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CX Reinsurance Company Limited v. B&R Management

United States District Court, D. Maryland

January 26, 2017

CX REINSURANCE COMPANY LIMITED Plaintiff,
v.
B&R MANAGEMENT, et al. Defendants.

          MEMORANDUM

          Ellen Lipton Hollander United States District Judge

         Plaintiff CX Reinsurance Company Limited (“CX Re”), formerly known as CNA Reinsurance Company Limited, filed suit against B&R Management, Inc. (“B&R”) with respect to two commercial general liability insurance policies issued to B&R. ECF 1. In its First Amended Complaint (ECF 25), CX Re added as additional defendants named insureds Jessica-Carl, Inc.; Arbor, Inc.; and Burton King, as well as Alfred Slattery, who assisted B&R in procuring the insurance policies. Id. CX Re alleges that, in B&R's application for insurance, B&R and Slattery misrepresented that B&R had never had any lead paint violations in the rental buildings covered under the policies. ECF 1. CX Re has asserted claims of fraud against B&R and Slattery. It also seeks rescission of both policies, which were cumulatively in effect from August 1, 1997 to August 1, 1999. ECF 25 ¶¶ 11, 56, 65. And, it seeks damages resulting from the alleged fraud.

         Sean Nicholson, a plaintiff in a lead paint suit filed in the Circuit Court for Baltimore City against, inter alia, B&R, King, and Jessica-Carl, Inc., has moved to intervene as a defendant in this case. ECF 33. Along with seven other proposed intervenors in other cases filed by CX Re in this District, Nicholson filed a joint memorandum of law. ECF 33-1 (collectively, “Motion”). In sum, Nicholson argues that he has an interest in opposing CX Re's request for rescission, because this would deprive him of a source of funds if he prevails in his lead paint suit. Nicholson has appended to his Motion a proposed answer, counterclaim, and crossclaim. ECF 33-2.

         CX Re opposes the Motion (ECF 42, “Opposition”). Nicholson has replied. ECF 53 (“Reply”).[1] Notably, defendants have not filed an opposition. See docket.

         The Motion is fully briefed and no hearing is necessary to resolve it. See Local Rule 105.6. For the reasons that follow, I shall grant the Motion.[2]

         I. Factual Background and Procedural History[3]

         CX Re is an insurer organized under the laws of the United Kingdom, with its principal place of business in London. ECF 25 ¶ 3. B&R is a Maryland corporation in the business of owning and managing rental housing in the Baltimore area. Id. ¶ 4.

         In 1997, Slattery, B&R's agent, submitted a “Commercial General Liability Application” to CX Re on behalf of B&R, as well as “Supplemental Application-Habitational Risks” (“Application”). Id. ¶¶ 17-18; see ECF 1-4. The Application identified Jessica-Carl, Inc; Jessica Carl; Arbor Inc.; Arbor Inc. KSS LLC; and B&R as named insureds. See ECF 1-4.

         Question 16 of the Application asked: “Has the insured received any complaints from any tenant in the building of a possible lead paint condition in the building.” See Id. On the Application, the line next to the word “No” was checked. See id.; see also ECF 25 ¶ 20. In addition, the Application stated: “By signing this Supplemental Application the insured acknowledges that the insured understands that [CX Re] is relying on the information provided, and the answers to the questions asked, in deciding whether to issue a policy of insurance to the insured.” See ECF 1-4 (capital letters in original). On July 3, 1997, Slattery signed the Application as the “Producer” and on July 18, 1997, King signed the Application as the “Insured.” See id.; see also ECF 25 ¶¶ 21, 22.[4]

         CX Re issued Policy No. CNAGL1106-97 to B&R for the period August 1, 1997 to August 1, 1998, “in reliance on the representations made in the Application . . . .” ECF 25 ¶¶ 11, 24; see ECF 1-2 (Policy No. CNAGL1106-97). That policy was subsequently renewed for the period from August 1, 1998 to August 1, 1999, as Policy No. CNAGL1240-98. Id. ¶ 11; see ECF 1-3 (Policy No. CNAGL1240-98) (collectively, “Policies”). The Policies “provide commercial general liability coverage to B&R Management ” and “insure B&R Management for certain risks in connection with specified residential buildings at numerous locations in Baltimore, Maryland.” ECF 25 ¶¶ 12, 13. The Policies also contain an endorsement entitled “Schedule of Named Insureds”, naming, inter alia, Jessica-Carl, Inc.; Arbor, Inc.; and Burton King. Id. ¶ 14. And, the Policies contain an endorsement entitled “Schedule of Locations.” Id. ¶ 15.

         CX Re contends that “B&R Management's answer to Question 16 [on the Application] was false and misleading because, prior to July 1997, the Baltimore City Department of Health had cited B&R Management for a lead paint violation in a building included on the Policies' Schedule of Locations.” ECF 25 ¶ 25. In particular, CX Re points to the “Emergency Violation Notice and Order to Remove Lead Nuisance” issued by the Baltimore City Health Department on July 26, 1996, concerning the property at 3215 Baker Street. Id.; see ECF 25-2 (Violation # 3653, “Violation”). That property was included on the endorsement titled “Schedule of Locations.” ECF 25 ¶ 15.

         The Violation stated, ECF 25-2 at 3:

It has been determined from elevated blood lead and an investigation by the Baltimore City Health Department that a child who frequents the above dwelling has an abnormal blood lead level. An inspection of this dwelling shows it contains lead based paint.
Such condition has been deemed by the Commissioner of Health to be hazardous to life and health and a public health nuisance.

         CX Re asserts, ECF 25 ¶ 26: “The existence of this undisclosed, pre-Application Violation renders the ‘No' answer to Question 16 false.” According to CX Re, it did not learn of the Violation until August 2015. Id. ¶ 27.

         Nicholson, who was born in August 1995, alleges that he “resided in a rental property owned and operated by one of the B&R Defendants while he was a young child, ” where he “was exposed to lead paint during . . . and sustained injuries as a result.” ECF 33-1 at 9. On July 15, 2016, he “sued certain B&R Defendants in the Circuit Court for Baltimore City . . . Case No. 24C16004070.” Id. at 9-10. Nicholson asserts: “One or more of the B&R Policies was in force when Mr. Nicholson sustained his injuries.” Id. at 10. Therefore, Nicholson argues that he should be permitted to intervene in this case because, if CX Re prevails in its rescission action, the judgment “would eliminate CXRe's obligation to cover damages awards against its insureds and in favor of the Lead Paint Victims.” Id. at 18.

         II. Standards of Review

         Intervention is governed by Rule 24 of the Federal Rules of Civil Procedure. It provides, in relevant part:

(a) Intervention of Right. On timely motion, the court must permit anyone to intervene who:
(1) is given an unconditional right to intervene by a federal statute; or
(2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, ...

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