Court Opinion

ID: 819972
Source: CourtListenerOpinion
Date Created: 2013-02-08 15:47:26.542049+00
Date Added: 2024-06-11T09:03:01.692633
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 13a0144n.06

                                            No. 12-3123

                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT
                                                                                           FILED
                                                                                       Feb 08, 2013
                                                                                DEBORAH S. HUNT, Clerk
CHICAGO INSURANCE COMPANY,                                 )
                                                           )
       Plaintiff-Appellee,                                 )
                                                           )
               v.                                          )
                                                           )
JAMES A. CAPWILL, et al,                                   )
                                                           )
       Defendants,                                         )
                                                           )        ON APPEAL FROM THE
and                                                        )        UNITED STATES DISTRICT
                                                           )        COURT FOR THE NORTHERN
CWN GROUP, INC.; VIATICAL ESCROW                           )        DISTRICT OF OHIO
SERVICES, LLC; CAPWILL & COMPANY;                          )
WILLIAM T. WULIGER,                                        )
                                                           )
       Defendants-Appellants.                              )
                                                           )

BEFORE: MARTIN and ROGERS, Circuit Judges, and TARNOW, District Judge.*

       ROGERS, Circuit Judge. This appeal began as a declaratory judgment action filed by

Chicago Insurance Company against its former insured, James Capwill, and his companies. Capwill

is currently in jail for wire fraud. Chicago Insurance originally sought a declaratory judgment stating

that Capwill's fraudulent conduct did not fall under his accounting malpractice policy. After learning

that Capwill lied on his policy application, Chicago Insurance amended its complaint to seek

       *
         The Honorable Arthur J. Tarnow, Senior United States District Judge for the Eastern
District of Michigan, sitting by designation.
No. 12-3123
Chicago Insurance Company v. James A. Capwill, et al

rescission of the policy. The district court found that Capwill lied in applying for malpractice

insurance, that he lied with the intent to obtain the insurance, and that the lies were material.

Accordingly, the district court granted Chicago Insurance’s summary judgment motion on the

rescission claim. The receiver now appeals, arguing that Capwill did not lie, that he did not intend

to mislead Chicago insurance, and that any lies were not material to the decision to issue the policy.

The receiver also raises the affirmative defenses of laches and the statute of limitations, which were

rejected by the district court, and claims that the district court abused its discretion by allowing

several late amendments to Chicago Insurance’s complaint.

       Having had the benefit of oral argument and having carefully considered the record on

appeal, the briefs of the parties, and the applicable law, we are not persuaded that the district court

erred in granting summary judgment to Chicago Insurance or in permitting Chicago Insurance to

amend its complaint. Because the reasoning which supports the grant of summary judgment has

been articulated by the district court, the issuance of a detailed written opinion by this court would

be duplicative and serve no useful purpose. Accordingly, the judgment of the district court is

affirmed upon the reasoning employed by that court in its Order dated December 21, 2011.

       We do not read the district court’s order as relying primarily on Hutchins v. Cleveland

Mutual Insurance Co., 11 Ohio St. 477 (1860), in determining that Capwill’s answers were material

to the insurance company’s decision. It was sufficient for the district court to rely as it did on the

undisputed testimony of Chicago Insurance’s former head of underwriting, Ann Cummings, which

stated that had Chicago Insurance known the truth, it would not have issued or renewed the insurance

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No. 12-3123
Chicago Insurance Company v. James A. Capwill, et al

policies at issue. See Chicago Ins. Co. v. Capwill, 1:01CV2588, 2011 U.S. Dist. LEXIS 147086,

at *13 (N.D. Ohio Dec. 21, 2011).

       Furthermore, the district court did not abuse its discretion in allowing Chicago Insurance to

amend its complaint. “[T]he federal courts have a strong preference for trials on the merits.” Clark

v. Johnston, 413 F. App'x 804, 819 (6th Cir. 2011). “The court should freely give leave [to amend]

when justice so requires.” Fed. R. Civ. P. 15(a)(2). The district court acted within its discretion in

applying these principles to allow Chicago Insurance to present all its claims. Furthermore, there

was no undue prejudice to the receiver from this decision because the amendment adding the

rescission claim occurred early in the case and subsequent amendments only added issues the parties

had been discussing previously. These additional issues played no part in the district court’s

decision.

       The first amendment that the receiver raises an issue with is the key one, as it added the

rescission claim on which Chicago Insurance prevailed below. Chicago Insurance filed its motion

for leave to file that amended complaint on February 3rd, 2004, a full year after the deadline for

amending pleadings but only two years into a case that lasted a decade. The receiver is unable to

demonstrate any prejudice due to the amendment. Therefore, the district court could grant the

motion without abusing its discretion.

       The receiver faces an even greater hurdle in demonstrating prejudice from subsequent

amendments because they had no effect on the disposition of the case. The second amendment

added an alternative theory to the rescission claim, that Chicago Insurance would have charged a

                                                -3-
No. 12-3123
Chicago Insurance Company v. James A. Capwill, et al

higher premium had it known the truth. However, the district court did not consider that theory since

it ruled in favor of Chicago Insurance on its original theory that it would not have issued the policy

at all. The third amendment added additional questions to which Capwill allegedly lied in response.

However, the district court found that there were factual disputes over whether Capwill answered

those questions honestly, and thus did not rely on them in the summary-judgment ruling.

       The receiver argues that he was prejudiced because the second and third amended complaints

were filed after Chicago Insurance’s agent, Landy, destroyed relevant files as part of its document

retention policy. These files allegedly demonstrated that Chicago Insurance issued policies to

applicants who disclosed the risk factors that Capwill hid. However, these files became relevant

after the filing of the second amended complaint, long before they were destroyed. The receiver

knew about these files before they were destroyed, and does not explain why he did not seek to

obtain them then. The record shows that the parties sparred about the scope of discovery. However,

there is nothing in the record, except the receiver’s allegations, that Chicago Insurance improperly

prevented the receiver from obtaining relevant discovery. Chicago Insurance’s later amendments

were filed extremely late in the case. However, they were immaterial to the disposition of the case,

reflected discussions the parties had been having for years, and did not lead to undue prejudice. The

district court did not abuse its discretion by allowing them.

       Finally, the district court did not rule on the receiver’s motion for leave to amend his answer

to add a statute-of-limitations defense. However, any error in this regard was harmless. As the

district court properly determined, Chicago Insurance filed its rescission claim within the applicable

                                                -4-
No. 12-3123
Chicago Insurance Company v. James A. Capwill, et al

statute of limitations. See Capwill, 1:01CV2588, 2011 U.S. Dist. LEXIS 147086, at *27. “Although

a district court’s failure to state a basis for its decision to deny a motion to amend ordinarily

constitutes an abuse of discretion, such an abuse amounts to harmless error where the proposed

amendment would have been futile.” Colvin v. Caruso, 605 F.3d 282, 294 (6th Cir. 2010). In light

of the reasoning used by the district court in its correct decision to deny the receiver’s laches defense,

adding a statute-of-limitations defense would have been futile. Therefore, any error in the district

court’s implicit denial of the motion was harmless.

        We AFFIRM the judgment of the district court.

                                                  -5-