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Otay River Constructors v. Zurich American Insurance Co.

November 14, 2007

OTAY RIVER CONSTRUCTORS, A JOINT VENTURE OF THE WASHINGTON GROUP INTERNATIONAL, INC. AND FLUOR ENTERPRISES, INC., PLAINTIFF,
v.
ZURICH AMERICAN INSURANCE COMPANY, AN ILLINOIS CORPORATION; AND DOES 1 THROUGH 10, INCLUSIVE, DEFENDANTS.
SOUTH BAY EXPRESSWAY, L.P., A CALIFORNIA LIMITED PARTNERSHIP, DEFENDANT-IN-INTERVENTION



The opinion of the court was delivered by: Hon. William McCurine, Jr. U.S. Magistrate Judge United States District Court

ORDER GRANTING PLAINTIFF LEAVE TO AMEND COMPLAINT

I. INTRODUCTION

On September 20, 2007, Plaintiff Otay River Constructors("ORC") filed a motion for leave to file a first amended complaint. [Doc. Nos. 40 - 44.] The motion was referred for decision to Magistrate Judge McCurine. [Doc. No. 45.] The Court has carefully considered and reviewed ORC's motion for leave to file a first amended complaint, Defendant-in-Intervention, South Bay Expressway's ("SBX") opposition, and Plaintiff's reply, along with all accompanying declarations. Based upon documents submitted in this case, and for the reasons set forth below, the Court GRANTS Plaintiff's motion for leave to file a First Amended Complaint ("FAC").

II. BACKGROUND

On October 31, 2006, ORC filed a complaint alleging breach of insurance contract, breach of implied covenant of good faith and fair dealing, and declaratory relief in the Superior Court for the State of California, County of San Diego against Defendant Zurich American Insurance Company ("Zurich"). [Doc. No.1.] This matter was removed to federal court by Zurich on November 30, 2006. Id. The lawsuit, as filed, concerned coverage issues with respect to an ORC insurance claim for storm damage under a Builder's Risk Insurance Policy (the "Policy") issued by Zurich for the SR 125 South Project ( the "Project"). SBX, as the developer of the Project, was the named insured under the Policy. ORC was an additional insured under the Policy. Id.

Due to the possibility that issues would arise regarding SBX's potential liability for deductible amounts owed to the insurance company over and above that owed by ORC, Zurich, ORC and SBX filed a joint motion permitting SBX to intervene as a party to ORC's action against Zurich on March 19, 2007. [Doc. No.25.] The joint motion was granted by U.S. District Judge Barry T. Moskowitz on March 22, 2007. [Doc. No. 26.]

On April 24, 2007, Zurich, ORC and SBX made another joint motion entitled "Stipulation between Plaintiff and Defendant-in-Intervention Re Resolution of All Insurance Issues" which stated that "to avoid the necessity of further amendments to the pleadings as a result of SBX's intervention, ORC and SBX hereby . . . . empower[] [the Court] to resolve all disputes between ORC and SBX pertaining to the amount and/or apportionment of any deductible liability that may exist in connection with ORC's claim for insurance benefits under the Zurich policy which is the subject of this action." [Doc. No. 29, 2:15-3:5.] District Judge Barry T. Moskowitz granted the joint motion re: resolution of all insurance issues on May 8, 2007. [Doc. No. 33.]

As a result of mediation before Justice Howard B. Weiner on 12, 2007, ORC and Zurich reached a settlement. [Sonne Decl., 2:24.] On October 11, 2007, Zurich, ORC and SBX filed a joint motion to "stipulate and agree that the $1,950,000 Zurich American has agreed to pay will be deposited by Zurich American in an interest bearing escrow account with Torrey Pines Bank ("Escrow Agent") . . . until such time as the U.S. District Court for the Southern District of California, in the Lawsuit issues an order for the release of the funds, or Otay and South Bay provide Escrow Agent the joint instructions governing the distribution of the proceeds." [Doc. No. 47.]

III. ARGUMENT

A. ORC'S Proposed Amended Complaint

ORC requests the filing of an amended and supplemental Complaint against SBX to allege events and disputes that have arisen primarily between ORC and SBX since the filing of the original complaint. [Sonne Decl., 3:17-20.] Specifically, ORC contends that following its July 2007 settlement with Zurich, the original defendant in this action, SBX, as the defendant-in-intervention, has repudiated any obligation to pay deductibles and insisted that the settlement proceeds from Zurich be paid directly to SBX as opposed to ORC. [Sonne Decl., 3:1-9.]

ORC's proposed amended complaint sets forth allegations concerning SBX's liability for the Zurich deductible in excess of deductible limits as well as payment of settlement proceeds now in escrow. [Exh. A to Sonne Decl.] ORC argues that an amendment to the Complaint addressing payment of escrowed settlement funds is appropriate because SBX waived any right to arbitrate the claim when it voluntarily consented to the Court's jurisdiction by intervening in the action between ORC and Zurich as well as joining in a motion to place settlement proceeds in escrow. [ORC Reply, 6:3-25.]

B. Southbay Expressway Objects To The Scope Of ORC's Proposed Amendment

While SBX does not oppose ORC's motion to amend the complaint with respect to issues concerning responsibility for deductible amounts, SBX does take issue with ORC's proposed supplementation of the Complaint concerning the payment of escrowed settlement proceeds. [SBX Opp'n, 1:8-10.] Specifically, SBX argues that the scope of its intervention into the original action between ORC and Zurich was limited and that SBX has not ...


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