UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

)
GOULD PAPER CORPORATION (as successor-in- )
interest to Hawthorne Paper Company) ) CIVIL ACTION NO.
11 Madison Avenue )
New York, NY 10010 )
Plaintiff, )
)
v. )
)
INSURANCE COMPANY OF NORTH AMERICA )
One Liberty Place )
1601 Chestnut Street )
Philadelphia, PA 19103 )
)
ACE USA )
1209 Orange Street ) JURY TRIAL DEMANDED
Wilmington, DE 19801 )
)
CENTURY INDEMNITY CO. )
One Liberty Place )
1601 Chestnut Street )
Philadelphia, PA 19103 )
)
)
Defendants.

COMPLAINT

PLAINTIFF Gould Paper Corporation, as succesor-in-interest to Hawthorne

Paper Company (hereinafter “Gould”), through its undersigned counsel, for its Complaint alleges

as follows:

PRELIMINARY STATEMENT

This is an action for: (a) declaratory relief, (b) breach of contract, (c) bad faith,

and (d) breach of fiduciary duty. Specically, Gould seeks insurance coverage and related extra-

contractual relief for a claim which alleged bodily injuries, among other things, arising out of

PHIDOCS-35049.1
claimants’ alleged exposure to asbestos or products containing asbestos, decades ago at

Hawthorne Paper Company’s (“Hawthorne”).

THE PARTIES

1. Gould, successor to Hawthorne, is a corporation organized and existing

under the laws of New York, with its principle place of business in New York.

2. Hawthorne Paper Company was a paper mill, located in Kalamazoo,

Michigan, the assets of which Gould acquired through a liquidation sale in late 1969. At or

about the time Gould purchased the assets of Hawthorne, Gould dissolved that company and

formed a new corporation with the surviving capital and named that company “Hawthorne Paper

Company” as a wholly-owned subsidiary of Gould. Hawthorne ceased operations and dissolved

in 1974.

3. Defendant Insurance Company of North America (“INA”) is an insurance

company, incorporated under the laws of the Commonwealth of Pennsylvania, with its principal

place of business located at One Liberty Place, 1601 Chestnut Street, Philadelphia, PA 19103.

Upon information and belief, Defendant Insurance Company of North America is a subsidiary of

ACE/INA Holdings, Inc. which is an insurance company incorporated under the laws of

Delaware, with its principal place of business located at 1209 Orange Street, Wilmington, DE

19801.

4. Upon information and belief, ACE USA (“ACE”) is an insurance

company, organized and existing under the laws of the Commonwealth of Pennsylvania with its

principle place of business in Philadelphia, Pennsylvania.

5. Upon information and belief, Century Indemnity Co. (as successor in

interest to CCI Insurance Co., as purported successor in interest to Insurance Company of North

America) (“Century Indemnity”) is an insurance company, organized and existing under the laws

PHIDOCS-35049.1 2
of the Commonwealth of Pennsylvania with its principle place of business at One Liberty Place,

1601 Chestnut Street, Philadelphia, PA 19103.

JURISDICTION AND VENUE

6. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332,

since the matter in controversy exceeds the sum of $75,000, exclusive of interest and costs, and

is between citizens of different states.

7. Venue is proper in this court pursuant to 28 U.S.C. § 1391(a).

BACKGROUND

8. Hawthorne is a long inactive paper mill located in Kalamazoo, Michigan.

Gould acquired the assets of Hawthorne in a liquidation sale in late-1969. At that time, the

original Hawthorne entity was dissolved and a new corporation also named “Hawthorne Paper

Company” was formed as a subsidiary of Gould.

9. An individual who worked at the Hawthorne mill during the summer of

1966 was diagnosed decades thereafter as suffering from mesothelioma. That individual

commenced an action in California state court against numerous parties, including Gould as

successor-in-interest to Hawthorne Paper Company, alleging negligence, bodily injury, and loss

of consortium, among other things (the “Underlying Action”).

10. The plaintiff in the Underlying Action, Douglas McCarthy (“McCarthy”),

worked at Hawthorne during the summer of 1966. McCarthy alleged that he was exposed to

asbestos from his work with dryer felts and also from the asbestos that was used on pipes and

similar products at the mill.

11. McCarthy’s brother also worked at Hawthorne during the summer of 1966

and years thereafter. McCarthy further alleged that he was exposed to asbestos purportedly

PHIDOCS-35049.1 3
contained on his brother’s body and clothes while spending time with his brother commuting to

and from work and at home during the same period in 1966 and years after.

12. McCarthy alleged that the only asbestos exposure in his lifetime came

from the Hawthorne mill.

13. During 2002, McCarthy died from mesothelimoa, a rare and virulent form

of cancer reportedly caused only by exposure to asbestos.

14. Just before his death, McCarthy’s claims against Hawthorne were settled

on or about May 20, 2002, for $2.3 million (the “Settlement Agreement”). The Settlement

Agreement resolved McCarthy’s personal injury and, at that time, inevitable wrongful death

claims.

15. Under the terms of the Settlement Agreement, Gould paid McCarthy and

is paying his estate the settlement amount in installments. Finally, should Gould Paper be

successful in securing payment from a primary insurance carrier, Reliance, which is in

liquidation, the first $300,000 of that primary coverage is due McCarthy’s estate.

16. Defendants are insurance companies which, at all relevant times herein,

were engaged in the business of selling Comprehensive General Liability and Excess Blanket

Catastrophe Liability Insurance Policies.

17. Defendant INA sold standard form primary Comprehensive General

Liability and Excess Blanket Catastrophe Liability Insurance Policies (collectively, the

“Policies”) to Gould’s predecessor, Hawthorne. The Policies are listed on Exhibit “A” annexed

hereto and incorporated herein by reference. Gould reserves the right to add additional insurance

policies.

PHIDOCS-35049.1 4
 18. Gould seeks to have this Court construe the meaning of, and enforce, the

Policies with respect to insurance coverage for the Underlying Action.

19. Gould seeks (1) a declaration that the terms of the Insurance Policies

obligate the Insurance Companies to (a) reimburse Gould for all sums it was forced to expend in

connection with defending the Underlying Action, (b) indemnify plaintiff for the amount of the

Settlement Agreement; (2) a declaration that Gould Paper may select the insurance policies to

pay those defense and indemnity costs; (3) damages for breach of contract; (4) damages for bad

faith; and (5) damages for breach of fiduciary duty.

DEFENDANTS’ SHELL GAME

20. Hawthorne bought insurance from Defendant INA.

21. Gould, as successor to Hawthorne, gave INA timely notice of the

Underlying Action.

22. Purportedly on behalf of, or in place of, INA, Defendant ACE USA

responded to Gould’s notice.

23. ACE USA purported to respond to Gould’s notice of the Underlying

Action on behalf of itself and Century Indemnity Company.

24. Defendants INA, ACE USA and Century Indemnity informed Gould (as

successor to Hawthorne) that any insurance policies purchased from INA were now Century

Indemnity policies, even though INA is still in business and Century Indemnity is a run-off

company.

25. Neither Hawthorne nor Gould (as successor to Hawthorne) received notice

of the purported transfer of Hawthorne’s insurance assets to the run-off company Century

Indemnity.

PHIDOCS-35049.1 5
 26. Neither Gould nor Hawthorne would have agreed to such a transfer if

given proper notice, which was never given.

27. The unauthorized and unwarranted transfer of Hawthorne’s insurance

policies to a run-off company without notice to Gould was never accepted or otherwise agreed to

by Gould (as successor to Hawthorne).

28. ACE USA and/or Century Indemnity’s claim handling procedures are not

favorable to policyholders as compared to INA’s claim handling procedures.

29. Gould has been damaged by the unauthorized transfer of its insurance

assets to a run-off company.

30. Gould has been given conflicting coverage positions which were

concocted to protect the limited assets of the run-off company Century Indemnity.

THE CLAIMS HANDLING FLIP-FLOPS

31. As soon as practicable after being served with the summons and complaint

in the Underlying Action, Gould directed its broker to put all applicable insurance Companies on

notice of the Underlying Action.

32. Although Gould and its broker did not have a copy of any policy, Gould

nonetheless discovered an insurance policy’s number for coverage provided to Hawthorne by

INA that was triggered by the Underlying Action.

33. In lieu of INA, ACE USA responded to Gould’s notice by a letter dated

August 17, 2001 (“August 17th letter”).

34. ACE USA’s August 17th letter acknowledged one excess policy for the

period 6/15/68-6/15/71, but incorrectly states that notice was tendered to “ACE Companies.”

35. Actually, notice was tendered to INA.

PHIDOCS-35049.1 6
 36. ACE USA’s August 17th letter stated that the Underlying Action made

allegations of injury that “may have resulted at any time from [underlying plaintiffs] first alleged

exposure to … the date of diagnosis … or the date the [Underlying Action] was filed.…”.

37. The August 17th letter also promised to research the insurance coverage

sold to Hawthorne – Gould’s predecessor.

38. The August 17th letter also stated that INA’s coverage was excess of

primary and, therefore, there were no immediate duties under the policy.

39. ACE USA understood that the INA policy was excess of $300,000 for the

policy period 6/15/68-6/15/71.

40. The insurance company which is primary for $300,000 for the period

6/15/68-6/15/71 was in liquidation proceedings at the time that Gould gave notice to INA.

41. By a letter dated September 6, 2001 (“September 6th letter), ACE USA

stated that it conducted a search for all insurance policies issued by “an ACE USA related

company.”

42. After that search, the only insurance policy found was the same INA

policy whose number was provided by Gould.

43. ACE USA intentionally, or recklessly, conducted an inadequate search for

insurance sold by INA to Hawthorne.

44. At the time Gould gave notice to INA, INA or the other Defendants, had a

duty to defend Gould under the primary comprehensive general liability insurance policies sold

by INA to Hawthorne.

PHIDOCS-35049.1 7
 45. Importantly, ACE USA informed Gould that “the carrier at risk on the

date the [underlying] plaintiff’s injuries occurred is the one obligated to defend and indemnify

the insured.…”

46. ACE USA maintained its position that the carrier at risk on the date the

[underlying] plaintiff’s injuries occurred is the one obligated to defend and indemnify the insured

until it discovered other insurance policies sold by INA to Hawthorne.

47. ACE USA did not inform Gould (as successor to Hawthorne) of the

additional insurance policies purchased by Hawthorne and which were responsive to the

Underlying Action.

48. ACE USA intentionally withheld information from Gould regarding

additional insurance coverage, including primary insurance coverage, as part of a scheme to

escape liability by any means possible, including misrepresenting insurance coverage purchased

and misrepresenting the policyholder’s conduct to protect Defendants’ financial interests at the

expense of Gould’s financial interests.

49. Not surprisingly, after Gould retained an insurance archive service, many

more INA insurance policies were found.

50. ACE USA has contradicted itself in the coverage letters provided by its

agents as part of a scheme to protect its own financial interest at the expense of Gould’s financial

interests.

COVERAGE UNDER THE POLICIES

51. The allegations asserted against Gould in the Underlying Action are within

the coverage of the Policies.

52. The sums Gould has expended in connection with defending the

Underlying Action are within the coverage of the Policies.

PHIDOCS-35049.1 8
 53. The payments Gould has already made under the Settlement Agreement,

as well as those it will soon incur, are within the coverage of the Policies.

54. All premiums due and owing in connection with the Policies set forth in

Exhibit “A” have been paid.

55. All applicable conditions of the Policies set forth in Exhibit A have been

complied with, including notice and cooperation.

56. Accordingly, Gould is entitled to a declaration that the Insurance

Companies are contractually obligated to reimburse Gould for defense costs and to reimburse it

for the amount of the Settlement Agreement.

COUNT I: DECLARATORY JUDGMENT FOR DEFENSE COSTS

57. Gould repeats and realleges paragraphs 1 through 56 as if fully set forth

herein.

58. Substantial costs and expenses of defense were incurred by Gould in

connection with the Underlying Action.

59. The Defendants have breached, or will breach, their obligations as set

forth in the Policies, by failing to honor or by disputing the obligations to pay these costs

incurred by Gould in connection with defending the Underlying Action.

60. By reason of the foregoing, an actual and justiciable controversy exists

between Gould and the Defendants regarding the obligation to pay defense costs.

61. Gould has the right to designate the Policies and policy years of its choice

pursuant to which the Defendants are obligated to pay the defense costs of the Underlying

Action.

62. Gould is entitled to have the Policies interpreted in a reasonable manner

that maximizes insurance coverage.

PHIDOCS-35049.1 9
 63. Gould, therefore, is entitled to an order declaring that pursuant to the terms

of the Policies, the Defendants are obligated to pay the costs incurred by Gould for defense in

connection with the Underlying Action, that Gould is entitled to designate the policy or policies

and the policy year or years that shall be called upon to provide such costs of defense; and that

Gould is entitled to have the Policies interpreted in a reasonable manner that maximizes its

insurance coverage.

COUNT II: DECLARATORY JUDGMENT FOR INDEMNITY

64. Gould repeats and realleges the allegations of paragraphs 1 through 63 as

if fully set forth herein.

65. The standard form Policies provide coverage for liability for damages

because of bodily injury and property damage, including damages arising out of the bodily

injuries averred in the Underlying Action.

66. The Defendants have breached the obligations, as set forth in the standard

form Policies, by failing to honor or by disputing the obligations to indemnify Gould for all sums

which it has paid and has become legally obligated to pay, in connection with the setttlement of

the Underlying Action.

67. By reason of the foregoing, an actual and justiciable controversy exists

between Gould and the Defendants.

68. Gould has the right to designate the Policies and policy years of its choice

pursuant to which the Insurance Companies are obligated to indemnify it in the Underlying

Action.

69. Gould is entitled to have the Policies interpreted in a reasonable manner

that maximizes insurance coverage.

PHIDOCS-35049.1 10
 70. Gould, therefore, is entitled to an order declaring as to each Defendant its

obligation to provide indemnity coverage with respect to the Underlying Action, that Gould is

entitled to designate the policy or policies and the policy year or years that shall be called upon

to provide such indemnity, and that the Policies shall be interpreted in a reasonable manner that

maximizes insurance coverage.

COUNT III: BREACH OF CONTRACT

71. Gould repeats and realleges the allegations of paragraphs 1 through 70 as

if fully set forth herein.

72. The Defendants are obligated under the Policies to pay or reimburse

Gould for its defense costs and to indemnify it for the amount it paid the Underlying Action

plaintiff under the terms of the Settlement Agreement.

73. The Defendants have refused to pay these sums.

74. Thus, the Defendants have breached the terms of the Policies.

75. As a result of such breach, Gould has suffered, and will continue to suffer

damages.

76. Gould, therefore, is entitled to an award of compensatory damages, the

exact amount to be proven at trial.

COUNT IV: BAD FAITH IN VIOLATION OF

42 PA. CONS. STAT. ANN. § 8371 VERSUS DEFENDANTS

77. Gould repeats and realleges the allegations of paragraphs 1 through 76 as

if fully set forth herein.

78. Defendants’ conduct as described above and set forth below constitutes

bad faith actions prohibited by 42 Pa. Cons. Stat. Ann. § 8371.

PHIDOCS-35049.1 11
 79. Moreover, Defendants have repeatedly violated and continue to violate the

Pennsylvania Unfair Insurance Practices Act, 40 P. S. §§ 1171.1 et seq.

80. Defendants’ wrongful denial of coverage to Gould is part of an ongoing

scheme to deprive policyholders like Gould of the insurance coverage provided to them under

liability insurance policies sold by Defendant.

81. Among other acts or failures to act, Defendants have acted in bad faith

with respect to Gould by its:

(a) Failure to deal fairly with Gould and failure to give equal consideration in all

matters to Gould's interests;

(b) Engagement in unreasonable, frivolous, or untenable denial of policy benefits

to Gould;

(c) Misrepresentation of pertinent facts or policy provisions relating to coverages

at issue;

(d) Asserting inconsistent positions regarding the meaning of its policy provisions

and adopting the coverage-defeating interpretation as the correct one; and

(e) Compelling Gould to institute, continue, or submit to litigation to recover

amounts due under the foregoing insurance policies by offering amounts far less than the

amounts they know to be due and owing under the foregoing insurance policies.

82. In all of the instances set forth above, Defendants’ persistent and

systematic actions and failures to act amount to bad faith conduct towards Gould.

83. In all of the instances set forth above, Defendants’ persistent and

systematic actions and failures to act were done purposefully, intentionally, maliciously, and/or

recklessly.

PHIDOCS-35049.1 12
 84. As a result of Defendants’ bad faith actions, Gould has suffered, and will

continue to suffer, substantial damages.

85. As a result, Defendants are liable for compensatory damages,

consequential damages, interest, attorneys' fees and costs, and punitive damages pursuant to

42 Pa. Cons. Stat. Ann. § 8371.

86. Gould, therefore, is entitled to an award requiring Defendants to pay

Gould all monetary damages suffered by Gould caused by their breaches, including, without

limitation, compensatory damages, punitive damages, consequential damages, prejudgment

interest, post-judgment interest, and attorneys’ fees and costs.

COUNT IV: BREACH OF FIDUCIARY DUTY VERSUS DEFENDANTS

87. Gould repeats and realleges the allegations of paragraphs 1 through 86 as

if fully set forth herein.

88. Through the defense and indemnity provisions contained in the foregoing

Policies and Pennsylvania law, Defendants owe fiduciary duties towards Gould, which obligates

Defendants to act reasonably, in good faith, and with due care in interpreting, administering and

resolving all policy issues involving Gould.

89. Defendants have breached the fiduciary duties owed to Gould, by failing

and refusing unreasonably to acknowledge the obligations to Gould under the foregoing the

Policies and asserting positions that are contrary to the Policies and Pennsylvania law.

90. As a result of Defendants breaches of fiduciary duties, Gould has suffered

and continues to suffer serious damages.

91. Gould, therefore, is entitled to an award requiring Defendants to pay

Gould all monetary damages suffered by Gould caused by their breaches, including, without

PHIDOCS-35049.1 13
limitation, compensatory damages, consequential damages, prejudgment interest, post-judgment

interest, and attorneys’ fees and costs; and

COUNT V: BREACH OF FIDUCIARY DUTY AGAINST INA

92. Gould repeats and realleges the allegations of paragraphs 1 through 91 as

if fully set forth herein.

93. By virtue of the relationship existing between Gould and its liability

insurance company, INA, Gould placed trust and confidence in, and relied upon, INA to fulfill

its fiduciary responsibilities and duties to Gould.

94. INA’s fiduciary obligations to Gould extend to all of INA’s agents and

affiliated insurance entities.

95. The acts and omissions of INA and its agents described herein violated

and breached the trust and confidence that Gould had a right to place in INA and was a breach of

the fiduciary duties and responsibilities expected of INA and owed to Gould.

96. INA violated its fiduciary duty to Gould by, among other things, asserting

that it is no longer Gould’s insurance company and by asserting that the insurance coverage

obligations have been transferred by INA to Century, a run-off entity saddled with enormous

asbestos, pollution and toxic tort liabilities.

97. As a direct and proximate result of the foregoing violations and breach by

INA and its agents of the trust and confidence which Gould placed in INA, and as a result of

INA’s fiduciary duties in connection with its role as Gould’s liability insurance company, Gould

has suffered damages, and is in danger of suffering further damages, in an amount to be

determined at trial.

98. By reason of INA’s wrongful acts in breach of its fiduciary duties toward

Gould, INA is liable to Gould for compensatory damages, punitive damages, and consequential

PHIDOCS-35049.1 14
damages the exact amount to be proven at trial, including attorneys’ fees, costs and

disbursements that have been incurred to date and which may be incurred by Gould in

connection with the prosecution of the instant action to recover insurance coverage under the

umbrella liability insurance policy sold by INA.

WHEREFORE, Plaintiff requests judgment as follows:

1. On Count I,

(a) declaring that, pursuant to the terms of the Policies, the Defendants are

obligated to pay the costs incurred by Gould for defense in connection with the

Underlying Action;

(b) declaring that Gould is entitled to designate the policy or policies and the

policy year or years that shall be called upon to provide such costs of defense;

(c) declaring that Gould is entitled to have the Policies interpreted in a

reasonable manner that maximizes its insurance coverage; and

2. On Count II,

(a) declaring as to each Defendant its obligation to provide indemnity coverage

with respect to the Underlying Action;

(b) declaring that Gould is entitled to designate the policy or policies and the

policy year or years that shall be called upon to provide such indemnity; and

(c) declaring that the Policies shall be interpreted in a reasonable manner that

maximizes insurance coverage.

3. On Count III,

(a) compensatory damages in an amount to be determined at trial; and

(b) pre- and post-judgment interest.

PHIDOCS-35049.1 15
 4. On Count IV,

(a) compensatory damages in an amount to be determined at trial;

(b) punitive damages in an amount to be determined at trial;

(c) consequential damages in an amount to be determined at trial;

(d) pre- and post-judgment interest; and

(e) attorneys’ fees.

5. On Count V,

(a) compensatory damages in an amount to be determined at trial;

(b) punitive damages in an amount to be determined at trial;

(c) consequential damages in an amount to be determined at trial;

(d) pre- and post-judgment interest; and

(e) attorneys’ fees.

6. On Count VI,

(a) compensatory damages in an amount to be determined at trial;

(b) punitive damages in an amount to be determined at trial;

(c) consequential damages in an amount to be determined at trial;

(d) pre- and post-judgment interest; and

(e) attorneys’ fees.

7. With respect to all Counts,

(a) for reasonable attorneys’ fees and the costs and disbursements of this

action; and

PHIDOCS-35049.1 16
 (b) for such other and further relief as this Court may deem just and proper.

JURY TRIAL DEMANDED.

Dated: November 14, 2003

By:

John N. Ellison, Esq. (I.D. No. 51098)

Robert E. Frankel, Esq. (I.D. No. 67982)

Anderson Kill & Olick, P.C.

1600 Market Street, Suite 2500
Philadelphia, PA 19103
Telephone: (215) 568-4202

OF COUNSEL:
Finley Harckham
Jeremy J. Flanagan
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, NY 10020
Telephone: (212) 278-1000

Attorneys for Plaintiff

GOULD PAPER CORPORATION

PHIDOCS-35049.1 17
 EXHIBIT A

GOULD PAPER CORPORATION

Comprehensive General Liability Coverage

CARRIER POLICY NUMBER POLICY

PERIOD
GLP 334104 03/01/72 –
03/01/73
GLP 419460 03/01/73 –
03/01/74
Insurance Company of GLP 467840 03/01/74 –
North America 03/01/75
GLP 594832 03/01/75 –
03/01/76

GOULD PAPER CORPORATION

Excess Blanket Catastrophe Liability Coverage

CARRIER POLICY NUMBER POLICY

PERIOD
Insurance Company of XBC 15080 06/15/65 –
North America 06/15/68
Insurance Company of XBC 60956 06/15/68 –
North America 06/15/71
XBC 44192 06/15/71 –
07/15/71

PHIDOCS-35049.1