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Class Produce Group, LLC v. Harleysville Worcester Insurance Co.

United States District Court, D. Maryland

May 31, 2017

CLASS PRODUCE GROUP, LLC, Plaintiff,
v.
HARLEYSVILLE WORCESTER INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION

          Ellen Lipton Hollander United States District Judge.

         This Memorandum Opinion resolves a motion for leave to file an amended complaint, submitted by Class Produce Group, LLC (―CPG-), plaintiff.

         On August 15, 2016, CPG filed suit in the Circuit Court for Howard County against Harleysville Worcester Insurance Company (“Harleysville”). ECF 2. CPG alleges breach of contract and “Bad Faith Refusal to Pay Insurance Claim, ” pursuant to Md. Code (2013 Repl. Vol.), § 3-1701 of the Courts and Judicial Proceedings Article (“C.J.”). Id.[1] Harleysville timely removed the case to this Court on October 12, 2016, based on diversity of citizenship. ECF 1, “Notice of Removal”; 28 U.S.C. § 1332.

         A week later, on October 19, 2016, Harleysville moved to dismiss (ECF 7), pursuant to Fed.R.Civ.P. 12(b)(6), supported by a memorandum of law (ECF 7-1) (collectively, “Motion to Dismiss”). Plaintiff filed a combined opposition to the Motion to Dismiss and a cross motion for partial summary judgment as to the breach of contract claim. ECF 24. It is supported by a memorandum of law (ECF 24-1) (collectively, ―Cross Motion-) and three exhibits. ECF 24-2 to ECF 24-4. Defendant filed a combined reply to the Motion to Dismiss and an opposition to the Cross Motion (ECF 27), supported by an exhibit. ECF 27-1. And, plaintiff replied to the Cross Motion (ECF 30), supported by exhibits. ECF 30-1 to ECF 30-4.

         On January 4, 2017, Harleysville filed a motion to strike plaintiff‘s reply to the Cross Motion, or in the alternative, a motion for leave to file a surreply (ECF 31), supported by a memorandum of law (ECF 31-1) (collectively, “Motion to Strike”). Harleysville claims that in CPG‘s reply to the Cross Motion, CPG “added new affidavits, facts and legal arguments that were not previously raised in the Complaint or in the Plaintiff‘s Motion for Summary Judgment.” ECF 31 at 1. On January 18, 2017, CPG submitted an opposition to the Motion to Strike. ECF 33.

         Also on January 18, 2017, plaintiff filed a motion for leave to file a First Amended Complaint (ECF 32), supported by a memorandum of law (ECF 32-1) (collectively, “Motion to Amend”).[2] As discussed, infra, CPG seeks leave to amend to add three rather simple factual allegations to the Complaint. Harleysville opposes the Motion to Amend, asserting undue delay, prejudice, and futility. ECF 34. CPG has replied. ECF 35.

         No hearing is necessary to resolve the various motions. See Local Rule 105.6. For the reasons stated below, I shall grant the Motion to Amend. And, I shall deny, as moot, the Motion to Dismiss, the Cross Motion, and the Motion to Strike, as they are directed to the original Complaint.

         I. Factual and Procedural Background[3]

         CPG and its corporate affiliate[4] operate a business that processes produce and resells the produce to customers and “end users.” ECF 2, ¶ 7. Harleysville sold CPG a Commercial Lines Insurance Policy, #MPA00000016598E (the “Policy”), which indemnifies CPG against loss “for various covered perils occurring at its facilities.” Id., ¶ 6. Portions of the Policy were docketed by CPG, with the Complaint, at ECF 2-1, and with the Cross Motion, at ECF 24-3 and ECF 24-4.

         On September 14, 2012, CPG leased warehouse space located at 8441 Dorsey Run Road, Jessup, MD (the “Warehouse”). ECF 2, ¶ 8. On September 23, 2013, CPG and a neighboring tenant in the Warehouse experienced flooding in their premises because of a sewer line back-up. Id., ¶ 14. CPG claims the flood was due to preexisting and latent defects in the drainage system, and “waste water backed up in the Warehouse Sewer System and into the Warehouse and its surrounding areas, causing CPG damage and loss.” Id., ¶ 11. According to CPG, the pipes were the wrong diameter, the pumps were "old, undersized, dilapidated and worn out, " and grease traps were clogged. Id., ¶ 9.

         In order to investigate and repair the sewer line backup, CPG maintains that it had to install temporary water drainage facilities while it repaired the latent defects in the warehouse sewer system. Id., ¶¶ 12-14. CPG alleges it spent a total of $338, 475.42 on the temporary facilities, investigation, and repairs. Id., ¶¶ 12-13. CPG also claims that it spent additional money cleaning up the Warehouse space. Id., ¶ 14. However, CPG did not specify the cost of the clean-up effort.

         On October 11, 2013, CPG sought indemnification from Harleysville under the Policy. Id., ¶ 15. However, Harleysville denied coverage. Id., ¶ 16; see also ECF 2-1 (letter dated October 23, 2013, from Harleysville denying coverage). Subsequent efforts by CPG in 2015 and 2016 to persuade Harleysville to reconsider its denial were unsuccessful. Id., ¶¶ 18-21. This suit followed.

         As noted, on October 19, 2016, Harleysville moved to dismiss the Complaint. ECF 7. Of import here, Harleysville argues that plaintiffs claim for breach of contract was not adequately pleaded because “though Plaintiff references the Insurance Policy, Plaintiff has neither quoted the Policy, nor have they attached a copy of the full Policy to the Complaint as an exhibit.” ECF 7-1 at 15. Rather, according to Harleysville, “Plaintiff has simply made a bald allegation that Harleysville had a contractual obligation to indemnify for Class Produce's loss to its property caused by ‗waste water‘ backing up through the Facility.” Id. at 16 (quoting ECF 2, ¶ 23). In the Motion to Dismiss, Harleysville also argues that Maryland does not recognize a claim styled as a bad faith refusal to pay an insurance claim. ECF 7-1 at 17-21.

         In the Cross Motion, CPG moves for summary judgment as to the breach of contract claim and opposes the Motion to Dismiss. ECF 24. Of significance, although Harleysville did not initially assert that CPG failed to exhaust administrative remedies, as required under C.J. § 3-1701, CPG acknowledged that such claims ordinarily are subject to an exhaustion requirement with the Maryland Insurance Administration. But, it contends that its claim falls within an exception to the exhaustion requirement because it involves a commercial insurance policy with limits that exceed $1, 000, 000. ECF 24-1 at 14-15; see also C.J. § 3-1701(c)(2)(iii), discussed infra.

         In Harleysville‘s combined opposition to the Cross Motion and reply to the Motion to Dismiss (ECF 27), it argues, for the first time, that CPG‘s bad faith claim is subject to dismissal for failure to exhaust administrative remedies. It contends that CPG is incorrect that it did not need to exhaust administrative remedies prior to filing suit because “a number of the coverages asserted by the Plaintiff have applicable limits of liability that do not exceed one million dollars[.]” ECF 27 at 8. Harleysville explains: “Depending upon the coverage that is being sought, the applicable limit of the claim at issue might be as low as $25, 000 for sewer back up coverage. Moreover, it appears that the maximum limits of the Policy for underground pipes coverage is $250, 000.” Id. at 7 (citation and internal quotation marks omitted).

         The Policy includes a “Commercial Output Program Property Coverage Part.” ECF 24-4. In a section titled “Supplemental Coverages, ” id. at 11, paragraph 11 is titled “Sewer Backup and Water Below the Surface.” Id. at 14. It provides, id:

"We" cover direct physical loss caused by:
a. water that backs up through a sewer or drain; or b. water below the surface of the ground, including but not limited to water that exerts pressure on or flows, seeps, or leaks through or into a covered building or structure, sidewalk, driveway, foundation, swimming pool, or other structure.
The most "we" pay for loss caused by sewer backup and water below the surface in any one occurrence is $25, 000.

         In Paragraph 13, the Policy provides that the coverage limit for direct physical loss to an underground pipe is $250, 000. ECF 24-4 at 14.

         In its reply to the Cross Motion (ECF 30), CPG maintains that the Court should look to the "building" limit of the Policy, which exceeds one million dollars. CPG explains, id. at 14-15 (emphasis in original):

[T]he "Tearing Out and Replacing" Other Coverage Section of Property Coverage Part (ECF No. 24-4 at 25, "Other Coverages" ¶ 2), provides coverage for CPG's remediation costs occasioned by water damage. Other than policy limits, this coverage is not limited to any dollar amount. The "Schedule of Coverages Commercial Output Program" of the…Policy, which is attached to this Reply Brief as Exhibit 4, lists the Building Property limit under the Property Coverage Part to be $15, 750, 584. This full policy limit (of indemnification) would apply to limit CPG's recovery for its costs in remediating the water damage. Thus, CPG was free under the statute to bring its claims in Court without first bringing them before the [Maryland Insurance Administrator].[]

         The 'Schedule of Coverages Commercial Output Program” provides that the “Building Property Limit- is $15, 750, 584. ECF 30-4. However, the “Tearing Out and Replacing- section of the Policy does not contain a ...


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