SCHWARTZ & SCHWARTZ v. UNDERWRITERS AT LLOYD'S

Decision Date29 December 2009
Docket NumberCase No. 6:07-cv-00042.
Citation677 F. Supp.2d 890
CourtU.S. District Court — Western District of Virginia
PartiesSCHWARTZ & SCHWARTZ OF VIRGINIA, LLC, and Schwartz & Schwartz, LLC, Plaintiffs, v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON WHO SUBSCRIBED TO POLICY NUMBER NC959, Defendant.

Frances Elizabeth Burgin, James Wilson Jennings, Jr., Joshua F.P. Long, Woods Rogers PLC, Roanoke, VA, for Plaintiffs.

Elizabeth E.S. Skilling, Harman Claytor Corrigan & Wellman, Glen Allen, VA, Lawrence D. Wright, Sheila E. O'Donnell, Susan B. Ayres, Wright & O'Donnell, P.C., Conshohocken, PA, for Defendant.

MEMORANDUM OPINION

NORMAN K. MOON, District Judge.

This matter is before the Court upon the Report & Recommendation of the United States Magistrate Judge (docket no. 103), the Objections to the Report & Recommendation filed by Defendant, Certain Underwriters at Lloyd's, London Who Subscribed to Policy Number NC959 (hereinafter "Underwriters") (docket no. 110), the Objections to the Report & Recommendation filed by Plaintiffs, Schwartz & Schwartz of Virginia, L.L.C., and Schwartz & Schwartz L.L.C. (hereinafter "Schwartz") (docket no. 112), and the subsequent responses thereto (docket nos. 113 and 114), and the supplementary Notice of New Authority in Support of Plaintiffs' Pending Objections to the Report & Recommendation (docket no. 115), and Defendant's Response thereto (docket no. 116).

For the following reasons, the Report & Recommendation of the United States Magistrate Judge (docket no. 103) is hereby adopted and affirmed in its entirety: Underwriters' Motion for Leave to Amend Counterclaim (docket no. 62) is hereby denied, Underwriters' Motion for Summary Judgment (docket no. 70) is hereby granted, and Underwriters' Motion for Judgment on the Pleadings (docket no. 60) and Schwartz's Motion for Partial Summary Judgment as to Damages (docket no. 68) are hereby denied, as moot.

I. BACKGROUND

The underlying dispute in this matter concerns insurance coverage for a fire that occurred on November 11, 2005, at a former Lane Furniture warehouse located at 301 Pittsylvania Avenue in Altavista, Virginia, (hereinafter "Plant 2" or "the warehouse"), which was owned by Schwartz and insured by Underwriters. On April 29, 2005, Underwriters issued commercial property insurance (Policy No. NC959) (hereinafter "the Policy") covering the warehouse with an effective policy period from March 26, 2005, to March 26, 2006. Schwartz filed a Complaint on October 19, 2007, seeking, inter alia, a declaratory judgment that the property damage to this warehouse caused by the fire was covered under the terms of the Policy.

Principally at issue now is the state in which Schwartz maintained the warehouse's sprinkler system for fire protection, and the effect thereof upon the coverage due Schwartz under the terms of the Policy. In the box entitled "Premises Fire Protection" on the Application for insurance coverage, Schwartz had indicated that the Premises were "Fully Sprinklered." Exhibit A to Complaint, docket no. 1, at 3. Based upon this statement in the Application, the Policy contained a Protective Safeguards Endorsement applicable to Schwartz's sprinkler system, which provided the following coverage exclusion:

We will not pay for loss or damage caused by or resulting from fire if, prior to the fire, you:
(a) Knew of any suspension or impairment in any protective safeguard listed in the Schedule above and failed to notify us of that fact; or
(b) Failed to maintain any protective safeguard listed in the Schedule above, and over which you had control, in complete working order.
If part of an Automatic Sprinkler System is shut off due to breakage, leakage, freezing conditions or opening of sprinkler heads, notification to us will not be necessary if you can restore full protection within 48 hours.

Exhibit B to Complaint, docket no. 1, at 27. The Schedule to the Protective Safeguards Endorsement, on the prior page, includes as a listed protective safeguard, "Sprinkler System," and provides that "as a condition of this Insurance, you are required to maintain the protective devices or services listed in the Schedule above." Id. at 26.

Underwriters' position is that the exclusion in this Protective Safeguards Endorsement applies and that no coverage is owed Schwartz for the fire loss because (1) it did not maintain the sprinkler system in complete working order; and (2) it did not notify Underwriters that part of the sprinkler system had been turned off in the preceding weeks in an effort to identify the leak. However, Schwartz's position is that it did maintain the sprinkler system in complete working order, and further, that it was not required to notify Underwriters about the leak in the sprinkler system because it could have been restored to full protection within 48 hours. Therefore, Schwartz argues, the terms of the Protective Safeguards Endorsement were satisfied and the damage caused to the warehouse was covered under the Policy.

The following motions were referred to the United States Magistrate Judge: Underwriters' Motion for Leave to Amend Counterclaim (docket no. 62); Underwriters' Motion for Judgment on the Pleadings (docket no. 60); Underwriters' Motion for Summary Judgment (docket no. 70); and Schwartz' Motion for Partial Summary Judgment as to Damages (docket no. 68). The Magistrate Judge, pursuant to 28 U.S.C. § 636(b)(1)(B), rendered proposed findings of fact and recommendations for disposition to this Court, in which it was recommended that Underwriters' Motion for Summary Judgment be granted and that the remaining motions be denied.

II. STANDARD OF REVIEW

Pursuant to Federal Rule of Civil Procedure 72, either party was permitted to submit objections to the Magistrate Judge's ruling to the District Court within ten days of service of the order.1 Fed. R.Civ.P. 72; see also 28 U.S.C. § 636(b). As a general rule, the standard of review applied by this Court depends upon whether the issue decided by the Magistrate Judge is dispositive or nondispositive of the litigation. For dispositive matters, the Court will undertake a de novo review of those portions of the report and recommendation to which objections were made. Fed.R.Civ.P. 72(b)(3); see also Orpiano v. Johnson, 687 F.2d 44, 47-48 (4th Cir.1982). For nondispositive matters, the Court reviews a decision of the Magistrate Judge for whether it is "clearly erroneous" or "contrary to law." Fed.R.Civ.P. 72(a); see also Proa v. NRT Mid Atlantic, Inc., 633 F.Supp.2d 209, 212 (D.Md.2009) (citing Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1113 (3d Cir.1986), cert denied, 484 U.S. 976, 108 S.Ct. 487, 98 L.Ed.2d 485 (1987)).

A motion to amend, whether it is in reference to a complaint, or in this case, a counterclaim, is generally viewed as a nondispositive motion. See e.g., Hall v. Norfolk S. Ry. Co., 469 F.3d 590, 595 (7th Cir.2006) ("The district judge correctly held that the magistrate judge's denial of Hall's motion to amend his complaint was nondispositive, subject only to review for clear error."); Pagano v. Frank, 983 F.2d 343, 346 (1st Cir.1993). See also Everett v. Cherry, 671 F.Supp.2d 819, 820 n. 4 (E.D.Va.2009); United States v. Sensient Colors, Inc., 649 F.Supp.2d 309, 315 n. 5, 328-30 (D.N.J.2009) (finding magistrate judge's denial of defendant's motion to amend its responsive pleading to include, inter alia, a counterclaim, would be overturned only if found to be clearly erroneous or contrary to law). The other motions presently before the Court, which are Underwriters' Motion for Judgment on the Pleadings and Motion for Summary Judgment, and Schwartz's Motion for Partial Summary Judgment as to Damages, are undeniably dispositive motions.

Pursuant to the Pretrial Order, entered December 17, 2007 (docket no. 10), "all nondispositive pretrial motions and issues," including Underwriters' Motion for Leave to Amend Counterclaim, were referred to the Magistrate Judge "pursuant to 28 U.S.C. § 636(b)(1)(A)." Pursuant to the Orders dated July 17 and 22, 2009 (docket nos. 67 and 72), the Court referred to the Magistrate Judge the aforementioned dispositive motions "pursuant to 28 U.S.C. § 636(b)(1)(B)." In the Report & Recommendation, however, the Magistrate Judge bundled all of the motions presently at issue and explicitly made recommendations on their disposition "pursuant to 28 U.S.C. § 636(b)(1)(B)." Therefore, the Magistrate Judge could have entered an order disposing of Underwriters' Motion for Leave to Amend as a nondispositive motion that had been referred under the Pretrial Order, which would have been reviewable by the Court for whether it was "clearly erroneous" or "contrary to law." However, this deferential standard of review is predicated upon the Magistrate Judge issuing an order, or making a determination or a ruling on the nondispositive motion. See 28 U.S.C. § 636(b)(1)(A) ("A judge of the court may reconsider any pretrial matter under this subparagraph (A) where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law."); Fed.R.Civ.P. 72(a) (providing that "the district judge in the case must consider timely objections and modify or set aside any part of the order that is clearly erroneous or is contrary to law"). Because the Magistrate Judge's recommended disposition as to the Motion for Leave to Amend Counterclaim did not have the force of law, see 91 C.J.S. United States Magistrates § 9 (2009) (noting that "a magistrate's report and recommendation does not have the force of law"), the Court applies the same standard of review to the recommendations on that nondispositive motion as it applies to the recommendations on the dispositive motions.

Consequently, the Court will review de novo the Magistrate Judge's recommended disposition as to all referred motions, as articulated in the Report & Recommendation.

III. DISCUSSION
A. Motion for Leave to Amend Counterclaim

On July 8, 2009,...

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