Granite State Insurance Company v. KM Tactical, LLC

Background

Granite State Insurance Company brought this declaratory judgment action against KM Tactical, LLC, an insurance dispute concerning whether Granite State’s commercial general liability policies required it to defend KM Tactical and pay settlements or judgments arising from lawsuits filed by the New York Attorney General and the cities of Buffalo and Rochester. Those underlying lawsuits alleged that KM Tactical unlawfully sold and shipped unfinished firearm frames and receivers into New York that were used to assemble functioning firearms known as “ghost guns.” KM Tactical asserted counterclaims for breach of contract, a declaration that Granite State owed coverage, and bad-faith denial of coverage.

Berkshire Hathaway Specialty Insurance Company, referred to as BHSI, issued KM Tactical a commercial general liability policy for the period immediately after Granite State’s last policy. BHSI denied KM Tactical’s request for defense and indemnification concerning the same underlying lawsuits. KM Tactical later sued BHSI in the Western District of Missouri and added Granite State as a defendant. That Missouri case was stayed, and this Court denied KM Tactical’s request to transfer the New York action to Missouri.

BHSI sought permission to intervene in the New York action under Rule 24(b) of the Federal Rules of Civil Procedure. Granite State supported the request, while KM Tactical opposed it. The opinion states that BHSI sought only permissive intervention, not intervention as a right.

Legal Standard

Permissive intervention is discretionary. A court may allow a party to join an action when the party’s claim or defense shares a common question of law or fact with the existing case. The court must also consider whether the request is timely and whether intervention would cause undue delay or prejudice. Courts may consider related factors, including the applicant’s interest, possible practical impairment of that interest, whether the existing parties adequately represent it, judicial economy, and the risk of inconsistent rulings.

Court’s Analysis

The court found that BHSI’s request was timely because the case was still at an early stage: discovery had not begun, no discovery schedule had been set, and the only prior motion practice concerned the proper forum. KM Tactical identified no prejudice caused by BHSI’s delay in seeking intervention.

The court also found an undisputed common question of law or fact. Both disputes arose from insurers’ denials of coverage for the same underlying lawsuits. The Granite State and BHSI policies were virtually identical, and both insurers sought declarations that they were not required to defend or indemnify KM Tactical. The insurers also relied on substantially the same policy language and reasons for denying coverage.

The court recognized that BHSI’s dispute concerned its own policy rather than Granite State’s obligations. But under the flexible standard for permissive intervention, the court concluded that BHSI had a sufficient practical interest because an adverse ruling for Granite State could affect BHSI’s coverage position. The court also emphasized that joining the disputes could prevent duplicative litigation and inconsistent rulings. It noted that both this Court and the Western District of Missouri had determined that the Granite State-KM Tactical coverage dispute should proceed in the Southern District of New York.

Finally, the court found that intervention would not significantly delay the case or unfairly prejudice KM Tactical. The case was still in its early stages, the BHSI dispute substantially overlapped with the existing coverage dispute, and allowing both disputes to proceed in one forum would serve judicial efficiency. The court rejected KM Tactical’s argument that intervention improperly deprived it of its preferred Missouri forum, noting that the Missouri action was stayed and that the New York case had already been found to belong in this District.

Disposition

Judge Gary Stein granted BHSI’s motion to intervene under Rule 24(b). The court ordered BHSI to file its Complaint in Intervention within seven days of the order and required KM Tactical to respond within 21 days after that filing. The order decided the intervention issue; it did not decide whether either insurer ultimately owes coverage to KM Tactical.