the defense costs that
ACE said would be coming from Zurich. CSUSA repeatedly explained this situation to ACE,
but ACE refuses to pay the rest of the defense costs owed.
15. During a February 12, 2014 conference call involving representatives of CSUSA
and ACE and coverage counsel for both parties, CSUSA sought to resolve all issues that were
creating the delays in ACE's payment of defense costs. The parties reached an agreement,
memorialized in subsequent e-mail exchanges (the "February 2014 Agreement").
a. ACE agreed to pay all of Atlas' outstanding defense costs, and the parties
outlined an expedited process for those payments.
b. ACE requested that Atlas retain new defense counsel, which CSUSA
ultimately agreed to do, and has now done.
16. ACE failed to pay all of Atlas' outstanding defense costs, as agreed,
a. Despite Atlas' defense counsel's prompt submission of the requested
budget and invoices through ACE's electronic payment system ("Advocator"), ACE did
not issue checks for (only partial) payments until April 1, 2014.
S b. ACE paid less than half of the amounts submitted for invoices dated
through December 2013, insisting that CSUSA receive half of the payments elsewhere. I
CSUSA learned that Zurich directed the third-party administrator to issue payments to Atlas' defense counsel from
CSUSA accounts with the third-party administrator; therefore, using CSUSA funds to make the payments.
c. ACE has not paid defense counsel's January 14, 2014 invoice or
subsequent invoices, which are not being accepted by ACE's Advocator system and, as
described below, ACE will not even respond to CSUSA's counsel's numerous repeated
requests for directions on processing additional invoices through Advocator (which
requires approvals from ACE before the invoices will be accepted).
17. In mid-March 2014, when Atlas' defense counsel learned that ACE intended to
(finally) approve defense counsel's prior invoices for partial payment:
a. CSUSA's coverage counsel immediately conveyed to ACE's coverage
counsel via e-mail that ACE must make full payments, and CSUSA's coverage counsel
made repeated attempts via e-mail and voicemail to discuss the payment issues with
ACE's coverage counsel. All to no avail.
b. On April 1, 2014, CSUSA coverage counsel also conveyed to ACE's
coverage counsel that ACE's failure to pay Atlas' past due defense costs was impacting
the requested transition of Atlas' defense to new counsel.
c. Again, on April 4 and 8, 2014, outstanding invoices, information
regarding the invoice rejected by ACE's Advocator system, and a summary of the
payments received and owing were provided to ACE's coverage counsel.
d. It was not until April 11, 2014 that ACE's coverage counsel spoke to
CSUSA's coverage counsel and discussed the pending payment issues, including (1) the
outstanding invoices and the need for approvals in order to process them through ACE's
5
S Advocator system, and (2) ACE's improper insistence that it only is responsible for
j§ paying half of Atlas' defense costs (less whatever other deductions it may apply). ACE's
I
-g coverage counsel agreed to discuss the issues with ACE and get back to CSUSA early the
a.
next week. That day, CSUSA's coverage counsel also provided follow-up information to
ACE regarding the invoice rejected by ACE's Advocator payment system. Despite
repeated follow-up e-mails, as of the date of this Petition (which is over a month later),
absolutely no further response from ACE or its coverage counsel has been received.
No further payments have been received.
18. Beginning on April 1, 2014, CSUSA began to transition new counsel to represent
Atlas in the Archstone Actions, as ACE had insisted. However, it immediately became apparent
that ACE's failure to bring prior counsel's fees current, as promised in the February 2014
Agreement, was impacting the transition to the new counsel. Understandably, Atlas' prior
counsel was insisting on immediate payment of all outstanding amounts.
19. ACE's complete failure to respond to CSUSA's repeated requests for both: (a)
approval to allow additional invoices for prior defense counsel to be submitted in the Advocator
system, and (b) payment of the half of defense costs that ACE refused to consider its
responsibility, left CSUSA with no choice but to pay prior counsel directly. On April 5, 2014,
CSUSA paid $90,871.29 to Atlas' prior counsel.

VIII.
FIRST CAUSE OF ACTION
BREACH OF CONTRACT
(Failure To Pay The Promised Defense After Issuing A Reservation Of Rights)
20. CSUSA incorporates the allegations of Paragraphs 1 through 19 of this Petition,
as though fully set forth herein.
5
S 21. The ACE Policies and the October 2012 Agreement to Defend (together, the
"Contracts") are valid and enforceable contracts between CSUSA and ACE that set forth ACE's
duty to defend, and require pursuant to their terms and applicable law that, when ACE agrees to
defend under a reservation of rights, it must do so timely and fully.
22. CSUSA has performed all material obligations imposed upon it by the Contracts,
except to the extent such performance was either prevented or excused by ACE, with respect to
ACE timely and fully paying for Atlas' defense of the Archstone Actions under ACE's alleged
reservation of rights.
23. ACE breached the Contracts by, inter alia, failing to timely and fully pay Atlas'
defense costs in the Archstone Actions after it agreed to do so under an alleged reservation of
rights.
24. As a direct and proximate result of ACE's breach, CSUSA has suffered damages,
in amounts as will be proven at the trial of this action, including but not limited to the amounts
CSUSA has improperly been forced to pay in defense costs.

IX.
SECOND CAUSE OF ACTION
BREACH OF CONTRACT
(February 2014 Agreement)
(Failure To Pay The Promised Defense After Agreeing By Email)
25. CSUSA incorporates the allegations of Paragraphs 1 through 24 of this Petition,
as though fully set forth herein.
26. The February 2014 Agreement is a valid and enforceable contract between
CSUSA and ACE that set forth ACE's obligation to pay certain defense costs in exchange for
3 other consideration (including, e.g., replacement of defense counsel).
27. CSUSA has performed all material obligations imposed upon it by the February
2014 Agreement, except to the extent such performance was either prevented or excused by
ACE.
28. ACE breached the February 2014 Agreement by, inter alia, failing to timely and
fully pay Atlas' defense costs in the Archstone Actions after it agreed to do so.
29. As a direct and proximate result of ACE's breach, CSUSA has suffered damages,
in amounts as will be proven at the trial of this action, including but not limited to the amounts
CSUSA has improperly been forced to pay in defense costs.

X.
THIRD CAUSE OF ACTION
BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING
30. Plaintiff incorporates the allegations of Paragraphs 1 through 29 of this Petition,
as though fully set forth herein.
31. ACE's duty of good faith and fair dealing in regards to the Contracts and the
February 2014 Agreement arises as a result of the special relationship between ACE and
CSUSA.
32. ACE has breached its duty of good faith and fair dealing by engaging in at least
the following conduct:
a) Failing to pay Atlas' cost of defense after confirming its obligation to do so;
g b) Requesting that Atlas retain new counsel and then interfering with Atlas'
o ability to transition the matter to new counsel by failing to pay prior counsel's
33. There is no reasonable basis for the above-mentioned conduct by ACE.
Alternatively, ACE has failed to determine whether there is any reasonable basis for abovementioned
conduct.
34. As a direct, proximate, reasonable and foreseeable result of ACE's breach of its
duty of good faith and fair dealing, CSUSA has incurred substantial damages in an amount to be
determined at trial.

XI.
JURY DEMAND
35. Plaintiff CSUSA hereby formally makes demand for a jury trial in this litigation.

XI.
CONDITIONS PRECEDENT
36. All conditions precedent to Plaintiff CSUSA's recovery have been performed,
have occurred, or have been excused.

XII.
PRAYER FOR RELIEF
WHEREFORE, PREMISES CONSIDERED, Plaintiff CSUSA prays for judgment
against ACE as follows:
ON THE FIRST CAUSE OF ACTION
1. An award of CSUSA's actual damages for ACE's breach of contract in an amount to
be proven at trial, and interest thereon;
2. For attorneys' fees and costs of this suit pursuant to Section 38.001 of the Texas Civil
Practice & Remedies Code; and
3. For such other and further relief as this Court deems just and proper.
ON THE SECOND CAUSE OF ACTION
1. An award of CSUSA's actual damages for ACE's breach of contract in an amount to
be proven at trial, and interest thereon;
2. For attorneys' fees and costs of this suit pursuant to Section 38.001 of the Texas Civil
Practice & Remedies Code; and
3. For such other and further relief as this Court deems just and proper.
ON THE THIRD CAUSE OF ACTION
1. For an award of CSUSA's damages for ACE'S breach in an amount to be proven at
trial including, but not limited to all consequential and/or extra-contractual damages
available under applicable law; and
2. For such other and further relief as this Court deems just and proper.

The provided text is an excerpt from a document filed in this case. For a full understanding of the case, one should read the complete court file, including the response.

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