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Case 1:14-cv-14413-GAO Document 1 Filed 12/16/14 Page 1 of 16

UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF MASSACHUSETTS
ACE AMERICAN INSURANCE
COMPANY,
Plaintiff,
v.
SUFFOLK CONSTRUCTION
COMPANY, INC.,
Defendant.

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Case No.: 1:14-cv-14413

COMPLAINT FOR DECLARATORY JUDGMENT


Plaintiff, ACE AMERICAN INSURANCE COMPANY (ACE), by its attorneys, and for
its Complaint for Declaratory Judgment against SUFFOLK CONSTRUCTION COMPANY, INC.
(Suffolk) states as follows:
PARTIES
1.

Plaintiff is a Pennsylvania corporation with a principal place of business at 436

Walnut Street, Philadelphia, Pennsylvania.


2.

Defendant is a Massachusetts corporation with a principal place of business at 65

Allerton Street, Roxbury, MA 02119.


3.

Non-Party Chapman Waterproofing Company (Chapman) is a Massachusetts

corporation with a principal place of business at 395 Columbia Road, Boston, MA 02125.
4.

Non-Party E.M. Duggan, Inc. (Duggan) is a Massachusetts corporation with a

principal place of business at 140 Will Drive, Canton, MA 02021.


5.

Non-Parties DiamondRock Boston Owner LLC, DiamondRock Retail Owner LLC,

DiamondRock Boston Tenant LLC, and DiamondRock Hospitality Limited Partnership,


(collectively, DiamondRock) are all Delaware corporations with a principal places of business at 3
Bethesda Metro Center, Suite 1500, Bethesda, MD 20814.
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JURISDICTION AND VENUE


6.

This is an action for reimbursement of funding under a settlement agreement that

arises pursuant to contract and in equity.


7.

This Court has jurisdiction over this action pursuant to 28 U.S.C. 1332 in that the

controversy is between citizens of different states and the matter in controversy exceeds $75,000
exclusive of interests and costs.
8.

Venue is proper in this Court pursuant to 28 U.S.C. 1391(b)(2) as a substantial part

of the events or omissions giving rise to the claim occurred in this venue and the contract in question
mandates that all disputes be litigated in this venue.
FACTUAL BACKGROUND
The Underlying Action
9.

This declaratory judgment action arises from the matter captioned, DiamondRock

Boston Owner LLC, DiamondRock Retail Owner LLC, DiamondRock Boston Tenant LLC, and
DiamondRock Hospitality Limited Parntership v. Suffolk Construction Company, Inc., Chapman
Waterproofing Company, Arrowstreeet, Inc., City Lights Electrical Company, Inc., Component
Assembly Systems, Inc., G&C Concrete Construction, Inc., American Architectural Iron Company,
Inc., New Hampshire Steel Fabricators, Inc., and E.M. Duggan, Inc., Civil Action No. 2012-0307BLS1 filed in the Massachusetts Superior Court, Suffolk County, Business Litigation Section.
(hereinafter, the underlying action). Exhibit A. In connection with the Action, a number of the
Parties asserted claims, cross-claims, and/or third-party claims as to the construction of the Westin
Boston Waterfront Hotel, located at 425 Summer Street, Boston, MA 02210 (the Hotel).

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10.

The work on the Hotel was performed pursuant to an Owner/Contractor Agreement

between the Boston Convention Center Hotel, LLC (BBCH, LLC) as the project developer, and
Suffolk. (The Construction Contract).
11.

DiamondRock alleged in the underlying action that Suffolk, which served as the

general contractor and/or construction manager of the Hotel, provided various design and
construction services and materials in connection with the design and construction of the Hotel. Ex.
A, 9.
12.

The underlying action alleges that as the general contractor, Suffolk supervised and

controlled its subcontractors, including non-parties Chapman, Arrowstreet, Inc. and E.M. Duggan,
Inc., among others. Id. at 9-12.
13.

The Construction Contract consisted of various contractual agreements and

documents, including conditions, drawings, and addenda issued prior to and after execution, and
incorporated express and implied warranties, which contained rights to sue for breach thereof,
including actions for damages caused by errors, omissions and deficiencies in the services and
materials provided thereunder.
14.

Suffolk was aware and agreed that the specifications and drawings for the Hotel

project, including the plaza, were incorporated into the Contract.


15.

Suffolk thus agreed to perform the work described in the Contract as well as its

incorporated documents, including specifications and drawings.


16.

Suffolk supervised and controlled its subcontractors, including Chapman, and

pursuant to the Contract was responsible for the acts and omissions of its subcontractors on the work
on the Hotel.

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17.

Further, DiamondRock alleged that Suffolk agreed to perform certain work, including

work installing the Procor waterproofing membrane and the expansion joints, in accordance with the
manufacturers installation instructions.
18.

Prior to December 6, 2006, Suffolk knowingly and intentionally failed to supervise

the work being done on the Project or covered up non-compliant or defective work in that it:
a) Failed to supervise and ensure that the waterproofing membrane was properly
applied as required by the Construction Contract, contract specifications,
drawings, and/or manufacturers installation instructions.
b) Failed to supervise and ensure that the draining board was properly installed as
required by the Construction Contract, contract specifications, drawings, and/or
manufacturers installation instructions.
c) Failed to supervise and ensure that the bi-level drains were properly installed as
required by the Construction Contract, contract specifications, drawings, and/or
manufacturers installation instructions.
d) Failed to supervise and ensure that the subsurface drains such that the inlet at the
subsurface level is not flush with the subsurface concrete as required by the
Construction Contract, contract specifications, drawings, and/or manufacturers
installation instructions.
e) Failed to supervise and ensure that flashing was installed as and where required
by the Construction Contract, contract specifications, drawings, and/or
manufacturers installation drawings.

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f)

Failed to supervise and ensure that the expansion joints and steel angles were
properly installed and sealed as required by the Construction Contract, contract
specifications, drawings, and/or manufacturers installation instructions.

19.

In addition to knowingly failing to supervise the work being done on the Project,

Suffolk failed to properly coordinate the work and deliberately disregarded the warnings of its subcontractor that the work was incorrectly done and that fixes ordered by Suffolk would not stop the
leaking and water infiltration that was the natural and intended consequence of the condition of the
Project.
20.

The Complaint in the underlying action alleges that prior to completion of the work,

Suffolk deliberately attempted to conceal the deficient designs and construction services, when it:
a)

disregarded warnings from Chapman Project Manager Dave Kirby;

b)

authorized in September and October 2006 and thereafter improperly injected

grout into problem areas in a deliberate effort to minimize and conceal water
infiltration problems that were the natural and expected result of its breach of
contract;
c)

disregarded warnings from Chapman that injecting the grout would not

correct the problems and could have a deleterious effect on the drains, leaks and
plaza waterproofing;
d)

disregarded Chapmans warnings as to the improper installation of the drains

and that Suffolks failure to appropriately coordinate the work had prevented proper
waterproofing;
e)

deliberately concealed its the use of grout as a stop-gap and improper

measure to delay notice of the breach of contract;

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f)

intentionally submitted false certifications that to the best of Suffolks

knowledge, information, and belief, the work covered by this application has been
completed in accordance with the contract documents.
21.

The Project owner became aware of the consequences of Suffolks breach of contract

and intentional concealment of that breach less than a year after the project was delivered and falsely
certified as complete and in accordance with the contract documents.
22.

In or before November 2007, Suffolk notified Chapman that the expansion joints

needed repair, which Chapman acknowledged.


23.

In June 2009, Chapman repaired the joints and Suffolk and Chapman notified

DiamondRock that the joints had been properly installed.


24.

However, the repaired expansion joints were not installed pursuant to the

manufacturers instructions, and failed a short time later.


25.

Suffolk thereafter failed or refused to attempt any further repair of its work.

26.

On January 25, 2012, DiamondRock filed the Complaint in the underlying action

against Suffolk, Chapman and Arrowstreet for damages arising from the errors, omission and
deficiencies s in the design and construction of the Hotel, including damage to lower level
roadways, structures, and portions of the Westin Hotel and BCEC,, and other property of the
Plaintiffs and the neighboring BCEC.. Ex. A
27.

The complaint in the underlying action alleges Breach of Contract (Count I); Breach

of Contract (Count II); Breach of Warranty (Count III); Negligent Misrepresentation (Count IV);
Fraudulent Misrepresentation and Concealment (Count V);Violation of M.G.L. c.93A (Count VI).
28.

Various parties, including E.M. Duggan, thereafter asserted claims, cross-claims,

and/or third-party claims in connection with the underlying action.

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The CCIP Insurance Program


29.

In connection with the construction of the Hotel, Suffolk, Chapman, City Lights

Electrical Company, Inc., Component Assembly Systems, Inc., G&C Concrete Construction Inc.,
American Architectural Iron Company, Inc., New Hampshire Steel Fabricators, Inc. and Duggan
entered into a Contractor Controlled Insurance Program (the CCIP) to obtain certain Project-based
insurance coverage for its construction.
30.

The primary layer of coverage provided under the CCIP was provided by American

Home Assurance Company (American Home). Exhibit B.


31.

Excess coverage within the CCIP was issued by ACE. The ACE first layer excess

policy, No. G2181040A, was issued an occurrence basis for the policy period December 30, 2003
to December 30, 2009. It has limits of liability of $25 million per occurrence and in the aggregate
(ACE Policy). A certified copy of the ACE Policy is attached as Exhibit C.
32.

The Ace Policy follows form to the Scheduled Underlying policy issued by American

33.

American Home had issued a reservation of rights letter regarding its coverage for the

Home.

underlying action, or lack of coverage, but was nonetheless defending Suffolk as its insured.
34.

Because of ACEs status as an excess insurer, it was not responsible to defend the

underlying action prior to exhaustion of the applicable American Home policies.


Partial Settlement of the Underlying Action
35.

The parties agreed in principle to a confidential settlement under which funds in

excess of $75,000 were paid to the DiamondRock by American Home and ACE.
36.

Prior to settlement, ACE informed Suffolk that its participation was pursuant to a

reservation of rights, specifically drawing Suffolks attention to American Homes reservation of

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rights dated October 4, 2012, which ACE incorporated by reference. A copy of ACEs Reservation
of Rights dated January 10, 2014, is attached as Exhibit D.
37.

The portion of the confidential settlement funded by American Home, was funded as

a settlement of disputed coverage issues.


38

The portion of the confidential settlement funded by ACE, was funded pursuant to a

written agreement between Suffolk and ACE.


39.

The funding agreement1, provides in pertinent part that:

3.
ACEs payment under the Funding Agreement is not and shall not be
deemed to be an indemnity payment under the ACE Policy or pursuant to ACE
Claim No. JY13J0574145, except if and to the extent that it is later determined that
the Action involved covered claims. If it is later determined that the Action involved
covered claims, then the portion of the Funding Agreement that is held to be on
account of covered claims shall be deemed paid pursuant to ACEs indemnity
obligations under its policy;
4.
ACE and Suffolk each reserve all of their respective rights against the
other without limitation: with respect to the Funding Agreement; with respect to all
insurance policies issued by ACE (or any related entity) to Suffolk at the time; and
with respect to their conduct relating to the handling of the Claim and the defense of
the Action, including the impact of those issues as to the value and extent of the
Settlement. It is a material condition of this agreement that ACE shall have the right
to reimbursement of all or a portion of the Funding Agreement, if and to the extent
that it is later determined that all or a portion of the Action did not involve covered
claims.
40.

Under paragraph 3 of the funding agreement, ACE and Suffolk further agreed that

issues of allocation of the settlement as between types of claims or allegedly covered and noncovered claims would be resolved by later litigation between the parties.
41.

Although the plaintiffs cost numbers differed substantially from the cost numbers

proposed by the defense, approximately two-thirds of the monetary claim asserted against Suffolk in
the underlying action was for the anticipated business losses, due to the need to offer reduced rental
1

ACE will move to place the Agreement under Seal as necessary.

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charges to customers for use of the undamaged convention and hotel space during repair of the
subject plaza. Approximately one-third of the monetary claim asserted was for the cost to fix the
plaza itself.
42.

ACE has fully complied with its payment obligations under the funding agreement.

Suffolk has received the benefit of ACEs compliance with the funding agreement in that the
DiamondRock claims against it were dismissed, with prejudice, and in that the plaintiffs in the
underlying action accepted a compromise payment that was substantially lower than the damages
they were expected to seek at trial.
43.

ACE is entitled to reimbursement of all or of that part of the payment under the

funding agreement that was on account of claims in the underlying action that were not covered
under the ACE policy.
COUNT I
(The Action Did Not Arise Out of An Occurrence)
44.

ACE repeats the allegations of Paragraphs 1 through 43 and incorporates them herein

as if fully set forth at length herein.


45.

The ACE Policy provides, in its coverage grant, that:

This insurance only applies to injury or damage covered by the UNDERLYING


INSURANCE, and that takes place during OUR policy period. WE will pay on
YOUR behalf the ULTIMATE NET LOSS in excess of the applicable limits of the
UNDERLYING INSURANCE listed in the attached Schedule of UNDERLYING
INSURANCE (whether such insurance is collectible or not). If the UNDERLYING
INSURANCE does not pay a loss for reasons other than the exhaustion of an
aggregate limit of insurance, then WE shall not pay such loss.
The Definitions, Terms, Conditions, and Exclusions of the UNDERLYING
INSURANCE, in effect at the inception date of this policy, apply to this coverage
unless they are inconsistent with provisions of this policy, or relate to premium,
subrogation, any obligation to defend, the payment of expenses, limits of insurance
or cancellation or any renewal agreement.
XS-4U18a (3/96), p. 1 of 6.

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46.

Under the ACE policy and the underlying American Home policy, the subject Project

is a covered Project.
47.

The underlying American Home policy, and the following-form ACE policy, extend

coverage only as to defined property damage caused by an occurrence. The policies further
provide that damages that are expected and intended from the standpoint of the insured are excluded.
Specifically, the intentional act exclusion to the GL part of the American Home policy, as modified
by the Amendment of the Expected or Intended Injury Exclusion, provides:
a. Bodily injury or property damage expected or intended from the standpoint of the
insured. However, this exclusion does not apply to bodily injury or property
damage resulting from the use of reasonable force to protect persons or property.
Endorsement, 75186 (4/00)
48.

The claims alleged against Suffolk in the underlying action asserted breach of

contract and fraudulent misrepresentation and concealment.


49.

Suffolk acted in intentional and knowing breach of contract, knowingly concealed its

breach of contract, and expected and intended the damages that were the natural consequence of its
intentional deviation from the contract document as as a breach of contract and concealment of
improper corrective measures for known defective work.
WHEREFORE, Plaintiff ACE respectfully requests that this Court:
(a)

Enter judgment declaring that the allegations in the underlying action allege

intentional acts, and therefore, do not qualify as an occurrence under the policy;
(b)

Enter judgment for ACE finding that there is no coverage under the ACE

Policy for the allegations in the underlying action as damages resulting from intentional breach of
contract, including intentional acts to conceal and delay discovery of its breach of contract are not

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accidental nor are they fortuitous. They therefore cannot qualify as an Occurrence under the
ACE Policy. They further are excluded as expected or intended from the standpoint of Suffolk;
(c)

Enter judgment finding that Suffolk must reimburse ACE for the full amount

ACE paid under the funding agreement in order to settle the underlying action;
(d)

Award ACE all other relief to which it may be entitled.

COUNT II
(The Anticipated Reduced Rental Value Damages
sought by Suffolk do not qualify as Property Damage)
50.

ACE repeats the allegations of Paragraphs 1 through 49 and incorporates them herein

as if fully set forth at length herein.


51.

Pleading specifically in the alternative, if the losses at issue in this matter were the

result of an occurrence, coverage would nonetheless not attach unless they also constituted
property damage.
52.

The American Home policy, to which ACE follows form, defines property damage

to include loss of use of tangible property that is not physically injured. CG 00 01 10 01, p. 15 of
16.
53.

The convention space and rooms at issue were not physically damaged, were not

rendered unusable and would not be rendered unusable during anticipated repair. Accordingly, the
claimed economic losses of the anticipated reduced rental value of the convention space and hotel
rooms during anticipated active remediation of the Hotel Plaza alleged against Suffolk in the
underlying action do not constitute Property Damage under the ACE Policy.
WHEREFORE, Plaintiff ACE respectfully requests that this Court:
(a)

Enter judgment declaring that even if there were an occurrence resulting in the need

to offer discounts for the use of the subject convention center and rooms, there would be not loss of

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use property damage in connection with those facilities, and therefore that there is no coverage
under the ACE Policy for such alleged economic losses;
(b)

Enter judgment allocating ACEs payment under the funding agreement as between

the economic losses claimed in the underlying action and the costs to repair the plaza, also claimed
in the underlying action;
(c)

Award ACE the full amount of its payment that is properly allocated to economic

losses, together with all other relief to which it may be entitled.


COUNT III
(Costs To Repair Suffolks or its Contractors Defective Work Are Excluded)
54.

ACE repeats the allegations of Paragraphs 1 through 53 and incorporates them herein

as if fully set forth at length herein.


55.

The ACE Policy includes several exclusions from coverage that apply to the claims

in the underlying action for damages to repair Suffolks defective workmanship.

56.

The ACE Policy excludes coverage for:

(5)
That particular part of real property on which you, any insured contractor or
any other contractors or subcontractors working directly or indirectly on behalf of
you, any insured contractor or subcontractor, are performing operations, if the
property damage arises out of those operations; or
(6)
That particular part of any property that must be restored, repaired or replaced
because your work was incorrectly performed on it. For purposes of this
endorsement your work shall include work performed by any insured contractor, or
any contractors or subcontractors working directly or indirectly on behalf of you or
any insured contractor.

Paragraph (6) of this exclusion does not apply to property damage included in the
products-completed operations hazard
CG 00 01 10 01, p. 4 of 16, as modified by Endorsement 81705 (03/03).

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57.

The damages at issue commenced prior to December 6, 2006. ACEs policy provides

all damage from a progressive loss is a single occurrence that is deemed to occur when the damage
at issue first occurs, consequently, the damage from the progressive losses at issue here occurred
prior to the completion of the Project, and therefore the claims here are within the ongoing
operations hazard of the ACE policy, rather than within the products-completed operations hazard.
See Endorsement No. 4, Continuous and Progressive Damages Endorsement, CC1E15.2
58.

In the alternative, if the loss were to fall within the products-completed operation

hazard, the ACE Policys Exclusions, provide that coverage does not apply to:
Property damage to your work arising out of it or any part of it and included in
the products-completed operations hazard.
This exclusion does not apply if the damaged work or the work out of which the
damage arises was performed on your behalf by a subcontractor.
Id., Exclusion l.
59.

If the loss alleged in the Underlying Action were to fall within the products-

completed operations hazard, the costs to repair Suffolks work are not covered as, and to the extent,
Suffolks work was performed by Suffolk. Suffolks own work that is the source of all losses in this
case includes the failure to supervise and coordinate work, and the decision to instruct its

By Endorsement No. 4, Section III, Definition O, Occurrence of the ACE Excess Policy is
amended as follows:
O. Occurrence means an accident including continuous or repeated exposure to
Substantially the same general harmful conditions.
In the event of continuous, progressive or deteriorating damage or injury which
Exists over any length of time, such damage or injury shall be deemed to be one
Occurrence and shall be deemed to occur only at the time when such damage or
Injury first commences.
All other terms and conditions remain unchanged.
CC1E15.

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subcontractors to breach the subject contract by covering up non-conforming work, and improperly
injecting grout to conceal the water infiltration that was the natural consequence of Suffolks breach
of contract.
WHEREFORE, Plaintiff ACE respectfully requests that this Court:
(a)

Enter judgment declaring that there is no coverage under the ACE Policy for the

allegations in the underlying action as to the damages alleged asserting costs to repair Suffolks
defective work are excluded under the ACE Policy;
(b)

Enter judgment allocating ACEs payment under the funding agreement as between

the economic losses claimed in the underlying action and the costs to repair the plaza, also claimed
in the underlying action;
(c)

Award ACE the full amount of its payment that is properly allocated to repair costs,

together with all other relief to which it may be entitled.

COUNT IV
(The Economic Losses Claimed Would be Excluded,
if they were Property Damage resulting from an Occurrence)
60.

ACE repeats the allegations of Paragraphs 1 through 59 and incorporates them herein

as if fully set forth at length herein.


61.

Pleading specifically in the alternative, if the losses at issue in this matter were the

result of an occurrence, and if the economic losses claimed were property damage, all such
claims are excluded as they are:
Property damage to property that has not been physically injured, arising out of:
(1)
A defect, deficiency, inadequacy or dangerous condition in your product or
your work.
CG 00 01 10 01, p. 5 of 16.

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62.

Notably there is an exception to the above exclusion:

This exclusion does not apply to the loss of use of other property arising out of
sudden accidental physical injury to your product or your work after it has been
put to its intended use.
63.

The subject claim does not fall within the above exception because the planned

renovations which would result in the reduced rental value of the convention space and rooms at
issue does not qualify as a sudden accidental physical injury to your work, nor does the ongoing
water infiltration, which is not sudden or accidental, but rather constitutes on ongoing process of
gradual deterioration which is the natural and intended consequence of Suffolks breach of contract
during the ongoing construction at the plaza prior to its completion.
64. The hotel and convention center did not suffer any property damage as a result of
Suffolks work.
WHEREFORE, Plaintiff ACE respectfully requests that this Court:
(a)

Enter judgment declaring that there is no coverage under the ACE Policy for the

portion of the settlement of the underlying action attributable to economic losses, as such damages
are excluded from coverage, even if they were the result of an occurrence and even if they
constituted property damage;
(b)

Enter judgment allocating ACEs payment under the funding agreement as between

the economic losses claimed in the underlying action and the costs to repair the plaza, also claimed
in the underlying action;

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(c)

Award ACE the full amount of its payment that is properly allocated to economic

losses, together with all other relief to which it may be entitled.

Respectfully submitted,
_/s/ Kip J. Adams_________________________
Christopher M. Tauro, BBO No. 565086
Kip J. Adams, BBO No. 664860
Michael B. Kern, BBO No. 685618
LEWIS BRISBOIS BISGAARD & SMITH LLP
One International Place, 3rd Floor
Boston, MA 02110
(857) 313-3950
chris.tauro@lewisbrisbois.com
kip.adams@lewisbrisbois.com
michael.kern@lewisbrisbois.com
Dated: December 16, 2014

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