Case: 4:13-cv-02114-SNLJ Doc.

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UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI EASTERN DIVISION EMERSON ELECTRIC CO. Plaintiff, v. ACE AMERICAN INSURANCE COMPANY Serve: ACE American Insurance Company 15 Mountain View Road, Warren, New Jersey 0705982 Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) )

Case No. 4:13-cv-02114

JURY TRIAL DEMANDED

COMPLAINT Plaintiff Emerson Electric Co. (Emerson) hereby sues Defendant ACE American Insurance Company (ACE) and alleges as follows: Nature of Action 1. This is an action for declaratory judgment, breach of contract, the torts of bad

faith refusal to pay on a claim and bad faith claims handling, and breach of fiduciary duties. Emerson seeks a declaration, actual damages, and other damages. Parties 2. Emerson is, and at all times relevant herein has been, a corporation duly

organized and existing under the laws of the State of Missouri. Emersons principal place of business is 8000 W. Florissant Avenue, St. Louis, Missouri 63136-8506. Emerson is a citizen of Missouri. 3. ACE American Insurance Company (ACE or the Company) is, and at all

times relevant herein has been, a corporation duly organized and existing under the laws of the

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State of Pennsylvania. Upon information and belief, ACEs principal place of business is 436 Walnut Street, Philadelphia, Pennsylvania 19106. Thus, ACE is a citizen of Pennsylvania. 4. ACE does business in Missouri through its substantial contacts with Emerson,

including through the insurance contract at issue, and through its contracts with other insured entities in Missouri. Jurisdiction and Venue 5. 6. This is an action for declaratory judgment pursuant to 28 U.S.C. 2201. This Court has original jurisdiction over this action under 28 U.S.C. 1332

because the parties are citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs. This Court also has supplementary jurisdiction pursuant to 28 U.S.C. 1367. 7. This Court has personal jurisdiction over ACE under the Missouri long-arm

statute, Mo.Rev.Stat 506.500. 8. Venue is proper in this District under 28 U.S.C. 1391 because ACE has

breached an insurance contract which is substantially connected to this District and has tortiously refused to pay on an insurance contract where Emerson, the insured, resides in this District. Factual Allegations The Insurance Policy 9. On or about December 1, 2006, Emerson purchased Commercial Insurance Policy

number CSZ0302629 from ACE (the ACE policy). A true and correct copy of the ACE policy is attached hereto as Exhibit A. The policy period was December 1, 2006 to December 1, 2007. Id.

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10.

On or about December 1, 2007, Emerson renewed the ACE Policy. A true and

correct copy of the renewal certificate for the ACE policy is attached hereto as Exhibit B. The policy period was renewed for December 1, 2007 to December 1, 2008. Id. 11. Missouri. 12. Coverage under the ACE policy extended worldwide excluding the United States The ACE policy is a Missouri insurance contract and was issued to Emerson in

of America (including its territories and possessions), Puerto Rico and any country or jurisdiction which is the subject of trade or economic sanctions imposed by the laws or regulations of the United States. See Ex. A (Liability Coverage Declarations). Coverage extended to Emerson and all of its subsidiaries. See Ex. A (Broad Named Insured). 13. The ACE policy also contains an extended coverage territory provision which

provides that coverage territory includes the United States of America (including any territories and possessions), Puerto Rico or Canada, if the insureds responsibility to pay damages is determined in a suit on the merits in any country other than the United States of America (including its territories and possessions), Puerto Rico or Canada, or in a settlement we agree to. See Ex. A (Commercial General Liability Coverage Form, p.11 of 16). 14. The ACE policy defines The Company as ACE. It defines Parent

organization as Emerson. It defines Insured as Emerson and all of its subsidiaries. See Ex. A. 15. The ACE policy provided several types of coverage, including but not limited to

Commercial General Liability, Product Recall Expense Coverage and Financial Loss Coverage. Id. 16. The ACE policy provided Product Recall Expense Coverage as follows:

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1.

Insuring Agreement a. Payment or Indemnification (1) We will pay those sums that the insured becomes legally obligated to pay as damages as a result of third party recall expense for a product incident during the policy period to which this insurance applies ... for the loss of use, withdrawal, recall, inspection, repairs, replacement, adjustment, removal, or disposal of (a) (b) (c) your product; your work; or impaired property

if such product or work is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it. (2) The amount that we will pay or indemnify as damages or for third party recall expenses under subparagraph a.(1) is limited as described in subsection 2. Limits of Insurance below.

b.

Defense, Investigation or Settlement (1) We will have the right and duty to defend the insured against any suit seeking damages for third party recall expense. We have the right to settle any such suit. However, we will have no duty to defend the insured against any suit seeking damages for bodily injury or property damage to which this insurance does not apply. We may, at our discretion, investigate any product incident and settle any claim or suit that may result. In jurisdictions where we may be prevented by law or otherwise from defending the insured or from investigating or settling any claim or suit, we will reimburse the reasonable and necessary cost of

(2)

(3)

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defense, investigation or settlement. To the extent legally allowed, we will also aid and manage the insureds defense, investigation or settlement. (4) Our right and duty to defend under subparagraph b.(1) or to reimburse costs under subparagraph b.(3) ends when we have used up the applicable Limit of Insurance in the payment of judgments or settlements under PRODUCT RECALL EXPENSE COVERAGE.

No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under c. Supplementary Payments below. c. Supplementary Payments

The provisions of SECTION 1 COVERAGES, SUPPLEMENTARY PAYMENTS COVERAGES A AND B shall apply to this PRODUCTS RECALL EXPENSE COVERAGE coverage part. See Ex. A (Endorsement No. 24); see also Ex. C (Endorsement No. 24 (REVISED). 17. The ACE policys Product Recall Expense Coverage includes limits of

$6,000,000 for each Product Incident and $6,000,000 in the aggregate. Id. 18. The ACE policys Product Recall Expense Coverage defines product incident

as a withdrawal, recall, inspection, removal or disposal of impaired property because of: [] (1) an actual or alleged unintentional error in your work or the manufacture of your product, which error results or has the potential to result in bodily injury, property damage or impaired property, or [] (2) product tampering. Id. 19. The 2006 2007 policys Product Recall Expense Coverage defines third party

recall expense as damages for any loss, cost or expense incurred by others that the insured is legally obligated to pay for the withdrawal, recall, inspection, repair, replacement, adjustment,

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removal or disposal of impaired property because of a known or suspected defect, deficiency, inadequacy or dangerous condition in such property. See Ex. A (Endorsement No. 24). 20. The 2007 2008 policys Product Recall Expense Coverage defines third party

recall expense as damages for any loss, cost or expense incurred by others that the insured is legally obligated to pay for the withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of your product, your work, or impaired property because of a known or suspected defect, deficiency, inadequacy or dangerous condition in such property. See Ex. C (Endorsement No. 24 (REVISED)). The ACE policys Product Recall Expense Coverage defines impaired property to mean tangible property, other than your product or your work, that cannot be used or is less useful: [] (1) because of your product or your work, or [] because it incorporates your product or your work, and your product or your work is known or thought to be defective, deficient, inadequate or dangerous. See Ex. A (Endorsement No. 24); see also Ex. C (Endorsement No. 24 (REVISED). 21. The Commercial General Liability Coverage form provides, with respect to

Supplementary Payments Coverages A and B: We will pay, with respect to any claim or suit we defend: 1. 2 All expenses we incur. Up to $250 for cost of bail bonds required because of accidents or traffic law violations arising out of the use of any vehicle to which the Bodily Injury Liability Coverage applies. We do not have to furnish these bonds. The cost of bonds to release attachments, but only for bond amounts within the applicable limit of insurance. We do not have to furnish these bonds.

3.

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4.

All reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or suit including actual loss or earning up to $100 a day because of time off of work. All costs taxed against the insured in the suit. Pre-judgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment interest based on that period of time after the offer. All interest in the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance.

5. 6.

7.

These amounts will not reduce the limits of insurance. See Ex. A (Commercial General Liability Coverage Form, p.6 of 16). 22. The ACE policy also includes Coverage D Financial Loss coverage. See Ex. A

(Endorsement No. 23). 23. provided: INSURING AGREEMENT We will pay those sums which the insured shall become legally obligated to pay as damages because of financial loss caused by an occurrence to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages. However, we will have no duty to defend the insured against any suit seeking damages for financial loss to which this insurance does not apply. We may at our discretion investigate and settle any suit that may result. ... This insurance applies to financial loss only if: 1. The financial loss occurs during the policy period; and In accordance with Coverage D Financial Loss coverage, the ACE policy

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2.

The occurrence causing the financial loss occurs in the coverage territory.

Id. 24. Coverage D Financial Loss coverage defines financial loss as indirect and

consequential pecuniary or economic loss to third parties. Applicable Limits for Financial Loss Coverage are $6,000,000 for each loss and $6,000,000 in the aggregate. Id. The Coverage Dispute 25. Electrische Apparatenfabriek Capax B.V. (Capax) is a Dutch subsidiary of

Emerson which wound up its business affairs in 2010. Capax manufactured switches for power tools. Another Emerson Dutch subsidiary, Emerson Electric Nederland B.V., guaranteed the debts of Capax pursuant to an Article 403 declaration of liability as part of filing consolidated financial reports in the Netherlands. As such, Emerson Electric Nederland B.V. now owns the Capax liabilities addressed below. 26. In 2006 and 2007, certain switches manufactured by Capax were sold to Black &

Decker and installed in Black & Decker drills, which were, in turn, sold world-wide. 27. In October, 2007, Black & Decker (US) Inc. (Black & Decker) informed Capax

that Black & Decker customers were allegedly experiencing problems with the Capax switches. In November, 2007, Emerson hired the attorneys and experts necessary to investigate and prepare a defense to the claim, ultimately incurring substantial costs (pre-suit costs) in an amount to be proven at trial and far in excess of $75,000. 28. On December 20, 2007, Black & Decker initiated a recall of a number of its drills,

some of which had previously been sold in the United States and some of which had been sold elsewhere, including Canada and Europe.

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29.

The alleged basis identified for the recall was that Capax switches on the drills

would overheat, posing a fire hazard to consumers. Consumers were advised to go to their local Black & Decker service centers to get an inspection and, if necessary, a replacement. The switches would simply be replaced and the drill then given back to the consumer. 30. The contract governing the sale of the relevant switches provided for the

exclusive jurisdiction of the Netherlands. 31. The pre-suit costs incurred by Emerson were necessary not only to ensure an

adequate defense, but also to satisfy cooperation provisions set forth in the ACE policy. 32. ACE specifically promised in March, 2008, both verbally and in writing, to

reimburse Emerson for pre-suit costs it was incurring. 33. Emerson continued spending money in defense of the Black & Decker claim,

while relying upon ACEs promise of reimbursement. 34. ACE not only directly benefitted from and agreed to the pre-suit costs incurred by

Emerson, ACE also directed the investigation and defense at various points throughout the claim. 35. Prior to mediation with Black & Decker in April 2011, ACE advised Emerson

that it would not contribute towards any costs, defense or indemnity, related to recalls of drills from the United States. 36. In support of its position, ACE reasoned that the extended coverage territory

provision may not apply because Black & Decker may choose to file suit in the United States. 37. As set forth previously, the extended coverage territory provision provides that

coverage territory includes the United States of America (including any territories and possessions), Puerto Rico or Canada, if the insureds responsibility to pay damages is determined

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in a suit on the merits in any country other than the United States of America (including its territories and possessions), Puerto Rico or Canada, or in a settlement we agree to. 38. As also set forth previously, the contract governing the dispute between Capax

and Black & Decker provided for the exclusive jurisdiction of the Netherlands. 39. Even absent the contractual venue provision, an enforceable judgment against

Dutch companies such as Capax and Emerson Electric Nederland B.V. can only be obtained through a trial in the Netherlands on the merits. 40. Upon information and belief, ACE was aware of the contractual venue provision

and the Netherlands judgment restriction set forth in the preceding paragraphs before taking a position adverse to Emerson, its insured, on domestic recalls. 41. Following the April 2011 mediation, ACE advised Emerson that ACE would be

able to meaningfully participate in settlement discussions with Black & Decker upon documentation of damages for both domestic and foreign recalls. Emerson engaged in an eighteen month exercise of collecting and analyzing additional damages documentation and a second mediation was scheduled, in reliance upon ACEs representation. 42. In May 2011, at ACEs request, Emerson submitted all invoices associated with

pre-suit costs to date. 43. In December 2011, ACE advised Emerson that it may not be responsible for any

pre-suit costs at all, whether incurred in defense of domestic or foreign recalls. 44. Prior to the second mediation with Black & Decker in December 2012, ACE

again advised that it would not contribute towards any costs, defense or indemnity, related to recalls of drills from the United States. ACE further advised Emerson that any contribution from

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ACE would be capped at the precise dollar amount for which ACE would be fully reinsured, effectively by Emerson itself. 45. ACE has never had a good faith basis for asserting that costs associated with the

defense of United States recalls are not covered under the ACE policy, nor has ACE ever had a good faith basis for insisting that Emerson bear the burden of such covered costs in settlement negotiations with Black & Decker. 46. ACEs conduct in capping its proposed contribution at an amount equivalent to

that for which it would be fully reinsured also exhibits a lack of good faith towards its insured. 47. On January 3, 2013, in anticipation of a Netherlands lawsuit, Emerson notified

ACE of its preference for Dutch defense counsel, as contemplated by the claims handling bulletin relevant to the relationship between the parties. On January 4, 2013, ACE confirmed that an agreement on the selection of Dutch counsel needed to be reached quickly, promising to consider the issue and convey its final position to Emerson. ACE failed to communicate anything on this issue to Emerson for the next three months. 48. Given the complexity of the Black & Decker claim, as well as the multi-

jurisdictional and potential language barrier issues, Emerson necessarily began working with its choice of Dutch counsel and continued defending the claim at its own expense. 49. A lawsuit was subsequently filed by Black & Decker against Emerson Electric

Nederland B.V. in the Netherlands on April 3, 2013. 50. On April 4, 2013, Emerson advised ACE of the Netherlands lawsuit, provided

ACE with a copy of the pleading and informed ACE that Dutch counsel had been retained and was actively working on the file.

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51.

On April 6, 2013, ACE advised Emerson that it may have an issue with selection

of defense counsel. Emerson again necessarily continued working with its own choice of counsel while ACE deliberated over its final position. 52. On or about April 9, 2013, ACE advised that it did in fact have an issue with

choice of Dutch counsel and claimed that a conflict existed relative to Emersons selection. In spite of numerous requests from Emerson that ACE specifically identify the alleged conflict, ACE failed to do so. Upon information and belief, no good faith basis existed for ACEs assertion of a conflict or its refusal to be forthcoming with Emerson, its insured. 53. On May 15, 2013, ACE submitted a revised Reservation of Rights letter offering

to defend the Netherlands lawsuit, subject to multiple reservations. On May 16, 2013, Emerson rejected ACEs proposed defense subject to reservations, as is the insureds option under Missouri law. Emerson continues to fund the defense at its own expense. 54. Emerson has demanded that ACE provide coverage under the ACE policy for the

reasonable and necessary fees and costs of counsel in defending the Netherlands lawsuit, including the fees and costs of counsel based in the United States. The work of counsel based in the United States has been critical in Emersons defense of the Netherlands lawsuit. The costs are far in excess of $75,000. ACE is now refusing to reimburse Emerson for these costs as well. 55. Emerson has kept ACE informed and has cooperated with ACE at all times in a

manner consistent with past practices, the relationship between the parties and the obligations set forth in the ACE policy. 56. Under Missouri law, an insurer is required to pay a claim within 30 days. See

Mo. Rev. Stat. 375.296. Payment of a claim is overdue if not paid within 30 days after demand by an insured to an insurer. Id. In addition, if it shall appear from the evidence that the refusal

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was vexatious and without reasonable cause, the court may allow damages for vexatious refusal to pay. Id. Count I Declaratory Relief 57. Emerson reincorporates by reference the allegations contained in paragraphs 1

through 56 above as if fully set forth herein. 58. The ACE policy expressly provides that ACE has a duty to defend Emerson and

its subsidiaries and ACE is obligated to pay Emerson for reasonable expenses incurred by Emerson at ACEs request to assist in the investigation and defense of the Black & Decker claim. 59. ACE requested, both expressly and implicitly, that Emerson incur expenses in the

investigation of the claim and promised to reimburse Emerson for those expenses. 60. All such expenses were reasonably and necessarily incurred in furtherance of the

defense of the now pending Netherlands lawsuit, for the benefit of both ACE and Emerson. 61. ACE has failed and continues to refuse to pay the full amount of reasonable

expenses incurred by Emerson. 62. As such, there is a present and justiciable controversy between the parties as to

whether ACE has breached its contractual obligations in connection with coverage and supplementary payments. 63. Emerson seeks judicial declarations that (1) liability realized by Emerson in the

Netherlands lawsuit, including liability associated with drills recalled from the United States, is covered under the ACE policy, and (2) ACE is obligated to reimburse Emerson for all expenses described above.

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Count II Breach of Contract 64. Emerson reincorporates by reference the allegations contained in paragraphs 1

through 63 above as if fully set forth herein. 65. Emerson and ACE entered into a written insurance contract, for consideration,

wherein ACE agreed to defend Emerson and promised to pay Emerson for the reasonable expenses incurred by Emerson at ACEs request to assist in the investigation and defense of the claim. 66. Emerson has complied with all of the terms, conditions and other requirements of

the contract, including but not limited to the payment of all premiums, or the terms and conditions have been waived. 67. ACE breached the terms of the insurance contract by, among other things, (1)

refusing to pay Emerson for the reasonable and necessary pre-suit expenses incurred by Emerson, and (2) refusing to pay Emerson the reasonable and necessary fees and costs of counsel based in the United States, in defending the Netherlands lawsuit. 68. As a direct and proximate result of ACEs breach of the terms of the insurance

contract, Emerson has been damaged in an amount according to proof at trial. Count III Tort Claim for Bad Faith Refusal to Pay/Vexatious Refusal to Pay (Mo. Rev. Stat. 375.296, 375.420) 69. Emerson reincorporates by reference the allegations contained in paragraphs 1

through 68 above as if fully set forth herein. 70. ACE owes Emerson the duty of good faith and fair dealing by virtue of the

contractual relationship embodied in the policy. 71. ACE denial and failure to fulfill its obligations under the insurance contract with

Emerson was vexatious and without reasonable cause.

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72.

By virtue of ACEs vexatious refusal to pay, Emerson is entitled to and hereby

seeks an award of prejudgment interest, court costs and attorneys fees in addition to any damages awarded, as well as other relief the Court deems just and proper. Count IV Tort Claim for Bad Faith Claims Handling 73. Emerson reincorporates by reference the allegations contained in paragraphs 1

through 72 above as if fully set forth herein. 74. 75. 76. Missouri law requires an insurer to comply with claims handling standards. ACE failed to comply with Missouris claim handling standards. ACEs failure to comply with Missouris claim handling standards was without

reasonable cause or excuse. 77. ACE knew that its conduct was contrary to the express language of the insurance

contract and inconsistent with its own prior conduct and interpretation of that contract. 78. By virtue of ACEs conduct, Emerson is entitled to and hereby seeks an award of

prejudgment interest, court costs and attorneys fees in addition to the damages awarded, as well as other relief the Court deems just and proper. Count V Breach of Fiduciary Duty 79. Emerson reincorporates by reference the allegations contained in paragraphs 1

through 78 above as if fully set forth herein. 80. Pursuant to the insurance contract issued by ACE to Emerson, ACE assumed

certain fiduciary duties to Emerson. 81. 82. by Emerson. ACE breached its fiduciary duties towards Emerson. ACEs breach of fiduciary duties owed to Emerson resulted in damages sustained

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83.

By virtue of ACEs conduct, Emerson is entitled to and hereby seeks an award of

prejudgment interest and court costs in addition to the damages awarded, as well as other relief the Court deems just and proper Prayer for Relief WHEREFORE, Emerson prays for judgment against ACE as follows: 1. For a declaration that any liability realized by Emerson in the Netherlands lawsuit

is covered under the Ace policy; 2. For a declaration that ACE is obligated to pay all expenses incurred by Emerson

as described herein; 3. For compensatory damages against ACE in an amount according to proof but in

no event less than the jurisdictional minimum of this Court; 4. 5. For additional damages in accordance with Mo. Rev. Stat. 375.296; For Emersons reasonable attorneys fees in connection with the commencement

and prosecution of this action; 6. 7. For interest on the overdue payment at the rate of 9% per year; and For such other and further relief as the Court may deem just and proper.

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Dated: October 22, 2013

Respectfully submitted, DOWD BENNETT LLP By: /s/ John D. Comerford James F. Bennett John D. Comerford 7733 Forsyth, Suite 1900 St. Louis, Missouri 63105 jbennett@dowdbennett.com jcomerford@dowdbennett.com Telephone: (314) 889-7300 Facsimile: (314) 863-2111

Attorneys for Emerson Electric Co.

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