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KLOCKNER STADLER HURTER v. INSURANCE CO.

July 11, 1990

KLOCKNER STADLER HURTER LTD., PLAINTIFF,
v.
THE INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, AND AMERICAN INTERNATIONAL UNDERWRITERS CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Conboy, District Judge:

MEMORANDUM AND ORDER

Currently pending before the Court are two motions by the defendants, the Insurance Company of the State of Pennsylvania ("ICSP"), National Union Fire Insurance Company of Pittsburgh ("NUFI"), and American International Underwriters Corporation ("AIU"). First, the defendants seek to dismiss pursuant to Rules 12(b)(7) and 19 of the Federal Rules of Civil Procedure, for failure to join an indispensable party. Second, the defendants move to dismiss for failure to state a claim for which relief can be granted, pursuant to Rule 12(b)(6). For the reasons set forth below, the motion pursuant to Rules 12(b)(7) and 19 is denied, and the motion pursuant to Rule 12(b)(6) is granted in part and denied in part.

BACKGROUND

Plaintiff Klockner Stadler Hurter Ltd. ("KSH"), a Canadian corporation, was retained by Sabah Forest Industries Sdn. Bhd. ("SFI") and its consortium partners to act as general contractors for the construction and erection of the Sabah Pulp and Paper Project (the "Sabah Project") in Sipitang, Malaysia. In connection with the Sabah Project, Progressive Insurance Sdn. Bhd. ("Progressive"), a Malaysian insurance company, executed and delivered to KSH its policy of Contractor's All Risks/Erection All Risks Comprehensive General Liability Insurance (the "Contractor's All Risks Policy") for the period May 1, 1984 to November 1, 1987 inclusive. Defendant AIU, as foreign manager of defendant ICSP, executed a guarantee (the "Guarantee") whereby ICSP reinsured Progressive on the Contractor's All Risks Policy for 75% of the limits provided by that policy.

Also in connection with the Sabah Project, NUFI, through its Austrian branch office, caused to be executed and delivered to KSH its policy of Combined Contractor's All Risks/Erection All Risks Comprehensive General Liability Insurance and Difference in Conditions Policy (the "Difference in Conditions Policy"). The coverage provided by this policy is limited to the differences between the insurances, perils and other terms, conditions and definitions of that policy and those of the Contractor's All Risks Policy.

In August of 1985, an effluent treatment basin loss occurred at the Sabah Project. In January of 1987, a loss occurred in the high density concrete storage tanks at the Sabah Project. Within three months of each loss, KSH notified defendants of the loss. On February 13, 1989, defendant AIU, acting on behalf of defendants ICSP and NUFI, denied both claims. On June 14, 1989, NUFI, through its Austrian branch office, denied both claims, for the same reasons previously stated by AIU. KSH then brought this action in December of 1989.

DISCUSSION

I. Rules 12(b)(7) and 19

Defendants argue that because SFI and Progressive are not parties to this action, the action must be dismissed, pursuant to Rules 12(b)(7) and 19 of the Federal Rules of Civil Procedure, for failure to join a necessary and indispensable party. Rule 19 provides for compulsory joinder of parties who are needed for just adjudication. Rule 19(a) sets forth the standards for determining when a party should be joined if feasible. Thus,

  A person who is subject to service of process and
  whose joinder will not deprive the court of
  jurisdiction over the subject matter of the action
  shall be joined as a party in the action if (1) in
  the person's absence complete relief cannot be
  accorded among those already parties, or (2) the
  person claims an interest relating to the subject
  of the action and is so situated that the
  disposition of the action in the person's absence
  may (i) as a practical matter impair or impede the
  person's ability to protect that interest or (ii)
  leave any of the persons already parties subject
  to a substantial risk of incurring double,
  multiple, or otherwise inconsistent obligations by
  reason of the claimed interest.

Defendants argue that SFI and Progressive are parties who should be joined if feasible: first, because without them complete relief cannot be accorded among those already parties; second, because these parties have an interest which cannot be protected in their absence; and third, because defendants will be subject to multiple or inconsistent obligations if this action is disposed of without the missing parties.

As KSH points out, complete relief can be accorded among those already parties without joining SFI and Progressive. KSH seeks coverage for the two losses it suffered at the Sabah Project, and alleges that ICSP, as Progressive's reinsurer, is liable for up to 75% of those losses, or that NUFI is liable for them. The presence of neither Progressive nor SFI is necessary to determine whether or not ICSP and NUFI are liable to KSH.

We also do not believe that Progressive and SFI have interests in this action that cannot be protected in their absence. It appears from the reinsurance contract that Progressive has assigned to KSH "all rights of service and suit and all monies receivable from its reinsurers to the extent of their interest, wholly and absolutely." Contractor's All Risks Policy (attached as Exhibit A to Defendants' Memorandum of Law in Support of Their Motion to Dismiss Pursuant to Rules 12(b)(7) and 19 of the Federal Rules of Civil Procedure ("Def. 12(b)(7) Mem.")) at ¶ 2.16(1). In addition, Progressive agreed "to follow and be bound by the settlements made by leading reinsurers." Id. at ¶ 2.16(2)(d). Thus, Progressive does not appear to have an interest in this action. Even if it did, ICSP could adequately protect those interests.

With respect to SFI, KSH asserts that "the evidence will show that it was merely KSH's client and that its inclusion as a named insured was in fulfillment of one of the terms of its construction contract with KSH and KSH's consortium partners." Memorandum of Klockner Stadler Hurter Ltd. in Opposition to Defendants' Motion to Dismiss Pursuant to Rules 12(b)(7) and 19 ("Pltf. 12(b)(7) Mem.") at 9. More importantly, KSH states that "the evidence will show that [now that] the construction contract has been completed, . . . SFI has accepted the work, and it is only KSH and not SFI that ...


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