Castillo v. Allstate Prop. & Cas. Ins. Co.

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CAROLYN CASTILLO, Plaintiff, v. ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY, JOHN KUBIAK, GLORIA LUCERO, JOHN AND JANE DOES 1-10, and ENTITIES, CORPORATIONS, AND PARTNERSHIPS 1-10, Defendants.

No. 1:22-cv-0968-KG-JFR

United States District Court, D. New Mexico

August 31, 2023

MEMORANDUM OPINION AND ORDER

This matter is before the Court on Defendant Allstate Property and Casualty Insurance's Motion for Judgment on the Pleadings (Doc. 4) and Motion for Sanctions (Doc. 9). Both motions are fully and timely briefed. See (Docs. 11,15,16 and 14,17,18). The Court, having considered the briefing applicable law, and the record of this case grants the Motion for Judgment on the Pleadings and grants the Motion for Sanctions.

I. Background

This case arises out of a December 13, 2013, car accident. See Complaint (Doc. 1-1) at 4, ¶ 15.^[1] The collision, which was the fault of an underinsured motorist, caused Plaintiff Carolyn Castillo to suffer injuries, both personal and to her vehicle. Id. at 4-5, ¶¶ 15, 19, 22, 23. Ms Castillo owned auto insurance from Allstate, including an uninsured/underinsured motorist (UM/UIM) policy. Id. at 5, ¶ 24. Seeking compensation for her injuries and property damage, Ms. Castillo opened a UM/UIM claim with Allstate to cover what the tortfeasor's insurance would not. Id. at 6, ¶ 33; see also Answer (Doc. 2) at 4, ¶ 33 (admitting). Ms. Castillo does not plead the exact date she made her insurance claim, but she does allege that she advised Allstate of her injuries beginning on the date of her 2013 accident, (Doc. 1-1) at 6, ¶ 32, so the insurance claim must have been filed after December 13, 2013, and before March 2015. The Court infers this because Ms. Castillo's insurance claim proceeded, and she participated in two independent medical examinations requested by Allstate, one on March 13, 2015, and another on February 4, 2016. Id. at 6, ¶¶ 34-35; see also (Doc. 2) at 4, ¶¶ 34-35 (admitting).

Nonetheless, and for reasons left unsaid, Ms. Castillo filed a state court UM/UIM action against Allstate on November 15, 2016, (Doc. 1-1) at 7, ¶ 36, which asked that Allstate “be directed to pay Plaintiff, under the provisions of her Uninsured/Underinsured Motorist coverage, an amount sufficient to compensate Plaintiff for her total damages...,” Castillo v. Rodriguez, et al, No. D-1314-CV-2016-01027 (13th Jud. Dist., N.M. filed Nov. 15, 2016), available at (Doc. 1-2) at 7. Within the course of that litigation, on May 25, 2017, Ms. Castillo extended a settlement offer to Allstate for the amount of the UM/UIM policy limits. (Doc. 1-1) at 7, ¶ 37; see also (Doc. 2) at 4, ¶ 37(admitting). According to Ms. Castillo, Allstate never responded or made a settlement offer of its own. (Doc. 1-1) at 8, ¶ 49.

Instead, the parties participated in arbitration which, in November 2019, resulted in an award of $425,000.00 for bodily injuries. Id. at 8, ¶ 51. But, according to Ms. Castillo, Allstate only paid $275,000.00. Id. at 8, ¶ 53. That is where Ms. Castillo's pleading leaves the issue. Looking beyond the Complaint, however, it is apparent that a negative inference about Allstate's conduct or motive would be unfair because it in fact moved to modify the arbitration award on the grounds that it exceeded the policy limits and it prevailed at the district court, after which Ms. Castillo appealed to the New Mexico Court of Appeals, which affirmed the district court's reduction. See Answer (Doc. 2) at 5, ¶ 53 (adding relevant factual allegations); and Motion (Doc. 4) at 3 (explaining litigation history). The Court takes judicial notice of those state court proceedings.^[2] See Castillo v. Allstate Prop. & Cas. Co., No. A-1-CA-39107 (N.M. Ct. App. Oct. 25, 2022).

Shortly after the New Mexico Court of Appeals entered its order regarding the arbitration award, Ms. Castillo filed the instant action in New Mexico state court-her second consecutive lawsuit against Allstate. See Castillo v. Allstate, et al, No. D-202-CV-2022-07002 (2nd Jud. Dist., N.M. filed Dec. 21, 2022), available at (Doc. 1-1). Her complaint brings seven claims: (1) violation of the Trade Practices and Frauds Act of the New Mexico Insurance Code (TPFA); (2) insurance bad faith; (3) breach of the implied covenant of good faith and fair dealing; (4) breach of contract; (5) injunctive relief (enjoining Allstate from violating its duties and contractual and legal obligations to Ms. Castillo); (6) declaratory judgment (establishing the rights and obligations of the parties with respect to the insurance contract); and (7) punitive damages. (Doc. 1-1) at 9-14.

Ms. Castillo, in response to the Motion for Judgment, clarifies that her claims are not based in Allstate's refusal to pay the full $425,000 award. (Doc. 11) at 4. Instead, the Complaint alleges the following bases for the claims:

- That Allstate never extended a formal written offer to Ms. Castillo related to her UIM claim, (Doc. 1-1) at 8, ¶ 49;

- That Allstate “without just cause failed to pay, or delayed payment of, claims arising under its policies,” id. at 10, ¶ 64(a);

- That Allstate “without just cause compels insureds or claimants to accept less than the amount due to them or to employ an attorney to bring suit against the insurer or such an insured to secure full payment or settlement of a claim,” id. at 10, ¶ 64(b); and, - That Allstate breached its duty by “failing to timely evaluate and pay Plaintiff's UIM claim,” id. at 11, ¶ 69.

Or, as she summarizes her legal theory in her Response:

Defendant Allstate's “failure to pay the full amount of the arbitration award” is not what forms the basis of Ms. Castillo's bad faith claims. What does form the basis of those claims is that Defendant Allstate agreed to provide UIM coverage to Ms. Castillo and then made no formal settlement offer or payment on Ms. Castillo's UIM claim prior to arbitration, at which time the arbitration panel awarded Plaintiff $425,000.00. Pursuant to the Subject Complaint, such conduct on the part of Defendant Allstate constitutes a violation of the Trade Practices and Frauds Act (hereinafter “TPFA”) and the Insurance Code, insurance bad faith, breach of the implied covenant of good faith and fair dealing, and breach of contract.

(Doc. 11) at 4.

Allstate removed the case to this court, see Notice of Removal (Doc. 1), answered, see (Doc. 2), and filed the subject motions seeking judgement and sanctions.^[3] Allstate argues that all Ms. Castillo's claims are barred either by the relevant statutes of limitations or by claim preclusion because of the first lawsuit. See generally (Doc. 4). And, arguing the claims lack evidentiary support or a legal basis, Allstate urges Rule 11 sanctions be imposed. See generally (Doc. 9).

Ms. Castillo responds that her claims accrued later than Allstate claims they do and thus are not time barred. (Doc. 11) at 5. Her theory relies substantially on the application of the “discovery rule,” which the Court discusses below. Ms. Castillo also argues that this lawsuit does not attempt to relitigate the propriety of Allstate's $275,000 payment and is instead about “the timing of that payment and the hoops through which Ms. Castillo had to jump in order to obtain it,” and thus is not precluded. Id. at 9.

Allstate replies that the discovery rule does not apply to these claims, and even if it did, Ms. Castillo could have and should have “discovered” her claims earlier than she did. (Doc. 15) at 6-9. Allstate also urges that even if the current claims are facially distinct legal theories, they arise out of the same nucleus of operative facts as the first lawsuit, were required to be brought with the first lawsuit, and are prohibited now. (Doc. 15) at 1.

The Court first addresses the Motion for Judgment on the Pleadings and, second, adjudicates the Motion for Sanction.

II. Motion for Judgment on the Pleadings

The Court is presented two primary questions by the Motion for Judgment: when these claims accrued for purposes of the statute of limitations and whether these claims are precluded by the prior lawsuit. The Court concludes that no material facts are in dispute and that each of Ms. Castillo's substantive claims are barred by the relevant statutes of limitations. Having reached that dispositive conclusion, the Court does not reach the question of claim preclusion. Because the analysis varies according to claim, the Court addresses each in turn after explaining the relevant law.

A. Legal Standard

Judgment on the pleadings is appropriate “when the moving party has clearly established that no material issue of fact remains to be resolved and the party is entitled to judgment as a matter of law.” Sanders v. Mountain Am. Fed. Credit Union, 689 F.3d 1138, 1141 (10th Cir. 2012) (citation omitted). In analyzing a Rule 12(c) motion, the Court should “accept all facts pleaded by the non-moving party as true and grant all reasonable inferences from the pleadings in that party's favor.” Id. (citation omitted).

B. Legal Background

“A statute of limitations establishes the time, after a cause of action arises, within which a claim must be filed.” Cummings v. X-Ray Assocs. of New Mexico, P.C., 1996-NMSC-035, ¶ 49. “A statute of limitations begins to run when the cause of action accrues....” Id. “Limitations periods are intended to encourage plaintiffs to diligently pursue a claim[.]” Est. of Brice v. Toyota Motor Corp., 2016-NMSC-018, ¶ 16.

As a preliminary matter, the Court notes New Mexico law governs. A federal court sitting in diversity “applies the substantive law of the state where it is located, including the state's statutes of limitations.” Elm Ridge Expl. Co., LLC v. Engle, 721 F.3d 1199, 1210 (10th Cir. 2013) (citing Burnham v. Humphrey Hospitality Reit Trust Inc., 403 F.3d 709, 712 ...