ZAROUR v. CHUBB & SON, INC.

Background

Simon Zarour and Lori Zarour sued Chubb & Son, Inc. and Pacific Indemnity Company over alleged insurance coverage for losses to their home caused by Superstorm Sandy on October 29, 2012. The case was initially filed in the District of New Jersey. The parties later agreed that Chubb & Son, Inc. would be dismissed and that the case would be transferred to the Southern District of New York.

In 2015, Judge Jed S. Rakoff granted Pacific Indemnity’s motion to require an insurance appraisal. The three-person appraisal panel awarded the plaintiffs $110,490.20. The plaintiffs then asked to reopen the appraisal because the panel had not determined whether the home suffered mold damage. On February 22, 2017, Judge Rakoff granted that request and ordered the appraisal panel to determine whether, and to what extent, the plaintiffs had covered losses from mold damage.

Motion and delay

After the case was reassigned to Judge Cronan in September 2020, the court ordered the parties to provide a joint status update. The parties did not meet the initial deadline. Pacific Indemnity reported that its appraiser had tried to arrange a mold inspection but received no response from the plaintiffs’ appraiser. Pacific Indemnity also stated that it had received no further communications from the plaintiffs, their appraiser, or their counsel.

The plaintiffs said that their appraiser and Pacific Indemnity’s appraiser disagreed and that their own appraiser had not responded to their attempts to contact him. They did not explain why they had not pursued the reopened appraisal since February 2017. Pacific Indemnity then moved under Federal Rule of Civil Procedure 41(b) to dismiss for failure to prosecute, meaning failure to move the case forward.

The plaintiffs primarily argued that the reopened appraisal had not occurred because Simon’s March 2018 bankruptcy petition automatically stayed the case. Pacific Indemnity argued that the bankruptcy stay did not apply and that the plaintiffs had failed to prosecute the reopened appraisal. The opinion does not resolve the bankruptcy-stay issue as a separate ruling because the court denied the dismissal motion on other grounds.

Legal standard

A court may dismiss an action when a plaintiff fails to prosecute or fails to comply with court rules or a court order. Dismissal for failure to prosecute is a severe remedy that should be used only in extreme situations. The court considered the duration of the delay, whether the plaintiffs had notice that further delay could lead to dismissal, likely prejudice to the defendant, the need to manage the court’s calendar, the plaintiffs’ opportunity to have their claims heard, and whether a lesser sanction would be appropriate.

Court’s reasoning

The court found that the plaintiffs’ failure to take proactive steps to reopen the appraisal caused a significant delay of more than three years. The court also found likely prejudice to Pacific Indemnity because conducting an appraisal more than eight years after the property damage would be difficult. These considerations favored dismissal.

But the court emphasized that the plaintiffs had never been warned that further delay could result in dismissal. The court also found that both sides were at fault for failing to bring the appraisal problem to the court’s attention for more than three years. The court stated that Pacific Indemnity should have alerted the court or requested appropriate relief if the plaintiffs were obstructing the appraisal. Because dismissal would be a harsh remedy in these circumstances, the court concluded that a lesser resolution was appropriate.

Disposition

The court denied Pacific Indemnity Company’s motion to dismiss for lack of prosecution. It ordered the parties to complete the reopened appraisal required by Judge Rakoff’s February 22, 2017 order within ninety days after the February 25, 2021 order was filed. The court stated that it would not extend the deadline absent extremely good cause and that it could dismiss the action for failure to prosecute without further notice if the plaintiffs did not work diligently and the parties did not meet the deadline. The clerk was directed to terminate the motion at Docket Number 57.