TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA ET AL. v. THE NETHERLANDS INSURANCE COMPANY ET AL.
(SC 19089)
Supreme Court of Connecticut
Argued February 25—officially released August 5, 2014
Rogers, C. J., and Palmer, Zarella, Eveleigh, McDonald, Espinosa and Robinson, Js.
The ‘‘officially released’’ date that appears near the beginning of each opinion is the date the opinion will be published in the Connecticut Law Journal or the date it was released as a slip opinion. The operative date for the beginning of all time periods for filing postopinion motions and petitions for certification is the ‘‘officially released’’ date appearing in the opinion. In no event will any such motions be accepted before the ‘‘officially released’’ date. All opinions are subject to modification and technical correction prior to official publication in the Connecticut Reports and Connecticut Appellate Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the Connecticut Law Journal and subsequently in the Connecticut Reports or Connecticut Appellate Reports, the latest print version is to be considered authoritative. The syllabus and procedural history accompanying the opinion as it appears on the Commission on Official Legal Publications Electronic Bulletin Board Service and in the Connecticut Law Journal and bound volumes of official reports are copyrighted by the Secretary of the State, State of Connecticut, and may not be reproduced and distributed without the express written permission of the Commission on Official Legal Publications, Judicial Branch,
Susan L. Miller, with whom was Margaret A. Casey, for the appellants (named defendant et al.).
Jane I. Milas, with whom was Anita C. DiGioia, for the appellee (defendant Lombardo Brothers Mason Contractors, Inc.).
Lee H. Ogburn, pro hac vice, with whom, on the brief, was Laura Pascale Zaino, for the appellees (plaintiffs).
Opinion
ROBINSON, J. The plaintiffs, Travelers Casualty and Surety Company of Americа and Travelers Indemnity Company (collectively, Travelers), brought this declaratory judgment action against the defendants, who include The Netherlands Insurance Company (Nether lands) and Lombardo Brothers Mason Contractors, Inc. (Lombardo).1 Travelers sought and received a judgment from the trial court declaring, inter alia, that Nether lands was obligated to defend Lombardo, and pay to Travelers its pro rata share of the costs incurred in defending Lombardo in the civil action arising from Lombardo’s role in the construction of the leak prone library at the University of Connecticut School of Law (law library), chronicled in our recent decision in State v. Lombardo Bros. Mason Contractors, Inc., 307 Conn. 412, 420–21, 54 A.3d 1005 (2012) (underlying action). Netherlands appeals2 from that declaratory judgment, and raises a plethora of appellate issues, namely, that the trial court improperly: (1) concluded that Travelers had standing to bring this action because it was not a party to the commercial general liability insurance policies (CGL policies) that Netherlands had issued to Lombardo; (2) determined that the allegations recited in the complaint in the underlying action (underlying complaint), constituted an occurrence under the CGL policies; (3) concluded that the exclusion for ‘‘known injury or damage’’ in the CGL policies did not preclude coverage; (4) found that the pro rata allocation period for defense costs was 144 months; (5) denied Nether lands’ motion for permission to amend its answer and special defenses to assert the special defense of unclean hands; and (6) prohibited it from presenting evidence of unclean hands. We disagree and, accordingly, we affirm the judgment of the trial court.
‘‘From 1994 to 2008, the following insurance carriers assumed Lombardo’s risk: September 30, 1994 to August 31, 1998, Travelers, [CGL] Policies; August 31, 1998 to August 31, 2000, Lumbermens [Insurance Company (Lumbermens)], [CGL] Policies; August 31, 2000 to June 30, 2006, Netherlands, [CGL] Policies and Peerless [Insurance Company (Peerless)], umbrella general lia bility policies.
‘‘In late 2005, Lombardo notified its insurance carriers of the state’s potential claim against it and Travelers agreed to participate in the investigation and related defense. Lumbermens . . . and Netherlands refused, however, to participate in the investigation and defense. Prior to trial, Travelers spent over $482,855 defending Lombardo.’’ (Footnotes altered.)
In July, 2009, Travelers filed a two count complaint against Netherlands, Peerless, Lumbermens and Lombardo.4 In the first count, Travelers sought, inter alia, a declaratory judgment that: (1) Peerless, Netherlands5 and Lumbermens ‘‘are obligated to pay their pro rata shares of the cost of Lombardо’s defense’’; and (2) ‘‘Lombardo is required to pay the pro rata share of its defense costs allocated to any uninsured period in the underlying action going forward . . . .’’ In the second count, alleging ‘‘equitable subrogation,’’ Travelers alleged that it had paid the full cost of defending Lombardo, and sought reimbursement from Netherlands and Lumbermens of their pro rata share of the defense costs with respect to the underlying claim and underly ing action. In response, Netherlands filed an answer and five special defenses wherein it contended that coverage was unavailable under both the primary CGL policies issued by Netherlands and the umbrella policies issued by Peerless.
With respect to the special defense that is at issue in this appeal, Netherlands pleaded that it had no obliga tion to reimburse
The matter proceeded to a one day court trial before the court, Hon. Joseph Q. Koletsky, judge trial referee.7 At trial, Travelers withdrew the second count of its complaint claiming a right to equitable subrogation. Shortly thereafter, Netherlands moved to dismiss this case for lack of subject matter jurisdiction, claiming that Travelers, which was not a party to Lombardo’s insurance contracts, now lacked standing to assert the remaining declaratory judgment claim in the complaint. The trial court denied that motion to dismiss, conclud ing that Travelers had standing to bring this declaratory judgment action.
The trial court then issued a memorandum of decision rendering judgment for Travelers, declaring that: ‘‘Neth erlands had a duty to defend based on the underlying complaint.’’ In reaching this conclusion, the trial court first determined that the factual allegations in the under lying complaint ‘‘state that the damage potentially falls within the dates of Netherlands’ coverage.’’8 The trial court held that the ‘‘occurrence which triggered the duty to defend was the water intrusion into the law library,’’9 and rejected Netherlands’ reliance on the known injury or damage clause, noting that ‘‘the under lying complaint does not state with certainty when Lombardo was aware of the actual damage.’’10 In a subsequent articulation;
On appeal, Netherlands claims that the trial court improperly: (1) denied its motion to dismiss this declar atory judgment action; (2) concluded that the facts recited in the underlying complaint constituted an occurrence under the CGL policies; (3) concluded that the exclusion for ‘‘known injury or damage’’ in the CGL policies did not preclude coverage; (4) determined that the allocation period for the insurers’ pro rata share of the defense costs was 144 months; (5) denied its motion for permission to amend the answer and special defenses to assert the special defense of unclean hands; and (6) precluded it from introducing evidence of unclean hands. We аddress each claim in turn, setting forth additional relevant facts and procedural history where necessary.
I
MOTION TO DISMISS
We begin with Netherlands’ claim that the trial court improperly denied its motion to dismiss this declaratory judgment action and, specifically, the first and only remaining count in the complaint, for lack of subject matter jurisdiction. Netherlands relies on Wilson v. Kelley, 224 Conn. 110, 116, 617 A.2d 433 (1992), as standing for the proposition that
In response, Travelers, joined by Lombardo, first con tends that subject matter jurisdiction exists because it withdrew the equitable subrogation claim for the sole reason that the parties had agreed that the case would be tried only under the first count, seeking only a per centage determination
The record reveals the following additional relevant facts and procedural history. On the day of the court trial in this case, counsel for Travelers explained that it was withdrawing the second count of the complaint, which sought a money judgment requiring, inter alia, Netherlands ‘‘to pay to Travelers [Netherlands’] pro rata share of the sums paid by Travelers to defend Lombardo against the undеrlying claim from February 25, 2003, forward and against the underlying action,’’ because of attorney-client privilege issues with respect to Lom bardo that resulted from the still pending underlying action.14 Counsel for Travelers explained that, should the
After the one day court trial, Netherlands moved to dismiss for lack of subject matter jurisdiction, claiming that Travelers’ withdrawal of the equitable subrogation count deprived it of standing to assert the sole remaining declaratory judgment claim in the complaint because Travelers was not a party to Lombardo’s insur ance contracts with Netherlands and Peerless. The trial court denied the motion to dismiss, concluding that Travelers had standing to proceed in this declaratory judgment action under the factors set forth in
‘‘The purpose of a declaratory judgment action, as authorized by . . .
‘‘We also have recognized that our declaratory judg ment statute is unusually liberal. An action for declara tory judgment . . . is a statutory action as broad as it well could be made. . . . Indeed, our declaratory judg ment statute is broader in scope than . . . the statutes in most, if not all, other jurisdictions . . . and [w]e have consistently construed our statute and the rules under it in a liberal spirit, in the belief that they serve a sound social purpose. . . . [Although] the declaratory judgment procedure may not be utilized merely to secure advice on the law . . . it may be emplоyed in a justiciable controversy where the interests are adverse, where there is an actual bona fide and substantial ques tion or issue in dispute or substantial uncertainty of legal relations which requires settlement, and where all persons having an interest in the subject matter of the complaint are parties to the action or have reasonable notice thereof. . . .
‘‘One type of controversy to which our declaratory judgment statute often has been applied is a dispute over rights and liabilities under an insurance policy.’’ (Citations omitted; internal quotation marks omitted.) New London County Mutual Ins. Co. v. Nantes, 303 Conn. 737, 747–48, 36 A.3d 224 (2012); see also St. Paul Fire & Marine Ins. Co. v. Shernow, 22 Conn. App. 377, 380, 577 A.2d 1093 (1990) (‘‘[t]here is no question that a declaratory judgment action is a suitable vehicle to test the rights and liabilities under an insurance policy’’).
‘‘It is a basic principle of our law . . . that the plain tiffs must have standing in order for a court to have jurisdiction to render a declaratory judgment. . . . Standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy. . . . When standing is put in issue, the question is whether the person whose standing is challenged is a proper party to request an adjudication of the issue . . . . [Because] [s]tanding requires no more than a colorable claim of injury . . . a [party] ordinarily establishes . . . stand ing
Put differently, an ‘‘action for a declaratory judgment, valuable as it has become in modern practice, is not a procedural panacea for use on all occasions. . . . In providing statutory authority for courts to grant declara tory relief, the legislature did not intend to broaden their function so as to include issues which would not be such as could be determined by the courts in ordinary actions. . . . The declaratory judgment procedure con sequently may be employed only to resolve a justiciable controversy where the interests are adverse, where there is an actual bona fide and substantial question or issue in dispute or substantial uncertainty of legal relations which requires settlement. . . . A party pur suing declaratory relief must therefore demonstrate, as in ordinary actions, a justiciable right in the controversy sought to be resolved, that is, contract, property or personal rights . . . as such will be affected by the [court’s] decision . . . . A party without a justiciable right in the matter sought to be adjudicated lacks stand ing to raise the matter in a declaratory judgment action.’’ (Citations omitted; internal quotation marks omitted.) Connecticut Business & Industry Assn., Inc. v. Com mission on Hospitals & Health Care, supra, 218 Conn. 347–48.
Thus, ‘‘[s]tanding is established by showing that the party claiming it is authorized by statute to bring suit or is classically aggrieved. . . . The fundamental test for determining [classical] aggrievement encompasses a well-settled twofold determination: first, the party claiming aggrievement must successfully demonstrate a specific, personal and legal interest in [the subject matter of the challenged action], as distinguished from a general interest, such as is the concern of all members of the community as a whole. Second, the party claiming aggrievement must successfully establish that this spe cific personal and legal interest has been specially and injuriously affected by the [challenged action]. . . . Aggrievement is estаblished if there is a possibility, as distinguished from a certainty, that some legally pro tected interest . . . has been adversely affected.’’ (Internal quotation marks omitted.) Wilcox v. Webster Ins., Inc., 294 Conn. 206, 214–15, 982 A.2d 1053 (2009).
Finally, it is well settled that ‘‘[i]t is the burden of the party who seeks the exercise of jurisdiction in his favor . . . clearly to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute. . . . It is well established that, in determining whether a court has subject matter jurisdiction, every presumption favoring jurisdiction should be indulged. . . . Because a determination regarding the trial court’s subject matter jurisdiction raises a question of law, our review is plenary.’’ (Internal quotation marks omitted.) Bysiewicz v. DiNardo, supra, 298 Conn. 758–59.
The question in this appeal, then, is whether an entity that is not a named insured or otherwise party to certain insurance policies may demonstrate ‘‘a specific, per sonal and legal interest in [those] policies’’ that would give it standing to commence a declaratory judgment action. Wilcox v. Webster Ins., Inc., supra, 294 Conn. 215. This requires us to address the split of authority that arises from the ‘‘potential problem [when] a declar atory judgment is sought by one of the insurers against the other,
There are two lines of federal authority on this issue supporting the general proposition that, when a cover age dispute arises, one insurer has the standing to bring a declaratory judgment action against another insurer in order to determine the existence or allocation of a duty to defend a common insured party, despite the fact that they are not parties to each other’s insurance policies with that common insured. One line of cases, exemplified by the decision of the United States Court of Appeals for the Eleventh Circuit in Provident Life & Accident Ins. Co. v. Transamerica-Occidental Life Ins. Co., 850 F.2d 1489, 1492–93 (11th Cir. 1988), cert. denied, 489 U.S. 1081, 109 S. Ct. 1534, 103 L. Ed. 2d 839 (1989), conditions that standing on the creation of the requisite case and controversy via (1) the inclusion of the insured as a necessary party to the declaratory judgment action, or (2) a reservation of rights agreement between the two insurers, prior to one or both defending or indemnifying their common insured.19 Although Travelers would have standing under Provi dent Life & Accident Ins. Co. because it named Lom bardo as a defendant in this declaratory judgment action, we, however, find more persuasive the other line of cases, exemplified by United Services Automobile Assn. v. Royal-Globe Ins. Co., 511 F.2d 1094, 1095–96 (10th Cir. 1975), which does not so require.
Accordingly, we turn to a detailed review of United Services Automobile Assn. v. Royal-Globe Ins. Co., supra, 511 F.2d 1094, wherein the United States Court of Appeals for the Tenth Circuit persuasively rejected arguments akin to those of Netherlands in this appeal. That case was a declaratory judgment action brought to determine whether the United Services Automobile Association (USAA), which was the insurer of a minor who had been involved in an accident while driving a rental car, was obligated to defend and indemnify that minor, as opposed to Royal-Globe Insurance Company (Royal), who was the rental company’s insurer. Id., 1095. ‘‘Royal challenge[d] USAA’s standing to bring [the] [declaratory judgment] action,’’ noting that ‘‘USAA is not a direct beneficiary of the rental contract, Royal invokes the settled and familiar rule that an action by a third party to enforce a contract may be brought only when the third party is a direct beneficiary of the contract.’’ Id., 1096. The Tenth Circuit rejected this argument ‘‘simply because this action is not one to enforce a contract but rather seeks a declaration of the relative rights and duties of USAA and Royal. The subject matter of the suit—the duty to defend and indemnify [the minor] in the pending Texas lawsuit—is definite and substantial. Each party has a stake in the outcome, and their interests are adverse.’’ Id.; see also, e.g., Phico Ins. Co. v. Providers Ins. Co., 888 F.2d 663, 667 (10th Cir. 1989) (concluding that insurance company had standing to bring declaratory judgment coverage action against insured’s subsequent liability carrier, which had declined to defend and indemnify insured, even after they had agreed to contribute to settlement fund that was intended to avert bad faith claim by insured, given that ‘‘[e]ach party clearly had a stake in the outcome and their interests were adverse’’); American Southern Ins. Co. v. Buckley, 748 F. Supp. 2d 610, 619 (E.D. Tex. 2010) (denying motion to dismiss, for lack of standing, counterclaim seeking declaratory judgment with respect to coinsurer’s duty to defend because duty to defend is immediate and presented ‘‘redressable’’ harm as coinsurer ‘‘was injured by the expenditure of funds for which it has not been reimbursed,’’ as declaration may give rise to subrogation or contribution); Transportation Ins. Co. v. Pennsylvania Manufacturers’ Assn. Ins. Co., 641 F. Supp. 2d 406, 411–12 (E.D. Pa. 2008) (rejecting claim that commercial liability insurer lacked standing to bring declaratory judgment action against its insurеd’s subsequent carrier on ground that it ‘‘was neither a party to the [subse quent] insurance contract . . . nor an intended third party beneficiary’’ because ‘‘there is no bar against an insurer obtaining a share of indemnification or defense costs from other insurers under other insurance clauses or under the equitable doctrine of contribution’’ [internal quotation marks omitted]), rev’d on other grounds, 346 Fed. Appx. 862 (3d Cir. 2009); Fremont Indemnity Co. v. California National Physician’s Ins. Co., 954 F. Supp. 1399, 1401 (C.D. Cal. 1997) (‘‘actual controversy exists between [two medical malpractice insurers] making declaratory relief appropriate’’ in dispute about whether policy required defendant to defend their com mon insured); Maryland Ins. Co. v. Attorneys’ Liability Assurance Society, Ltd., 748 F. Supp. 627, 632 (N.D. Ill. 1990) (insured is not per se necessary party to create privity between coinsurers in declaratory judgment action).20
In support of its claim that Travelers lacked standing to bring this declaratory judgment action, Netherlands relies on our statement in Wilson v. Kelley, supra, 224 Conn. 116, that ‘‘a declaratory judgment action must rest on some cause of action that would be cognizable in a nondeclaratory suit.’’ Netherlands then posits that Travelers lacked standing because the sole remaining count of the complaint essentially pleaded breach of contract between Netherlands and Lombardo, which is a legal claim; see, e.g., Sovereign Bank v. Licata, 116 Conn. App. 483, 508, 977 A.2d 228 (2009), appeal dis missed, 303 Conn. 721, 36 A.3d 662 (2012) (per curiam); and ‘‘one who [is] neither a party to a contract nor a contemplated beneficiary thereof cannot sue to enforce the promises of the contract . . . .’’ (Internal quotation marks omitted.) Dow & Condon, Inc. v. Brookfield Development Corp., supra, 266 Conn. 579. We disagree. Even if the first count of Travelers’ complaint implies that Netherlands is breaching its contractual duty to defend Lombardo,23 the quoted portion of Wilson does not require that the cause of action underlying the declaratory judgment action be justiciable if brought as a nondeclaratory suit. Rather, we agree with Travelers’ argument that, consistent with the often prospective nature of declaratory relief, this phrase is simply a refer ence point that is utilized to avoid ‘‘convert[ing] our declaratory judgment statute and rules into a conve nient route for procuring an advisory opinion on moot or abstract questions . . . .’’ (Citations omitted.) Wil son v. Kelley, supra, 116; see also id. (‘‘if a statute of limitations would have barred a
Specifically, the meaning of this aspect of Wilson is illustrated by our decision in Bysiewicz v. DiNardo, supra, 298 Conn. 759–60, considering this passage and concluding that a candidate for the Office of Attorney General had the requisite standing to seek a declaratory judgment with respect to whether she had the statutory qualifications to hold that office. Our conclusion was grounded by the facts that, should the candidate ulti mately be elected, her qualifications could be tested by a quo warranto action, and our determination that ‘‘her declared intention to run for the [O]ffice of [A]ttorney [G]eneral and her particular interest in avoiding the great effort and expense of running for that office if her qualifications to serve in that office could be suc cessfully challenged upon her election are sufficient to confer standing on her to bring this action.’’ Id., 760. In Bysiewicz, a quo warranto action would not have been justiciable when the declaratory judgment action was brought—it would not have been ripe because the candidate had not yet been elected to office, and, the candidate, of course, would have lacked the requisite aggrievement to test her own entitlement to office via that writ. Thus, this phrase from Wilson stands only for the proposition that a declaratory judgment action must be supported by sufficient controversy so as to not amount to an advisory opinion.
Turning to the facts of this case, the controversy is real and ongoing, with Travelers’ claim of injury more than colorable, given the nature of this coverage dispute and its averment that it ‘‘is bearing more than its fair share of Lombardo’s defense’’ because of Netherlands’ refusal to contribute to Lombardo’s defеnse. See New London County Mutual Ins. Co. v. Nantes, supra, 303 Conn. 749–50. Indeed, the nature of the declaratory relief sought in the first count of the complaint is ren dered nonadvisory by the fact that it implicates several cognizable causes of action, including a breach of con tract action by Lombardo and an action by Travelers seeking equitable contribution24—causes that are closely related, despite the fact that one is legal, and the other equitable, in nature. See Continental Casualty Co. v. National Union Fire Ins. Co. of Pittsburgh, PA, 940 F. Supp. 2d 898, 918–19 (D. Minn. 2013) (describing relationship between insurer’s action for equitable con tribution and insured’s rights under contract). Accord ingly, we conclude that the trial court properly determined that Travelers had standing to bring this declaratory judgment action against Netherlands.
II
COVERAGE CLAIMS
We next turn to Netherlands’ claim that the trial court improperly determined that it has a duty to defend Lombardo under the CGL policies. Specifically, Nether lands claims that: (1) the underlying complaint does not allege an occurrence with resulting property damage during the relevant policy periods; and (2) the ‘‘known injury or damage’’ exclusion relieves it of any obligation to defend.
Before turning to Netherlands’ specific claims we note the following general principles governing the insurer’s duty to defend. Under the well established ‘‘four corners’’ doctrine, ‘‘the duty to defend is broader than the duty to indemnify. . . . An insurer’s duty to defend is triggered if at least one allegation of the com plaint falls even possibly within the coverage. . . . Indeed, [i]t is well established . . . that a liability insurer has a duty to defend its insured in a pending lawsuit if the pleadings allege a covered occurrence, even though facts outside the four corners of those pleadings indicate that the claim may be mеritless or not covered. . . . The obligation of the insurer to defend does not depend on whether the injured party will successfully maintain a cause of action against the insured but on whether he has, in his complaint, stated facts which bring the injury within the coverage. If the latter situation prevails, the policy requires the insurer to defend, irrespective of the insured’s ultimate liability. . . . In contrast to the duty to defend, the duty to indem nify is narrower: while the duty to defend depends only on the allegations made against the insured, the duty to indemnify depends upon the facts established at trial and the theory under which judgment is actually entered in the case. . . . Thus, the duty to defend is triggered whenever a complaint alleges facts that potentially could fall within the scope of coverage . . . .’’25 (Cita tions omitted; emphasis omitted; footnote omitted; internal quotation marks omitted.) Capstone Building Corp. v. American Motorists Ins. Co., 308 Conn. 760, 805–806, 67 A.3d 961 (2013); see also Hartford Casualty Ins. Co. v. Litchfield Mutual Fire Ins. Co., 274 Conn. 457, 463, 876 A.2d 1139 (2005); QSP, Inc. v. Aetna Casu alty & Surety Co., 256 Conn. 343, 352, 773 A.2d 906 (2001); Keithan v. Massachusetts Bonding & Ins. Co., 159 Conn. 128, 139, 267 A.2d 660 (1970); Missionaries of the Co. of Mary, Inc. v. Aetna Casualty & Surety Co., 155 Conn. 104, 113, 230 A.2d 21 (1967).
Further, ‘‘[a]n insurance policy is a contract that is construed to effectuate the intent of the parties as expressed by their words and purposes. . . . [U]nam biguous terms are to be given their plain and
‘‘If the policy is ambiguous, extrinsic evidence may be introduced to support a particular interpretation. . . . If the extrinsic evidence presents issues of credi bility or a choice among reasonable inferences, the deci sion on the intent of the parties is a job for the trier of fact. . . .
‘‘Ordinarily, if an ambiguity arises that cannot be resolved by examining the parties’ intentions . . . the ambiguous language should be construed in accordance with the reasonable expectations of the insured when he entered into the contract. . . . Courts in such situa tions often apply the contra proferentem rule and inter pret a policy against the insurer. . . . The contra insurer rule does not apply, however, in actions by one insurer against another.’’ (Citations omitted; internal quotation marks omitted.) Metropolitan Life Ins. Co. v. Aetna Casualty & Surety Co., 255 Conn. 295, 305–306, 765 A.2d 891 (2001). ‘‘[B]ecause the proper construction of a policy of insurance presents a question of law, the trial court’s interpretation of the policy is subject to de novo review on appeal.’’ (Internal quotation marks omitted.) QSP, Inc. v. Aetna Casualty & Surety Co., supra, 256 Conn. 352.
Finally, we note the following relevant policy provi sions at issue, contained in the CGL policies that Nether lands issued to Lombardo for policy terms commencing on August 31, 2000 through June, 30, 2001, and renewed annually thereafter for five years from June 30, 2001 through June 30, 2006:26
‘‘Section I—Coverage . . .
‘‘1. Insuring Agreement
‘‘a. We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. How ever, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘prop erty damage’ to which this insurance does not apply. We may, at our discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result. . . .
* * *
‘‘b. This insurance applies to ‘bodily injury’ and ‘prop erty damage’ only if:
‘‘(1) The ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage ter ritory’;
‘‘(2) The ‘bodily injury’ or ‘property damage’ occurs during the policy period; and
‘‘(3) Prior tо the policy period, no insured listed under Paragraph 1. of Section II—Who Is An Insured and no ‘employee’ authorized by you to give or receive notice of an ‘occurrence’ or claim, knew that the ‘bodily injury’ or ‘property damage’ had occurred, in whole or in part. If such a listed insured or authorized ‘employee’ knew, prior to the policy period, that the ‘bodily injury’ or ‘property damage’ occurred, then any continuation, change or
resumption of such ‘bodily injury’ or ‘property damage’ during or after the policy period will be deemed to have been known prior to the policy period. ‘‘c. ‘Bodily injury’ or ‘property damage’ which occurs during the policy period and was not, prior to the policy period, known to have occurred by any insured listed under Paragraph 1. of Section II—Who Is An Insured or any ‘employee’ authorized by you to give or receive notice of an ‘occurrence’ or claim, includes any continu ation, change or resumption of that ‘bodily injury’ or ‘property damage’ after the end of the policy period.
‘‘d. ‘Bodily injury’ or ‘property damage’ will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1. of Section II—Who Is An Insured or any ‘employee’ authorized by you to give or receive notice of an ‘occur rence’ or claim:
‘‘(1) Reports all, or any part, of the ‘bodily injury’ or ‘property damage’ to us or any other insurer;
‘‘(2) Receives a written or verbal demand or claim for damages because of the ‘bodily injury’ or ‘property damage’; or
‘‘(3) Becomes aware by any other means that ‘bodily injury’ or ‘property damage’ has occurred or has begun to occur.’’
A
Occurrence or Property Damage during Policy Period
We begin with Netherlands’ claim that the underlying complaint does not allege an occurrence with resulting property damage during its policy periods. Netherlands posits that its ‘‘coverage began over four years after the construction was completed, and the water intru sion and property damage allegedly began. The damage alleged occurred well before [Netherlands’] coverage period. Since the alleged damage began and was ongo-ing and continuous, prior to the inception of Nether lands’ . . . policies, the damages alleged are not covered . . . .’’ Netherlands argues that a reading of ‘‘the [underlying] complaint in its entirety and not just particular paragraphs in isolation provide the basis for the analysis of the duty to defend,’’ and that a reading of the ‘‘general allegations as well as the specific allega tions directed at Lombardo’’ demonstrate that the ‘‘property damage manifested prior to the inception of Netherlands’ . . . policies . . . .’’ Netherlands further argues that the trial court improperly characterized the water intrusion over the years following construction, ‘‘seemingly treating each water intrusion as a new event’’; Netherlands instead contends that the ‘‘water intrusion, from its first appearance to its last, is the same occurrence.’’ To this end, Netherlands cites Quanta Indemnity Co. v. Davis Homes, LLC, 606 F. Supp. 2d 941 (S.D. Ind. 2009), as standing for the proposition that the ‘‘fact that the property damage progressed and took different forms over time does not trigger subse quent policies.’’
In response, Travelers contends that the underlying complaint alleges property damage during the six Neth erlands policy periods, from August 31, 2000 to June 30, 2006, insofar as the ‘‘ ‘property damage,’ was caused by the ‘continuing and progressive’ water intrusion’’ that commenced after January 31, 1996, and was not the subject of repair work until February 14, 2008. Travelers cites Peck v. Public Service Mutual Ins. Co., 363 F. Supp. 2d 137 (D. Conn. 2005), in support of its argument that courts have ‘‘rejected under Connecticut law the same ‘occurrence during the policy period’ argument that Netherlands advances [in this] appeal,’’ and con tends that ‘‘Netherlands policies . . . do
The underlying complaint alleges in relevant part that ‘‘Lombardo, under a prime contract with the state . . . performed masonry and related services at the [law library] [p]roject.’’ It then alleges that the law library ‘‘[p]roject was designed starting in 1992 and construc tion commenced in 1994, with completion in 1996,’’ and the ‘‘state began occupying the [law] library on January 31, 1996.’’ Further, ‘‘[d]uring the months and years fol lowing completion of the project and occupancy by the state, the state began to experience problems with water intrusion into the [law] library. The defendants [in the underlying action] were given notice of these problems and frequently visited the [law] library to ascertain the nature and extent of the problem. During the project, the defendants [in the underlying action] had provided written assurances that their work and/ or materials were free from defects, and the state relied on those assurances. At no point did the defendants [in the underlying action] disclose that those assurances were false.’’ The complaint then states that ‘‘[o]ver the years the water intrusion proved to be continuing and progressive, to the point that in the 2000s the state retained forensic engineers to investigate the full extent and likely causes of the problem.’’ The underlying com plaint claimed that a forensic investigation revealed numerous defects, including ‘‘[i]mproper flashing mate rial, design, and installation,’’ ‘‘[i]mproper design and installation of the windows,’’ and ‘‘[i]mproper design and installation of the wall anchoring system, such that the exterior stone facade of the [law] library is not adequately stabilized and secured,’’ all of which ‘‘have caused tangible and physical harm to the [law] library . . . .’’ The state ‘‘retained an engineering firm to design corrective work, and awarded the contract to perform that work,’’ which was underway when the state filed the underlying action in 2008. The state alleged that ‘‘[b]efore completing the design of the corrective work the state provided copies of design documents and forensic findings to the defendants [in the underlying action] and sought their comments and input.’’ From these facts, the state pleaded claims of breach of con tract, negligence, negligent misrepresentation, and intentional misrepresentation against Lombardo.
We conclude that the underlying complaint alleges property damage that triggered Netherlands’ duty to defend Lombardo. Netherlands’ policies covered peri ods from August 31, 2000 until June 30, 2006. Although the construction of the law library was completed in 1996, the problems began in the ‘‘months and years’’ that followed the state’s occupancy on January 31, 1996, and the ‘‘water intrusion proved to be continuing and progressive’’ into the 2000s, when the ‘‘state retained forensic engineers to investigate the full extent and likely causes of the problem.’’ Thus, the property dam age alleged in the underlying complaint—however broadly worded—extended into Netherlands’ policy periods.
Netherlands argues, however, that ‘‘[a]ll of the water intrusions constitute one occurrence, which began soon after January, 1996,’’ and ‘‘all of the property damage alleged by the state was caused by Lombardo’s alleged defective construction. The fact that the property dam age progressed and took different forms over time does not trigger subsequent policies.’’ Netherlands’ argu ment, however, contradicts
B
‘‘Known Injury or Damage’’ Clause
We next address Netherlands’ claim that the ‘‘known injury or damage’’ exclusion of the CGL policy pre cludes coverage because, ‘‘if Lombardo knew the dam age to the [law] library had begun in whole or in part prior to Netherlands’ policy period, Netherlands will not cover any of the property damage. Since the state alleges it gave Lombardo notice of the water intrusion and damage within months of January 31, 1996, it is clear that Lombardo knew about the property damage to the [law] library, at least in part, before Netherlands’ coverage began on August 31, 2000.’’ (Emphasis omit ted.) Relying on, inter alia, Travelers Casualty & Surety Co. v. Dormitory Authority, 732 F. Supp. 2d 347 (S.D.N.Y. 2010), and Quanta Indemnity Co. v. Davis Homes, LLC, supra, 606 F. Supp. 2d 941, Netherlands argues that the trial court improperly relied on the com mon-law known loss doctrine, which is distinct from the express policy language. In response, Travelers does not appear to challenge Netherlands’ understanding of the known injury or damage exclusion of the CGL policy vis-a-vis the known loss doctrine, but argues that Neth erlands improperly reads facts into the underlying com plaint in support of its contention that the known injury or damage exclusion bars coverage. We agree with Trav elers, and conclude that, based on the allegations in the underlying complaint, the known injury or damage exclusion
By way of background, we note that the known loss doctrine is a common-law rule that derives from the ‘‘implicit requirement read into every liability insurance policy that coverage will be provided only for fortuitous losses . . . .’’ 1 B. Ostrager & T. Newman, Handbook on Insurance Coverage Disputes (16th Ed. 2013) § 8.02[a], p. 676; see id., § 8.02, p. 673 (‘‘by definition, insurance is not available for losses that the policy holder knows of, planned, intended, or is aware are substantially certain to occur’’). ‘‘[T]he known loss doc trine embraces the fortuity requirement by precluding coverage for a loss known to be certain to create a liability at the time the policy is issued.’’ Id., § 8.02[c], p. 685. ‘‘[I]n its most simplistic formulation, [the known loss doctrine] states that one may not insure against loss of a building after the building has burned down.’’ Steadfast Ins. Co. v. Purdue Frederick Co., Superior Court, judicial district of Stamford-Norwalk, Complex Litigation Docket, Docket No. X08-CV-02-0191697-S (April 11, 2006) (41 Conn. L. Rptr. 183, 184). No appellate level court in Connecticut has yet applied the common law known loss doctrine, nor determined the extent to which losses are deemed to be ‘‘known’’ prior to the issuance of coverage.28 See, e.g., Known Litigation Holdings, LLC v. Navigators Ins. Co., 934 F. Supp. 2d 409, 419–20 (D. Conn. 2013).
This appeal does not, however, require us to consider the contours of the common-law known loss doctrine in Connecticut because, as Netherlands points out, the ‘‘known injury or damage’’ exclusion in the CGL policy stands in distinction to that common-law principle; the contractual provision, when it exists, governs indepen dently of the common-law rule, although they may have overlapping effects in certain cases. See, e.g., Travelers Casualty & Surety Co. v. Dormitory Authority, supra, 732 F. Supp. 2d 362. Thus, a state’s narrow formulation of the known loss rule; see footnotes 29 and 30 of this opinion; ‘‘cannot be used to defeat the unambiguous contrary intent of the parties as reflected in the policy language itself.’’29 Travelers Casualty & Surety Co. v. Dormitory Authority, supra , 362; see id., 361–62 (rejecting argument that known injury exclusion ‘‘should be construed in accordance with the known risk or known-loss doctrine under New Jersey law,’’ which ‘‘does not bar liability for mere knowledge of events that might hypothetically or potentially create liability in the future, but instead, bars coverage only when the legal liability of the insured is a certainty’’ [emphasis omitted; internal quotation marks omitted]).
Although the trial court’s analysis improperly con flated the common-law known loss doctrine with the Netherlands policies’ known injury or damage exclu sion; see footnote 10 of this opinion; we nevertheless conclude that it properly determined that the exclusion does not relieve Netherlands of its duty to defend in this case. Although the allegations in the underlying complaint arguably permit a reasonable inference that Lombardo knew of the property damage in the law library prior to the inception of its policies with Nether lands, unlike in other cases with more detailed factual records,30 they do not compel that conclusion as a mat-
ter of law, especially given the well established maxim that, “[i]f an allegation of the complaint falls even possibly within the coverage, then the insurance company must defend the insured.” (Internal quotation marks omitted.) Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co., 264 Conn. 688, 712, 826 A.2d 107 (2003). Although paragraph 43 of the underlying complaint avers that the “defendants were given notice of these [water intrusion] problems and frequently visited the [law] library to ascertain the nature and extent
III
ALLOCATION PERIOD
We next turn to Netherlands’ claim that the trial court improperly allocated the defense costs over a period of 144 months. Specifically, Netherlands argues that this allocation period for determining the insurers’ pro rata share “is contradicted by the controlling precedent,” namely, the decision of this court in Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co., supra, 264 Conn. 688, in which, Netherlands contends, we adopted the “exposure theory of triggering coverage.” Netherlands asserts that, under that theory, wherein “the exposure period runs from first injury to manifestation,” the allocation period should have been no more than twelve months because the injury was the water intrusion, which manifested less than one year after the state‘s occupancy of the law library on January 31, 1996. In response, Travelers argues that Netherlands misreads Security Ins. Co. of Hartford, and argues that we actually adopted in that decision “an ‘injury-in-fact trigger,’ under which progressive injuries that span multiple policy periods trigger all policies in effect during the progression of the injury,” which in this
In Security Ins. Co. of Hartford, we concluded that “the pro rata method of allocating defense costs applies in long latency loss claims that implicate multiple insurance policies“; Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co., supra, 264 Conn. 700; in that case, litigation arising from “bodily injuries allegedly resulting from the inhalation of asbestos” during a period of time from 1951 through 1996. Id., 691-92. In applying the pro rata method in Security Ins. Co. of Hartford, we upheld the trial court‘s determination that the “asbestos litigation involved a ‘continuous trigger situation such that all asbestos related injury policies issued during the extended exposure period have been triggered for coverage and all companies that issued such policies are responsible for defense costs related to the . . . asbestos litigation.‘” Id., 696-97. In describing this ruling of the trial court, we set forth in a footnote four theories of the trigger of coverage, namely, “[m]anifestation,” “[e]xposure,” “[i]njury-in-fact or actual injury,” and “[m]ultiple, [c]ontinuous, or [s]uccessive trigger.”32 (Emphasis omitted; internal quotation marks omitted.) Id., 697 n.12.
Contrary to Netherlands’ argument, nowhere in Security Ins. Co. of Hartford did we adopt the exposure trigger of coverage.33 Rather, we upheld a pro rata
IV
UNCLEAN HANDS CLAIMS
Finally, we turn to Netherlands’ claims that the trial court: (1) improperly denied
Before addressing these claims in detail, we note that the record reveals the following additional relevant facts and procedural history. On January 24, 2012, less than two weeks before the trial date of February 2, 2012, Netherlands filed a request for permission to amend its answer and special defenses to assert a sixth special defense, namеly, unclean hands. Netherlands represented that the addition of this special defense was prompted by Travelers’ disclosure, on December 21, 2011, of supplemental discovery in response to a request by Lumbermens; see footnotes 1 and 4 of this opinion; that had alerted Netherlands to previously unknown facts. In that proposed special defense, Netherlands averred that this new discovery proves that Travelers knew that Netherlands did not have a duty to defend in the underlying case, rendering this declaratory judgment action “[wilful] misconduct” by Travelers, thus barring its request for equitable relief under the doctrine of unclean hands.34 In response, Travelers objected to the motion, contending that Netherlands’ request, made barely one week before trial, was prejudicially late and was conclusory because it did not state which documents, of the nearly 6000 pages of discovery that had been produced, constituted the newly discovered evidence that supported Netherlands’ late amendment. Travelers also argued, consistent with its evidentiary objections at trial,35 that the only evidence relevant to the dispute before the court, concerning the duty to defend, was the underlying complaint and Netherlands’ insurance policy.
During a hearing on the motion, the court and the parties discussed whether the court needed to rule on the motion, given Travelers’ withdrawal of the second count of the complaint seeking equitable subrogation, discussed in part I of this opinion. Ultimately, counsel for Netherlands stated that the special defense would apply to both counts, given that the declaratory judgment count in the complaint alleged injury to Travelers’ legal and equitable rights, and sought remedies under both theories. Counsel for Netherlands then informed the court that it had received more than 7000 pages of documents in December indicating “that there was information within the Travelers’ own file that supported our position that Lombardo knew and when they knew of this loss. And that becomes relevant because they‘ve come in to here and asked us to contribute to a defense that they had absolute knowledge . . . that our policy did not cover . . . for the claims being made.” In response, counsel for Travelers argued that none of the evidence was relevant under the four corners rule for determining the duty to
Further, in connection with Travelers’ motion to exclude extrinsic evidence; see footnote 35 of this opinion; and consistent objections, the trial court subsequently concluded that, under Connecticut law, evidence beyond the underlying complaint and the policy at issue is irrelevant. Accordingly, the trial court declined to consider any evidence with respect to Lombardo‘s knowledge, including sustaining on relevance grounds Travelers’ objections to Netherlands’ attempts to elicit testimony about reservation of rights letters from Travelers to Lombardo in 2003, 2005 and 2006.
A
Motion to Amend
Netherlands contends that the trial court abused its discretion in denying its motion for permission to amend its answer and special defenses to assert the special defense of unclean hands. Netherlands claims that the trial court improperly denied the motion to amend because it had not received and reviewed the motion papers before rendering a decision, meaning that it could not have understood the factual and legal basis for the motion. Netherlands also contends that granting this motion would not have prejudiced or surprised Travelers, as presentation of evidence of unclean hands would not have required additional witnesses beyond those who testified at the court trial, and the supporting documentary evidence had already been disclosed by Travelers. In response, Travelers contends that the trial court did not abuse its discretion in denying Netherlands’ motion because any evidence of unclean hands was legally irrelevant to the issues before the court following Travelers’ withdrawal of the second count of the complaint. Travelers also posits that the proposed amendment was untimely and would have worked an injustice, because it was filed less than two weeks before trial in this case, which had been pending for more than two years. We agree with Travelers and, accordingly, conclude that the trial court did not abuse its discretion by denying Netherlands’ motion for permission to amend the special defenses.
“Our standard of review . . . is well settled. While our courts have been liberal in permitting amendments . . . this liberality has limitations. Amendments should be made seasonably. Factors to be considered in passing on a motion to amend are the length of the delay, fairness to the opposing parties and the negligence, if any, of the party offering the amendment. . . . The motion to amend is addressed to the trial court‘s discretion which may be exercised to restrain the amendment of pleadings so far as necessary to prevent unreasonable delay of the trial. . . . Whether to allow an amendment is a matter left to the sound discretion of the trial court. This court will not disturb a trial court‘s ruling on a proposed amendment unless there has been a clear abuse of that discretion. . . . It is [Netherlands‘] burden in this case to demonstrate that the trial court clearly abused its discretion.” (Internal quotation marks omitted.) Dow & Condon, Inc. v. Brookfield Development Corp., supra, 266 Conn. 583-84; see also Ruggiero v. Pellicci, 294 Conn. 473, 480-81, 987 A.2d 339 (2010) (per curiam); Rizzuto v. Davidson Ladders, Inc., 280 Conn. 225, 255, 905 A.2d 1165 (2006). That an amendment would confuse the issues in the case also supports a trial court‘s decision to deny permission to amend a complaint or special defense. See Rose v. Messier, 1 Conn. App. 563, 565, 474 A.2d 100 (1984).
We conclude that the trial court did not abuse its discretion in denying the motion for permission to amend its pleadings to assert the defense of unclean hands. First, Netherlands’ argument that the trial court could not have understood the motion because it ruled on it without first reviewing the papers is unconvincing. Although Netherlands accurately observes that, because of a clerical oversight, the motion initially was not included in the court‘s paper file at the time of trial in this preelectronic filing case, that lapse did not mean that the trial court did not review or understand the motion. The record reveals that the parties provided the trial court with a courtesy copy of the two page motion, and the trial court reviewed the parties’ motions during recesses insofar as they pertained to the evidentiary issue raised by Travelers, in addition to hearing extensive oral argument with respect to thе legal propriety of Netherlands going beyond the pleadings and policy in attacking its duty to defend.
Second, the trial court‘s denial of the motion was consistent with its subsequent evidentiary rulings at trial with respect to the admission of extrinsic evidence concerning what Lombardo may have known with respect to the underlying claim. Insofar as Netherlands’ has failed to challenge those rulings properly in this appeal; see part IV B of this opinion; any relief that we could grant by concluding the trial court had abused its discretion in denying the corresponding motion for permission to amend would be illusory. Accordingly, we decline to disturb the trial court‘s exercise of its discretion to deny Netherlands’ motion to amend. See Wallingford v. Glen Valley Associates, Inc., 190 Conn. 158, 162, 459 A.2d 525 (1983) (trial court properly denied permission to amend defenses that would have “assert[ed] what the court had disallowed in the counterclaim“).
B
Evidence concerning Unclean Hands
Netherlands also contends that the trial court improperly prohibited it from presenting evidence of Travelers’ unclean hands, namely, “Travelers’ knowledge of the notice of damage provided to the insured before Netherlands’ policy period.” Netherlands contends that this court should extend the rule of Hartford Casualty Ins. Co., which allows an insurer to ” ‘be obligated to provide a defense not only based on the face of the complaint but also if any facts known to the insurer suggest that the claim falls within the scope of coverage’ “; Hartford Casualty Ins. Co. v. Litchfield Mutual Fire Ins. Co., supra, 274 Conn. 466-67; and hold that, “when one insurer is in possession of knowledge that shows a claim does not fall within another insurer‘s coverage, the carrier should not be permitted to make a claim for contribution based on a ‘face of the complaint’ argument.” Netherlands posits that such an extension is consistent with our holding in Hartford Casualty Ins. Co. that “the duty to defend derives from the insurer‘s contract with the insured, not from the complaint“; (internal quotation marks omitted) Hartford Casualty Ins. Co. v. Litchfield Mutual Fire Ins. Co., supra, 467; and argues that
“It is well settled that [o]ur case law and rules of practice generally limit [an appellate] court‘s review to issues that are distinctly raised at trial. . . . [O]nly in [the] most exceptional circumstances can and will this court consider a claim, constitutional or otherwise, that has not been raised and decided in the trial court. . . . The reason for the rule is obvious: to permit a party to raise a claim on appeal that has not been raised at trial—after it is too late for the trial court or the opposing party to address the claim—would encourage trial by ambuscade, which is unfair to both the trial court and the opposing party.” (Citations omitted; internal quotation marks omitted.) Blumberg Associates Worldwide, Inc. v. Brown & Brown of Connecticut, Inc., 311 Conn. 123, 142, 84 A.3d 840 (2014).
Netherlands does not, in its main brief or reply brief, identify where it asked the trial court to adopt the rule that it advocates on appeal, specific to the context of suits by insurers against other insurers. Further, our independent reviеw of the record does not indicate that this issue was raised before the trial court.37 Accordingly, it is unpreserved and we decline to review it in this appeal.38
The judgment is affirmed.
In this opinion the other justices concurred.
Notes
“Thus, the occurrence-basis policy is geared to paying claims for losses that take place during the policy period and result in a policyholder‘s legal liability. This means that the time of the negligent acts causing injury (e.g., manufacture of asbestos, failure to warn, dangerous design of a consumer product) is not determinative of the insurer‘s obligation to defend and pay. Rather, there must be injury from an occurrence during the policy period to trigger occurrence policy coverage. . . .
“Courts have responded to the trigger problem in long latency cases involving occurrence-basis [comprehensive general liability] coverage with four definitions of the trigger of coverage:
“(1) Manifestation. These courts hold that an injury subject to a claim occurs when it manifests itself or becomes reasonably capable of diagnosis.
“(2) Exposure. These courts hold that a policy is triggered when the claimant is exposed to the alleged cause of the disease regardless of when the injury became manifest or capable of diagnosis.
“(3) Injury-in-fact or actual injury. These courts hold that the occurrence giving rise to the third-party claim happens at the time when the body‘s defenses to the cause of the disease have been overwhelmed so that significant injury has become inevitable.
“(4) Multiple, Continuous, or Successive trigger. Under this approach, pioneered by the District of Columbia Circuit in the well-known case of [Keene Corp. v. Ins. Co. of North America, 667 F.2d 1034 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007, 102 S. Ct. 1644, 71 L. Ed. 2d 875 (1982)] an occurrence has happened whenever the claimant was exposed to the cause of the injury, was injured in fact, or the injury became manifest. Consequently, any of these events trigger the applicable insurance policy in force at the time of the event.” (Citation omitted; emphasis in original; internal quotation marks omitted.) Security Ins. Co. of Hartford v. Lumbermens Mutual Casualty Co., supra, 264 Conn. 697 n.12.