Defendants
COMPLAINT Page 1
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1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 1332,
the parties and the amount in controversy exceeds $75, 000 exclusive of costs, interest
and fees.
good standing whose sole domicile is in the state of Utah and whose sole principal
place of business is located at 10653 South River Front Parkway, Suite 300, South
company that is authorized to and regularly does issue policies of insurance in the state
of Utah. Illinois Union's sole domicile is in the state of Illinois and its sole principal
insurance company that is authorized to and regularly does issue policies of insurance
in the state of Utah. ACE American's sole domicile is in the state of Pennsylvania and
its sole principal place of business is located at 436 Walnut Street, Philadelphia,
Pennsylvania 19106.
COMPLAINT Page 2
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Defendants Illinois Union and ACE American are sometimes referred to in this
insurance company that is authorized to and regularly does issue policies of insurance
in the state of Utah. Zurich American's sole domicile is in the state of New York and its
sole principal place of business is located at 1400 American Lane, Schaumberg, Illinois
60196.
policies of insurance in the state of Utah. American Guarantee's sole domicile is in the
state of New York and its sole principal place of business is located at 1400 American
insurance company that regularly issues policies of insurance in the state of Utah.
Steadfast's sole domicile is in the state of Delaware and its sole principal place of
COMPLAINT Page 3
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American Guarantee and Steadfast are sometimes referred to in this Complaint as "the
Zurich defendants."
10. Each Defendant regularly transacts business in Utah through the sale of
insurance policies and the adjustment of claims in the state of Utah. The ACE
Headwaters was both domiciled in and a resident of the state of Utah. This Court may
to 28 U.S.C. 1391 because a substantial portion of the events giving rise to the claims
asserted in this case, including but not limited to negotiation and delivery of the
insurance policies to Headwaters in the state of Utah and breaches of those contracts,
Union was available to and shared with ACE American at all times relevant to this
140 Broadway 40th Floor, New York, New York 10015, at all
claims organization, ESIS,
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times pertinent to this matter. Information requested by ESIS from Plaintiff as a part of
deny coverage.
13. Prior to issuing any policies to Headwaters and at all pertinent points
thereafter, Defendants were aware of Headwaters' business and of its products and
activities. Defendants were aware at all points pertinent to this matter that Headwaters'
business included the sale of fly ash or coal combustion products. As an example of this
knowledge and of their willingness to underwrite losses based upon the sale of
Headwaters' fly ash products, Illinois Union policy XSL G18381667 contained a
$15, 000 each occurrence from CCP Division (Fly Ash)." Later policies issued by each
Defendant contained a single retained limit for all of Headwaters' various divisions,
operations and products, but never excluded products coverage for coal combustion
products, fly ash or for the activities of VFL Technology Incorporated, which was added
14. Illinois Union issued four policies of general liability insurance insuring
COMPLAINT Page 5
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15. ACE American issued three policies of general liability insurance insuring
16. Each of the Illinois Union and ACE American policies just described takes
the same general form. All provide "occurrence" based coverage; that is, coverage of
conditions, that occur during the policy period. Likewise, each of the Illinois Union and
ACE American policies provides coverage for "bodily injury" and "property damage"
as defined in the policies. "Bodily injury" as defined in the Illinois Union and ACE
American policies includes claims for injury and disease or for biological injury, even at
the cellular level. "Property damage" as defined in the Illinois Union and ACE
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American policies includes loss of use of tangible property that has not been injured or
destroyed. The Illinois Union and ACE American policies' provisions governing loss of
use contain "deemer" clauses; that is, even if the loss of use of the property takes place
after the policy has expired it is deemed to have occurred during the policy period or
17, Each of the Illinois Union and ACE American policies just described is
responsible up to its limits for all damages an insured may be obligated to pay,
obligates its issuing insurer to reimburse Headwaters for defense costs and other
allocated loss adjustment expenses as defined in the policy in excess of the Self-Insured
Retention amount which varies from year to year but never exceeds $50, 000 per year.
Headwaters has exhausted the various policies' Self-Insured Retention amounts or soon
will do so. Under the terms of the policies, as well as applicable law, so long as any
single claim made by a plaintiff creates the potential for coverage under the policy,
Illinois Union and ACE American are obligated to reimburse Headwater for all of its
defense costs above the Self-Insured Retention amount, even if the claims are
contains endorsements entirely removing coverage for lead and asbestos. None of the
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Illinois Union and ACE American policies just described contains any exclusion
impairment and professional consulting errors and omissions coverage from the Zurich
defendants. Like the ACE defendants, the Zurich defendants are affiliated corporate
entities, sharing common ownership and management at the highest levels. The Zurich
defendants also share common procedures, common underwriting staffs and common
acquisition of its stock by Headwaters was shared by and between the Zurich
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$2-million.aggegate
American Guarantee & April 1, 2002-Apri11, 2003 $2 million per occurrence
Liability GLO 3769921-01 $4 million aggregate
....A.iiiei4j*.:.:.-...:.::.ii44::ii:(0:i:, ..„.$4: ::'..rj:.:i0i 5i F,1;::2003-j0--....66.:::71::2004'.:: .$%'..:0:11:4:0-:::P.0;31§e-ti(,..04:0.......,'.E:-: : :-:
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24. Each of the Zurich American and American Guarantee policies just
described takes the same general form. All provide "occurrence" based coverage; that
general harmful conditions, that occur during the policy period. Likewise, each of the
Zurich American and American Guarantee policies provides coverage for "bodily
injury" and "property damage" as defined in the policies. "Bodily injury" as defined in
the Zurich American and American Guarantee policies includes claims for injury and
disease or for biological injury, even at the cellular level. "Property damage" as defined
in the Zurich American and American Guarantee policies includes loss of use of
tangible property that has not been injured or destroyed. The Zurich American and
clauses; that is, even if the loss of use of the property takes place after the policy has
it is deemed to have occurred during the policy period when the event took
expired or
place.
25. Each of the Zurich American and American Guarantee policies just
described is responsible up to its limits for all damages an insured may be obligated to
COMPLAINT Page 9
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normally found in a CGL policy. Specifically, each Zurich American and American
Guarantee policy just listed contained a provision stating that its pollution exclusion
did not apply to bodily injury or property damage arising out of listed products
"[Nroducts derived from Industrial or Utility Plant Bi-Products [sic], Contaminated Soil
or Waste/Water Facilities." VFL specifically requested such coverage and paid an
27. In addition to the three primary CGL policies just described, Steadfast issued
two policies of umbrella insurance to VFL each with limits of $10 million in addition to
aggregate
Steadfast SUO 3825595-01 April 1, 2003-june 1, 2004 $10 million per occurrence/
aggregate
28. These Steadfast policies contained the same provisions found in the
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coverage for VFL's "fpiroducts derived from Industrial or Utility Plant Bi-Products
prior to the acquisition of VFL's stock by Headwaters, both VFL before its acquisition
coverage under each policy described in paragraphs 23, 27, and 29 of this Complaint.
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Corporation were named as Defendants in mass tort lawsuits, Fentress Family Trust, et
al., v. Virginia Electric and Power Co., et al., No. CL09-710, and Sears, et al., V. v. Virginia
Electric and Power Co., et A, No. CL09-1914 ["the underlying cases"], each filed in the
Circuit Court for the City of Chesapeake, Virginia. The original Complaints in each of
the error has been corrected and Headwaters Resources has been substituted as the
thousand pages and allege numerous claims including claims for negligence, products
negligent misrepresentation and other claims all arising out of the use of approximately
1.5 million tons of amended coal combustion byproducts allegedly beginning in March
2002 and continuing through 2007 as fill material for the construction of the Battlefield
Golf Club. The Fentress Family Trust complaint alleges, for example, that the golf course
site constituted a nuisance, that Headwaters is liable for a failing to warn about a
defective product and for breaching an express warranty as to the characteristics of the
coal combustion byproducts, and for negligently permitting the material to be placed at
the site without a liner, among other claims. However, neither of the underlying cases
alleges affirmatively or exclusively that Headwaters designed the pit or area where the
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material was placed at the golf course, supervised the construction of the course or
selected the amending material. Headwaters denies all allegations made against it but
allegations, because the duty to defend exists even if the allegations in the underlying
34. Each plaintiff in the underlying cases seeks substantial damages for past,
present, and future bodily injuries, property damage, nuisance vexation as well as for
removal of the coal combustion byproducts from the golf course. Headwaters denies all
claims for damages asserted against it but any analysis of Defendants' obligations to
defend Headwaters must rest upon those allegations, because the duty to defend exists
even if the allegations in the underlying cases are groundless, false and fraudulent.
35. Headwaters promptly tendered the underlying cases to Defendants and
requested that they honor their contractual obligations to defend and indemnify
Headwaters as required by their policies. Instead of doing so, however, Illinois Union
and ACE American have each expressly repudiated the contractual obligations for
which they received substantial premiums from Headwaters and affiliated entities.
underlying cases and stated that it will not honor any obligation contained in any of the
policies. The Zurich defendants have not provided any response for over six months
since tender was made to them of the underlying lawsuits as to whether they will honor
their contractual obligations under any of the policies described herein,
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36. In the meantime, Headwaters has borne the entire burden of defending
itself in the underlying lawsuit, and has expended over $160, 000 to date in defending
their contracts that has proximately caused Headwaters to suffer damages including
attorney's fees, allocated loss adjustment expenses and other costs in the underlying
cases and to be exposed to other future losses in an amount greatly in excess of the
enforce its rights under the insurance policies described in this case.
which they accepted substantial premiums, Defendants are fiduciaries and owe Plaintiff
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the highest degree of care to act fairly and reasonably in the evaluation and disposition
42, The ACE defendants have breached this obligation in at least the
following respects: (1) by failing to take into account in their decision to deny coverage
the fact that they accepted substantial premiums from Headwaters with the knowledge
that the CCP material involved in this matter was a product rather than a pollutant as
the terms are used in their policies, thereby rendering Plaintiff's coverage illusory; (2)
by denying coverage based upon "pollution exclusions" in their policies when in fact
the language of those decisions as well as controlling authority construing the decisions
did not support that decision; and (3) by prejudging negatively the circumstances of
the underlying claims and then crafting such investigation as was performed and any
analysis of coverage so as to support that decision rather than being guided by the
language of the policies they issued and controlling authority. Plaintiff reserves the
right to amend to assert other bases in support of this claim as discovery proceeds.
43, The Zurich defendants have breached this obligation at the very least by
failing to respond under any policy issued by any of them for over six months after
being put on notice of the underlying lawsuits, despite the provisions in the policies
described earlier in this complaint, and despite communications from Plaintiff and its
counsel as to the situation, Plaintiff reserves the right to amend to assert other bases in
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Defendants, Plaintiff has sustained substantial damages as set forth above and also by
having to retain counsel in this action to vindicate its rights. Plaintiff prays for recovery
of its attorney's fees in this action and for any other damages it may prove itself entitled
to, including but not limited to recoveries in excess of Defendants' policy limits in the
conduct.
Jury Demand
45. Plaintiff prays for trial by jury on all claims so triable.
WHEREFORE, Plaintiff prays for judgment in its favor and against Defendants,
for declarations as set forth above, for an award of damages, for its attorney's fees as
prevailing party, for costs, pre- and post-judgment interest as allowed by law and for
Respectfully submitted,
PARR BROWN GEE & LOVELESS
COMPLAINT Page 16
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IL BASISOFJUIUSDICTION (Place an "X" in ale Box Only) III. CITIZENSHIP OF PRINCIPAL PARTIES(Place. an "X" in One Box for Plainliff
(For Diversity Cases Only) and One Box for Defendant)
0 1 U.S. Govermnent 0 3 Federal Question PTF DEF PTF DEF I
Plaintiff (US, Government Not a Party) Citizen of This State 0 I 0 1 Incorporated or Principal Place Xl 4 0 4,
of 13usiness In This State
CIVIL RIGHTS -PRISONER PETITIONS: 0 740 Railway Labor Act: FEDERAL TAX SUITS 0 892 Economic Stabilization Act
0 210 Land Condemnation 0 Voting
441 0 510 Motions to Vacate 0 790 Other Labor Litigation 0 870 Taxes (U.S. Plaintiff 0 893 Enviroranental Matters
0 220 Foreclosure 0 442
Employment Sentence 0 791 Erma]. Ret Inc. or Defendant) 0 894 Energy Allocation Act
0 230 Rent Lease & Ejectment 0 443 Housing/ Habeas Corpus: Security Act 0 871 1RS---Third Party 0 895 Freedom of Information
0 240 Torts to Land Accommodations 0 530 General 26 USC 7609 Act
0 245 Tort Product Liability 0 444 Welfare 0 535 Death Penalty s., IMMIGRATION' a 900Appeal of Fee Determination
0 290 All Other Real Property 0 445 Amer. w/Disabilities 0 540 Mandamus & Other n 462 Naturalization Application Under Equal Access
0 550 Civil Rights CI 46311abeas Corpus to Justice
Employment
0 446 Amer. :iv/Disabilities 0 555 Prison Condition Alien Detainee 0 950 Constitutionality of
Other 0 465 Other Immigration State Statutes
0 440 Other Civil Rights Actiorts