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Connecticut Supreme Court addresses insurer standing to pursue DJ against another insurer, "known injury" exclusion, allocation and more in Travelers v. Netherlands

In Travelers Cas. & Sur. Co. of America v. The Netherlands Ins. Co., the Connecticut Supreme Court recently ruled on several significant insurance coverage issues, including whether an insurer has standing to pursue a declaratory judgment ruling on behalf of its insured against another insurer as long as it is "supported by sufficient controversy so as to not amount to an advisory opinion." Travelers' claim that it was bearing more than its share of the mutual insured's defense costs presented a sufficient controversy. The underlying action involved alleged continuous water damage over several policy periods.

The Court also addressed whether the underlying complaint alleged an occurrence with resulting property damage during the policy periods and whether the "known injury or damage" exclusion relieved Netherlands of any duty to defend. It found that the allegations in the complaint of "continuing and progressive" water intrusion triggered Netherlands' duty to defend. The Court rejected Netherlands' "one occurrence" argument that all of the alleged PD was caused by the insured's alleged defective construction, ruling instead that the plain language of the policy required the PD (not the occurrence) to be during the policy period.

Even though the Court acknowledged that allegations in the complaint permitted a reasonable inference that the insured knew of the PD before the inception of the Netherlands policies, the Court concluded that "they do not compel that conclusion as a matter of law" because they did "not specify exactly when [the insured] received notice."

Finally, the Court addressed the allocation issue, clarifying that Connecticut applied a pro rata allocation based on a continuous trigger.

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