Webcor-Obayashi Joint Venture v. Zurich American Insurance Company

Background

Webcor-Obayashi Joint Venture (WOJV) moved for permission to amend and supplement its complaint against Zurich American Insurance Company. WOJV sought to add a claim for punitive damages and 53 paragraphs concerning Zurich’s investigation of WOJV’s insurance claim and Zurich’s denial of coverage. WOJV did not seek to add parties or causes of action, or to expand the period covered by the lawsuit.

Zurich opposed the motion, arguing that the proposed amendments were futile and prejudicial. Zurich focused on 10 paragraphs—Paragraphs 87 through 97—and argued that allegations about claims-handling conduct were barred by California’s litigation privilege. Zurich also argued that the amendments would require additional discovery and expose Zurich’s counsel to cross-examination at trial.

Court’s reasoning

The court stated that leave to amend may be denied only when there is strong evidence of undue delay, bad faith, repeated failure to fix earlier deficiencies, undue prejudice, or futility. The court reviewed the proposed amended complaint and concluded that WOJV should receive permission to amend.

The court noted that Zurich challenged only 10 of the 53 proposed new or amended paragraphs. It found that the other 43 paragraphs concerned matters including Zurich’s pre-lawsuit investigation and denial of WOJV’s claim and Zurich’s public statements about the practical difficulties of applying the Cost of Making Good Exclusion. The court found that these paragraphs added information supporting a punitive-damages claim.

As to Paragraphs 87 through 97, the court did not resolve whether evidence supporting allegations about post-lawsuit conduct would be barred by California’s litigation privilege. Instead, it stated that the issue could be addressed through a motion in limine, which is a request made before trial to exclude particular evidence. The court also stated that, if the case proceeded to trial, the parties’ evidence concerning Zurich’s stated reasons for denying coverage and its claims-handling conduct would be relevant, even though the court did not decide at that time whether particular evidence about litigation conduct would be admissible.

The court rejected Zurich’s claim of prejudice. WOJV said it would need only limited additional discovery about Zurich’s wealth, using written discovery and depositions that were already scheduled. The court was not persuaded by Zurich’s assertion that the amendment would require extensive new discovery into WOJV’s knowledge, investigations, and decisions not to provide information during the claims-handling process. The court noted that fact discovery had not closed and expected the parties to cooperate regarding any additional discovery resulting from the amendment.

Order

Judge Susan Illston granted WOJV’s motion for leave to file an amended and supplemental complaint. The court ordered WOJV to file the amended complaint by August 13, 2021. The hearing scheduled for August 20, 2021, was vacated because the court found the matter suitable for resolution without oral argument.