Cargill, Incorporated v.National Union Fire Insurance Company of Pittsburgh, Pa.

Background

This case concerns an insurance-coverage dispute. From 2009 through 2016, a group of Cargill employees and one supplier defrauded Cargill. Cargill made an insurance claim under a policy issued by National Union. After initially disputing coverage, National Union determined that Cargill had suffered a covered loss of approximately $17 million and paid $4 million after accounting for a $10 million deductible and Cargill’s other recovery. Cargill contends that its total loss exceeded $44 million and seeks the difference between the amount paid and the policy limit of $25 million.

In February 2023, National Union moved to amend its answer to add a counterclaim seeking to void the insurance policy under its fraud provision. National Union said discovery produced information that it had requested but had not received during its claims investigation because Cargill denied that the information existed. Cargill opposed the amendment and moved to amend its complaint to add a claim under Minnesota Statutes section 604.18, alleging that National Union acted in bad faith by attempting to void the policy. Cargill also moved to correct and supplement the record based on alleged misrepresentations by National Union concerning when it had access to information supporting the proposed counterclaim.

Magistrate Judge David T. Schultz granted National Union’s motion to amend its answer, denied Cargill’s motion to amend its complaint, and denied Cargill’s motion to correct and supplement the record. Cargill appealed that order. The district court reviewed the non-dispositive rulings under an extremely deferential standard, setting them aside only if they were clearly erroneous or contrary to law. It reviewed the futility issues anew.

National Union’s Proposed Counterclaim

Cargill argued that National Union’s proposed counterclaim was futile because it did not plead fraud specifically and relied on information that was not relevant to the insurance claims. Cargill also argued that National Union lacked good cause to amend after the scheduling deadline. National Union argued that its counterclaim was adequately pleaded and that it had good cause because it received the relevant documents during discovery in December 2022 and January 2023.

The court affirmed the ruling allowing the amendment. Under Federal Rule of Civil Procedure 15, courts generally should allow amendments when justice requires, but an amendment may be denied for reasons including undue delay, bad faith, prejudice, or futility. An amendment is futile if the proposed claim could not survive a motion to dismiss for failure to state a claim.

After reviewing the issue anew, the court concluded that National Union’s amendment was not futile. It held that National Union met the pleading standards described in the federal rules and the decisions in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly. The court also observed that many of Cargill’s arguments concerned the weight of the alleged facts, rather than whether the allegations were sufficient at the amendment stage.

The court also concluded that good cause existed to modify the scheduling order. The magistrate judge had found that National Union diligently pursued the information during the claims process and that both sides were acting in good faith. The district court agreed and held that the magistrate judge’s decision was neither clearly erroneous nor contrary to law.

Cargill’s Proposed Bad-Faith Claim

Cargill sought to add a claim under Minnesota Statutes section 604.18, which creates a cause of action against an insurer that acts in bad faith when denying insurance benefits. The court explained that such a claim requires an insured to show both that the insurer lacked a reasonable basis for denying benefits and that the insurer knew of, or recklessly disregarded, that lack of a reasonable basis.

The court affirmed the denial of Cargill’s motion to amend because the proposed claim was futile. Cargill did not allege that National Union denied or delayed payment. Instead, Cargill based the proposed claim on National Union’s attempt to void the policy under its fraud provision. The court stated that section 604.18 addresses an insurer’s denial or delay of claim payments, and that National Union had already decided the policy claim and paid Cargill. Cargill identified no legal basis for applying the statute to these circumstances, so the proposed claim could not withstand a motion to dismiss for failure to state a claim.

Disposition

Judge Wilhelmina M. Wright affirmed the May 23, 2023 order in full. The order allowing National Union to amend its answer to add a counterclaim, denying Cargill’s motion to amend its complaint, and denying Cargill’s motion to correct and supplement the record was affirmed. The court directed that judgment be entered accordingly.