Harleysville Worcester Insurance Company v. Consigli & Associates, LLC

Background

This insurance-coverage case arose from an underlying New York state-court lawsuit concerning alleged faulty work and construction-related flood damage at a property-development project at 99 Wall Street. 99 Wall Development Inc. sued Consigli & Associates, LLC, Domestic Plumbing Corp., and Hig Services Inc. Consigli was the general contractor, and Domestic and Hig were subcontractors.

The parties had insurance policies issued by several insurers, including Harleysville, Zurich American Insurance Company, National Union Fire Insurance Company of Pittsburgh, Pa., Catlin Insurance Company, Inc., and Starr Indemnity & Liability Company. Harleysville was defending Consigli, Domestic, and Hig under a partial denial and a complete reservation of rights. Harleysville sought declarations concerning its own coverage obligations and the possible obligations of other insurers.

A September 13, 2022 partial settlement resolved claims between 99 Wall and Domestic, claims between 99 Wall and Hig, and some coverage issues concerning damages attributed to Domestic and Hig. Harleysville stated that it paid the $6 million limits of Domestic’s policies and $3.5 million of the $4 million limits of Hig’s policy. The settlement led several parties to seek permission to revise their pleadings.

Motions to Amend

Under Federal Rule of Civil Procedure 15, a party generally may amend a pleading with the court’s permission, and permission should usually be granted unless factors such as bad faith, undue delay, prejudice, or futility weigh against amendment. Futility means that the proposed pleading would fail to state a legally sufficient claim.

The court granted Harleysville’s motion to file a second amended complaint. The proposed complaint added additional grounds for Harleysville’s position that it had no obligation to cover Domestic and Consigli, added a reimbursement claim against Domestic for defense costs allegedly incurred after policy exhaustion, added a reimbursement claim against Consigli, and removed Harleysville’s breach-of-contract claim against 99 Wall. No party opposed this motion, and the court found no undue delay, bad faith, prejudice, or futility.

The court also granted Consigli’s motion to file a third amended answer. Consigli sought to add two claims against Harleysville for breach of the implied duty of good faith and fair dealing and one claim under New York General Business Law § 349, which addresses deceptive business practices. Consigli alleged that Harleysville’s handling of the partial settlement and defense arrangements harmed Consigli’s interests and that Harleysville failed to inform Consigli of its right to choose defense counsel.

The court did not decide whether Harleysville ultimately owed coverage to Consigli. It assumed for purposes of the amendment motion that Harleysville owed some coverage obligation because that issue was not properly before the court on the motion. The court found that Consigli’s proposed good-faith claims were sufficiently pleaded and were not necessarily duplicative of Consigli’s contract and declaratory-judgment claims. The court was skeptical that the proposed consumer-protection claim would ultimately satisfy the requirement of showing an effect on the public, but held that Harleysville had not shown on the limited pleadings review that the claim was legally futile. The court therefore granted Consigli’s motion.

Zurich’s Motion

Zurich sought permission to add counterclaims against Harleysville, a crossclaim against Consigli, and a third-party complaint against National Union. The court denied Zurich’s request to add counterclaims against Harleysville because those claims substantially duplicated Harleysville’s existing claims concerning Harleysville’s duties to defend and indemnify Consigli and the relationship between Harleysville’s and Zurich’s obligations.

The court granted Zurich permission to file its proposed third-party complaint against National Union. Zurich sought a declaration that National Union would have a duty to defend or indemnify Consigli if Harleysville’s policy covering Hig were exhausted. The court held that the proposed claim was not futile, and that Zurich had a legally recognizable interest because it could incur costs if its own coverage obligations were triggered. The court also held that the claim was sufficiently ready for adjudication even though some events remained contingent.

The court granted Zurich permission to file its crossclaim against Consigli seeking a declaration that Zurich had no duty to defend or indemnify Consigli. Consigli did not oppose that request, and the court found no undue delay, prejudice, or apparent futility.

Summary-Judgment Requests

Harleysville sought permission to file a summary-judgment motion—a motion asking the court to decide claims without a trial—concerning its coverage and defense obligations to Consigli. National Union sought permission to file a similar motion concerning its coverage obligations to Consigli and potentially Zurich.

The court denied without prejudice both requests for permission to move for summary judgment. The court did not reach the merits of the proposed motions. Instead, it directed that summary-judgment briefing occur after the amended pleadings were filed and the parties completed any limited discovery needed concerning the new claims. The denial without prejudice left the requests available for renewal under the court’s rules after those steps.

Other Order

The court declined at that time to hold a pre-motion conference concerning Zurich’s anticipated motion to compel discovery from Harleysville. Because the parties gave conflicting accounts about whether Harleysville had produced the requested documents and whether Zurich’s discovery requests were proper, the court directed them to meet and confer and then file a joint status letter.

Disposition

The court granted Harleysville’s motion for leave to file a second amended complaint and granted Consigli’s motion for leave to file a third amended answer. It granted in part and denied in part Zurich’s motion: it granted permission for Zurich to file the third-party complaint against National Union and the crossclaim against Consigli, but denied permission to file the proposed counterclaims against Harleysville. The court denied without prejudice Harleysville’s and National Union’s requests for leave to move for summary judgment. Judge Paul A. Engelmayer directed the parties to file amended pleadings and then proceed with any necessary limited discovery.