St. Paul Reinsurance v. Commercial Fin.
| Decision Date | 04 May 2001 |
| Docket Number | No. C00-4080 MWB.,C00-4080 MWB. |
| Citation | 144 F.Supp.2d 1057 |
| Parties | ST. PAUL REINSURANCE COMPANY, LTD., CNA Reinsurance Company, Ltd., and Zurich Reinsurance (London) Limited, Plaintiffs, v. COMMERCIAL FINANCIAL CORP., Defendant, Commercial Financial Corp. and Security State Bank, Counterclaim Plaintiffs, v. St. Paul Reinsurance Company, Ltd., CNA Reinsurance Company, Ltd., Zurich Reinsurance (London) Limited, Professional Claims Managers, Inc., and U.S. Risk Underwriters, Inc., Counterclaim Defendants. |
| Court | U.S. District Court — Northern District of Iowa |
This lawsuit began on July 24, 2000, with the plaintiff insurers' filing of an action for declaratory judgment pursuant to 28 U.S.C. § 2201 for the purpose of construing the rights and legal relations of the parties arising from a contract of insurance entered into between St. Paul Reinsurance Company, Ltd., CNA Reinsurance Company, Ltd., and Zurich Reinsurance (London) Limited (hereinafter referred to as the "London Insurers") and Commercial Financial Corporation ("CFC"). In their declaratory judgment action, the London Insurers seek rescission of a contract for employment practices liability insurance between CFC and U.S. Risk Underwriters, Inc. ("U.S.Risk") based upon what the London Insurers allege were material misrepresentations by CFC in the process of applying for insurance coverage. Specifically, the London Insurers allege that CFC failed to disclose that in October of 1999 it had terminated three employees of Security State Bank ("SSB"), a bank CFC had recently acquired, as CFC should have done in connection with its February 9, 2000, request that SSB be added to an existing employment practices liability insurance policy. The London Insurers contend that CFC failed to make the disclosure of the terminations despite knowing that such information was material to the risk that the London Insurers assumed in issuing an employment practices liability insurance policy. The London Insurers, therefore, contend that CFC's failure to disclose such material information constituted fraud. CFC responded on September 5, 2000, with its Answer, Counterclaim, and Third-Party Complaint, in which it asserts, inter alia, that the London Insurers acted in bad faith in denying CFC's claim against the employment practices liability insurance policy for coverage of the employment discrimination claims by the employees terminated from SSB in October of 1999.
Originally, a bench trial in this case was scheduled to commence on February 2, 2001. However, on January 19, 2001, the parties filed a joint stipulation indicating that this matter could be properly tried by submitting briefs and a written record to the court in lieu of a bench trial, and, thus, agreed to try this matter on the written record. Pursuant to this stipulation, the court agreed that this matter would, indeed, be tried on the written record and, further, agreed with the parties that the deadline for submitting initial trial briefs would be February 20, 2001, and any resistance or reply to the opposing party's brief would be due by March 5, 2001. The matter was to be deemed fully submitted on March 5, 2001.
On February 20, 2001, both parties submitted their trial briefs, and likewise, on March 5, 2001, both parties submitted their reply briefs to the opposing party's trial brief. The London Insurers, however, contemporaneously filed a Motion to Amend Complaint to Conform to Evidence pursuant to Federal Rule of Civil Procedure 15(b) along with their reply brief. The London Insurers contend that paragraph 29 of their Complaint incorrectly alleges that Iowa Bankers Insurance & Services, Inc. ("IBIS") was aware of the involuntary terminations that are the subject of this action. Therefore, the London Insurers ask the court to grant them leave to file an Amended Complaint that conforms to the evidence regarding the fact that IBIS was not aware of the October terminations so that this matter may be decided on its merits and not on a technicality. CFC vehemently opposes the London Insurers' motion, asserting sundry reasons in support of its opposition. Therefore, before turning to the merits of this case, the court must rule upon the London Insurers' Motion to Amend Complaint to Conform to the Evidence.
Initially, the court notes that the basis of the London Insurers' claim for rescission is fraud, which is subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b).1 The Eighth Circuit Court of Appeals has stated that a party pleading fraud is "limited to the specific allegations pleaded in [its] complaint." McAnally v. Gildersleeve, 16 F.3d 1493, 1496 (8th Cir.1994) (citing Rule 9(b) and Greenwood v. Dittmer, 776 F.2d 785, 789 (8th Cir.1985)). This is so, because "the primary purpose of Rule 9(b) is to afford defendant fair notice of the plaintiff's claim and the factual ground upon which it is based." Novak v. Kasaks, 216 F.3d 300, 314 (2nd Cir.2000) (quoting Ross v. Bolton, 904 F.2d 819, 823 (2nd Cir.1990)). In this case, from July 24, 2000, to March 5, 2001, the London Insurers alleged that, as of February 9, 2000, IBIS was "well aware" of the October terminations. Specifically, in paragraph 29 of their Complaint, the London Insurers allege the following:
As of February 9, 2000, however, CFC and Iowa Bankers were both well aware of:
a. the October Terminations
b. the importance and materiality of such involuntary terminations to the underwriting on the renewal of the terminations; and
c. the serious potential that the terminated individuals would bring suit against CFC, triggering coverage under the Subject Policy.
Plaintiffs' Complaint at ¶ 29.2 Presently, however, the London Insurers contend that IBIS was not "well aware" of the October terminations as of February 9, 2000, based on the deposition testimony of Ken Richards. Therefore, the London Insurers now ask this court permission for leave to amend a factual allegation in their Complaint upon which their fraud claim is based at this, the eleventh hour — that is, at the close of discovery, after the parties have submitted their trial briefs, and after stipulating that the merits of this case would be tried on the written record. It is within this context that the court turns to the London Insurers' motion to amend pursuant to Rule 15(b).
The London Insurers contend that the allegations contained in paragraph 29 of the Complaint were made upon information and belief before discovery was conducted and before the facts underlying this dispute were fully known. During the course of discovery, however, the London Insurers contend that IBIS denied that it was ever told of the involuntary terminations giving rise to the present suit. Specifically, the London Insurers claim that it was not until the deposition of IBIS's vice president who handled CFC's account, Ken Richards, during which he repeatedly denied that CFC ever notified him of the involuntary terminations before coverage for SSB was issued, that they became aware that IBIS was not aware of the involuntary terminations. In light of Mr. Richard's testimony, the London Insurers ask that paragraph 29 of their Complaint, alleging that IBIS was aware of the October terminations, be amended so as to conform to the evidence pursuant to Federal Rule of Civil Procedure 15(b). The London Insurers argue that the parties consented to amendment of the Complaint both impliedly and explicitly. Specifically, the London Insurers contend that the parties explicitly consented to amendment of the Complaint by stipulating to admission into evidence of Ken Richards's deposition transcript, including testimony where he denies ever being informed of SSB's involuntary terminations by CFC or SSB. The London Insurers point out that Ken Richards's testimony is in direct contravention to the testimony of CFC and SSB's officers, and also at odds with paragraph 29 of their Complaint. Moreover, the London Insurers contend that CFC impliedly consented to amendment of the Complaint because CFC raises the factual issue of notice to IBIS in its trial brief. Thus, in failing to object, and by stipulating such testimony into evidence, the London Insurers contend that they are entitled to amend their Complaint, and further that CFC has waived its right to argue that the admission in paragraph 29 of their Complaint is binding.
In response, CFC argues that the London Insurers' motion must be denied because of the following reasons: (1) it is untimely; (2) the London Insurers fail to proffer any justification for their delay in requesting leave to amend; and (3)...
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