PROSIGHT SYNDICATE 1110 AT LLOYDS ENTERSOLAR LLC v. CITIZENS INSURANCE COMPANY OF AMERICA (2023)

MEMORANDUM & ORDER REGARDING MOTIONS TO AMEND COMPLAINT & MOTIONS FOR SUMMARY JUDGMENT (Dkt. Nos. 53, 62) (Dkt. Nos. 37, 40, 42, 45)

This action arises from a series of construction contracts, an injury that occurred on the construction site, and a dispute regarding insurance coverage for defense costs the involved companies incurred in subsequent litigation regarding that injury. Following resolution of the underlying litigation, Plaintiff Prosight - Syndicate 1110 At Lloyds (“Prosight”) brought this suit as subrogee of EnterSolar, LLC (“EnterSolar”) against Defendant M. L. Schmitt, Inc. (“Schmitt”) alleging Schmitt breached its contract with EnterSolar by failing to obtain the proper liability insurance naming the owners of the property where the work was being performed – Solutia, Inc. (“Solutia”) and its parent company, Eastman Chemical Company (“Eastman”) – as additional insureds. Prosight also asserts claims for indemnification and violation of chapter 93A against Schmitt.

After Schmitt's insurer, Citizens Insurance Company of America (“Citizens”), moved to intervene in this action, Prosight filed a third-party complaint against Citizens asserting breach of the Citizens insurance policy contract for failure to pay the full defense costs of Eastman and Solutia in the underlying litigation. Prosight also asserts claims for violation of chapter 93A and violation of Mass. G.L. c. 176D. Prosight has now filed motions to amend its complaint(s) to clarify that it is bringing claims in its capacity as subrogee of Eastman and Solutia as well as EnterSolar and to more explicitly assert a contractual indemnification claim in addition to common law indemnification.¹

For the reasons explained below, Prosight's motions to amend its complaint(s) (Dkt. Nos. 53, 62) are ALLOWED and the pending cross-motions for summary judgment (Dkt. Nos. 37, 40, 42, 45) are DENIED WITHOUT PREJUDICE.

I. Background

The court assumes the parties’ familiarity with the underlying facts and therefore recites only a brief summary of the stipulated, undisputed facts. (Dkt. Nos. 38, 44). On June 1, 2016, Solutia, a subsidiary of Eastman, hired EnterSolar to construct a new building on land it owned. (Dkt. No. 38-1). The Solutia/EnterSolar contract obligated EnterSolar to maintain certain liability insurance and to require the same of any subcontractors EnterSolar hired. The agreement stated that such insurance “shall be primary and noncontributory to other insurance available to Solutia” and its affiliates, including Eastman. The agreement required EnterSolar to name Eastman and Solutia as Additional Insureds on its insurance policies. The contract further required EnterSolar to indemnify and defend Solutia and Eastman for any personal injury claims related to the construction project. Finally, the contract stated that any subcontract must require the subcontractor to be bound by the terms of the Solutia/EnterSolar contract and must make Solutia and Eastman intended third-party beneficiaries of the subcontract. In compliance with the agreement, EnterSolar maintained a liability insurance policy through Prosight. (Dkt. No. 38-6).

On July 22, 2016, EnterSolar hired Schmitt as a subcontractor to perform electrical work for the Solutia construction job. (Dkt. No. 38-2). The EnterSolar/Schmitt subcontract required Schmitt to indemnify and defend EnterSolar and “Owner” for any personal injury claims related to the work of Schmitt or any of its subcontractors on the project. Although “Owner” is not specifically defined, the subcontract defines Solutia as the “Host,” describes the project site as the “Premises” of the “Host,” and later refers to the “Owner's Premises.” The subcontract clarifies Schmitt's assumption of liability for indemnification is independent from, and not limited by, Schmitt's insurance coverage and that an indemnified party shall be entitled to recover reasonable attorney's fees and costs incurred in connection with an effort to enforce its right to indemnification. The agreement also required Schmitt to obtain general liability insurance, which would provide a defense and indemnify EnterSolar and “Owner” for any bodily injury claims caused by Schmitt or any of its subcontractor's acts, on a primary, non-contributory basis. The subcontract required Schmitt to name EnterSolar and “Owner” as Additional Insureds on its insurance policy. Schmitt maintained a liability insurance policy for the project through Citizens, specifically naming EnterSolar as an Additional Insured. (Dkt. No. 38-7).

Additionally, the subcontract between EnterSolar and Schmitt states “All specifications and provisions in the prime contract are applicable to this subcontract.” Schmitt also agreed “to be bound ․ by the terms of the Agreement between Solutia and [EnterSolar],” “to assume ․ all of the obligations and responsibilities that [EnterSolar] has to Solutia under th[e] Agreement,” “to make Solutia an intended third-party beneficiary[,] and [to] preserve the rights and remedies of Solutia under the signed Agreement between Solutia and [EnterSolar] with respect to the portion of the Work to be performed by [Schmitt].” Finally, the subcontract contained a dispute resolution provision, applicable to “any dispute arising under or in connection with [the subcontract], or any work performed or not performed hereunder[.]” Specifically, the subcontract required “the parties” to engage in (1) a meeting between EnterSolar and Schmitt (“and, if necessary, Owner and any necessary Subcontractor(s)”); (2) if the meeting was unsuccessful, mediation; and (3) if the dispute is not resolved by mediation, arbitration.

As part of Schmitt's work on the project, Schmitt hired a subcontractor USNE, Inc. A USNE employee, Dennis Riley, was injured at the job site on December 28, 2016. Riley subsequently sued Eastman, Schmitt, and EnterSolar on April 10, 2017 regarding the on-site injury and added Solutia as a defendant on July 27, 2017 (“the Riley Litigation”). Schmitt tendered the defense and indemnity of the Riley Litigation to its insurer, Citizens, who accepted Schmitt's tender without reservation. On August 3, 2017, EnterSolar demanded Schmitt defend and indemnify it for the Riley Litigation under Schmitt's Citizens policy. On October 11, 2017, Citizens accepted without reservation EnterSolar's demand for defense and indemnification as an Additional Insured under Schmitt's Citizens policy.

On August 9, 2017, Solutia filed cross-claims in the Riley Litigation against EnterSolar for contractual indemnification, common law indemnification, and contribution and against Schmitt for common law indemnification and contribution. On September 25, 2017, Eastman and Solutia demanded EnterSolar defend and indemnify them for the Riley Litigation and repeated their demand on October 26, 2017, upon appearance of EnterSolar's new counsel provided via Citizens. On May 15, 2018, Citizens denied tender from Eastman and Solutia. In September 2018, Eastman and Solutia sent a demand to EnterSolar's insurer, Prosight, for coverage as Additional Insureds under EnterSolar's Prosight policy. On October 25, 2018, Prosight accepted Eastman and Solutia's demand. Four days later, Prosight requested Citizens defend and indemnify Eastman and Solutia under Schmitt's Citizens policy. Two days later, after Prosight accepted tender but prior to Citizens response, Eastman and Solutia demanded reimbursement from Prosight for the legal fees and expenses they had incurred to date in the Riley Litigation. In January 2019, Citizens agreed to defend Eastman and Solutia as Additional Insureds under Schmitt's Citizens policy. Shortly thereafter, Eastman and Solutia renewed and redirected to Citizens their demand for reimbursement of legal fees incurred to date.

On April 8, 2019, Eastman and Solutia released Prosight and Citizens for payment of $290,229.04 in defense costs. Prosight and Citizens each paid half of the incurred defense costs, in the amount of $145,114,52. In the release, Eastman and Solutia agreed to “waive, release, and forever discharge [Prosight] and [Citizens] ․ from and against any and all liabilities, debts, claims, [or] causes of action ․ for defense costs” in the Riley Litigation. The agreement included the following language: “Except as set forth in this Partial Release, the Releasors reserve all of their rights and claims against the Releasees concerning the Riley matter, including but not limited [to] their rights and claims for ongoing defense, indemnity[,] and insurance coverage under insurance policies issued by Releasees and pursuant to correspondence from the Releasees and their counsel.”

On April 12, 2020, Citizens settled the Riley Litigation in exchange for releases of Schmitt, EnterSolar, Eastman, and Solutia. The Riley Litigation was dismissed on May 7, 2020. However, while the Riley Litigation was still pending, Schmitt filed suit against the subcontractor, USNE, for failure to defend and indemnify Schmitt in the Riley Litigation. Schmitt ultimately settled the claim with USNE's insurance company. As part of the settlement, Citizens, Schmitt, and USNE's insurer signed an agreement and release, stating that “Citizens shall be exclusively responsible for any and all obligations it has or may assume in connection with the Riley Litigation, inclusive of the Riley Litigation Defense Costs ․ or any other claim or demand by or on behalf of Eastman, Solutia, EnterSolar, and Schmitt arising out of or in any manner related to the defense or settlement in the Riley Litigation[.]”

On May 15, 2020, Prosight sent a demand to Schmitt for the first time for the monies it paid on behalf of Eastman and Solutia for their defense costs in the Riley Litigation. Neither EnterSolar, Eastman, nor Solutia has ever made any direct demand to Schmitt for their defense costs in the Riley action. In turn, Schmitt made a demand to Citizens for defense and indemnification in the instant case based on Schmitt's insurance policy with Citizens and the prior settlement agreements. Citizens agreed to defend and indemnify Schmitt in this action, subject to a reservation of rights. Prosight's May 2020 demand for reimbursement of its payment of defense costs was also directed to Citizens. In June 2020, Citizens responded to the demand, denying any wrongdoing. Prosight then commenced this action on November 18, 2020.

II. Discussion

The court has elected to first address Prosight's motions to amend its complaint, as the proposed amendments may have some bearing on the court's forthcoming analysis of the summary judgment motions. Prosight seeks to amend its complaint to clarify its subrogors and its indemnification claim against Schmitt. Specifically, Prosight seeks to clarify that it is subrogated to the rights of Solutia and Eastman (in addition to EnterSolar) and that its indemnification claim against Schmitt is premised on both common law and the EnterSolar/Schmitt subcontract.²

Where, as here, a litigant files a motion to amend the pleadings beyond the scheduling order deadline, the party seeking such amendment is generally required to demonstrate “good cause.” U.S. ex rel. D'Agostino v. EV3, Inc., 802 F.3d 188, 192 (1st Cir. 2015) (referring to Fed. R. Civ. P. 16(b)(4)). The touchstone of the good cause inquiry is the diligence of the party seeking the amendment. Prejudice to the opposing party nevertheless remains a relevant consideration. See O'Connell v. Hyatt Hotels of Puerto Rico, 357 F.3d 152, 155 (1st Cir. 2004). In assessing diligence, the court may consider undue delay, bad faith, or dilatory motive by Prosight as well as futility of the proposed amendments. Moreover, where a motion to amend is filed after a summary judgment motion has been filed, “the proposed amendment must be not only theoretically viable but also solidly grounded in the record” – i.e., “supported by substantial evidence.” Somascan, Inc. v. Philips Med. Sys. Nederland, B.V., 714 F.3d 62, 64 (1st Cir. 2013) (quoting Hatch v. Dep't for Children, Youth & Their Families, 274 F.3d 12, 19 (1st Cir. 2001)). “Amendment of pleadings is largely a matter within the discretion of the district court.” Guest-Tek Interactive Entm't Inc. v. Pullen, 731 F. Supp. 2d 80, 92 (D. Mass. 2010) (citing Farkas v. Texas Instruments, Inc., 429 F.2d 849, 851 (1st Cir. 1970)).

It is also relevant here to note that courts typically cannot entertain claims on summary judgment which never appeared in the complaint. See Cruz-Acevedo v. Toledo-Davila, No. 07-cv-2104, 2009 WL 2151295, at *6 (D.P.R. July 15, 2009) (citing Ruiz-Rivera v. Pfizer Pharms., LLC, 521 F.3d 76, 84 (1st Cir. 2008)). However, the fundamental purpose of the notice pleading rule is to ensure defendants have notice of the claims being asserted against them. See id.; Fed. R. Civ. P. 8(a). Thus, where a complaint contains sufficient facts to put a defendant on notice of a particular claim, the court may construe the claim as constructively pled. Similarly, Federal Rule of Civil Procedure 15(b) permits litigants to constructively amend pleadings by implied consent. This may occur, for instance, where a claim is “actually introduced outside the complaint ․ and then treated by the opposing party as having been pleaded, either through his effective engagement of the claim or through his silent acquiescence.” Rodriguez v. Doral Mortg. Corp., 57 F.3d 1168, 1172 (1st Cir. 1995) (citations omitted). Again, the key is whether the opposing party had adequate notice of the claim. See Cook v. USAA Cas. Ins. Co., No. 16-cv-00207, 2020 WL 556394, at *11 (D. Me. Feb. 4, 2020) (citing Doral Mortg. Corp., 57 F.3d at 1171 (“The bottom line is this: while courts should construe pleadings generously, paying more attention to substance than to form, they must always exhibit awareness of the defendant's inalienable right to know in advance the nature of the cause of action being asserted against him.”)).

Citizens principally opposes Prosight's proposed amendment regarding its subrogation status on the ground that Prosight unduly delayed in seeking the amendment. (Dkt. No. 55).³ The court discerns no bad faith or dilatory motive on Prosight's behalf and Citizens alleges none. Though Prosight did not formally seek the amendment until over eleven months after the deadline set by the court's scheduling order, Defendants were on notice well before the motion to amend was filed that the central issue of this litigation was Prosight's payment, under a reservation of rights, of Eastman and Solutia's defense costs in the Riley Litigation. Additionally, Defendants were aware that Prosight claimed to be subrogated to Solutia and Eastman's “rights to recover all or part of any payments we have made under this Coverage Part” as Additional Insureds under the Prosight policy. Prosight paid half of their defense costs under protest on April 8, 2019, long before this litigation commenced, with Citizens paying the other half. Although the complaint explicitly sets forth Prosight's subrogation status only with respect to EnterSolar, the allegations make clear that Prosight's claims relate to its payment of defense costs to Eastman and Solutia.

Regardless of whether the allegations of the complaint can be reasonably construed to assert Prosight is subrogated to the rights of Eastman and Solutia, the court finds that Prosight's claimed subrogation to Eastman and Solutia has been known to Defendants throughout discovery. The subrogation provision of Prosight's policy, Solutia and Eastman's status as insureds under the Prosight policy, the language of the reservation of rights in their Partial Release, and all of the factual underpinnings of this case have been known to Citizens since – at the very latest – the date the parties stipulated to facts for purposes of summary judgment. The parties worked for four months to arrive at stipulated facts. (Dkt. No. 63). Defendants no doubt knew, during discovery and prior to summary judgment filings, that Prosight's claims were at least partially premised on its claimed subrogation to the rights of Eastman and Solutia. This is evidenced by the fact that Citizens’ summary judgment motion anticipates Prosight's argument that it was subrogated to the rights of Eastman and Solutia and advances an argument that Prosight was not so subrogated because its payment of their defense costs was voluntary. In other words, Citizens effectively engaged the claim. And although Prosight's subrogation to the rights of Eastman and Solutia may impact its claims against Schmitt – since Eastman and Solutia were explicitly named third-party beneficiaries to the EnterSolar/Schmitt subcontract – Schmitt has not filed any opposition to Prosight's motions to amend, despite ample time to do so.

Moreover, the subrogation claim is solidly grounded in the record. (See generally Dkt. No. 38); Somascan, 714 F.3d at 64 (quoting Hatch, 274 F.3d at 19).⁴ Accordingly, the court concludes Prosight's claimed subrogation status has been a known issue in this litigation since its inception, was otherwise constructively amended in the course of discovery and stipulations, and Defendants would not be surprised or prejudiced by inclusion of Prosight's claims as subrogee of Eastman and Solutia, in addition to EnterSolar.

With respect to the motion to amend to include a contractual indemnification claim, the court finds the claim was constructively pled in the complaint. (Dkt. No. 1 at ¶¶ 10, 12). In addition, for the reasons explained in Prosight's memorandum in support of its motion to amend (Dkt. No. 63), Schmitt appears to have silently acquiesced to inclusion of the claim during the parties’ four-month process of reaching stipulated facts. In any case, as noted above, Schmitt has not filed any opposition to Prosight's motion to amend.

Finally, the court recognizes that this case presents complex claims and issues, such that the parties’ summary judgment arguments may be substantially affected by these amendments. After much consideration and upon thorough review of the current summary judgment briefs, the court concludes the parties’ interests would be best served by the opportunity to fully and comprehensively address all claims and subrogation arguments at once, rather than through a series of supplemental filings. Such piecemeal adjudication would serve only to increase the risk of oversight and confusion inherent in a disorderly and congested case docket. Thus, in the interest of adjudicating the case on its merits, in order to preserve the parties’ interests and maintain an organized docket, and in fairness to all parties, the court denies without prejudice Prosight's, Schmitt's, and Citizens’ pending cross-summary judgment motions.

The parties are directed to re-submit their respective motions for summary judgment in accordance with the schedule set forth below. The parties are, of course, at liberty to include or omit any and all of their existing arguments, as well as to add arguments addressing Prosight's claims in its status as subrogee of EnterSolar, Eastman, and Solutia. Likewise, Schmitt shall address the contractual indemnification claim. The parties need not re-submit their Statement of Stipulated Facts. (Dkt. No. 38). Upon conclusion of the briefing, the court will issue an omnibus order on the parties’ motions for summary judgment.

III. Conclusion

For the foregoing reasons, Prosight's motions to amend the complaint (Dkt. Nos. 53, 62) are allowed. Prosight is directed to file its amended complaint and amended third-party complaint by separate docket entries on or before March 27, 2023.

Further, the currently-pending cross-motions for summary judgment (Dkt. Nos. 37, 40, 42, 45) are denied without prejudice. The parties’ motions for summary judgment shall be filed on or before April 24, 2023. Oppositions shall be filed on or before May 22, 2023. Replies shall be filed on or before June 5, 2023.

It is So Ordered.

FOOTNOTES

1.   The relevant filings are as follows: Prosight's memorandum in support of its motion to amend its name in case caption (Dkt. No. 54); Citizens’ opposition (Dkt. No. 55); and Prosight's memorandum in support of its motion to amend complaint (Dkt. No. 63).

2.   Although Prosight initially sought to amend its subrogation status via amendment of the case caption, the court agrees with Citizens that such amendment has a substantive effect on the claims and therefore is not properly considered as a mere caption amendment. The court therefore construes the motion (Dkt. No. 53) as a motion to amend the complaint, consistent with Prosight's second motion to amend the complaint (Dkt. No. 62).

3.   Schmitt did not file an opposition to either of Prosight's motions to amend.

4.   To the extent Citizens argues any subrogation claims relating to Eastman and Solutia would be futile, the court acknowledges futility is a relevant consideration when assessing whether leave to amend should be permitted. However, Citizens’ futility arguments in its opposition echo many of the exact arguments made in Citizens’ summary judgment motion. As such, the court finds, under the circumstances of this case, that the “futility” arguments are severely intertwined with and thus best categorized as merits arguments to be considered at the summary judgment stage. The court declines to deny Prosight's motion to amend its subrogation status on the basis of futility.

MARK G. MASTROIANNI United States District Judge