Klockner Stadler Hurter v. Insurance Co., 89 Civ. 8063 (KC).

• Decision Date: 11 July 1990
• Docket Number: No. 89 Civ. 8063 (KC).,89 Civ. 8063 (KC).
• Citation: 785 F. Supp. 1130
• Parties: KLOCKNER STADLER HURTER LTD., Plaintiff, v. The INSURANCE COMPANY OF The STATE OF PENNSYLVANIA, National Union Fire Insurance Company of Pittsburgh, and American International Underwriters Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

785 F. Supp. 1130

KLOCKNER STADLER HURTER LTD., Plaintiff, v. The INSURANCE COMPANY OF The STATE OF PENNSYLVANIA, National Union Fire Insurance Company of Pittsburgh, and American International Underwriters Corporation, Defendants.

No. 89 Civ. 8063 (KC).

United States District Court, S.D. New York.

July 11, 1990.

MEMORANDUM AND ORDER

CONBOY, District Judge:

Currently pending before the Court are two motions by the defendants, the Insurance Company of the State of Pennsylvania ("ICSP"), National Union Fire Insurance Company of Pittsburgh ("NUFI"), and American International Underwriters Corporation ("AIU"). First, the defendants seek to dismiss pursuant to Rules 12(b)(7) and 19 of the Federal Rules of Civil Procedure, for failure to join an indispensable party. Second, the defendants move to dismiss for failure to state a claim for which relief can be granted, pursuant to Rule 12(b)(6). For the reasons set forth below, the motion pursuant to Rules 12(b)(7) and 19 is denied, and the motion pursuant to Rule 12(b)(6) is granted in part and denied in part.

BACKGROUND

Plaintiff Klockner Stadler Hurter Ltd. ("KSH"), a Canadian corporation, was retained by Sabah Forest Industries Sdn. Bhd. ("SFI") and its consortium partners to act as general contractors for the construction and erection of the Sabah Pulp and Paper Project (the "Sabah Project") in Sipitang, Malaysia. In connection with the Sabah Project, Progressive Insurance Sdn. Bhd. ("Progressive"), a Malaysian insurance company, executed and delivered to KSH its policy of Contractor's All Risks/Erection All Risks Comprehensive General Liability Insurance (the "Contractor's All Risks Policy") for the period May 1, 1984 to November 1, 1987 inclusive. Defendant AIU, as foreign manager of defendant ICSP, executed a guarantee (the "Guarantee") whereby ICSP reinsured Progressive on the Contractor's All Risks Policy for 75% of the limits provided by that policy.

Also in connection with the Sabah Project, NUFI, through its Austrian branch office, caused to be executed and delivered to KSH its policy of Combined Contractor's All Risks/Erection All Risks Comprehensive General Liability Insurance and Difference in Conditions Policy (the "Difference in Conditions Policy"). The coverage provided by this policy is limited to the differences between the insurances, perils and other terms, conditions and definitions of that policy and those of the Contractor's All Risks Policy.

In August of 1985, an effluent treatment basin loss occurred at the Sabah Project. In January of 1987, a loss occurred in the high density concrete storage tanks at the Sabah Project. Within three months of each loss, KSH notified defendants of the loss. On February 13, 1989, defendant AIU, acting on behalf of defendants ICSP and NUFI, denied both claims. On June 14, 1989, NUFI, through its Austrian branch office, denied both claims, for the same reasons previously stated by AIU. KSH then brought this action in December of 1989.

DISCUSSION

I. Rules 12(b)(7) and 19

Defendants argue that because SFI and Progressive are not parties to this action, the action must be dismissed, pursuant to Rules 12(b)(7) and 19 of the Federal Rules of Civil Procedure, for failure to join a necessary and indispensable party. Rule 19 provides for compulsory joinder of parties who are needed for just adjudication. Rule 19(a) sets forth the standards for determining when a party should be joined if feasible. Thus,

A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.

Defendants argue that SFI and Progressive are parties who should be joined if feasible: first, because without them complete relief cannot be accorded among those already parties; second, because these parties have an interest which cannot be protected in their absence; and third, because defendants will be subject to multiple or inconsistent obligations if this action is disposed of without the missing parties.

As KSH points out, complete relief can be accorded among those already parties without joining SFI and Progressive. KSH seeks coverage for the two losses it suffered at the Sabah Project, and alleges that ICSP, as Progressive's reinsurer, is liable for up to 75% of those losses, or that NUFI is liable for them. The presence of neither Progressive nor SFI is necessary to determine whether or not ICSP and NUFI are liable to KSH.

We also do not believe that Progressive and SFI have interests in this action that cannot be protected in their absence. It appears from the reinsurance contract that Progressive has assigned to KSH "all rights of service and suit and all monies receivable from its reinsurers to the extent of their interest, wholly and absolutely." Contractor's All Risks Policy (attached as Exhibit A to Defendants' Memorandum of Law in Support of Their Motion to Dismiss Pursuant to Rules 12(b)(7) and 19 of the Federal Rules of Civil Procedure ("Def. 12(b)(7) Mem.")) at ¶ 2.16(1). In addition, Progressive agreed "to follow and be bound by the settlements made by leading reinsurers." Id. at ¶ 2.16(2)(d). Thus, Progressive does not appear to have an interest in this action. Even if it did, ICSP could adequately protect those interests.

With respect to SFI, KSH asserts that "the evidence will show that it was merely KSH's client and that its inclusion as a named insured was in fulfillment of one of the terms of its construction contract with KSH and KSH's consortium partners." Memorandum of Klockner Stadler Hurter Ltd. in Opposition to Defendants' Motion to Dismiss Pursuant to Rules 12(b)(7) and 19 ("Pltf. 12(b)(7) Mem.") at 9. More importantly, KSH states that "the evidence will show that now that the construction contract has been completed, ... SFI has accepted the work, and it is only KSH and not SFI that is out of pocket as a result of defendants' actions." Id. at 9-10. Accordingly, it does not appear that SFI has an interest in the relief sought here.

Finally, defendants argue that they will be subject to multiple or inconsistent obligations if SFI and Progressive are not joined as parties. Defendants assert that

A determination in favor of these Defendants would not prevent the Plaintiff or SFI from instituting suit against Progressive in Malaysia. The entire matter would be relitigated. The ensuing duplicative litigation could lead to a finding that Progressive is liable. Progressive would then assert its contractual right to seek reinsurance benefits under the cover note from ICSP, and square one would be reached once again.

Def. 12(b)(7) Mem. at 6. As explained above, it does not appear that SFI has any interest in this or any action against the defendants. Although there is a possibility that KSH may sue Progressive in Malaysia, if KSH does not prevail here, leading to a risk of inconsistent obligations for the defendants, we do not believe that this risk is "substantial," as required by Rule 19. See Pltf. 12(b)(7) Mem. at 13 ("the possibility of other litigation concerning this transaction is either nonexistent or extremely remote").

Even if the risk of inconsistent obligations were substantial, making Progressive and SFI parties to be joined if feasible, they are not indispensable parties under Rule 19(b). It would not be feasible to join Progressive and SFI as parties, since as foreign corporations, they would destroy our diversity jurisdiction. Thus, we must consider whether, pursuant to Rule 19(b), "in equity and good conscience the action should proceed among the parties before" the court. The determination of whether an entity is an indispensable party depends on the facts and circumstances of each case. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118, 88 S.Ct. 733, 742, 19 L.Ed.2d 936 (1968). The Supreme Court, in examining Rule 19(b), identified four "`interests' that must be examined in each case to determine whether in equity and good conscience, the court should proceed." Id. at 109, 88 S.Ct. at 737.

"First, the plaintiff has an interest in having a forum," and thus the court must determine "whether a satisfactory alternative forum exists." Id. Defendants suggest that KSH should have brought suit in Malaysia. Def. 12(b)(7) Mem. at 18. Malaysia does not appear to be a satisfactory alternative, however, as it is not certain that defendants would be subject to personal jurisdiction in Malaysia. New York state courts would also not provide a satisfactory alternative, since SFI and Progressive may not be subject to suit in New York. Thus, this factor seems to weigh in KSH's favor.

"Second, the defendant may properly wish to avoid multiple litigation, or inconsistent relief, or sole responsibility for liability he shares with another." Id. at 110, 88 S.Ct. at 738. As explained earlier, there appears to be a possibility of inconsistent obligations, although, as KSH argues, this possibility is remote. Pltf. 12(b)(7) Mem. at 13. Nevertheless, we will treat this interest as if it weighs in defendants' favor.

"Third, there is the interest of the outsider whom it would have been desirable to join." Id. As we have already found, SFI and Progressive do not have a significant interest in this litigation. Finally, "there remains the interest of the courts and the public in complete, consistent and efficient settlement of controversies." Id. at 111, 88 S.Ct....