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Federal Court Dismisses $720k claim against Sprinkler Contractor represented by MSZL&M

Jan 2, 2020 - News by

In May 2015, MSZL&M client Superior Fire Protection, a New Hampshire Corporation, performed an inspection and test of a dry pipe fire sprinkler system installed in a Holiday Inn Express in Rochester, New Hampshire. In February 2016, water remaining in the fire sprinkler system froze causing the system to crack and discharge water throughout the Holiday Inn Property.  It was alleged that improper installation, performed by another contractor who was protected from any claim by the Statute of Repose, allowed the water to remain trapped in the system.

Subsequently, Continental Insurance Company, an Iowa Corporation and the purported insurance carrier and subrogee of the Holiday Inn Hotel, filed a lawsuit against Superior Fire Protection for the damages in the USDC NH. MSZL&M Partner of the Maryland office was admitted pro hac vice to represent Superior Fire Protection.  Through discovery, the attorney discovered that Continental Insurance Company neither insured the Holiday Inn, nor paid the insurance claim.  A sister company, and non-party, Acadia Insurance Company was discovered to be the real party in interest for the subrogation claim for the Holiday Inn’s damage.  The Maryland attorney with the assistance of MSZL&M’s Philadelphia office  filed a Motion for Summary Judgment seeking to dismiss the claims against Superior Fire Protection on the grounds that Continental Insurance Company lacked constitutional standing.  In response to the motion, Plaintiff, Continental acknowledged that it was not the real party in interest, and filed a Motion to Substitute pursuant to Fed. R. Civ. P. 17.  The Plaintiff, in its motion, asked the Court to allow Acadia Insurance Company to substitute in the place of Continental Insurance Company.

In responding to the Plaintiff’s Motion to Substitute, MSZL&M conducted further investigation on Acadia Insurance Company.  MSZL&M’s investigation revealed that if Acadia had originally filed suit the Court would not have had Subject Matter Jurisdiction because when suit was filed both Superior and Acadia were citizens of New Hampshire for the purposes of federal diversity jurisdiction.  After the statute of limitations expired, but before the Motion for Summary Judgment was filed, Acadia changed its corporate citizenship to Iowa.  In the opposition to Plaintiff’s Motion to Substitute, the attorneys argued that the newly uncovered citizenship of the real party in interest destroyed the Federal Court’s Subject Matter Jurisdiction, necessitating a dismissal of the action. The Plaintiff argued that Acadia Insurance Company’s change of citizenship to Iowa prior to the filing of the Motion for Summary Judgment repaired the claimed jurisdictional defect of Acadia being substituted and asked the Court to grant its motion.  

The Court held oral argument on December 16, 2019, and later issued an Opinion and Order dismissing all claims against MSZL&M’s client, Superior Fire Protection.  During Oral Argument our Maryland attorney argued, and the Court ultimately agreed, that permitting Acadia Insurance Company to substitute would “exceed the permissible bounds for substitution under Rule 17 because it would improperly allow Acadia to invoke [the] Court’s subject matter jurisdiction where it would not otherwise exist.”  The Court noted that in limited circumstances post-filing events may create subject matter jurisdiction where none originally existed; however, the Court declined to recognize a new exception that would permit post-filing changes to the Plaintiff’s citizenship to provide subject matter jurisdiction where diversity was the sole basis for federal jurisdiction. The case was dismissed on December 26, 2019.

The attorney has represented the fire protection industry for nearly 30 years. He defends fire protection contractors across the country either through private retention or through insurance carrier assignments.