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Energy firm sues Aon unit in defense cost coverage dispute


NEW HAVEN, Conn.—An energy plant contractor and operator are suing an Aon P.L.C. unit for failing to provide adequate defense cost coverage in connection with a deadly 2010 explosion at a Middletown, Conn., construction project.

According to O & G Industries Inc. et al. vs. Aon Risk Services Northeast Inc., filed Tuesday in U.S. District Court in New Haven, Conn., under an “engineering procurement and construction agreement,” Torrington, Conn.-based O & G, a construction material and services company, was required to maintain umbrella liability insurance with limits of at least $100 million for at least five years after completion of the agreement.

O & G entered into a service agreement with the unit of London-based Aon to act as its insurance broker, under which it, plant operator Middletown, Conn.-based Kleen Energy Systems L.L.C. and two subcontractors were third-party beneficiaries, according to the complaint.

Aon procured $51 million of coverage over four policies:

• A primary commercial general liability policy issued by Old Republic General Insurance Co., a unit of Chicago-based Old Republic International Corp., with limits of $1 million per occurrence.

• A first-layer CGL excess policy issued by Everest National Insurance Co., a unit of Hamilton, Bermuda-based Everest Re Group Ltd., with limits of $10 million per occurrence excess of $1 million.

• A second-level excess liability policy provided by Farmington, Conn.-based Allied World Assurances, a unit of Allied World Insurance Co. Ltd., with limits of $15 million per occurrence excess of $11 million.

• And a third-level commercial excess liability policy issued by Great American Insurance Co., a unit of Cincinnati-based Great American Insurance Group, with limits of $25 million per occurrence excess of $26 million.

“At all relevant times” Aon knew O & G was required under its engineering, procurement and construction agreement to provide defense coverage in addition to the policies' limits, according to the lawsuit.


The complaint says that while the primary policy provides proper defense cost coverage in addition to policy limits, the excess policies “do not require payment of defense costs of any sort, let alone defense costs in addition to policy limits.” It charges Aon “failed to realize and/or failed to advise plaintiffs” of this.

On Feb. 17, 2010, an explosion occurred at the project that caused “multiple deaths and injuries and millions of dollars in property damage,” which led to a number of wrongful death, bodily injury and property damage lawsuits, according to the complaint.

The complaint said with the primary, first and second excess policies exhausted, because of the lack of defense costs coverage in the excess policy, O & G, Kleen and the subcontractors “will continue to incur, substantial costs defending itself.”

In addition, negotiations among insurers involved in the coverage “were made far more complex, difficult and expensive” because the excess policies do not provide defense coverage, according to the complaint.

The lawsuit seeks a declaratory judgment that Aon must pay uncovered defense and settlement and defense fund negotiation costs. It also charges the brokerage with breach of contract, negligence, professional malpractice and misrepresentation.

An Aon spokeswoman had no comment.