Brosamer & Wall, Inc. v. Indian Harbor Insurance Company

Background

Brosamer & Wall, Inc. was the general contractor for portions of the Lower Berryessa Creek Flood Protection Project. Zurich American Insurance Company insured Brosamer under a builders-risk policy. Indian Harbor Insurance Company insured Brosamer against professional and contractor pollution legal liability during two periods, including 2018–19.

In November 2018, the Santa Clara Valley Water District accused Brosamer of using deficient materials. Cracks developed in a pavement maintenance path and in the side slopes of levees 11–14, which the District had previously rejected. The District demanded remediation. Ten days later, Brosamer filed an insurance claim with Indian Harbor under its 2018–19 policy. Indian Harbor denied coverage in March 2019, and Zurich also denied coverage in April 2019. Brosamer then filed this action.

During a June 2019 examination under oath of a Brosamer representative, Indian Harbor learned that the person who completed the 2018–19 policy application had previously known about the District’s rejection. Indian Harbor later sent Brosamer a supplemental coverage letter again denying coverage.

Motion to Amend

Indian Harbor sought permission under Federal Rule of Civil Procedure 15(a)(2) to amend its answer. That rule generally directs courts to freely allow amendments when justice requires. Courts consider prejudice to the opposing party, undue delay, whether the amendment would be futile, and bad faith.

Brosamer opposed three proposed amendments. First, Indian Harbor sought to add an affirmative defense stating that it had no liability under the 2018–19 policy because of a misstatement or omission in the policy application. Brosamer argued that Indian Harbor knew the relevant facts earlier and that the new defense contradicted its prior position. The court rejected those arguments because the case was still early, nearly six months of discovery remained when Indian Harbor moved, and the defense was consistent with Indian Harbor’s earlier “known circumstances or conditions” defense and its supplemental coverage letter.

Second, Indian Harbor sought to identify policy number PEC004186705 in a paragraph admitting that Brosamer had submitted an insurance claim. Brosamer argued that its pleadings and a March 2019 email showed that it intended to claim under a different policy. The court allowed the amendment, stating that discovery could determine whether Brosamer had misled Indian Harbor by using the wrong policy number. The court did not decide whether the policy-number issue could ultimately defeat coverage.

Third, Indian Harbor sought to add “Professional Loss” to an existing affirmative defense. The court found that this was a minor clarification, was not untimely or made in bad faith, and was consistent with Indian Harbor’s existing “known circumstances or conditions” defense and its July 2019 supplemental coverage letter.

Ruling

The court granted, to the extent stated in the order, Indian Harbor’s motion for leave to file an amended answer. It also overruled Brosamer’s evidentiary objection and ordered Indian Harbor to file the amended answer within seven calendar days. The order addressed only whether Indian Harbor could amend its pleadings; it did not decide whether Brosamer was entitled to insurance coverage.