Clear Blue Specialty Insurance Company v. Karimi

Background

Clear Blue Specialty Insurance Company sued Rami Karimi, Jonathan Chong, and Gregorio Castro in a federal case seeking a declaration about whether Clear Blue’s insurance policy covered claims arising from a construction accident and seeking reimbursement of defense costs. Clear Blue named Chong and Castro so that they would be bound by any coverage ruling.

The accident occurred while a concrete truck was being used to build a tennis court. The truck sank into the ground and tipped over, and its boom arm struck Chong and Castro, seriously injuring both. Related personal-injury and insurance-reimbursement lawsuits were filed in state court. Clear Blue was defending Karimi in the personal-injury lawsuits under a reservation of rights, including the right to seek reimbursement of defense fees and costs.

Clear Blue alleged that several policy provisions barred coverage, including limits on the types of construction work covered, an exclusion for injuries to employees of independent contractors, an exclusion involving land subsidence, conditions concerning indemnity agreements and additional-insured endorsements, and an exclusion for new construction on a dwelling’s premises.

Motion and prior ruling

Karimi moved to dismiss the federal case for failure to join necessary parties or, alternatively, to stay it until the related state lawsuits were resolved. Chong and Castro joined the request for a stay. At the hearing, the court denied the motion to dismiss without prejudice after Clear Blue represented that it would add all parties who had asserted claims against Karimi in the state lawsuits. The court took the request for a stay under submission.

Karimi also asked the court to take judicial notice, meaning to accept certain matters as established public records without ordinary proof. The court denied the request as to missing docket-sheet documents because no such exhibit was attached, but granted the request as to the complaints filed in the four related state lawsuits.

Legal standard

The court applied the federal standard from Landis v. North American Company because a stay is a procedural decision. Under that standard, the court considered: possible harm from granting a stay, hardship or unfairness to the parties if the case continued, and whether a stay would promote the orderly resolution of the issues. The party requesting the stay had the burden of showing that it was necessary.

Court’s analysis

The court found that Clear Blue had not shown sufficient prejudice from a stay. Clear Blue argued that it would have to continue paying defense costs in cases it believed were not covered. The court concluded that a delay in seeking reimbursement was similar to a delay in recovering money damages and was not the type of harm recognized under the governing standard. Clear Blue was defending Karimi under a reservation of rights and could seek reimbursement later if it prevailed. The court also found Clear Blue’s concern about Karimi’s ability to repay the costs speculative.

The court found more substantial potential prejudice to Karimi, Chong, and Castro if the federal case continued. Karimi could be required to defend both the insurance case and the state lawsuits and might need to take conflicting positions about his work and relationships with other construction participants. Chong and Castro were not insured under the policy and had been named in the federal case only to bind them to the coverage ruling. Requiring them to litigate in federal court could divert resources from their state lawsuits and could force them to take positions that conflicted with their arguments about Karimi’s liability and the cause of their injuries.

The court also found that the federal case and the state lawsuits presented overlapping factual questions. Those questions included Karimi’s role in the project, whether he retained Saviano, the relationships among Karimi, Warson, Saviano, and United, who was responsible for different parts of the project, and whether unstable soil or another cause made the concrete truck tip over. The answers could affect whether several policy exclusions applied. Proceeding at the same time created a risk of inconsistent results, and discovery in the state lawsuits could reduce the need for similar discovery in the federal case.

The court rejected Clear Blue’s comparison to a case in which the alleged facts did not suggest a potentially covered claim. Here, the factual allegations about Karimi’s relationships and work would not necessarily eliminate coverage, so those factual issues needed to be resolved and could overlap with the state lawsuits.

Disposition

The court granted Defendants’ motion to stay the action. It ordered the parties to file a joint status report in six months addressing whether the stay should be lifted. The court did not decide whether Clear Blue’s policy covered the underlying claims or whether Clear Blue was entitled to reimbursement.