United States Fire Ins Co v. Kelman Bottles ( 2013 )


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  •                                                            NOT PRECEDENTIAL
    
                         UNITED STATES COURT OF APPEALS
                              FOR THE THIRD CIRCUIT
    
    
                                       No. 12-2270
    
    
                        UNITED STATES FIRE INSURANCE CO.
    
                                            v.
    
                         KELMAN BOTTLES, KELMAN GLASS
    
                                            v.
    
                            CONTINENTAL CASUALTY CO.
    
    
                         Kelman Bottles, LLC, Kelman Glass, LLC,
                                                             Appellants
    
    
                      On Appeal from the United States District Court
                         for the Western District of Pennsylvania
                                 (D. C. No. 2-11-cv-00891)
                       District Judge: Honorable Arthur J. Schwab
    
    
                                 Argued on March 5, 2013
    
                  Before: SCIRICA, JORDAN and ROTH, Circuit Judges
    
                            (Opinion filed: September 23, 2013)
    
    Michael Conley, Esquire (Argued)
    Meghan K. Finnerty, Esq.
    Offit Kurman
    1801 Market Street
    Ten Penn Center, Suite 2300
    Philadelphia, PA 19103
    James C. Martin, Esq.
    Traci S. Rea, Esq.
    Reed Smith
    225 Fifth Avenue, Suite 1200
    Pittsburgh, PA 15222
                       Counsel for Appellants
    
    
    Christopher P. Leise, Esq. (Argued)
    Katrina D. Gibson, Esq.
    Nancy L. Siegel, Esq.
    White & Williams
    457 Haddonfield Road
    Suite 400, Liberty View
    Cherry Hill, NJ 08002
                        Counsel for Appellee United States Fire Insurance Co
    
    
    Paul K. Geer, Esq. (Argued)
    Tara L. Maczuzak, Esq.
    DiBella, Geer, McAllister & Best, P.C.
    20 Stanwix Street, 11th Floor
    Pittsburgh, PA 15222
                        Counsel for Appellee Continental Casualty Co
    
    
    
                                           OPINION
    
    
    ROTH, Circuit Judge:
    
           In this insurance coverage dispute, Kelman Bottles, LLC, and Kelman Glass, LLC,
    
    (collectively, Kelman) appeal (1) the District Court’s April 5, 2012, order granting
    
    summary judgment in favor of United States Fire Insurance Company (US Fire) and
    
    Continental Casualty Company (Continental) and (2) the District Court’s March 1, 2012,
    
    order denying Kelman’s motion for leave to add a bad faith claim against Continental.
    
    For the reasons that follow, we will (1) reverse the District Court’s April 5, 2012, order
    
                                                 2
    granting summary judgment in favor of US Fire and Continental on Kelman’s breach of
    
    contract claims, (2) affirm the District Court’s April 5, 2012, order granting summary
    
    judgment in favor of US Fire on Kelman’s bad faith claim, and (3) reverse the District
    
    Court’s March 1, 2012, order denying Kelman’s motion to amend its complaint against
    
    Continental.
    
    I.     Factual Background
    
           A.      Kelman’s Furnace and the March 15, 2011, Incident
    
           The glass melting furnace at the Kelman factory typically contained about 220
    
    tons of molten glass stored at temperatures of 2300 to 2800 degrees farenheit. On March
    
    15, 2011, at about 4:15 p.m., the north side of the furnace began to leak. The leak rapidly
    
    turned into a catastrophic event, spewing molten glass for several hours. The leak caused
    
    severe damage to the furnace and other equipment at the plant.
    
           At the time of the incident, the furnace had been in operation for about five years
    
    of its ten-year lifespan. Prior to March 15, 2011, Kelman had experienced at least two
    
    other leaks in the furnace, although none was as severe. Kelman’s furnace manager,
    
    Doug Hilliard, had expressed concerns about the condition of the furnace after leaks in
    
    April 2009 and June 2010. In May 2009, Kelman hired a consultant to evaluate the status
    
    and stability of the furnace. The consultant recommended several repairs. Kelman
    
    performed most of the repairs but declined to undertake some repairs that it claimed were
    
    not done in the industry and might cause the furnace to wear out faster. There is
    
    evidence in the record that all glass melting furnaces leak occasionally because their
    
    
    
                                                 3
    design requires gaps to accommodate the large expansions and contractions associated
    
    with the high temperature of the molten glass.
    
           B.     The Insurance Policies
    
           Kelman purchased two insurance policies to cover risks associated with the
    
    furnace: (1) an “All Risk” policy with US Fire, and (2) an “Equipment Breakdown”
    
    policy with Continental. Kelman’s “All Risk” policy with US Fire provided coverage for
    
    any “Covered Causes of Loss,” which coverage was defined as “Risks of Direct Physical
    
    Loss unless the loss is . . . excluded in Section B.” The policy also contained an
    
    additional section titled “Additional Coverage Extensions,” which provided coverage for,
    
    among other things, loss or damage from “covered water or other liquid, powder or
    
    molten material damage loss.” The policy did not state whether “loss or damage” in the
    
    Additional Coverage Extensions had the same meaning as “Covered Causes of Loss.”
    
           Kelman’s “Equipment Breakdown” policy with Continental provided coverage for
    
    any “‘Breakdown’ to ‘Covered Equipment.’” The policy defined “Breakdown” as a
    
    “sudden and accidental direct physical loss to ‘Covered Equipment’ . . ..” The policy’s
    
    definition of “Covered Equipment” included “furnaces, ovens and kilns.”
    
           C.     Rejection of Kelman’s Insurance Claims by US Fire and Continental
    
           After the March 15, 2011, incident, Kelman filed claims with both US Fire and
    
    Continental. On June 30, 2011, US Fire denied coverage to Kelman based on the
    
    policy’s Inherent Vice Exclusion, Wear and Tear Exclusion, and Design Defect
    
    Exclusion. US Fire also reserved the right to deny coverage if the loss was not a
    
    
    
                                                 4
    fortuitous event and noted that the loss might also be excluded under the Maintenance
    
    Exclusion or the Mechanical Breakdown Exclusion.
    
           Continental denied Kelman’s claim on June 14, 2011, on the grounds that a
    
    “Breakdown” did not occur within the definition of Kelman’s policy. However, a report
    
    prepared by Continental during the course of its investigation noted that David Bizzak, an
    
    engineer hired by Continental to evaluate the cause of the incident, relayed to a
    
    Continental investigator that “based on the facts as described to him this was definitely an
    
    occurrence that was sudden and accidental.”1 Additionally, a Continental subrogation
    
    specialist noted in the claim file on April 12, 2011: “Reviewed file notes and engineer
    
    report. Loss was deemed sudden and accidental.”
    
    II.    Procedural History
    
           On July 6, 2011, US Fire filed an action seeking a declaratory judgment that it had
    
    no obligation to insure Kelman for the damages and losses suffered in the March 15,
    
    2011, incident. On August 23, 2011, Kelman filed a counterclaim asserting breach of
    
    contract and bad faith against US Fire. On October 10, 2011, Kelman filed a Joinder
    
    Complaint against Continental asserting a breach of contract claim. On February 21,
    
    2012—eleven days after the close of discovery and nine days before summary judgment
    
    motions were due—Kelman filed a motion to amend its claims against Continental to
    
    include a count of bad faith. The District Court denied the motion on March 1, 2012.
    
    
    
    
    1
      Bizzak later testified that he would not have used those words, but, in any event, “it was
    a leak that was out of the realm of the normal.”
                                                 5
           Both US Fire and Continental filed summary judgment motions, arguing that
    
    Kelman was not entitled to coverage under their respective policies and thus they did not
    
    breach their contracts with Kelman. US Fire’s summary judgment motion also requested
    
    dismissal of Kelman’s bad faith counterclaim. Kelman filed a cross-motion for summary
    
    judgment asserting that both US Fire and Continental were liable under their respective
    
    policies. On April 5, 2012, the District Court granted the motions of US Fire and
    
    Continental and denied Kelman’s cross-motion.
    
    III.   Discussion2
    
           “We review the District Court’s grant of summary judgment de novo, applying the
    
    same standard the District Court applied. Summary judgment is appropriate where there
    
    is no genuine issue of material fact to be resolved and the moving party is entitled to
    
    judgment as a matter of law.” Alcoa, Inc. v. United States, 
    509 F.3d 173
    , 175 (3d Cir.
    
    2002) (citations omitted).
    
           Kelman argues on appeal that the District Court erred by (1) granting summary
    
    judgment for US Fire and Continental on Kelman’s breach of contract claims, (2)
    
    granting summary judgment for US Fire on Kelman’s bad faith claim, and (3) denying
    
    Kelman’s motion for leave to amend the third party complaint against Continental to
    
    assert a claim of bad faith.
    
           A.     Breach of Contract Claims Against US Fire and Continental
    
                  1.      Breach of Contract Claim Against US Fire
    
    
    2
     The District Court had subject matter jurisdiction under 28 U.S.C. § 1332, and we have
    appellate jurisdiction under 28 U.S.C. § 1291.
                                                 6
           The District Court granted summary judgment for US Fire on the grounds that (1)
    
    the loss in question fell under the Inherent Vice Exclusion, and (2) because the loss in
    
    question fell under the Inherent Vice Exclusion, it also was not covered under the
    
    Additional Coverage Extensions. Kelman argues that the District Court erred in granting
    
    summary judgment for US Fire on these grounds. We agree.
    
                  a.     Inherent Vice Exclusion
    
           The Inherent Vice Exclusion in the US Fire policy reads in pertinent part:
    
                  B. Exclusions
                               *              *             *
                        2. We will not pay for loss or damage caused by or resulting from
                        any of the following:
                               *              *             *
                               d. (2) Rust, corrosion, decay, deterioration, hidden or
                               latent defect, or any quality in property that causes it to
                               damage or destroy itself.
    
           The District Court found that the loss in question fell under the Inherent Vice
    
    Exclusion because the court identified the leaking of molten glass as the cause of the
    
    March 15, 2011, loss. However, the leaking of molten glass is a common and natural
    
    occurrence in glass melting furnaces. A catastrophic leak is not. The March 15, 2011,
    
    loss was not due to the expected occasional leaking of molten glass but to the
    
    catastrophic leak of large amounts of molten glass. Thus, the District Court erred in its
    
    conclusion that “because the loss sustained by Kelman occurred as result of molten glass
    
    escaping the furnace, and because Kelman admitted that molten glass was an inherent
    
    risk to operating the furnace, the loss falls within U.S. Fire’s inherent risk exclusion.”
    
    
    
    
                                                  7
    This conclusion, under which any leak of molten glass would call for application of the
    
    Inherent Vice Exclusion, is too broad.
    
           Moreover, a glass furnace’s susceptibility to leaks is not the type of loss causation
    
    that should invoke the Inherent Vice Exclusion. Even if the leaking of molten glass
    
    caused the loss, under this Court’s precedent, the loss still would not fall under the
    
    Inherent Vice Exclusion. In GTE Corp. v. Allendale Mutual Ins. Co., we defined inherent
    
    vice as:
    
                  . . . [A] cause of loss . . . [that] does not relate to an
                  extraneous cause but to a loss entirely from internal
                  decomposition or some quality which brings about its own
                  injury or destruction. . . . In other words, the question is
                  whether the insured property . . . contain[s] its own seeds of
                  destruction . . . [or] was threatened by an outside natural
                  force.
    
    
    372 F.3d 598
    , 611 (3d Cir. 2004) (internal quotation marks and citations omitted). In that
    
    case, we held that the Year 2000 (Y2K)-related data recognition problem in GTE
    
    Corporation’s computer systems constituted an inherent vice because the systems
    
    contained their own ‘seeds of destruction’—the two-digit date limitation, which
    
    precluded the systems from functioning properly on or after January 1, 2000. Id. Here,
    
    in contrast, the furnace’s susceptibility to leaks did not preclude it from functioning
    
    properly. In fact, it is undisputed that leaks of molten glass from glass melting furnaces
    
    are common and natural; with proper maintenance and operation, a glass melting furnace
    
    will operate without incident, even with occasional leaks. Therefore, the leaking of
    
    molten glass, unlike the GTE computer systems’ two-digit date limitation, is not a “seed
    
    of destruction” but part of the furnace’s normal functioning. It is not an inherent vice.
    
                                                  8
           Summary judgment on this ground was inappropriate.3 We will reverse the order
    
    granting summary judgment to US Fire on the breach of contract claim and remand the
    
    case to the District Court to grant judgment in favor of Kelman on the Inherent Vice
    
    Exclusion and to take further proceedings in regard to the other grounds for judgment
    
    asserted by US Fire.
    
                  b.       Additional Coverage Extensions
    
           The District Court held that the loss did not fall under the Additional Coverage
    
    Extensions because the policy unambiguously established that any loss that falls under an
    
    exclusion is not covered under the Additional Coverage Extensions. Because we
    
    conclude that the Inherent Vice Exclusion does not apply here, there is at this point no
    
    bar to applying the Additional Coverage Extensions. However, we do note that our
    
    review convinces us that the District Court may have erred in precluding an excluded loss
    
    from being covered by the Additional Coverage Extensions. When an insurance policy
    
    contains general coverage provisions as well as a special coverage provision contained in
    
    an endorsement, it does not necessarily follow that the provisions of the main policy
    
    govern the endorsement. An endorsement to a policy may in fact provide coverage that is
    
    excluded by the language of the main policy. In this type of situation, we have held that
    
    “[i]f there is a conflict between the terms of an endorsement and those in the body of the
    
    
    3
      US Fire additionally asserted that the loss is excluded under the Wear and Tear,
    Corrosion and Deterioration Exclusion, Faulty, Inadequate or Defective Maintenance
    Exclusion, and Inadequate or Defective Design Exclusion and that the loss is not covered
    because it was not fortuitous. Because the District Court decided the case on the Inherent
    Vice Exclusion, it did not go on to consider these other Exclusions. It may do so on
    remand.
                                                 9
    main policy, then the endorsement prevails, particularly when it favors the insured.” St.
    
    Paul Fire & Marine Ins. Co. v. U.S. Fire Ins. Co., 
    655 F.2d 521
    , 524 (3d Cir. 1981);4 see
    
    also Whole Enchilada, Inc. v. Travelers Prop. Cas. Co. of Am., 
    581 F. Supp. 2d 677
    , 691
    
    (W.D. Pa. 2008).
    
           The endorsement in question here is the Additional Coverage Extensions which
    
    provide in pertinent part:
    
           F. Additional Coverage Extensions
                 *                *            *
                 2. Water Damage, Other Liquids, Powder or Molten Material
                 Damage
                          If loss or damage caused by or resulting from covered water
                 or other liquid, powder or molten material damage loss occurs, we
                 will also pay the cost to tear out and replace any part of the building
                 or structure to repair damage to the system or appliance from which
                 . . . the substance escapes.
    
    (emphasis added).5 The District Court reasoned that a “covered . . . molten material
    
    damage loss” under the Additional Coverage Extensions must fall within the policy’s
    
    definition for “Covered Causes of Loss.” This is not an accurate reading of the policy.
    
    In dropping the “water or other liquid, powder or” language between “covered” and
    
    “molten material,” the District Court gave an unjustifiably expansive modifying power to
    
    the word “covered.” The more reasonable interpretation is that “covered” does not
    
    modify “molten material” but modifies only “water” because “covered” is next to
    
    “water,” and “or” is used twice, along with a comma, in the phrase to separate the other
    
    elements (“or other liquid, powder or molten material”) from “water.” See Antonin
    
    4
     We note that neither party cited this case in its briefing of this appeal.
    5
     The record reflects that US Fire was given consideration for the Additional Coverage
    Extensions, and therefore the Additional Coverage Extensions qualify as an endorsement.
                                                10
    Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 153 (2012)
    
    (“When syntax involves something other than a parallel series of nouns or verbs, a
    
    prepositive or postpositive modifier normally applies only to the nearest reasonable
    
    referent.”).
    
           The importance of expressing whether or not “water” damage is “covered” can be
    
    seen from the fact that only certain types of water damage are covered by the policy. In
    
    the “Exclusions” Section B.1.g., it is specified that “water” damage loss caused by flood,
    
    surface water, waves, tides, tidal waves, overflow of any body of water, or their spray,
    
    mudslide, mudflow, water overflow from a sewer, drain, or sump, etc., is not covered.
    
    Because of the extensive range of “not covered” water losses, it makes sense that the
    
    drafter of the Additional Coverage Extensions language wanted to expressly limit
    
    recovery for water damage under the Additional Coverage Extensions to “covered” water
    
    damage.
    
           In addition, there is no indication that “loss” in the Additional Coverage
    
    Extensions is the same as “loss” as defined in “Covered Causes of Loss.” It is not clear
    
    whether the loss in question must fall within the definition of “Covered Causes of Loss,”
    
    as the District Court held, or if any type of loss or damage is sufficient to trigger the
    
    Additional Coverage Extensions. Indeed, the fact that the Additional Coverage
    
    Extensions simply states “loss or damage” rather than “Covered Causes of Loss” suggests
    
    that the Additional Coverage Extensions contemplate insurance coverage for a broader
    
    category of losses than the defined term of “Covered Causes of Loss.”
    
                   2.     Breach of Contract Claim Against Continental
    
                                                  11
             Kelman also argues that the District Court erred in granting summary judgment for
    
    Continental on the breach of contract claim. Because we find that there is an issue of
    
    material fact regarding whether the loss was covered under Continental’s “Equipment
    
    Breakdown” policy, we hold that the District Court erred in granting summary judgment.
    
             Under Continental’s “Equipment Breakdown” policy, Kelman is entitled to
    
    coverage when a breakdown in its equipment occurs. The policy defines “Breakdown” as
    
    “sudden and accidental direct physical loss to ‘Covered Equipment.’”6 Consistent with
    
    other cases applying Pennsylvania law, the District Court interpreted “sudden” and
    
    “accidental” as meaning, respectively, “abrupt” and “unexpected or unintended.” See,
    
    e.g., Cyclops Corp. v. Home Ins. Co., 
    352 F. Supp. 931
    , 934-37 (W.D. Pa. 1973); Lower
    
    Paxton Twp. v. U.S. Fire & Guar. Co., 
    557 A.2d 393
    , 397-98 (Pa. Super. 1989). Because
    
    the District Court found that Kelman expected leaks to occur, the District Court held that
    
    the loss in question was not “sudden and accidental” and thus was not covered under
    
    Continental’s “Equipment Breakdown” policy.
    
             The District Court’s reasoning is erroneous. Despite recognizing that the relevant
    
    question is whether the nature of the loss, and not its underlying cause, was “sudden and
    
    accidental,” the District Court based its holding on a finding that Kelman expected the
    
    leaks. However, whether or not a leak—allegedly the cause of the loss—was expected is
    
    not indicative of whether the loss was “sudden and accidental.” Thus, the District
    
    Court’s grant of summary judgment on the grounds that the loss was expected cannot be
    
    sustained.
    
    6
        The parties do not dispute that the furnace qualified as “Covered Equipment.”
                                                 12
           Furthermore, there exist material issues of fact as to whether the loss here was
    
    “sudden and accidental.” The District Court held that Kelman expected the incident to
    
    occur based on the previous leaks that had occurred in the furnace and the furnace
    
    manager’s statements expressing concern about the risk of another leak occurring. In so
    
    holding, the District Court overlooked two critical points. First, there are factual issues
    
    that remain as to exactly what Kelman expected. The furnace manager’s concerns about
    
    potential leaks appear to have been about a part of the furnace different from the location
    
    of the leak on March 15, 2011. Further, while Kelman admitted that leaks in the furnace
    
    would happen, the anticipated severity of those leaks is in dispute. Thus, at the very
    
    least, there are factual issues as to what risks of loss and damage Kelman expected.
    
           Second, Kelman proffered evidence suggesting that the March 15, 2011, incident
    
    was, in fact, “sudden and accidental.” Reports from Continental state that “this was
    
    definitely an occurrence that was sudden and accidental.” Continental argues that this
    
    evidence is not trustworthy, but, at a minimum, viewing this evidence in the light most
    
    favorable to Kelman, it is sufficient to show that there is a material issue of fact as to
    
    whether the incident was sudden and accidental.
    
           Consequently, we will reverse the District Court’s entry of summary judgment for
    
    US Fire on the breach of contract claim and remand for further proceedings.
    
           B.     Kelman’s Bad Faith Claim Against US Fire
    
           Kelman also argues that the District Court erred in granting summary judgment for
    
    US Fire on Kelman’s bad faith claim. We disagree. Under Pennsylvania law, an insured
    
    may recover damages against an insurer if the insurer has acted in bad faith. To prevail
    
                                                  13
    on a bad faith claim, the insured must prove two elements: “(1) that the insurer did not
    
    have a reasonable basis for denying benefits under the policy; and (2) that the insurer
    
    knew of or recklessly disregarded its lack of a reasonable basis in denying the claim.”
    
    Nw. Mut. Life Ins. Co. v. Babayan, 
    430 F.3d 121
    , 137 (3d Cir. 2005) (applying
    
    Pennsylvania law) (citation omitted). “Although the insurer’s conduct need not be
    
    fraudulent, mere negligence or bad judgment is not bad faith.” Id. (internal quotation
    
    marks and citation omitted). The insured must prove bad faith by clear and convincing
    
    evidence, and “the insured’s burden in opposing a summary judgment motion brought by
    
    the insurer is commensurately high because the court must view the evidence presented
    
    in light of the substantive evidentiary burden at trial.” Id. (internal quotation marks and
    
    citation omitted). This heightened evidentiary standard requires “evidence so clear,
    
    direct, weighty and convincing as to enable a clear conviction, without hesitation, about
    
    whether or not the defendants acted in bad faith.” Post v. St. Paul Travelers Ins. Co., 
    691 F.3d 500
    , 523 (3d Cir. 2012).
    
           Kelman brings four allegations of bad faith against US Fire: (1) US Fire
    
    deliberately ignored facts that supported Kelman’s claim of coverage; (2) US Fire refused
    
    to evaluate coverage under the appropriate policy provisions; (3) US Fire refused to
    
    reevaluate its position after facts favorable to Kelman’s position emerged; and (4) US
    
    Fire’s conduct during the litigation forced Kelman to exhaust its financial resources. The
    
    District Court held that Kelman’s success on the first and second allegations of bad faith
    
    was contingent on the outcome of the breach of contract claim against US Fire.
    
    Consequently, because US Fire prevailed on the contract issue, Kelman’s first two bad
    
                                                 14
    faith allegations necessarily failed. As to the third basis, the District Court held that
    
    Kelman proffered insufficient evidence to support its claim. Finally, the District Court
    
    held that Kelman’s fourth basis was not actionable under Pennsylvania law.
    
           Notwithstanding our reversal of summary judgment on Kelman’s breach of
    
    contract claim, we will affirm the District Court’s grant of summary judgment for US
    
    Fire on Kelman’s bad faith claim because Kelman cannot show clear and convincing
    
    evidence of bad faith for any of its four allegations of bad faith. Kelman points to US
    
    Fire’s invocation of several exclusions when it denied Kelman’s claim—including the
    
    “Wear and Tear, Corrosion and Deterioration Exclusion,” “Faulty, Inadequate or
    
    Defective Maintenance Exclusion,” and “Inadequate or Defective Design Exclusion.”
    
    Kelman then asserts that several of US Fire’s experts conceded that their study of the
    
    furnace and the March 15, 2011, incident suggested that those exclusions did not apply.7
    
    Without more, this proffer would not allow a jury to conclude by clear and convincing
    
    evidence that US Fire’s denial of the claim was unreasonable or that US Fire knew or
    
    recklessly disregarded its lack of a reasonable basis to deny the claim. See, e.g., Post,
    
    691 F.3d at 525 (affirming grant of summary judgment to insurer where insured failed to
    
    present clear and convincing evidence of bad faith). The fatal defect in Kelman’s claim
    
    is that it relies on the absence of evidence of good faith rather than clear and convincing
    
    evidence of bad faith. Consequently, we will affirm the District Court’s grant of
    
    summary judgment to US Fire on Kelman’s bad faith claim.
    
    7
      Kelman also asserts that US Fire ignored notice from Kelman that its furnace had been
    rebuilt between late 2003 and early 2004. It is not clear how or why this fact affects the
    bad faith analysis.
                                                  15
           C.     Denial of Motion for Leave to Amend Kelman’s Third Party
                  Complaint Against Continental
    
           Finally, Kelman argues that the District Court erred in denying its motion for leave
    
    to amend its third party complaint against Continental. We agree.
    
           Federal Rule of Civil Procedure 15(a) provides that “the court should freely give
    
    leave when justice so requires.” Fed. R. Civ. P. 15(a). However, a district court may
    
    deny leave to amend a complaint where it is apparent from the record that “(1) the
    
    moving party has demonstrated undue delay, bad faith or dilatory motives, (2) the
    
    amendment would be futile, or (3) the amendment would prejudice the other party.”
    
    Lake v. Arnold, 
    232 F.3d 360
    , 373 (3d Cir. 2000) (citing Foman v. Davis, 
    371 U.S. 178
    ,
    
    182 (1962)). We review a district court’s denial of leave to amend for abuse of
    
    discretion. Bjorgung v. Whitetail Resort, LP, 
    550 F.3d 263
    , 266 (3d Cir. 2008).
    
           Kelman moved for leave to amend its complaint to add a bad faith claim after
    
    Continental’s corporate designee’s February 2, 2012, deposition. Kelman asserts that it
    
    learned at that time that Continental had, among other things, misrepresented in its April
    
    11, 2011, May 6, 2011, and June 9, 2011, letters that it was investigating Kelman’s claim
    
    when in fact it did no investigation into the claim between March 24, 2011 and June 24,
    
    2011. The District Court denied Kelman’s motion on the grounds that (1) Kelman
    
    demonstrated undue delay in filing this motion on February 21, 2012 because Kelman
    
    received all of the information relevant to Continental’s investigation in December 2011
    
    when Continental produced its entire claim file pursuant Federal Rule of Civil Procedure
    
    26; (2) allowing the amendment would prejudice Continental because it would require
    
    
                                                16
    discovery, which had closed on February 10, 2012, to be re-opened; and (3) the
    
    amendment would be likely be futile.
    
           We hold that the District Court abused its discretion in denying Kelman’s motion
    
    for leave to amend. First, Kelman did not demonstrate undue delay in filing the motion
    
    on February 21, 2012: although Kelman had previously obtained Continental’s claim
    
    file, Kelman did not learn until February 2, 2012, that Continental falsely stated in its
    
    April 11, 2011, May 6, 2011, and June 9, 2011, letters that it was investigating Kelman’s
    
    claim. Thus, Kelman was not aware of key facts underlying its bad faith claim until
    
    weeks before it filed the motion for leave to amend. See Adams v. Gould, Inc., 
    739 F.2d 858
    , 868 (3d Cir. 1984) (“The question of undue delay . . . requires that we focus on the
    
    [party’s] motives for not amending their complaint to assert this claim earlier . . ..”).
    
           Second, we are not convinced that allowing the amendment would be substantially
    
    prejudicial to Continental: Continental asserts generally that it would need additional
    
    discovery but does not identify any specific depositions or evidence that it would need to
    
    defend this claim. See Bechtel v. Robinson, 
    886 F.2d 644
    , 652 (3d. Cir. 1989) (“This
    
    Court has interpreted these factors to emphasize that prejudice to the non-moving party is
    
    the touchstone for denial of the amendment. But the non-moving party must do more
    
    than merely claim prejudice.”) (internal quotation marks and citations omitted).
    
           Third, the District Court, in finding that the amendment would be futile, failed to
    
    establish that the complaint as amended would fail to state a claim upon which relief
    
    could be granted. See In re Burlington Coat Factory Sec. Litig., 
    114 F.3d 1410
    , 1434 (3d
    
    
    
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    Cir. 1997) (“In assessing ‘futility,’ the district court applies the same standard of legal
    
    sufficiency as applies under Rule 12(b)(6).”).
    
           For these reasons, we hold that the District Court abused its discretion in denying
    
    Kelman’s motion for leave to amend its complaint against Continental.
    
    IV.    Conclusion
    
           For the foregoing reasons, we will reverse the District Court’s April 5, 2012, order
    
    granting summary judgment in favor of US Fire on the Inherent Vice Exclusion and
    
    remand for further proceedings on the breach of contract claim. We will reverse the
    
    District Court’s April 5, 2012, order, granting summary judgment in favor of Continental
    
    and remand for further proceedings. We will affirm the District Court’s grant of
    
    summary judgment in favor of US Fire on Kelman’s bad faith claim. We will reverse the
    
    District Court’s March 1, 2012, order denying Kelman’s motion to amend its complaint
    
    against Continental and remand for further proceedings.
    
    
    
    
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