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

THE SHAW GROUP INC et al v. ZURICH AMERICAN INSURANCE COMPANY et al

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: 
2:11-cv-00279 Search Pacer
ACE Group party(s): 
Opposing Party: 
The Shaw Group Inc
Court Type: 
Federal
US District Court: 
Eastern District of Washington
Date Filed: 
Jul 29 2011

"The Underlying Litigation

10. On June 22, 2009, REC filed suit against Shaw Group and Shaw Process Fabricators in the United States District Court, Eastern District of Washington, asserting numerous claims arising out of alleged damages caused by the pipe spools supplied by Shaw Process Fabricators. As damages, REC seeks in excess of $59,200,000.00 for Project 3.0 and $48,200,000.00 for Project 4.0, respectively, together with attorneys' fees, punitive damages, and other remedies, including pre- and post-judgment interest. A true and correct copy of the Second Amended Complaint dated May 16, 2011 ("Complaint"), which reflects the most recent claims and damages alleged by REC in the Underlying Litigation, is attached hereto as Appendix A.

11. As set forth more specifically in the Complaint, REC alleges that the pipe spools were rendered defective as a consequence of certain welds that did not conform to specifications. As a result, REC claims it has incurred damages for, among other things, remediation costs for repairing the pipe spools, remediation costs for repairing damage caused to other property and components, losses for extended construction and overhead costs, lost profits from delayed openings, loss of use, expected future inspection and repairs costs, loss of value, and shortened operating life of components in the Projects.

12. The REC complaint alleges an "occurrence" within the meaning of Defendants' policies, which one or more occurrences took place in the State of Washington. The alleged liability of the insureds involves a subject (the Moses Lake REC facility) located in Washington State. The duty of defendant Zurich to provide a defense is a duty to be performed in Washington State. Defendants herein are "persons having to do therewith" within the meaning of RCW 48.01.020 Accordingly RCW Chapter 48 applies to defendants in the performance of their obligations of defense, indemnity and investigation, including but not limited to Defendants' obligations under RCW 48.01.030, as construed in Tank v. State Farm, 105 Wn.2d 381 (1986). Defendants were each obligated by Washington's Insurance Fair Conduct Act, as codified in RCW 48.30.015. C. The Insurance Policies and Insurers' Investigation and Handling of Claims and Damages Asserted in the Underlying Litigation

13. At all relevant times alleged in the Complaint, The Shaw Group and its subsidiaries, including Shaw Process Fabricators, were insured by commercial
insurance policies (the "Policies") issued by Zurich, Westchester and North American (collectively referred to herein as the "Insurers").

14. After being tendered with copies of the Complaint, the Insurers informed The Shaw Group and Shaw Process Fabricators that there was no insurance coverage for various of the damages alleged by REC in the Underlying Litigation. Zurich also informed The Shaw Group and Shaw Process Fabricators that it would accept and undertake the defense of the Underlying Litigation under a full reservation of rights. Following Zurich's letter, the excess insurers Westchester and North American followed suit and sent reservation of rights letters declaring that coverage did not exist under the excess policies as well for various of the claims made. True and correct copies of letters from the insurers are attached hereto as Appendices B, C, D, and E.

15. Since undertaking the defense of The Shaw Group and Shaw Process Fabricators in the Underlying Litigation under a reservation of rights, Zurich has disputed the extent to which it is obligated to pay for defense costs. Zurich has unreasonably breached its duty to defend by failing to pay for the defense in a timely manner. Such failure to pay constitutes an unreasonable denial of benefits within the meaning of RCW 48.30.015 and under American Best Foods v. ALEA, 168 Wn.2d 398 (2010). As a result, Zurich is no longer entitled to its insureds' compliance with policy conditions, and is liable for any reasonable settlement reached in the underlying litigation. Alternatively, Zurich is liable for any judgment in the underlying matter through coverage by estoppel.

16. Having undertaken to defend the underlying case in the Eastern District of Washington under reservation of rights, Zurich was bound to comply with certain "enhanced obligations" of good faith under RCW 48,01.030, as construed by the Washington Supreme Court in Tank. Zurich violated these enhanced obligations of good faith by failing to recognize the insureds as assigned counsel's sole client, and instead, directing such counsel to be its "partners." By way of example only, Zurich preferred its own economic interests to those of its policyholders by failing to pay defense invoices in a timely manner, by failing to conduct and conclude a proper investigation before refusing indemnity prior to and/or at mediation of the underlying matter, by failing to provide coverage updates as required by Tank, and by engaging in the same type of conduct it was found liable for in Aecon Buildings v. Zurich American, 572 F. Supp. 2d 1227
(W.D.Wash. 2008).

17. All defendants were obligated to comply with WAC 284-30-330 through 380 with respect to the respective investigations of each claim. No defendant conducted a reasonable investigation into the insureds' claims for coverage prior to denying indemnity coverage for various of the underlying claims. No defendant provided a reasonable explanation of the basis in the policy in relation to facts or applicable law in support of the declination of coverage. The denial of indemnity by each was unreasonable within the meaning of RCW 48.30.015.

18. Zurich has controlled the defense of the underlying matter in the Eastern District of Washington. Having done so, Zurich was obligated to exercise the degree of reasonable care applicable to the defense of actions pending in the Eastern District of Washington. Zurich breached that duty, proximately causing damage to plaintiffs herein in an amount to be proven at trial.

19. The violation by defendants of WAC 284-30-330, as promulgated by the Washington Insurance Commissioner pursuant to authority granted under RCW Chapter 48, constitutes a per se unfair and deceptive trade practice pursuant to RCW 19.86. Defendants have each violated the Washington Consumer Protection Act, and plaintiffs are entitled to recover damages thereunder in an amount to be proven at time of trial."FIRST CAUSE OF ACTION Declaratory Judgment

20. Plaintiffs repeat the allegations of all preceding paragraphs of this Complaint and incorporate the same by reference.

21. An actual controversy exists between Plaintiffs and Defendants as to the existence of coverage under the Policies and the Defendants' obligations to defend Plaintiffs in the Underlying Litigation and to indemnify Plaintiffs for the alleged claims and damages set forth in the Complaint.

22. Accordingly, Plaintiffs seek a determination, pursuant to 28 U.S.C. §2201, of the parties' rights, duties and obligations under the Policies, statutes and
regulations described herein.

 

SECOND CAUSE OF ACTION
Monetary Damages

23. Plaintiffs have been damaged by defendants' breach of contract, breach of RCW 48.01.030, breach of enhanced obligations under Tank v. State Farm, breach of RCW 48.30.015, breach of RCW 19.86, and defendants' breaches of their respective duties of reasonable care. Plaintiffs have been damaged in an amount to be proven at time of trial."

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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