Chubb Ltd. and Liberty Mutual Insurance Group units have a duty to defend an environmental services company in litigation over its work at a North Carolina pollution treatment system, a federal court in New York ruled Wednesday.

Paramus, New Jersey-based Suez Treatment Solutions Inc. was brought into upgrade the facilities of a wastewater treatment plant in High Point, North Carolina, to meet updated federal standards beginning in 2012, according to Wednesday’s ruling by the U.S. District Court in New York in Suez Treatment Solutions Inc. v. Ace American Insurance Co. and Liberty Mutual Fire Insurance Co.

The problems that later developed included a plant shutdown and two fires, and the city ultimately sued Suez for breach of contract, breach of warranties, negligence, negligent misrepresentations, fraud and unfair deceptive trade practices under North Carolina state law.

Suez filed suit seeking declarations that Chubb unit Ace American Insurance Co. and Liberty Mutual Fire Insurance Co. have a duty to defend it in the litigation.

The court agreed with Suez. Chubb argues its policy excludes coverage and it, therefore, has no duty to defend under its product liability exclusion, the ruling said.

The exclusion bars coverage for goods, products or equipment, designed, supplied or distributed by Suez, the ruling said. “As Suez points out, however, certain other allegations of damage in the Underlying Complaint relate to professional services rendered at the High Point facility, therefore falling outside the scope of the Products Liability Exclusion and triggering a duty to defend,” the ruling said.

Liberty Mutual “argues that the underlying events was not caused by an ‘occurrence’ within the meaning of the policy list of exclusions apply,” the ruling said.

It “maintains that the damage resulting from the underlying events is a result of ‘faulty workmanship’ which ‘simply does not constitute an occurrence,’” so no coverage is triggered, because the claims against the company are that “it failed to deliver the product it agreed to deliver.”

The court disagreed. “Disclaiming coverage, Liberty reads the Underlying complaint too narrowly,” the ruling said. “The underlying events giving rise to this suit arguably constitute an ‘occurrence’ within the meaning of the policy.”

It “alleges facts that support an allegation of damage to third party property…. caused by an accident or repeated exposure to conditions,” it said, in ruling in Suez’s favor.

Suez attorney Ken Frenchman, managing partner with Cohen Ziffer Frenchman & McKenna LLP in New York, said in a statement he is “very pleased” with the decision, “which recognized the broad duty to defend in New York.” The insurers’ attorneys did not respond to a request for comment.