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Ispat Inland, Inc. v. Kemper Environmental

November 28, 2006


The opinion of the court was delivered by: Pitman, United States Magistrate Judge


I. Introduction

Defendant moves for leave to implead a third-party defendant under Rule 14(a) of the Federal Rules of Civil Procedure. For the reasons set forth below, the motion is denied.

II. Facts

This is an action seeking damages for breach of contract and declaratory relief relating to an environmental liability insurance policy.

The insurance policy, Kemper Environmental Response, Compensation and Liability Insurance Policy No. 4LY000143 (the "policy"), was purchased by Inland Steel Industries ("ISI") pursuant to an agreement under which Ispat International, N.V. ("IINV") acquired Inland Steel Company ("ISC") from ISI (Complaint ("Comp.") ¶ 7). Plaintiff Ispat Inland is the entity that resulted from the acquisition (Comp. 1 10; Proposed Third Party Complaint Against Ryerson Tull ("Proposed Third-Party Complaint") 1). The policy was issued on or about March 6, 1998 by defendant and names ISC, IINV, and ISI as insureds (Comp. 1 9; the policy at 1, annexed as Exhibit H to Proposed Third-Party Complaint).

Plaintiff contends that defendant breached the terms of the insurance contract by failing to make payments to Ispat Inland, and refusing to admit coverage, for liability incurred by Ispat Inland in the settlement of a natural resources damage assessment ("NRDA"). Plaintiff further contends that defendant breached the terms of the contract by refusing to pay the legal defense expenses incurred by Ispat Inland in connection with the investigation and defense of the NRDA.

Defendant's amended answer denies plaintiff's allegations, raises multiple affirmative defenses, and contends that the policy imposes no duties or obligations on it to indemnify or defend plaintiff for the costs of the underlying claims at issue. Of particular relevance here is defendant's ninth affirmative defense, which asserts, inter alia, that because plaintiff failed to disclose or misrepresented facts material to the risks at issue in this litigation, all claims under the policy are either barred and/or should be excluded from coverage and that the policy should be rescinded.

Defendant now seeks leave to implead Ryerson Tull, Inc. ("Ryerson")*fn1 as a Third-Party Defendant on the grounds that (1) defendant's ninth affirmative defense and the Third-Party Complaint against Ryerson arise "out of . . . the same transaction, occurrence, or series of transactions or occurrences'" (Kemper's Motion for Leave to File a Third-Party Complaint Against Ryerson Tull ("Def. Motion for Leave") 1 4 (quoting Fed.R.Civ.P. 20)); (2) "the issue of whether [defendant's ninth affirmative defense] affords a complete defense to [defendant] involves questions of law or fact common to both [plaintiff] and Ryerson Tull" (Def. Motion for Leave 1 4), and (3) Kemper's fraud defense is supported by the same factual evidence as to plaintiff and Ryerson.

Defendant alleges that Ryerson's employees and agents made numerous misrepresentations to defendant's employees during the drafting of the policy. The alleged misrepresentations pertained primarily to the relationship between the NRDA and a 1993 Consent Decree ("1993 Decree") to which plaintiff was a party. Ryerson's alleged misrepresentations include: (1) that testing and corrective measures required by the 1993 Decree addressed environmental issues identical to the NRDA, and thus that any expenditure under the 1993 Decree would reduce the assessment under the NRDA; (2) that both the 1993 Decree and the NRDA would be paid out of the same $19 million-plus monetary reserve (the "Trust Fund"); (3) that the amount owed under the 1993 decree was as yet undetermined, but if the amount exceeded $10 million, plaintiff would seek judicial relief; (4) that the $19 million Trust Fund relating to the 1993 Decree had been committed solely to the sediment clean-up project prior to defendant's investigation into plaintiff's environmental liabilities, and (5) that the Trust Fund would be sufficient to cover all expenses under the 1993 Decree and NRDA.

In response, plaintiff argues that defendant's motion should be denied because (1) defendant has unreasonably and unexcusedly delayed seeking leave to implead; (2) granting the motion would delay resolution of this matter until after defendant falls into receivership,*fn2 thereby prejudicing plaintiff, and (3) the assertion of the proposed claims would be futile. III. Analysis

Rule 14(a) of the Federal Rules of Civil Procedure provides in relevant part:

At any time after commencement of the action a defending party . . . may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to the third-party plaintiff for all or part of the plaintiff's claim against the third-party plaintiff.

Leave of the court must be obtained to file a third-party complaint more than ten days after service of the original answer. See Fed.R.Civ.P. 14(a). Whether to grant such a motion is left to the sound discretion of the district court. See Rosario v. Amalgamated Ladies' Garment Cutters' Union, 605 F.2d 1228, 1247 (2d Cir. ...

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