Opinion
Case No. 5:00-CV-131
October 31, 2002
REPORT AND RECOMMENDATION
This matter is before the Court on Defendant and Counter-Plaintiff Deerfield Insurance Company's Motion for Summary Judgment (Counts II and III of Counterclaim), (Dkt. #91), Defendant and Counter-Plaintiff Deerfield Insurance Company's Motion for Summary Judgment (Count V of Counterclaim), (Dkt. #92), and Plaintiff/Counter-Defendant Lansing Board of Water and Light's Motion for Summary Judgment Pursuant to Fed.R.Civ.P. 56(b) as to Defendant/Counter-Plaintiff Deerfield Insurance Company's Counterclaim, (Dkt. #94). Oral argument was heard on October 17, 2002.
Pursuant to 28 U.S.C. § 636(b)(1)(B) granting authority for United States Magistrate Judges to submit proposed findings of fact and recommendations for disposition of motions for dismissal or summary judgment, I recommend that all three motions be denied.
SUMMARY JUDGMENT STANDARD
In reviewing a motion for summary judgment, the Court must confine itself to the narrow questions of whether there exist "no genuine issue[s] as to any material fact and [whether] the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). On a Rule 56 motion, the Court cannot try issues of fact, but is empowered to determine only whether there exist issues in dispute to be decided in a trial on the merits. See Perez v. Aetna Insurance Co., 96 F.3d 813, 819 (6th Cir. 1996); Aiken v. The City of Memphis, 37 F.3d 1155, 1161 (6th Cir. 1994). The crux of the motion is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so onesided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986); see also, Terry Barr Sales Agency v. All-Lock Co. Inc., 96 F.3d 813, 819 (6th Cir. 1996) (citing Booker v. Brown Williamson Tobacco Co., 879 F.2d 1304, 1310 (6th Cir. 1989)).
A motion for summary judgment requires the Court to view "inferences to be drawn from the underlying facts . . . in the light most favorable to the party opposing the motion." Matsushita Electric Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also, Terry Barr Sales Agency, 96 F.3d at 819; Schaffer v. A.O. Smith Harvestore Products, Inc., 74 F.3d 722, 727 (6th Cir. 1996). The opponent, however, has the burden to show that a "rational trier of fact [could] find for the non-moving party [or] that there is a `genuine issue for trial.'" Historic Preservation Guild of Bay View v. Burnley, 896 F.2d 985, 993 (6th Cir. 1989) (quoting Matsushita Electric Ind. Co., 475 U.S. at 587); see also, Schaffer, 74 F.3d at 727.
As the Sixth Circuit has recognized, recent Supreme Court decisions have encouraged the granting of summary judgments, as such may be "an appropriate avenue for the `just, speedy and inexpensive determination' of a matter." Kutrom v. City of Center Line, 979 F.2d 1171, 1173 (6th Cir. 1992). Consistent with this concern for judicial economy, "the mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient." Anderson, 477 U.S. at 252; see also Bailey v. Floyd Board of Education, 106 F.3d 135, 140 (6th Cir. 1997). Furthermore, mere allegations do not suffice. See Cloverdale Equip. Co. v. Simon Aerials, Inc., 869 F.2d 934, 937 (6th Cir. 1989) ("the party with the burden of proof at trial is obligated to provide concrete evidence supporting its claims and establishing the existence of a genuine issue of fact").
FACTS
The predecessor of Defendant Deerfield Insurance Company, First Reinsurance of Hartford, insured Plaintiff from April 27, 1998 to April 27, 1999 under an insurance policy titled Public Officials Liability Insurance, policy number TCB 73506.
Plaintiff Lansing Board of Water and Light, an administrative agency of the City of Lansing, was engaged in a project to remove and dispose of asbestos at the Plaintiffs Ottawa Station Property. Plaintiff awarded the bid on the project to SCS Group, L.C. (SCS), and SCS subcontracted portions to Performance Abatement Services, Inc. (PAS). During the period of Plaintiffs insurance coverage, a dispute arose in this Court between SCS and PAS and Plaintiff (the underlying litigation). SCS and PAS claimed that the drawings and other information provided to them by Plaintiff regarding the asbestos project failed to indicate the true scope of the project and that PAS was forced to remove more asbestos than disclosed without proper additional remuneration. See, Performance Abatement Services, Inc. v. Lansing Board of Water and Light, 168 F. Supp.2d 720 (W.D. Mich. 2001).
Plaintiff and Defendant disagree whether Defendant was required, under the terms of the Public Officials Liability Insurance policy, to provide a defense for Plaintiff and coverage for any liability on the claims. Defendant provided a defense for Plaintiff and has paid to settle part of the claims against Plaintiff. However, Defendant also put Plaintiff on notice of specific defenses that it could assert to its duty to indemnify Plaintiff, and Defendant asserted a general reservation of rights under the policy. Later, Defendant again notified Plaintiff of additional specific defenses, and Defendant reiterated its general reservation of rights. See, Lansing Board of Water and Light v. Deerfield Ins. Co., 183 F. Supp. 979, 982-83 (W.D. Mich. 2002). This litigation arises from those insurance coverage disputes.
I. Defendant's Motion for Summary Judgment as to Count V of its Counterclaim
On May 24, 2002, Defendant moved for leave to file an amended counter-complaint. (Dkt. #87). Specifically, Defendant sought to add to its counter-complaint an additional claim proposed Count V. Count V asserted an exclusion to insurance coverage because Plaintiff allegedly committed a violation of law resulting in the claim for which Plaintiff was sued in the underlying litigation. Defendant seeks summary judgment as to this proposed new claim.
The Motion for Summary Judgment was filed before the Motion to Amend was decided because of Defendant's compliance with a dispositive motion deadline in the Case Management Order.
In an order filed this date, the Court denied Defendant leave to amend its counter-complaint. The Court found that Plaintiff would be prejudiced by allowing Defendant to amend at this late date, some four years after the underlying litigation was filed and after discovery in this matter was completed. Accordingly, I recommend that the motion for summary judgment as to Count V be denied as moot.
II. Defendant's Motion for Summary Judgment as to Counts II and III of its Counterclaim and Plaintiff's Motion for Summary Judgment as to Defendant's Counterclaim
Defendant's original counterclaim contained four counts, one of which has already been dismissed. See Lansing Board of Water and Light v. Deerfield Insurance Co., 183 F. Supp.2d 979, 991 (W.D.Mich. 2002) (dismissing Defendant's claim for indemnification of defense costs and settlement payment pursuant to the policy's pollution exclusion). Given the Court's denial of Defendant's motion for leave to file an amended pleading, there are three remaining counts in Defendant's countercomplaint.
Counts I and II are claims for indemnification for the full amount (Count I), or in the alternative a portion (Count II), of the $1.8 million settlement payment on the grounds that the settlement payment went to pay claims that were not properly covered by the insurance policy. Count III is a claim for unjust enrichment, asserting that Plaintiff received a benefit (additional asbestos removal) for which it did not pay and that would be unjust for Plaintiff to retain.
A. Defendant did not Grant Plaintiff a Release as to Defendant's Counter-Complaint
Plaintiff asserts that "the broad mutual general release entered into by Deerfield and the Board bars Deerfield's claim for reimbursement." ( Performance Abatement Services Inc. v. Lansing Board of Water and Light, et al., W.D. Mich. Case No. 5:98cv70 (the "underlying litigation")). Thus, Plaintiff argues that all of the remaining counts of Defendant's Counterclaim should be dismissed. In support of this argument, Plaintiff refers to paragraph 6 of the settlement agreement, which articulates the terms of the "mutual general releases" executed as part of the settlement agreement. The introductory clause of paragraph 6 provides that "the Parties each irrevocably and unconditionally mutually release and forever discharge one another, and each party's Released Persons, as defined below, from any and all Released Claims."
Subparagraph (c) defines the Released Claims as:
any and all Claims which the Parties now have or heretofore had against each other or any of the Released Persons arising from, pertaining to, and concerning any act, matter, fact, transaction, or occurrence relating in any manner to the Project, the Contract between SCS and the Board, the subject matter of the Action and the facts giving rise to the Action including, without limitation, and any and all Claims which were or could have been included in the Action.
Relying on this provision, Plaintiff asserts that Defendant has released its claims to reimbursement asserted in its counter-complaint. I disagree, as Plaintiff's position is refuted by other provisions of the settlement agreement, as well as Plaintiff's actions (or failure to act) following the execution of the settlement agreement.
In the recital section of the settlement agreement, the "Action" is defined as the case Performance Abatement Services, Inc. v. The Lansing Board of Water Light, et al., Case No. 5:98-cv-70. On the other hand, paragraph 4(a) of the settlement agreement defines the "Coverage Litigation" as the case Lansing Board of Water Light v. Deerfield Insurance Co., case No. 5:00-cv-131 (the present action).
Defendant asserts that the definition of "Released Claims" includes only the Project (defined in the recitals), the SCS-Board contract (defined in the recitals), and the Action, but not the Coverage Litigation. Defendant asserts, therefore, that the mutual release provision has no effect on the present matter, including its counterclaims.
Defendant further asserts that in defining the term Coverage Litigation, paragraph 4 of the settlement agreement provides that "nothing in this Agreement shall be construed to require SCS to indemnify the Board or Deerfield . . . in connection with" the Coverage Litigation. Defendant argues that if the settlement agreement or the mutual release provision contained therein was intended to serve as a waiver/release of Defendant's claims for reimbursement, this language would have been unnecessary.
Also, paragraph 9(c) of the settlement agreement provides that "the Board represents and warrants that it has no knowledge of any attachments, liens, [or] claims . . . against the Settlement Proceeds other than the claims on the payment bond, if any, the claims by PAS, and the Board's claim in the Coverage Litigation that it has no responsibility to reimburse Deerfield for any portion of the Settlement Proceeds." This provision clearly contemplates the existence of the present action, including Defendant's counterclaims.
Finally, following the execution of the settlement agreement Plaintiff made no attempt to obtain a dismissal of Defendant's counterclaim in the present action on the ground that such was required or contemplated by the settlement agreement. The settlement agreement is dated February 2002. Plaintiffs Motion for Summary Judgment was not filed until July 1, 2002 (Dkt. #94). This lack of action strongly supports Defendant's position that the mutual releases provided for in the settlement agreement were of no effect as regards the present action. I conclude, therefore, that Defendant did not grant Plaintiff a release of any claims asserted in the present coverage litigation.
B. Counts I-III
In their discussions of these claims, the parties often use different terms and phrases. For example, Plaintiffs argument largely focuses on whether the settlement payment was for "wrongful acts" it allegedly committed. Defendant, in its argument, shifts the discussion to whether the settlement payment represented a "loss." This difference in terminology notwithstanding, the essence of these claims, as well as the parties' respective summary judgment arguments, focuses on whether the amounts previously paid to settle the underlying litigation were paid pursuant to acts or occurrences against which the policy at issue was intended to insure. As indicated below, this is a matter on which neither party is, at this juncture, entitled to summary judgment.
The subject insurance policy provides, in part, that Defendant is "[t]o pay on behalf of the Insured all Loss in excess of the deductible which the Insured shall become legally obligated to pay as a result of Claims first made against the Insured during the Policy Period . . . because of any Wrongful Act committed by the Insured." Lansing Board of Water and Light, 183 F. Supp.2d at 983.
The policy defines a "wrongful act" as "any actual or alleged act, error, misstatement, misleading statement or omission, neglect or breach of the Insureds' duties arising solely from the Insureds' discharge of their duties on behalf of the Public Entity."
The policy defines "loss" as "any amount which an Insured is legally obligated to pay or which the Public Entity shall be required or permitted by law to pay on behalf of any Insured Person, for judgment and settlements, of any covered Claim."
In the underlying litigation, pursuant to which the settlement payment was made, Performance Abatement Services, Inc. (PAS) asserted that Plaintiff withheld information material to the formulation of the bid it submitted to remove asbestos from Plaintiffs facility. See Id. at 989-90. The Court has already determined that as a matter of law, "complaints of this nature made against Plaintiff constitute `wrongful acts' under the policy." Id. at 990. The Court concluded, therefore, that Defendant was not entitled to reimbursement as to any portion of the settlement payment that was paid for such wrongful acts. Id.
Plaintiff claims that it is entitled to summary judgment because Defendant cannot establish that any amount of the settlement payment did not represent payment for "wrongful acts." In support of this conclusion, Plaintiff first asserts that "PAS's damage claim at the time of the settlement of the Underlying Litigation related to what Deerfield admits are wrongful acts — which are covered under the Deerfield policy — clearly far exceeds the $1.8 million paid by Deerfield to settle the Underlying Litigation."
Considering that settlements, by their very nature, represent a less than full payment for a party's alleged damages, Plaintiffs simplistic mathematical argument is unpersuasive. While PAS may have been claiming "wrongful acts damages" in a dollar amount in excess of the amount of the settlement payment, that fact alone does not prove that the settlement payment, or even any portion thereof, was paid for such wrongful act damages.
Moreover, as Defendant correctly observes, PAS also advanced claims for damages unrelated to any wrongful act, for which Defendant would be entitled to reimbursement. In this respect, the Court indicated that "it is also true that some of PAS's complaints against Plaintiff were those which do not require proof of non-disclosure or other acts that might constitute `wrongful acts' under the policy in order for PAS to recover." Lansing Board of Water and Light, 183 F. Supp.2d at 990. The Court further stated that "PAS's complaints which are strictly unjust enrichment claims, for example, where PAS complains that Plaintiff accepted labor and materials that the contract did not contemplate, would not encompass any acts of Plaintiff that constitute `wrongful acts' under the policy' [and,] [t]herefore, Defendant is entitled to recover the amount of the settlement that does not represent payment to PAS or SCS for a `wrongful act.'" Id.
As the Court observed, Michigan law "permits an action in quantum meruit, even in the face of an express contract, where the performance of additional work or benefit not contemplated in the express contract is present." Id. at 990-91. The Court concluded, therefore, that to the extent that the settlement payment represents "an additional benefit [to Plaintiff] from Defendant that was not contemplated in [Plaintiffs] insurance contract with Defendant," such is not covered by the insurance policy and Defendant is entitled to reimbursement. Id. at 991.
It is on this basis that Defendant seeks summary judgment. Defendant asserts that the settlement payment (or at least the vast majority thereof) constituted payment for "labor and materials that the contract did not contemplate" and, pursuant to the Court's prior decision, represents payments for acts or occurrences not covered by the insurance policy (i.e., an unjust enrichment).
In short, Plaintiff asserts that the settlement represented payment for wrongful acts only and is, therefore, covered by the insurance policy. On the other hand, Defendant asserts that the settlement represented payment for services which Plaintiff received but for which it did not pay, a benefit to Plaintiff not contemplated by the insurance contract (or Plaintiff's contracts with PAS/SCS). While both parties have introduced facts in support of their respective positions, neither has demonstrated that there exist no disputes of material fact regarding the nature of the settlement payment and whether it represented payment for claims covered by the insurance policy.
For example, Plaintiff asserts that because the contracts into which it entered with PAS/SCS called for the removal of all asbestos, the contracts clearly contemplated any and all "additional" work performed by PAS to remove all the asbestos from the facility. Plaintiff also relies upon the affidavit of Edward Champagne for its assertion that the settlement was paid solely for damages caused by Plaintiffs wrongful acts. Defendant, on the other hand, disputes Plaintiff's characterization of Mr. Champagne's statements. As Defendant notes, Mr. Champagne asserted that if PAS had been aware of the material information withheld by Plaintiff, PAS would have submitted a much higher bid — a bid which more accurately reflected the cost to remove all the asbestos in Plaintiffs facility. Defendant claims, therefore, that the settlement was paid to settle PAS's claims that it provided services for which it was not paid.
In short, while both parties have introduced evidence in support of their respective positions, neither has submitted evidence from which summary judgment can reasonably be entered. I recommend, therefore, that the parties' respective motions for summary judgment as to Counts I-III be denied.
CONCLUSION
For the reasons articulated herein, I recommend that Defendant and Counter-Plaintiff Deerfield Insurance Company's Motion for Summary Judgment (Counts II and III of Counterclaim), (Dkt. #91), be denied. I also recommend that Defendant and Counter-Plaintiff Deerfield Insurance Company's Motion for Summary Judgment (Count V of Counterclaim), (Dkt. #92), be denied. I further recommend that Plaintiff/Counter-Defendant Lansing Board of Water and Light's Motion for Summary Judgment Pursuant to Fed.R.Civ.P. 56(b) as to Defendant/Counter-Plaintiff Deerfield Insurance Company's Counterclaim, (Dkt. #94), be denied.
OBJECTIONS to this Report and Recommendation must be filed with the Clerk of Court within ten (10) days of the date of service of this notice. 28 U.S.C. § 636(b)(1)(C). Failure to file objections within the specified time waives the right to appeal the District Court's order. Thomas v. Am, 474 U.S. 140 (1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981).
ORDER
This matter is before the Court on Defendant and Counter-Plaintiff Deerfield Insurance Company's Motion for Leave to File Amended Pleading. (Dkt. #87). Oral argument was heard on July 31, 2002. For the reasons articulated herein, Defendant's motion is denied.
This is insurance coverage litigation. The underlying litigation was filed in 1998, i.e., Performance Abatement Services, Inc. v. Lansing Board of Water and Light, et al., Case No. 5:98-cv-70. On May 24, 2002, Defendant filed the present motion seeking to add another count (Count V) to its counter-complaint. Specifically, Defendant seeks to assert the claim that it is not liable to provide coverage under the subject insurance policy due to the application of Exclusion L, which provides an exclusion in coverage for any claim based upon Plaintiffs willful violation of any statute or ordinance. In Count V, Defendant asserts that Plaintiff willfully failed to comply with certain federal and/or state laws regarding the removal of asbestos.
Federal Rule of Civil Procedure 15(a) provides that leave to amend pleadings "shall be freely given when justice so requires." This does not, however, obligate the Court to grant every request to amend a particular pleading. While the Court must consider several factors when deciding a motion such as this, "the most important factor . . . and the most frequent reason for denying leave to amend is that the opposing party will be prejudiced if the movant is permitted to alter his pleading." Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 1487 (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
Defendant claims that until discovery began in the present matter, the basis for asserting Count V was simply unknown. According to Defendant, it was not until it discovered a memorandum authored by an employee of Plaintiff, Christine Rollinson, and deposed several of Plaintiff's other employees, that it became aware of the factual basis for Count V. The Court disagrees.
During the October 17, 2002 hearing on the parties' various motions for summary judgment, Defendant asserted that PAS, in the underlying litigation of this matter, long ago alleged that Plaintiff failed to comply with the very asbestos removal laws that Defendant asserts form the basis for Count V. As Defendant was actively involved in the underlying litigation, it cannot reasonably claim that it only recently learned of the facts underlying Count V.
Moreover, Defendant bore an obligation to investigate and timely assert any claims or defenses applicable in this matter. PAS's specific allegations notwithstanding, the very nature of the claims asserted in the underlying litigation should have alerted Defendant to at least the possibility that Exclusion L applied. In the Court's opinion, Defendant could have, through the exercise of due diligence, long ago discovered the alleged factual basis for Count V.
Finally, Plaintiff asserts that it will be prejudiced by the late addition of Defendant's proposed Count V. In this respect, Plaintiff asserts that "the parties proceeded to settlement of the Underlying Litigation based upon the premise that their coverage positions were delineated at that point in time." As indicated above, given Defendant's active involvement in the underlying litigation, as well as its long-held position that it was not liable to Plaintiff under the policy, such is not an unreasonable assumption. Plaintiff concludes that "[t]he prejudice lies in that the Board has lost the opportunity to reject the settlement and insist that Deerfield pursue the defense to successful conclusion . . . or, withdraw the request for Deerfield's involvement and make its own settlement, in light of a newly asserted exclusion." While certain forms of prejudice can be overcome through the extension of discovery deadlines and similar accommodations, the specific prejudice alleged by Plaintiff cannot so easily be overcome.
In short, Defendant has unduly delayed in asserting Count V, and its inclusion at this juncture would significantly prejudice Plaintiff. Accordingly, the Court denies Defendant's motion. See Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 1488 ("an amendment clearly will not be allowed when the moving party has been guilty of delay in requesting leave to amend and, as a result of the delay, the proposed amendment, if permitted, would have the effect of prejudicing another party to the action").
IT IS SO ORDERED.