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CX Reinsurance Co. Ltd. v. B&R Management, Inc.

United States District Court, D. Maryland

January 17, 2018

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

          MEMORANDUM OPINION

          Ellen Lipton Hollander United States District Judge

         This Memorandum Opinion resolves the “Motion For Leave to File Second Amended Complaint” (ECF 189, “Motion”) filed by plaintiff CX Reinsurance Company Limited (“CX Re”). In the Motion, plaintiff seeks to add multiple defendants and new grounds to rescind certain insurance policies. ECF 189, ¶¶ 20-33. In addition, the Memorandum Opinion resolves a motion for preliminary injunction (ECF 88) filed by defendant Jessica-Carl, Inc. (“Jessica-Carl”).

         Suit was initiated by CX Re in November 2015 against B&R Management, Inc. (“B&R”), seeking to rescind two commercial general liability insurance policies that were in effect from August 1, 1997 to August 1, 1999. ECF 1 (Complaint). According to CX Re, defendant made misrepresentations concerning lead paint violations with respect to certain rental housing covered by the insurance policies. ECF 1; ECF 1-2 and ECF 189-3 (Policy No. CNAGL1106-97); ECF 1-3 and ECF 189-4 (Policy No. CNAGL1240-98).

         At the outset of the litigation, Jessica-Carl moved to intervene as a defendant. ECF 4. That motion was granted. ECF 7.

         In a First Amended Complaint filed in June 2016 (ECF 25), plaintiff added defendants Jessica-Carl; Arbor, Inc. (“Arbor”); Burton King (“Mr. King”); and Alfred Slattery. In August 2016, Sean Nicholson, a plaintiff in lead paint litigation in the Circuit Court for Baltimore City, sought to intervene as a defendant. ECF 33. That motion was also granted. ECF 76.[1]

         The Motion was filed in June 2017. Along with the Motion, CX Re submitted its proposed Second Amended Complaint (ECF 189-1) and numerous exhibits. See ECF 189-2 through ECF 189-8. Jessica-Carl opposes the Motion (ECF 198), supported by multiple exhibits. See ECF 198-1 through ECF 198-13. B&R also opposes the Motion (ECF 209) and adopts the reasoning in the oppositions filed by its codefendants. (ECF 198 and ECF 209 shall be referred to collectively as “Opposition”).[2] CX Re has replied. ECF 223 (“Reply”).

         On April 4, 2017, Jessica-Carl filed a “Motion for Temporary Restraining Order, and Preliminary Injunction.” ECF 88. It is supported by a memorandum (ECF 88-1) (collectively, “P.I. Motion”), and many exhibits. See ECF 88-3 through ECF 88-13. CX Re opposed Jessica-Carl's P.I. Motion (ECF 114) and Jessica-Carl replied. ECF 130.

         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 deny plaintiff's Motion with respect to new claims and new defendants. But, I shall permit amendment on a limited basis, to correct minor factual errors and to remove Mr. King and Slattery as defendants. And, I shall deny, as moot, Jessica-Carl's P.I. Motion.

         I. Factual and Procedural Background

         CX Re, formerly CNA Reinsurance Company Limited, 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, B&R submitted a “Commercial General Liability Application” to CNA on behalf of B&R, as well as a “Supplemental Application-Habitational Risks” (collectively, the “Application”). Id. ¶¶ 17, 18; see ECF 1-4; ECF 189-5. The Application identified Jessica-Carl, Inc.; Arbor, Inc.; KSS LLC; and B&R as named insureds. ECF 1-4 at 2 and ECF 189-5 at 2 (Application Questions); ECF 25, ¶ 19. Additionally, the Application pertained to multiple addresses, including 3215 Baker Street, 54 North Gorman Avenue, and 2308 E. North Avenue. ECF 189-5 at 3.[3]

         Question 16 of the Application asked: “Has the insured ever had any lead paint violations in the building(s)?” ECF 25, ¶ 20; see also ECF 1-4 at 2; ECF 189-5 at 2. On the Application, the box labeled “No” was checked. ECF 1-4 at 2; ECF 189-5 at 2; see also ECF 25, ¶ 20. In addition, the Application stated, in capital letters: “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 at 2. On July 3, 1997, Slattery signed the Application as the “Producer, ” and on July 18, 1997, Mr. 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 of August 1, 1997 to August 1, 1998, “in reliance on the representations made in the Application . . . .” ECF 25, ¶¶ 11, 24; see ECF 1-2. The policy was subsequently renewed for the period from August 1, 1998 to August 1, 1999, as Policy No. CNAGL1240-98. ECF 25, ¶ 11; see ECF 1-3 (collectively, the “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; B&R; Arbor; KSS Associates, LLC; Renee King; Mr. King; Eileen Silberg; Nancy Cohen; Mark Libowitz; Nancy Oring; Alvin Lapidus; Mark Lapidus; and Lois Lapidus. ECF 189-3 at 4; ECF 189-4 at 5; ECF 25, ¶ 14. The Policies also contain an endorsement entitled “Schedule of Locations” that includes the Baker Street, North Gorman Avenue, and E. North Avenue properties. ECF 189-4 at 6-7; see also ECF 25, ¶ 15.

         As noted, CX Re filed suit against B&R in November 2015. ECF 1. The Court's Scheduling Order of March 23, 2016 (ECF 18) set a deadline of May 23, 2016, for joinder of additional parties and amendment of pleadings. Id. at 1. The Scheduling Order was subsequently amended three times, at the joint request of the parties (ECF 38, ECF 64, ECF 79), in order to extend discovery deadlines. See ECF 39; ECF 65; ECF 80. Notably, the deadline for motions to join parties and to amend the pleadings was never extended. See Docket.

         In May 2016, CX Re timely moved to file the First Amended Complaint. ECF 22. I granted that motion by Order of June 13, 2016. ECF 24. As indicated, the First Amended Complaint (ECF 25) added additional insureds as defendants: Jessica-Carl; Arbor; Mr. King; and Slattery.

         In its First Amended Complaint, 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 Health Department (“BCHD”) “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 BCHD on July 26, 1996, concerning the property at 3215 Baker Street. Id.; see ECF 25-2 (Violation # 3653, “Baker Violation”). The Baker Street property was included on the endorsement titled “Schedule of Locations.” ECF 25, ¶ 15.

         The Baker 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.

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

         On January 4, 2017, CX Re dismissed its suit as to Mr. King. ECF 66. And, on March 10, 2017, CX Re and B&R reached a “settlement in principle.” ECF 189, ¶ 14. Thereafter, on April 4, 2017, Jessica-Carl filed its P.I. Motion (ECF 88), seeking to enjoin CX Re, B&R, and Mr. King from entering into a settlement agreement. Jessica-Carl argued, inter alia, that a settlement agreement with B&R and Mr. King would “modify the Policies in order to eviscerate coverage for the remaining insureds.” ECF 88-1 at 2. B&R then “withdrew from discussions to finalize the settlement” (ECF 189, ¶ 15), claiming “efforts to negotiate a settlement of this action proved fruitless.” Id. ¶ 39. By Order of April 6, 2017 (ECF 94), I determined that CX Re may continue to negotiate with B&R, pending resolution of the P.I. Motion, but could not enter into a final agreement until the Court had an opportunity to address the P.I. Motion.

         The Court held a hearing on the P.I. Motion on June 9, 2017. ECF 181; ECF 183; ECF 194 (Hearing Transcript). On the same date, CX Re dismissed its suit as to Slattery. ECF 180.

         At the hearing, CX Re informed the Court that “[t]here are no settlement discussions” with B&R, as the settlement discussions “fell apart[.]” ECF 194 at 20, 21. The Court was also advised that CX Re intended to assert two additional grounds for rescission of the Policies. ECF 194 at 3-5. These included alleged false responses to Application Question 12 and Application Question 14, concerning the presence of lead paint on interior and exterior surfaces, as well as chipping or flaking lead paint on those surfaces. Id. at 4-5, 12, 14. CX Re explained that it had recently acquired documents pertaining to questions 12 and 14, which “show material misrepresentations” as to “the properties Jessica-Carl owned or managed at . . . 54 Gorman Street.” Id. at 32.

         CX Re explained that it had just had an opportunity to depose Slattery on June 8, 2017, at which it obtained “clear and convincing evidence, which [it] will use to amend [its] complaint.” Id. at 16. Further, CX Re stated that it “went to the courthouse and . . . got the pleadings [and] . . . depositions” to establish material misrepresentations by Jessica-Carl. Id. at 21. Plaintiff's counsel insisted that CX Re had “worked around the clock to get this evidence, ” after the settlement “fell apart in April, ” and asserted: “So this is no ambush.” Id. In light of plaintiff's request to file a motion to amend its First Amended Complaint, the Court determined to postpone the hearing on the P.I. Motion. ECF 183.

         At the hearing, CX Re did not raise the prospect of joinder of additional defendants. See ECF 194. That request was presented for ...


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