Recology, Inc. v. Berkley Regional Insurance Company

Background

This case concerns an insurance-coverage dispute. Recology, Inc., described in the opinion as a resource recovery company that collects, sorts, and processes waste materials, seeks coverage for more than $6 million allegedly lost through kickback schemes involving its employees and customers. Recology’s complaint asserts claims for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing.

Berkley Regional Insurance Company filed an answer after the case was removed from state court. Berkley later sought permission under Federal Rule of Civil Procedure 15 to file an amended answer. Its proposed amendments would withdraw Berkley’s admission to Recology’s allegation that the alleged kickback schemes were “separate occurrences” under the policy. Berkley also sought to add two affirmative defenses concerning the possible scope of covered loss: the policy’s single-occurrence loss limit and its definition of “occurrence.”

Legal standard

After the time for amending a pleading as a matter of course has passed, Rule 15 generally requires either the opposing party’s written consent or the court’s permission. Courts should freely grant permission when justice requires. The court considered bad faith, undue delay, prejudice to the opposing party, whether the amendment would be futile, and whether the plaintiff had previously amended its complaint. The court explained that prejudice is the most important factor and that the party opposing amendment bears the burden of showing prejudice.

Analysis

Recology argued that Berkley had unduly delayed because it waited eight months to seek the amendments, despite having had several years to investigate the loss and the policy language. The court agreed that Berkley had the opportunity to determine whether the schemes qualified as a single occurrence or separate occurrences before filing its original answer, and that its additional eight-month delay in changing its position was undue delay under Rule 15.

The court nevertheless found that Recology failed to show sufficient prejudice. Recology argued that the amendments would require additional litigation concerning whether the schemes were one occurrence or separate occurrences and would increase its expenses. The court was sympathetic to those concerns but ruled that the expected additional expenditures were not enough to overcome the presumption favoring amendment. The parties had exchanged Rule 26(a) disclosures but had not otherwise engaged in discovery, so the court concluded that the additional expenditures appeared minimal.

Disposition

Judge Phyllis J. Hamilton granted Berkley’s motion for leave to file an amended answer. The court ordered Berkley to refile its proposed amended answer as a separate docket entry and instructed it not to include the preexisting blue electronic filing header. The order granted permission to amend; it did not decide the insurance-coverage dispute or the merits of the proposed defenses.