Federal Magistrate Finds Claimant Cannot Join Coverage Lawsuit

Insurers on occasion seek to join the claimant who is not a party to the coverage suit as a “third party defendant.”  The only role of the claimant in a coverage action pertains to its interest in indemnity against insurance proceeds of the defendant/counter-defendant insured.  That interest does not suffice to justify its addition as a party to the coverage suit where, prior to the adjudication of indemnity, it is a mere “officious intermeddler.”  A court recently agreed with this view, applying New York law, which is in accord with the logic of decisions by the majority of forums.

Transcript of Motion Argument of OBP Corporation v. Nautilus Ins. Co., U.S.D.C., N.D. N.Y., Case No. 16-cv-126 (August 31, 2016):

. . . I agree that [the motion] does not fit under Rule 14 of the Federal Rules of Civil Procedure, Rule 14(a)(1) permits the filing of a third-party complaint against someone who is or may be liable to it for all or part of the claim against it and I think we all can agree that Welch Allyn does not owe anything. It’s not a party to the insurance contract and does not owe all or some of the duty to defend, which is what is at issue in this case.

The past cost of defense is what remains. So, I have analyzed this under Rule 21 under the Federal Rules of Civil Procedure which addresses motions to add parties and it authorizes a court, on motion of any party or of its own initiative at any stage of the action and on such terms as are just, to join additional parties. The decision of whether to permit joinder under Rule 21 is addressed to the discretion of the Court and is informed by the same general principles that apply to motions for leave to amend under Rule 15(a) of the Federal Rules of Civil Procedure.

Under Rule 15(a), leave to amend is freely granted but the Court must determine whether there is any undue delay, bad faith, dilatory tactics, undue prejudice or futility.

In this case, I certainly think that the inclusion of Welch Allyn could potentially unnecessarily complicate this action and increase litigation costs to the parties. But I hang my hat in denying this motion primarily on futility.

There is no cause of action that I can see, at present, that can be brought that would involve Welch Allyn. If Welch Allyn were served with a third-party complaint and it were to move under Rule 12(b)(6) of the Federal Rules of Civil Procedure, I think Nautilus would be hard pressed to establish a cognizable claim against Welch Allyn.

And I do agree with the representation or the arguments of plaintiff’s counsel that, insofar as this might be addressed to New York Insurance Law Section 3420, the matter is clearly not ripe. And, so, in that regard, there is, also, a potential justiciability or Article III case in controversy argument to be made and I did find Mt. Vernon Fire Insurance v. NIBA Construction Inc. to be persuasive and helpful to me in deciding the motion.

So, I will exercise my discretion by denying defendant’s motion and I’ll issue a short form order memorializing that determination. . . .

GAUNTLETT: Thank you, your Honor.

DELANEY: Thank you, your Honor.

pp. 13:3-14:25.

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