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

Background

Cargill sued National Union over insurance coverage for losses resulting from fraud by a group of Cargill employees and one supplier between 2009 and 2016. Cargill sought a declaration that National Union had to pay the policy limits. National Union later determined that Cargill had suffered an approximately $17 million covered loss and paid Cargill $4 million. Cargill contends that its total loss exceeded $44 million and seeks the difference between the payment it received 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 stated that discovery produced information it had requested but did not receive during its claims investigation because Cargill denied that the information existed. Cargill opposed the amendment. Cargill also moved to amend its complaint to add a claim under Minnesota Statutes § 604.18, alleging that National Union acted in bad faith by attempting to void the policy. Cargill separately moved to correct and supplement the record, arguing that National Union made misrepresentations at a hearing about when it obtained or 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 to the district court.

Standard of Review

The district court explained that a magistrate judge’s ruling on a non-dispositive issue may be changed or set aside only if it is clearly erroneous or contrary to law. The court reviewed the futility issues concerning both proposed amendments independently.

National Union’s Counterclaim

Cargill argued that National Union’s proposed counterclaim was futile because it did not plead fraud specifically and relied on information that was irrelevant 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 legally sufficient and that it had good cause because it obtained the relevant documents during discovery in December 2022 and January 2023.

The court affirmed the decision allowing National Union to amend its answer. Under Rule 15, courts generally allow amendments when justice requires, but may deny them 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.

The court concluded that National Union’s proposed counterclaim was not futile because it met the applicable pleading standards. The court also stated that many of Cargill’s objections concerned the weight of the alleged facts, an issue not resolved at this stage. The court further held that good cause existed to modify the scheduling order because the record supported the magistrate judge’s conclusion that National Union had diligently pursued the information. The court found no clear error or legal error in that ruling.

Cargill’s Proposed Bad-Faith Claim

Cargill sought to add a claim under Minnesota Statutes § 604.18, which creates a cause of action for an insurer’s bad-faith denial of insurance benefits. The court explained that such a claim requires allegations that the insurer lacked a reasonable basis for denying benefits and knew of, or recklessly disregarded, that lack of a reasonable basis. The court also described the relevant inquiry as whether a reasonable insurer would have denied or delayed payment and what the insurer knew and when.

The court affirmed denial of Cargill’s motion to amend its complaint. It held that Cargill did not allege that National Union denied or delayed payment. Instead, Cargill’s proposed claim was based on National Union’s attempt to void the policy after National Union had decided the claim and paid Cargill. The court stated that Cargill identified no legal basis, and the court found none, for applying § 604.18 to those circumstances. Because the proposed claim could not withstand a motion to dismiss for failure to state a claim, the court concluded that amendment would be futile.

Disposition

The district court affirmed the May 23, 2023 order in full. That order granted National Union’s motion to amend its answer to assert a counterclaim, denied Cargill’s motion to amend its complaint, and denied Cargill’s motion to correct and supplement the record. This order did not decide whether National Union’s proposed fraud counterclaim will ultimately succeed or resolve the parties’ underlying insurance-coverage dispute.