Zurich American Insurance Company v. Chevron U.S.A. Inc.

Background

Chevron U.S.A. Inc. doing business as Chevron Products Company and Chevron Corporation moved for leave to amend and supplement their counterclaim. Chevron sought to add breach-of-contract and bad-faith claims against the Excess Insurers and allegations concerning the court’s subject-matter jurisdiction.

According to Chevron’s existing counterclaim, it purchased insurance providing $200 million in total coverage for April 1, 2023, through April 1, 2024. The Primary Insurers provided the first $50 million, and the Excess Insurers provided the remaining $150 million. In April 2023, Iranian armed forces allegedly seized an oil tanker carrying Chevron’s crude oil in international waters. The vessel and cargo remained detained until March 2024, when Iranian military forces allegedly discharged the crude oil onto another vessel controlled by Iran’s government.

Chevron notified the Primary and Excess Insurers of the hostile taking on April 27, 2023. Zurich, acting for the Primary Insurers, sent Chevron a denial-of-coverage letter in June 2023. Chevron later submitted a proof of loss seeking $57,064,569.85. The Primary Insurers then sued for a declaration that the loss was not covered. Chevron responded with a counterclaim seeking a declaration that the loss was covered, plus breach-of-contract and implied-covenant claims against the Primary Insurers.

Chevron filed its motion to amend after the January 9, 2025 deadline for amending pleadings. The Primary Insurers did not oppose the motion, but the Excess Insurers did.

Legal standard

Because a scheduling order set a deadline for amending pleadings, the court applied Federal Rule of Civil Procedure 16 and Rule 15. Chevron first had to show “good cause” to modify the scheduling order, with the main focus on its diligence. It then had to show that amendment was proper under Rule 15, which generally calls for freely allowing amendments when justice requires. Relevant Rule 15 considerations include bad faith, undue delay, prejudice, futility, and whether the pleading had previously been amended.

Court’s reasoning

The court found good cause under Rule 16. Chevron had requested documents about the Excess Insurers’ investigation of its claim in August 2024, but the Excess Insurers initially provided boilerplate responses without producing documents. Royal and Sun Alliance produced 222 documents on February 5, 2025, and other Excess Insurers made additional productions through March 27, 2025—after the amendment deadline.

Chevron’s attorney stated that review of those productions revealed that the Excess Insurers had not conducted an adequate or independent good-faith investigation. Chevron identified documents that, according to its motion, supported that allegation. The court also found that Chevron acted timely after receiving the documents: it filed the motion 57 days after the first production. The Excess Insurers’ arguments that Chevron already knew they denied coverage did not establish that Chevron previously knew how they had handled their investigation.

The court found no sufficient prejudice to the Excess Insurers. Fact discovery was still open, the proposed amendment did not require reopening discovery, and the deadlines for dispositive motions and trial were still approximately ten months and more than a year away, respectively.

The Excess Insurers argued that amendment would be futile because their obligations could not arise until the $50 million in primary coverage was exhausted. The court noted that the cited cases involved duties to defend or indemnify and relied partly on specific policy language. The Excess Insurers did not identify comparable language expressly stating that their liability could not arise until the primary insurance was exhausted. The court also noted that the proposed claims concerned a possible duty to investigate, an issue the cited cases did not address.

Because the parties’ policy language could have more than one interpretation, and because the parties presented conflicting authority about claims against excess insurers before exhaustion of primary coverage, the court held that the Excess Insurers had not shown the proposed amendment was futile. The court stated that the Excess Insurers could ultimately prevail on whether they had a duty to investigate or whether they breached such a duty, but those issues did not make amendment futile at this stage.

The court separately granted Chevron’s unopposed request to add allegations concerning subject-matter jurisdiction.

Sealing rulings

The court granted Chevron’s narrowly tailored request to seal Exhibit 16 to the declaration of Mikaela Whitman because it contained screenshots of AWAC’s internal proprietary claims-management software. Because AWAC did not maintain confidentiality over references to the exhibit’s contents, the court ordered Chevron to refile its motion and supporting declaration without those redactions.

Chevron released its confidentiality claim concerning documents listed in the Excess Insurers’ sealing motion. The court therefore directed the Excess Insurers to refile their opposition brief, supporting declaration, and exhibit without redactions.

Disposition

Judge Jacquelyn Scott Corley granted Chevron’s motion to amend and supplement its counterclaim. The amendment may assert breach-of-contract and bad-faith claims against the Excess Insurers and add allegations about the court’s subject-matter jurisdiction. The order disposed of Docket Nos. 84, 85, and 92.