1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 VERDANDI VII, INC., a Florida Case No.: 3:23-cv-00635-H-VET corporation, 12

ORDER:

Plaintiff, 13 v. (1) GRANTING PLAINTIFF’S 14

MOTION FOR LEAVE TO FILE

ACCELERANT SPECIALTY

15 AMENDED COMPLAINT; AND INSURANCE COMPANY, an Arkansas

16 corporation, (2) DENYING DEFENDANT’S 17 Defendant. MOTION FOR SUMMARY

JUDGMENT AS MOOT

18

19 20 [Doc. Nos. 28, 30.]

21 On December 1, 2023, Defendant and Counterclaimant Accelerant Specialty 22 Insurance Company (“Accelerant” or “Defendant”) filed a motion for summary judgment. 23 (Doc. No. 28.) On December 21, 2023, Plaintiff Verdandi VII, Inc. (“Plaintiff”) filed a 24 motion for leave to amend its complaint. (Doc. No. 30.) On January 8, 2024, Accelerant 25 filed its response in opposition to Plaintiff’s motion for leave to amend and Plaintiff filed 26 its response in opposition to Defendant’s motion for summary judgment. (Doc. Nos. 33, 27 35.) On January 12, 2024, the parties filed their replies in support of their respective 28 1 motions. (Doc. Nos. 36, 37.) 2 A hearing on both motions was scheduled for Monday, January 22, 2024 at 10:30 3 a.m. Pacific Time. The Court, pursuant to its discretion under Local Rule 7.1(d)(1), 4 determined these matters to be appropriate for resolution without oral argument, submitted 5 the motions on the parties’ papers, and vacated the hearings. (Doc. No. 39.) For the reasons 6 set forth below, the Court grants Plaintiff’s motion for leave to amend the complaint. (Doc. 7 No. 30.) Accordingly, Defendant’s motion for summary judgment is denied without 8 prejudice as moot.1 (Doc. No. 28.) 9 BACKGROUND 10 This is a marine insurance coverage dispute relating to damage sustained to 11 “FROJA,” a 2017 60’ Delta Express Cruiser with Volvo twin 600hp diesel engine, Hull ID 12 No. DTA540171718, (the “Vessel”). (Doc. No. 1, “Compl.” ¶ 1.) Plaintiff owns the 13 Vessel. (Id.) Defendant is a domestic surplus lines insurer. (Id. ¶ 2.) 14 In August 2022, Plaintiff purchased the Vessel in Fort Lauderdale, Florida for 15 approximately $1,500,000. (Id. ¶ 5.) In connection with the Vessel’s purchase, Plaintiff 16 obtained insurance coverage from Accelerant under insurance policy CSRYP/217493 (the 17 “Policy”) for the coverage period of September 16, 2022, to September 16, 2023. (Id. ¶ 6.) 18 After the Vessel’s purchase, Plaintiff desired to reposition it from Fort Lauderdale, Florida 19 to the Bay Area of California. (Id. ¶ 5.) From September 16, 2022 to October 8, 2022, a 20 transport ship moved the Vessel from Fort Lauderdale to Ensenada, Mexico. (Id. ¶ 8.) On 21 October 11, 2022, the Vessel left Ensenada under its own power, captained by Greg 22 Coleman and Frank Carson (the “Vessel Operators”). (Id.) During the Vessel’s journey, 23 while off the coast of San Diego County and after traversing the kelp beds off Point Loma, 24 the Vessel experienced engine problems. (Id. ¶ 9.) Acrid smoke filled the Vessel’s cabin 25

26 1 In support of Plaintiff’s opposition to Defendant’s motion for summary judgment, 27 Plaintiff requested the Court take judicial notice of several dictionary definitions. (Doc. No. 34.) Because the Court denies Defendant’s motion for summary judgment as moot, 28 1 and engine hold, requiring the Vessel Operators to evacuate. (Id.) The Vessel was later 2 towed into the San Diego harbor. (Id.) 3 On October 12, 2022, Plaintiff tendered a claim for damage with Accelerant. (Id. ¶ 4 10.) Accelerant retained Sedgwick Claims Management Services (“Sedgwick”) to 5 investigate and conduct a survey of the Vessel. (Id.) On October 18, 2022, Accelerant 6 also retained Todd Schwede (“Schwede”), a marine surveyor, to assist in its investigation. 7 (Doc. No. 30-5 at 4, Ex. B to Declaration of Kenneth K. Sharples (“Sharples Decl.”); Doc. 8 No. 35-5, Declaration of Todd Schwede (“Schwede Decl.”) ¶¶ 1, 2.) 9 On December 19, 2022, Schwede emailed Sedgwick and Plaintiff’s president, 10 Kenneth Sharples (“Sharples”), a copy of the alarm history from the Vessel’s Engine 11 Control Module (the “ECM Printout”) and data from the Vessel’s Volvo Penta glass 12 display. (Schwede Decl. ¶ 3; Doc. No. 37-1 ¶ 2.) Schwede’s email stated: “Volvo believes 13 8 apparent temperature related alarms would have been displayed prior to failure.” (Doc. 14 No. 35-6, Ex. 1 to Schwede Decl.) That same day, Sharples responded to Schwede’s email 15 asking Schwede to “compile a listing of alarms with timing (and engine) from [the ECM 16 Printout and] the glass panel evidence” because he was “having trouble sorting all of this 17 out.” (Doc. No. 35-6, Ex. 2 to Schwede Decl.) Sharples further stated that “getting this 18 information clearly established with back-up evidence is very important.” (Id.) At this 19 time, neither Accelerant nor Plaintiff believed the alarm data indicated wrongdoing on the 20 part of the Vessel Operators. (Doc. No. 37-1 at ¶ 2.) 21 On January 5, 2023, Sedgwick prepared a report (the “Sedgwick Report”) detailing 22 its findings regarding the cause of loss. (Doc. No. 30-5 at 4–5, Ex. B to Sharples Decl.) 23 The Sedgwick Report concluded that the most likely cause of the loss was “a restricted 24 seawater intake from kelp which resulted in a reduced water flow to the engine exhaust 25 spray ring and hotspots developing in the exhaust hose thereby melting the hose.” (Id.) 26 The Sedgwick Report also identified potential manufacturing defects that may have 27 contributed to the level of damage sustained by the Vessel. (Id. at 5.) 28 On March 17, 2023, Accelerant issued a reservation of rights under the Policy for 1 Plaintiff’s claim. (Compl. ¶ 14; Doc. No. 30-5 at 5, Ex. B to Sharples Decl.) The 2 reservation letter2 stated that the investigation to date pointed to a cause of loss from a 3 manufacturing/design defects and/or ingestion of marine life (i.e., kelp), both of which 4 were not covered losses under the Policy. (Doc. No. 30-5 at 5–6, Ex. B to Sharples Decl.) 5 Specifically, Accelerant asserted that the Marine Life Exclusion may apply to the claim, 6 however, Accelerant offered to assist Plaintiff in pursuing potential claims against the 7 manufacturer. (Doc. No. 35 at 9.) Accelerant did not formally accept Plaintiff’s claim and 8 reserved its rights to extend or deny coverage until after Accelerant completed its 9 investigation. (Doc. No. 30-5 at 6, Ex. B to Sharples Decl.) 10 On April 7, 2023, Plaintiff filed the present action against Accelerant for breach of 11 contract, breach of the covenant of good faith and fair dealing/bad faith, and declaratory 12 relief. (Compl. ¶¶ 16–43.) On July 5, 2023, counsel for both parties executed a “White 13 Waiver,” confirming the confidential nature of certain discussions and communications.3 14 (Doc. No. 30-2, Declaration of Rodney L. Donohoo (“Donohoo Decl.”) ¶ 2; Doc. No. 35- 15 4, Ex. 3 to Declaration of George P. Soares (“Soares Decl.”).) On July 6, 2023, Accelerant 16 filed its answer and filed a counterclaim against Plaintiff. (Doc. Nos. 7, 9.) Accelerant 17 asserted the Marine Life Exclusion as an affirmative defense in its answer, and its 18 counterclaim sought declaratory relief that the Marine Life Exclusion precludes coverage. 19 (Id.) On July 20, 2023, Plaintiff issued its initial disclosures, identifying Schwede and Pete 20 Cogswell as potential witnesses. (Doc. No. 35-4, Ex. 1 to Soares Decl.) As of January 8, 21

22 2 Neither party submitted the reservation of rights letter as an exhibit to any memorandum 23 in support of or in opposition to the present motion for leave to amend. (See Doc. Nos. 30, 35, 37.) However, Accelerant submitted a copy of the letter in support of its motion for 24 summary judgment. (Doc. No. 28-6.) Because the Court denies Accelerant’s motion for 25 summary judgment as moot, it does not consider the exhibit attached to the motion. However, the contents of the letter appear to be adequately summarized in Plaintiff’s 26 Complaint, Accelerant’s Denial Letter, and Defendant’s memorandum filed in opposition 27 to Plaintiff’s motion. (Doc. Nos. 1; 30-5, Ex. B to Sharples Decl.; 35.) 3 Counsel for Accelerant revoked the White Waiver, effective November 30, 2023. 28 1 2024, Plaintiff has neither served any discovery requests nor amended its initial 2 disclosures. (Soares Decl. ¶ 2.) 3 On August 16, 2023, the magistrate judge held an Early Neutral Evaluation and Case 4 Management Conference (“CMC”) with the parties. (Soares Decl. ¶ 3.) At the CMC, 5 Accelerant represented that it intended to file a motion for summary judgment by the end 6 of the year. (Id.) On August 17, 2023, the Court entered its scheduling order. (Doc. No. 7 18.) The scheduling order set September 18, 2023 as the deadline for the parties to amend 8 their pleadings. (Id. at 2.) 9 In October 2023, Schwede, on behalf of Accelerant, engaged Cogswell Motorsports 10 (“Cogswell”) to analyze the EMC Printout, which was previously provided to Schwede 11 and Sharples in December 2022. (Schwede Decl. ¶ 5.) Analyzing the EMC Printout in 12 conjunction with Garmin GPS tracking data, the Volvo glass display data, and the captains’ 13 logs, Schwede learned that prior to the discovery of smoke in the Vessel’s cabin and engine 14 hold, multiple alarms in the Vessel had been triggered, warning of excessive and 15 dangerously high exhaust temperature. (Doc. No. 30-9, (“Proposed FAC”) ¶ 17, Ex. F to 16 Donohoo Decl.; Doc. No. 37-1 ¶¶ 5–7.) He also discovered that the high exhaust 17 temperature alarm was triggered multiple times and was ignored each time by the Vessel 18 Operators. (Proposed FAC ¶ 17; Doc. No. 37-1 ¶ 6.) Further, Schwede became aware that 19 the Vessel Operators could remotely view the engine compartment through a camera 20 mounted directly in the engine compartment. (Proposed FAC ¶ 17; Doc. No. 37-1 ¶ 6.) 21 Cogswell prepared and delivered to Schwede a written report entitled “Froja Failure 22 Timeline,” which concluded that “the continued operation and lack of inspection [of the 23 engine] at the time of [the alarms] is what led to the total loss of the engines.” (Doc. No. 24 30-4 at 2, Ex. A to Sharples Decl.; Doc. No. 37-1 ¶ 6.) 25 On October 17, 2023, Schwede called Sharples and disclosed the additional 26 information concerning the Vessel Operators’ disregard for the high exhaust temperature 27 alarms, Cogswell’s conclusion regarding the cause of the engine loss, and the Vessel 28 Operators’ ability to remotely view the engine compartment (“Newly Discovered Facts”). 1 (Doc. No. 30-1 at 5; Sharples Decl. ¶ 2; Doc. No. 37-1 ¶¶ 5–7.) Schwede represented to 2 Sharples that these Newly Discovered Facts revealed the Vessel Operators’ negligence and 3 could impact coverage. (Doc. No. 37-1 ¶ 5.) On October 19, 24, and 26, 2023, Sharples 4 left voicemails, text messages, and/or emails with Sedgwick representative Revel Boulon 5 (“Boulon”) to discuss the Newly Discovered Facts and their potential impact on coverage. 6 (Doc. No. 30-6 at 1, Ex. C to Sharples Decl.) Boulon responded to Sharples on October 7 30, 2023. (Id.) Boulon acknowledged the “captain issue,” but did not want to second guess 8 the decision of the lawyers. (Id.) On November 14, 2023, Sharples received, for the first 9 time, a copy of the Froja Failure Timeline. (Sharples Decl. ¶ 2.) 10 On December 1, 2023, Accelerant denied Plaintiff’s claim (“Denial Letter”) based 11 on the Marine Life Exclusion. (Compl. ¶ 14; Doc. No. 30-5 at 5, Ex. B to Sharples Decl.) 12 The Denial Letter did not address the Newly Discovered Facts. (See Doc. No. 30-5 at 5, 13 Ex. B to Sharples Decl.) That same day, Accelerant moved for summary judgment on all 14 of Plaintiff’s claims. (Doc. No. 28.) The summary judgment motion did not reference the 15 Newly Discovered Facts. (See id.) Up until Plaintiff received the Denial Letter and 16 Accelerant’s motion for summary judgment, Plaintiff believed the Newly Discovered Facts 17 regarding the Vessel Operators’ conduct would be included in Accelerant’s coverage 18 decision. (Doc. No. 37-1 ¶ 14.) 19 On December 5, 2023, Sharples emailed Boulon at Sedgwick, questioning why 20 Accelerant did not address the Newly Discovered Facts in its Denial Letter or the summary 21 judgment motion. (Doc. No. 30-6, Ex. C to Sharples Decl.) Sharples asserted that the 22 negligence of the Vessel Operators provided an additional avenue for coverage. (Id. at 2.) 23 Upon receipt of Sharples’ email, Accelerant requested Sedgwick issue a supplemental 24 report (“Supplemental Report”) addressing Sharples’ contentions. (Doc. No. 35-1, 25 Declaration of Revel Boulon (“Boulon Decl.”) ¶ 3.) As of December 21, 2023, Plaintiff 26 had not received a response from Accelerant. (Sharples Decl. ¶ 4.) 27 On December 15, 2023, counsel for Plaintiff sent a proposed first amended 28 complaint (“FAC”) to Accelerant’s counsel and requested Accelerant stipulate to its filing. 1 (Donohoo Decl. ¶ 5.) Plaintiff’s counsel further requested Accelerant stipulate to continue 2 the hearing on the motion for summary judgment. (Id.) On December 20, 2023, 3 Accelerant’s counsel refused to stipulate to the filing of the FAC or to continue the hearing 4 on the motion for summary judgment set for January 22, 2024. (Doc. No. 30-7, Ex. D to 5 Donohoo Decl.) Accelerant further objected to certain references in the proposed FAC 6 based on the White Waiver. (Id.) That same day, Plaintiff’s counsel submitted a revised 7 proposed FAC, addressing the issues raised by Accelerant and requesting to meet and 8 confer regarding the proposed FAC and pending summary judgment hearing. (Doc. No. 9 30-8, Ex. E to Donohoo Decl.) Plaintiff’s counsel did not receive a response. (Donohoo 10 Decl. ¶ 7.) 11 On December 21, 2023, Plaintiff filed the present motion for leave to file a first 12 amended complaint. (Doc. No. 30.) Pursuant to Civil Local Rule 15.1(b), Plaintiff 13 submitted a redlined copy of the proposed FAC attached to its motion. (Doc. No. 30-9, 14 (“Proposed FAC”), Ex. F to Donohoo Decl.) On December 22, 2023, Plaintiff filed an ex 15 parte application to continue the hearing on Accelerant’s pending motion for summary 16 judgment considering its motion to amend the complaint. (Doc. No. 31; see Doc. No. 28.) 17 That same day, the Court denied Plaintiff’s ex parte application without prejudice. (Doc. 18 No. 32.) 19 On January 3, 2024, Sedgwick provided Accelerant with the Supplemental Report, 20 which addressed Sharples’ contentions in his December 5, 2023 email. (Boulon Decl. ¶ 21 3.) In the Supplemental Report, Sedgwick represented that it reviewed the Froja Failure 22 Timeline “when it was produced, however it did not alter our determination as to the cause 23 of loss.” (Doc. No. 35-2, Ex. 1 to Boulon Decl.) The Supplemental Report disagreed with 24 Sharples’ allegation that the loss was caused by the Vessel Operators’ negligence and 25 asserted that the Marine Life Exclusion precluded coverage. (Id. at 4.) On January 5, 2024, 26 Accelerant responded to Plaintiff’s December 5, 2023 email, confirmed the denial of 27 Plaintiff’s claim based on the Marine Life Exclusion, and provided Plaintiff a copy of the 28 Supplemental Report. (Soares Decl. ¶ 5, Doc. No. 35-4, Ex. 2 to Soares Decl.) 1 DISCUSSION 2 In its motion, Plaintiff explains that it is seeking leave to amend its complaint to add 3 the Newly Discovery Facts, which were not discovered until after the scheduling order’s 4 deadline to amend the pleadings had already passed. (Doc. No. 30-1 at 7.) Plaintiff 5 contends that the Newly Discovered Facts provide an additional basis for coverage under 6 the Policy. (Id.) Specifically, Plaintiff’s proposed FAC alleges that the Vessel Operators’ 7 conduct—ignoring multiple warning alarms prior to the engine malfunction—constitutes 8 barratry and/or negligence. (Proposed FAC ¶ 23.) Plaintiff asserts that the Vessel 9 Operators’ barratry and/or negligence constitutes an accidental external event, which is 10 covered under the Policy. (Id.) 11 In response, Accelerant asserts that the Newly Discovered Facts were known to 12 Sharples prior to the scheduling order’s deadline because Schwede provided Sharples the 13 underlying data—the ECM Printout and glass display data—in December 2022. (Doc. No. 14 35 at 6, 8.) Accelerant claims that Plaintiff has failed to show good cause to amend the 15 scheduling order because Plaintiff did not analyze the underlying data in the ECM Printout, 16 conduct its own discovery regarding the ECM Printout, amend its initial disclosures to 17 include the ECM Printout, or seek leave to amend promptly after Plaintiff allegedly learned 18 of the Newly Discovered Facts in October 2023. (Id. at 13–15.) Further, Accelerant claims 19 that Plaintiff’s undue delay and bad faith would severely prejudice Accelerant if Plaintiff 20 were allowed to file an amended complaint, and any amendments to the complaint would 21 be futile. (Id. at 16–18.) Additionally, Accelerant claims that the Newly Discovered Facts 22 are inadmissible in this lawsuit pursuant to the parties’ White Waiver. (Id. at 18–19; Doc. 23 No. 35-7.) 24 I. Legal Standards 25 A. Rule 16(b)(4) 26 Generally, Federal Rule of Civil Procedure 15(a) governs motions for leave to 27 amend pleadings when a party seeks to amend after twenty days from the date when the 28 initial complaint was served. However, where, as here, the motion for leave to amend is 1 filed after entry of the Rule 16 scheduling order, Rule 16’s standards govern. Johnson v. 2 Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992); see also Jackson v. 3 Laureate, Inc., 186 F.R.D. 605, 607 (E.D. Cal. 1999) (“[O]nce the district court has filed a 4 pretrial scheduling order pursuant to Rule 16 . . . a motion seeking to amend pleadings is 5 governed first by Rule 16(b), and only secondarily by Rule 15(a).”). 6 Rule 16(b)(4) provides that a scheduling order “may be modified only for good cause 7 and with the judge’s consent.” Fed. R. Civ. P. 16(b)(4). “Unlike Rule 15(a)’s liberal 8 amendment policy which focuses on the bad faith of the party seeking to interpose an 9 amendment and the prejudice to the opposing party, Rule 16(b)’s ‘good cause’ standard 10 primarily considers the diligence of the party seeking the amendment. Johnson, 975 F.2d 11 at 609. “The district court may modify the scheduling order ‘if it cannot reasonably be met 12 despite the diligence of the party seeking the extension.’” Id. (quoting Fed. R. Civ. P. 16 13 advisory committee’s notes (1983 amendment)). “The focus of the inquiry is upon the 14 moving party’s reasons for seeking modification.” Id. at 609. 15 To demonstrate diligence under Rule 16’s “good cause” standard, courts in the Ninth 16 Circuit often require the moving party to show the following: “(1) that she was diligent in 17 assisting the Court in creating a workable Rule 16 order; (2) that her noncompliance with 18 a Rule 16 deadline occurred or will occur, notwithstanding her diligent efforts to comply, 19 because of the development of matters which could not have been reasonably foreseen or 20 anticipated at the time of the Rule 16 scheduling conference; and (3) that she was diligent 21 in seeking amendment of the Rule 16 order, once it became apparent that she could not 22 comply with the order.”4 E.C. v. Lincoln Mil. Prop. Mgmt. LP, No. 21-CV-2070 JLS 23

24 4 Defendant argues that Plaintiff must show “excusable neglect” to receive relief from an 25 expired case management deadline under Rule 16(b)(4). (Doc. No. 35 at 13.) Defendant cites to Branch Banking & Tr. Co. v. D.M.S.I., LLC, 871 F.3d 751, 764 (9th Cir. 2017), 26 and Choudhry v. Tulare Cnty., No. 121CV01287JLTSAB, 2023 WL 8878275 at *2 (E.D. 27 Cal. Dec. 22, 2023) and urges the Court to adopt the four-factor “excusable neglect” test articulated by the Supreme Court in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. 28 1 (BLM), 2023 WL 2292578 at *2 (S.D. Cal. Feb. 28, 2023) (quoting Jackson, 186 F.R.D. 2 at 608); see also TGG Mgmt. Co., Inc. v. Petraglia, No. 19-CV-2007-BAS-KSC, 2021 WL 3 2206475 at *2 (S.D. Cal. June 1, 2021) (applying the same three-step inquiry). If the party 4 seeking modification was not diligent, the “inquiry should end” and the motion should be 5 denied. Johnson, 975 F.2d at 609. Only after a showing of good cause under Rule 16(b)(4) 6 has been made will the district court apply Rule 15(a). Id. at 608 (citing Forstmann v. 7 Culp, 114 F.R.D. 83, 85 (M.D.N.C. 1987)); see also TGG Mgmt. Co., Inc., 2021 WL 8 2206475, at *2. 9 B. Rule 15(a) 10 Federal Rule of Civil Procedure 15(a) allows a party leave to amend its pleading 11 once as a matter of right prior to service of a responsive pleading. Thereafter, a party may 12 amend its pleading only by leave of the court or by written consent of the adverse party 13 and leave shall be freely given when justice so requires. Fed. R. Civ. P. 15(a)(2). The 14 Ninth Circuit has instructed that this policy is “to be applied with extreme liberality.” 15 Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001). “Five factors 16 are taken into account to assess the propriety of a motion for leave to amend: bad faith, 17 undue delay, prejudice to the opposing party, futility of amendment, and whether the 18 plaintiff has previously amended the complaint.” Johnson v. Buckley, 356 F.3d 1067, 1077 19 (9th Cir. 2004) (citing Nunes v. Ashcroft, 348 F.3d 815, 818 (9th Cir. 2003)). “Not all of 20 the factors merit equal weight. As this circuit and others have held, it is the consideration 21 of prejudice to the opposing party that carries the greatest weight.” Eminence Cap., LLC 22 v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). “Absent prejudice, or a strong 23 showing of the remaining . . . factors, there exists a presumption under Rule 15(a) in favor 24 of granting leave to amend.” Id. (emphasis in original). In sum, the decision whether to 25 26 27 applied a District of Nevada Local Rule, which does not apply here. And Choudhry applied the same diligence standard that Court articulates and applies to its Rule 16(b)(4) analysis. 28 1 grant leave to amend “is entrusted to the sound discretion of the trial court.” Pisciotta v. 2 Teledyne Indus., Inc., 91 F.3d 1326, 1331 (9th Cir. 1996). 3 II. Analysis 4 A. White Waiver 5 As a threshold matter, the Court rejects Defendant’s argument that the White Waiver 6 renders the Newly Discovered Facts inadmissible for any purpose in this lawsuit. (Doc. 7 No. 35 at 16; Doc. No. 35-7.) In White v. W. Title Ins. Co., 40 Cal. 3d 870, 888–90 (1985), 8 the California Supreme Court found that the settlement negotiations post-commencement 9 of the litigation in the insurance context were admissible to show that the insurer made two 10 low-ball settlement offers in bad faith, notwithstanding the settlement privilege. To avoid 11 application of White, insurers often seek a White waiver—an express agreement with the 12 insured prohibiting the use of settlement discussions in litigation. (See Cal. Civ. Prac. 13 Torts § 44:69.) However, neither party asserts that the Newly Discovered Facts were 14 disclosed in connection with a settlement offer. (See Doc. Nos. 30, 35, 37.) Rather, the 15 Newly Discovered Facts, which include the Froja Failure Timeline and Schwede’s 16 discussion with Sharples regarding the ECM Printout, GPS data, and glass display data 17 revealing the Vessel Operators’ apparent negligence, were part of Defendant’s contractual 18 obligation to investigate the claim of its insured. See Egan v. Mut. of Omaha Ins. Co., 24 19 Cal. 3d 809, 817 (1979) (“An insurer may breach the covenant of good faith and fair dealing 20 when it fails to properly investigate its insured’s claim.”); Co. v. Cibus US LLC, No. 21 19CV828-JO-DDL, 2023 WL 5432510 at * 10–11 (S.D. Cal. Aug. 23, 2023) (describing 22 the insurer’s duty to investigate claims thoroughly). Because there is no evidence that the 23 Newly Discovered Facts were part of settlement communications, they are not rendered 24 inadmissible by the White Waiver. Compare 730 I St. Invs., LLC v. Evanston Ins. Co., 25 No. 219CV00040JAMCKD, 2019 WL 1869851 at *1 (E.D. Cal. Apr. 25, 2019) (finding 26 White Waiver did not exclude non-settlement communications), with Kane v. Travelers 27 Prop. Cas. Ins. Co., No. CV 14-3147 PSG (SSX), 2014 WL 12577092 at *3 (C.D. Cal. 28 Nov. 18, 2014) (upholding a White Waiver to bar evidence of settlement discussions). 1 B. Good Cause Under Rule 16(b)(4) 2 Under the Court’s August 17, 2023, scheduling order, any motion for leave to amend 3 the pleadings needed to be filed by September 18, 2023. (Doc. No. 18 at 2.) Because 4 Plaintiff filed the present motion for leave to amend on December 21, 2023—almost three 5 months after the September 2023 deadline—its motion for leave to amend must satisfy 6 Rule 16(b)(4)’s good cause standard. Johnson, 975 F.2d at 607–08. 7 After reviewing the record in this action and the parties’ arguments, the Court 8 concludes that Plaintiff has shown good cause to modify the Court’s scheduling order to 9 permit the filing of the proposed FAC. Accelerant contends Plaintiff did not act with 10 diligence because Sharples possessed the ECM Printout and glass display data since 11 December 2022 and Sharples did not analyze the data contained therein or conduct 12 discovery. (Doc. No. at 13.) Plaintiff rebuts Defendant’s accusations of dilatory conduct 13 by pointing out that the ECM Printout and glass display data is a dense, thirty-two-page 14 document that is not easy to decipher and requires someone qualified in reading such 15 reports to analyze its import. (Doc. No. 37 at 5, 8.) In the December 2022 email, Sharples 16 expressed trouble in drawing any conclusions from the report and asked Schwede to 17 conduct further analysis. (Schwede Decl. ¶ 3; Doc. No. 37-1 ¶ 2.) Accelerant did not do 18 so until October 2023 when Schwede engaged Cogswell to conduct further analysis. 19 (Schwede Decl. ¶ 5.) Even if Plaintiff had engaged its own expert to analyze the ECM 20 Printout, Plaintiff argues that it could not have discovered the Vessel Operators’ apparent 21 negligence from the raw data alone. (Id. at 8.) Plaintiff asserts that Schwede not only 22 relied on the ECM Printout, but also used the GPS data and the captains’ logs to discover 23 the Vessel Operators’ apparent negligence in operating the Vessel. (Doc. No. 37-1 ¶¶ 5– 24 7.) The Court agrees with Plaintiff. Defendant’s suggestion that Plaintiff lacked diligence 25 by failing to interpret the underlying data and could have discovered the apparent 26 negligence is unavailing when Accelerant relied on more than just the underlying data to 27 discover the Vessel Operators’ purported negligence. The raw data is unintelligible to a 28 layperson and could not clearly lead Plaintiff to the conclusion that the Vessel Operators 1 disregarded the high temperature alarms. Moreover, Accelerant is the party with the 2 affirmative duty to investigate the claims of its insured, analyze the import of various 3 technical readings, and determine the impact on coverage. See Co. v. Cibus US LLC, 2023 4 WL 5432510, at *10–11. The Court declines to penalize Plaintiff for relying on its 5 insurance company to investigate its claim and make a coverage decision. Plaintiff’s 6 request that Schwede analyze the data went unanswered for almost an entire year and the 7 new facts regarding the Vessel Operators’ apparent malfeasance did not come to light until 8 October 2023, after the August 2023 scheduling order deadline to amend the pleadings had 9 passed. See Century Sur. Co. v. 350 W.A., LLC, No. 06-CV-1548-L(LSP), 2007 WL 10 2572270 at *2 (S.D. Cal. Sept. 5, 2007) (finding good cause to grant leave to amend when 11 defendant did not make key documents available for review to plaintiff until after the Rule 12 16 deadline to amend the pleadings passed); see also Johnson, 975 F.2d at 609 (“The focus 13 of the inquiry is upon the moving party’s reasons for seeking modification.”). 14 The Court recognizes Plaintiff’s three-month delay in seeking leave to amend once 15 it learned of the Newly Discovered Facts from Schwede in October 2023. Plaintiff asserts 16 that between October 17, 2023 and December 1, 2023, Sharples diligently attempted to 17 communicate with Accelerant regarding the import of the Newly Discovered Facts on 18 coverage of Plaintiff’s claim. (Doc. No. 30-1 at 7–8.; Doc. No. 30-6 at 1, Ex. C to Sharples 19 Decl.) Plaintiff’s communications with Defendant largely went unanswered. (Doc. No. 20 30-6 at 1, Ex. C to Sharples Decl.; Sharples Decl. ¶ 4.) Moreover, Plaintiff did not receive 21 a copy of the Froja Failure Timeline, which included Cogswell’s conclusions regarding the 22 cause of the loss, until November 14, 2023. (Sharples Decl. ¶ 2.) Plaintiff further explains 23 that it believed that the new information regarding the Vessel Operators’ conduct would be 24 included in Defendant’s coverage decision. (Doc. No. 37 at 7.) When Plaintiff received 25 the Denial Letter and Accelerant’s motion for summary judgment on December 1, 2023, 26 neither of which contained the Newly Discovered Facts, Plaintiff argues it promptly 27 communicated with Accelerant regarding the omission of the Newly Discovered Facts. 28 (Doc. No. 30-6, Ex. C to Sharples Decl.) On December 15, 2023, Plaintiff presented 1 Accelerant with a proposed amended complaint and requested relief from the Rule 16 2 scheduling order and leave to file an amended complaint from this Court just six (6) days 3 later. (Donohoo Decl. ¶ 5; Doc. No. 30.) Considering this timeline, the Court finds that 4 Plaintiff’s delay was not due to a lack of diligence on Plaintiff’s part. Accordingly, Plaintiff 5 has established good cause to amend the Rule 16 scheduling order to permit Plaintiff to file 6 its amended complaint. La Jolla Spa MD, Inc. v. Avidas Pharms., LLC, No. 17CV1124- 7 MMA (WVG), 2019 WL 1902604 at *3 (S.D. Cal. Apr. 29, 2019) (holding plaintiff 8 diligent in filing motion for leave to amend within two weeks of discovering new 9 information); Woodward v. Cnty. of San Diego, No. 17-CV-2369 JLS (KSC), 2020 WL 10 1820265 at *3–4 (S.D. Cal. Apr. 10, 2020) (finding good cause to grant leave to amend 11 under Rule 16(b)(4) where party filed leave to amend one month after discovering new 12 facts). 13 C. Rule 15(a) 14 Because Plaintiff has satisfied Rule 16(b)(4)’s good cause standard, the Court 15 proceeds to analyze Plaintiff’s motion under Rule 15. Considering the factors set forth in 16 Johnson v. Buckley, the Court concludes that Plaintiff should be granted leave to file its 17 proposed FAC. As discussed above, there was some delay between Plaintiff learning about 18 the Newly Discovered Facts in October 2023 and filing the present motion in December 19 2023. However, this can hardly be characterized as “undue delay.” See Allen v. Ghoulish 20 Gallery, No. 06CV371 NLS, 2007 WL 9776597 at *2 (S.D. Cal. May 23, 2007) (noting a 21 four-month delay in bringing motion for leave to amend was not “undue delay” to justify 22 denial under Rule 15(a)). As previously discussed, Plaintiff reasonably believed that the 23 Newly Discovered Facts would impact the coverage decision. Once it became clear that 24 Accelerant did not reference the Newly Discovered Facts as part of its coverage decision 25 or in its motion for summary judgment, Plaintiff promptly prepared the amended 26 complaint, met and conferred with Accelerant, and filed the present motion for leave to 27 amend the complaint. (See Donohoo Decl.) Moreover, Plaintiff has not previously 28 amended its complaint. 1 Accelerant argues that permitting Plaintiff to amend its complaint would result in 2 prejudice to Accelerant due to the substantial fees and costs it incurred in preparing and 3 filing its motion for summary judgment. (Doc. No. 35 at 16.) However, litigation expenses 4 alone do not amount to prejudice. Clark v. Citizens of Human., LLC, No. 14-CV-1404 5 JLS (WVG), 2016 WL 4597527 at *3 (S.D. Cal. May 3, 2016) (citation omitted). 6 Moreover, the Court denied Plaintiff’s ex parte application to continue the hearing on the 7 motion for summary judgment, requiring Plaintiff to incur costs in responding to 8 Defendant’s motion. As such, both parties’ incurred costs related to Defendant’s motion 9 for summary judgment. Moreover, the Court denies Defendant’s summary judgment 10 motion without prejudice, further minimizing any prejudice to Defendant. 11 Accelerant further contends Plaintiff acted in bad faith by waiting to file its motion 12 for leave to amend until after Accelerant moved for summary judgment. But “a motion for 13 leave to amend is not brought in bad faith merely because a motion for summary judgment 14 is pending at the time the motion was filed.” Adams v. AllianceOne, Inc., No. 08CV0248 15 JAH (WVG), 2010 WL 11508283 at *3 (S.D. Cal. Apr. 16, 2010). And, as discussed 16 above, Plaintiff did not receive Accelerant’s denial of its claim until December 1, 2023, the 17 same day Accelerant filed its motion for summary judgment. (Doc. No. 30.) In exercising 18 its discretion under Rule 15(a), the Court is “guided by the underlying purpose of Rule 19 15—to facilitate decision on the merits rather than on the pleadings or technicalities.” DCD 20 Programs, Ltd. v. Leighton, 833 F.2d 183, 188 (9th Cir. 1987). Permitting Plaintiff to 21 amend its complaint will allow the Court to adjudicate on the merits rather than deciding 22 this case on procedural gamesmanship. 23 Defendant contends that leave to amend should be denied on futility grounds because 24 the proposed amended complaint cannot overcome the Marine Life Exclusion. (Doc. No. 25 35 at 16–17.) Specifically, Defendant claims that even if the Vessel Operators were 26 negligent and ignored multiple alarms, the Marine Life Exclusion would still preclude 27 coverage. (Doc. No. 35 at 18.) Even if the Newly Discovered Facts ultimately cannot 28 defeat the Marine Life Exclusion, “the sufficiency of an amended pleading ordinarily will 1 be considered on a motion for leave to amend.” Breier v. N. Cal. Bowling Proprietors’ 2 || Ass’n, 316 F.2d 787, 790 (9th Cir. 1963); see Netbula v. Distinct Corp., 212 F.R.D. 534, 3 (N.D. Cal. 2003) (“Denial of leave to amend on [futility] ground|s] is rare.”). Because 4 leave to amend should be freely given, the Court sees no reason to transform Accelerant’s 5 || opposition to Plaintiffs motion requesting leave to amend into a motion to dismiss or a 6 motion for summary judgment. At this time, the Court declines to scrutinize the sufficiency 7 Plaintiffs amended pleading and defers consideration of Defendant’s potential 8 challenges to the merits of the proposed amended complaint until after Plaintiff files it. Id. 9 || (Ordinarily, courts will defer consideration of challenges to the merits of a proposed 10 |}amended pleading until after leave to amend is granted and the amended pleading is 11 || filed.”’); Hynix Semiconductor Inc. v. Toshiba Corp., 2006 WL 3093812 at *2 (N.D. Cal. 12 || Oct. 31, 2006) (noting “[cJourts rarely deny a motion for leave to amend for reason of 13 || futility’). 14 CONCLUSION 15 For the reasons stated above, the Court grants Plaintiff's motion for leave to file its 16 ||amended complaint. Plaintiff must file the proposed first amended complaint within seven 17 days from the date of this order. In light of granting Plaintiff leave to file an amended 18 || complaint, the Court denies Accelerant’s motion for summary judgment as moot. 19 IT IS SO ORDERED. 20 || DATED: January 22, 2024 | | LAl cA | J) / 21 MARILYN UW. HUFF, DistrictJudge 9 UNITED STATES DISTRICT COURT 23 24 25 26 27 28