MASSACHUSETTS BAY INSURANCE CO HANOVER INSURANCE GROUP INC v. RI XIAN WANG MEI YING LIN LINDA WEISS DAVID WEISS BULSON MANAGEMENT LLC (2023)

DECISION & ORDER: MOTION TO AMEND

This case is an insurance coverage action between Plaintiffs Massachusetts Bay Insurance Co. (“Mass Bay”) and Hanover Insurance Group, Inc. (“Hanover”) and Defendants Seneca Insurance Company, Inc. and Great American Alliance Insurance Company (“Great American”). The dispute arises from an underlying personal injury action that occurred in a building owned and leased by David and Linda Weiss (the “Weisses”) and subsequently transferred to a company formed by the Weisses, 2939, LLC (“2939”). Defendant Great American seeks leave to file an Amended Answer to assert a crossclaim against 2939 and the Weisses for declaratory relief concerning their alleged violation of a condition precedent to coverage under the relevant Great American insurance policy. For the following reasons, the motion is GRANTED.¹

BACKGROUND 2

A. The Underlying Wang Action

In the action underlying the insurance dispute, Ri Xian Wang (“Wang”) sued for severe injuries he sustained when, on July 19, 2016, he fell from a ladder while working for Bulson Management LLC (“Bulson”) at 39 South Fifth Street in Brooklyn, New York (the “Premises”). (Compl. ¶ 21.) The Weisses had leased the Premises to Borgo Guglielmo, LLC d/b/a Industria W (“Borgo”). (CC ¶ 211.) Bulson was retained by certain Industria business entities and/or Borgo (together, “Industria”) as the general contractor for renovation of the Premises.³ (CC ¶ 213.) The day before the accident, the Weisses transferred ownership of the Premises to their company, 2939. (See Compl. ¶ 31.) Wang, along with his wife, filed the lawsuit (the “Wang Action”) on January 5, 2017, in state court alleging negligence by 2939, the Weisses, and multiple Industria entities.⁴

B. The Lease

The Lease, between the Weisses and Industria, provides that all covenants and conditions inure to the benefit of the owner and successor owners, like 2939. (McKenna Decl. Ex. C at § 20.02.) The Lease requires Industria to name the owner of the Premises as an additional insured on Industria's insurance policies, and that Industria indemnify the owner for any injuries or death occurring on the leased property. (Id. at Art. 9.)

C. The Insurance Policies

Great American issued a commercial umbrella insurance policy to 2939 with a limit of liability of $5 million (the “Great American Policy”). (CC ¶ 231.) The Great American Policy sits above a commercial general liability insurance policy issued by Seneca with a $1 million limit of liability per occurrence. (Compl. ¶¶ 10, 38.) Among other provisions, the Great American Policy requires the insured to “cooperate with [Great American] in the investigation, settlement or defense” of the underlying claim or suit. (McKenna Decl. Ex. B at GA01794; see also CC ¶ 201.)

Industria is insured under a commercial general liability insurance policy issued by Mass Bay providing a limit of $1 million per occurrence (Compl. ¶¶ 5, 34), and a $15 million umbrella insurance policy issued by Hanover. (Compl. ¶¶ 7, 36-37.)

D. Defense Of The Weisses And 2939 In The Wang Action

Mass Bay and Hanover assumed the defense of Industria, the Weisses, and 2939 in the Wang Action. (CC ¶¶ 128, 216, 219, 223.) They did so without any reservation, and without notice to Great American. (CC ¶ 216.) For more than four years, Mass Bay and Hanover defended Industria, the Weisses, and 2939 and controlled their defense. (CC ¶ 220.) Because of the joint defense, 2939 and Weiss never asserted any claims for indemnity or contribution against Industria. (CC ¶¶ 219, 222, 224, 225.) Nor did 2939 and Weiss obtain any discovery from Industria to support any such claims. (CC ¶ 222.)

After Mass Bay and Hanover commenced the instant action against Great American and Seneca, Great American demanded that 2939 and Weiss assert claims for contribution and indemnification against Industria. They refused. (CC ¶¶ 228-29.)

E. The Instant Action

At some point during the Wang Action, Mass Bay and Hanover came to believe that 2939 was not covered as an additional insured under their policies. (Compl. ¶¶ 47-48.) They thus sought to rescind their acceptance of coverage for 2939, but not for the Weisses. (Id. ¶¶ 48-49.) To that end, on November 5, 2021, Mass Bay and Hanover commenced the instant action. (Dkt. 1.) They seek a declaratory judgment that they owe no additional insured coverage to 2939 in connection with the Wang Action and that Seneca and Great American are obligated instead. (Id. ¶ 66.) They also seek a declaration that the relevant policies exhaust horizontally, not vertically, and that indemnity coverage for the Weisses under the Mass Bay and Hanover Policies is limited to $5 million, rather than the combined value of the policies’ limits. (Id. ¶¶ 67-68.)

F. Great American's Motion To Add A Crossclaim

On June 23, 2023, judgment was entered in the Wang Action against 2939 and Industria in the amount of $21 million. (McKenna Decl. Ex. F.) A week later, Great American filed the instant motion for leave to amend to add a crossclaim against 2939 and the Weisses (the “Crossclaim”). (Dkt. 117.) Great American alleges that by failing to assert a crossclaim against Industria for indemnification in the Wang Action, 2939 and the Weisses violated their obligation to cooperate as required by the Great American Policy. (CC ¶ 236.) Great American thus seeks declaratory relief that Great American does not owe indemnification to the Weisses or 2939. (CC ¶ 238.) Seneca consents to the amendment. (See Dkt. 105 at 3.) The motion, however, is opposed by 2939, as a current defendant, and the Weisses, as interested parties. (Dkt. 120.) They argue that Great American lacks good cause to amend and that denying leave at this time would not prejudice Great American. (Id. at 5-7.) Following Great American's reply (Dkt. 121), the motion is fully briefed.

LEGAL STANDARDS

Motions to amend are principally governed by Federal Rule of Civil Procedure 15(a) (“Rule 15(a)”). As the rule provides, “[t]he court should freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2); see Aetna Casualty and Surety Co. v. Aniero Concrete Co., 404 F.3d 566, 603 (2d Cir. 2005). A district court, however, “has discretion to deny leave for good reason.” McCarthy v. Dun and Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007). The Second Circuit has held that a Rule 15(a) motion “should be denied only for such reasons as undue delay, bad faith, futility of the amendment, and perhaps most important, the resulting prejudice to the opposing party.” Aetna Casualty, 404 F.3d at 603-04 (quoting Richardson Greenshields Securities, Inc. v. Lau, 825 F.2d 647, 653 n.6 (2d Cir. 1987)). Delay alone generally is an insufficient justification for the denial of a motion to amend under Rule 15(a). Block v. First Blood Associates, 988 F.2d 344, 350 (2d Cir. 1993).

Delay becomes more significant, however, when a party files a motion to amend after the deadline for doing so established in a court's scheduling order. Under Rule 16(b), leave to amend requires “good cause” following expiration of the deadline. Fed. R. Civ. P. 16(b)(4). That is a more exacting standard than Rule 15(a): “Under Rule 16(b), a party moving to amend after the applicable deadline must demonstrate good cause. Whether good cause exists depends on the diligence of the moving party. In other words, the movant must show that the deadlines [could not have been] reasonably met despite its diligence.” Volunteer Fire Association of Tappan, Inc. v. County of Rockland, No. 09-CV-4622, 2010 WL 4968247, at *3 (S.D.N.Y. Nov. 24, 2010) (internal citations and quotation marks omitted); accord Parker v. Columbia Pictures Industries, 204 F.3d 326, 340 (2d Cir. 2000) (“despite the lenient standard of Rule 15(a), a district court does not abuse its discretion in denying leave to amend the pleadings after the deadline set in the scheduling order where the moving party has failed to establish good cause. Moreover, we agree ․ that a finding of ‘good cause’ depends on the diligence of the moving party”) (citations omitted).

The burden of showing diligence is borne by the moving party. Fresh Del Monte Produce, Inc. v. Del Monte Foods, Inc., 304 F.R.D. 170, 175 (S.D.N.Y. 2014). “A party is not considered to have acted diligently where the proposed amendment is based on information that the party knew, or should have known, in advance of the motion deadline.” Id. at 174-75. Although “the primary consideration is whether the moving party can demonstrate diligence ․ it is not ․ the only consideration.” Kassner v. 2nd Avenue Delicatessen Inc., 496 F.3d 229, 244 (2d Cir. 2007). “[W]here a party's motion to amend would require altering a court's scheduling order, the party must satisfy both Federal Rules of Civil Procedure 15 and 16 to be permitted to amend.” International Technologies Marketing, Inc. v. Verint Systems, Ltd., 850 F. App'x 38, 43 (2d Cir. 2021) (internal quotation marks omitted) (emphasis in original).

Here, the Court's scheduling order required that any motion to amend the pleadings be made by October 31, 2022. (See Dkt. 78.) Accordingly, the “good cause” standard of diligence applies, together with considerations of futility, bad faith, and prejudice.

DISCUSSION

2939 and the Weisses oppose the motion to amend based on lack of good cause and absence of prejudice to Great American if leave is not granted. They make no express argument concerning futility, bad faith, or prejudice to them. In any event, the Court finds that leave to amend should be granted.

A. Good Cause

Great American has demonstrated good cause to amend. Great American first raised its desire to file the Crossclaim with the Court on April 8, 2023, by way of a pre-motion letter, just over five months after the deadline to amend had expired. (Dkt. 105.) Prior to that and after, Mass Bay and Hanover resisted, asserting that indemnification crossclaims were not ripe and could be instituted after trial of the Wang Action. (See Dkt. 109 at 3; see also Opp. Mem. at 6-7.⁵ ) Mass Bay and Hanover further argued, and continue to argue, that Great American has no right to interfere with the defense strategy pursued by counsel representing 2939 and the Weisses in the Wang Action. (Id.; Opp. Mem. at 6.) But circumstances have changed. Just the week before Great American filed its motion, the court in the Wang Action entered judgment for $21 million against 2939 and its co-defendants in the Wang Action. That development both makes Great American's indemnification claim sufficiently mature to be asserted and diminishes, if not entirely removes, concerns about interference with strategy.

In opposing Great American's motion, 2939 and the Weisses barely mention the June 23 judgment in the Wang Action, dismissing it with the argument that Great American “had no reason to not assert the necessity of an amended complaint earlier.” (Opp. Mem. at 7.) That argument, however, is directly at odds with 2939 and the Weisses’ assertion that Great American's claim was not ripe even when Great American first previewed its motion to the Court in April 2023. (See Dkt. 109 at 3.)

2939 and the Weisses’ other arguments in opposition fare no better. In particular, and despite entry of judgment in the Wang Action, 2939 and the Weisses argue that good cause is lacking because Great American “has no right to demand that 2939 and Weiss direct their trial counsel for the underlying matter to interpose cross claims against their tenant.” (Opp. Mem. at 6.) 2939 and the Weisses have not, however, cited any authority that Great American may not assert claims against 2939 and the Weisses for their alleged failure to comply with the express terms of the Great American Policy. Whether Great American will succeed on that claim, and whether or not 2939 and the Weisses may have defenses or arguments that the provision at issue cannot be enforced or does not otherwise apply, are merits issues yet to be determined.

B. Prejudice

2939 and the Weisses do not expressly argue that they will be prejudiced if leave to amend is granted. To the extent their argument about interference with independent defense strategy is a prejudice argument rather than a merits argument, they have not demonstrated that Great American's assertion of its Crossclaim at this juncture will actually prejudice them in the Wang Action. Nor is such prejudice – which flows from the merits of the claim, not from its having been asserted later rather than earlier – the type of prejudice at issue. See Ruotolo v. City of New York, 514 F.3d 184, 192 (2d Cir. 2008) (“Undue prejudice arises when an amendment comes on the eve of trial and would result in new problems of proof”) (internal quotation marks and modification omitted); Monahan v. New York City Department of Corrections, 214 F.3d 275, 284 (2d Cir. 2000) (“In determining what constitutes ‘prejudice,’ we generally consider whether the assertion of the new claim or defense would (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction”) (internal quotation marks omitted). 2939 and the Weisses have not identified any prejudice they will incur because Great American asserts its Counterclaim now rather than having done so at an earlier point in the litigation.

Instead of identifying any prejudice to them, 2939 and the Weisses argue that Great American will not be prejudiced if it does not assert the Crossclaim at this time. 2939 and the Weisses suggest that Great American can wait until it pays amounts it may be required to pay to Wang under the Great American Policy and then bring a subrogation action against Industria. Further, they contend, “2939 and Weiss have the right to pursue indemnification after trial against their tenants and can assign this right to Great American.” (Opp. Mem. at 6.) That such a strategy can be pursued, or that 2939 and the Weisses “can” assign their indemnification rights to Great American in the future, hardly provides assurance of rights that may be foregone if not asserted by Great American in the instant action.

C. Bad Faith And Futility

Nothing before the Court indicates that Great American brings its Crossclaim in bad faith. 2939 and the Weisses have not argued otherwise. 2939 and the Weisses also have not argued that the Crossclaim, which seeks declaratory relief, is futile. To the contrary, there is an actual and justiciable controversy between Great American and 2939 and the Weisses regarding their compliance with conditions precedent to coverage under the Great American Policy. That is not to say that Great American will prevail, but it need not demonstrate that it will do so to be granted leave to amend. Rather, it is enough that Great American has asserted a claim that is plausible on its face. See AEP Energy Services Gas Holding Co. v. Bank of America, N.A., 626 F.3d 699, 726 (2d Cir. 2010) (“Leave to amend may be denied on grounds of futility if the proposed amendment fails to state a legally cognizable claim or fails to raise triable issues of fact”); Todd v. Exxon Corp., 275 F.3d 191, 198 (2d Cir.2001) (under the standard of futility, “the issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims”) (internal quotation marks and modification omitted).

CONCLUSION

For the foregoing reasons, Great American's motion for leave to file an amended answer to assert a crossclaim against 2939, LLC and David and Linda Weiss is GRANTED. The amended pleading shall be filed within seven days of entry of this order.

SO ORDERED.

FOOTNOTES

1.   The case has been referred to me for general pretrial purposes, including non-dispositive motions. (Dkt. 69.)

3.   The Industria entities are Industria Superstudios Overseas, Inc., Industria World LLC, and Industria @ Sea, Inc., each of which were alleged to have retained Bulson in the underlying action. (See McKenna Decl. Ex. D (Dkt. 117-5) ¶¶ 36, 46, 56.)

4.   The Wang Action, as initially filed, was captioned Ri Xian Wang & Mei Ying Lan v. 2939 LLC, David Weiss, Linda Weiss, Industria Superstudio Overseas Inc., Industria World LLC, and Industria @ Sea Inc., Index No. 519101/2016 (Sup. Ct. Kings Cty). The original complaint in the Wang Action appears at Exhibit D of the McKenna Declaration. Borgo was made a direct defendant by way of a second amended complaint. (CC ¶ 223.)

5.   “Opp. Mem.” refers to Defendant 2939, LLC And Interested Parties, Linda Weiss And David Weiss Memorandum Of Law In Opposition filed at Dkt. 120.

ROBERT W. LEHRBURGER UNITED STATES MAGISTRATE JUDGE