Herrera v. Berkley Reg'l Ins. Co.

GERARDO HERRERA, Plaintiff, v. BERKLEY REGIONAL INSURANCE COMPANY, Defendant.

Civ. No. 20-142 CG/GBW

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

June 9, 2021

PROPOSED FINDINGS AND RECOMMENDED DISPOSITION

THIS MATTER comes before me pursuant to the Court's Order of Reference (doc. 144), referring Plaintiff's Motion to Amend Complaint (doc. 122) to me for findings of fact and a recommended disposition. Having reviewed Plaintiff's Motion and all attendant briefing (docs. 131, 136), I recommend that the Court DENY the Motion for failure to satisfy good cause under Rule 16.

I. BACKGROUND

Plaintiff's Original Complaint to Recover Insurance Proceeds and Damages for Unfair Claims Practices was filed in state court on January 21, 2020. Doc. 2 at 6-8. Plaintiff alleges that, while he was a passenger in a vehicle owned by his employer and insured by Defendant, he sustained injuries as a result of a car accident with an underinsured driver. Id. at 6. Plaintiff alleges that Defendant failed to pay amounts due under the insurance policy. Id. at 7. Plaintiff also alleges that Defendant engaged in unfair claims practices under New Mexico's Unfair Claims Practices Act ("UCPA"), N.M. Stat. Ann. § 59A-16-20, including failure to settle an insured's claims promptly after liability is apparent; failure to attempt in good faith to effectuate a prompt, fair, and equitable settlement; compelling an insured to institute litigation to recover amounts due under the policy; and failing to promptly provide a reasonable explanation for the denial of a claim or for the offer of settlement. Id.

Defendant removed this case to federal court on February 19, 2020. Id. at 1-5. On February 25, 2020, I issued an Initial Scheduling Order requiring the parties to meet and confer by March 24, 2020 and file a Joint Status Report and Provisional Discovery Plan ("JSR") by March 31, 2020. Doc. 8. In the parties' JSR, under the heading "Nature of the Case," the parties report that "Plaintiff has also alleged bad faith in the adjustment of [his] claim." Doc. 13 at 1. Under the heading "Plaintiff's Contentions," the JSR includes an allegation that "Defendant has acted in bad faith by failing to tender the [policy] limits months ago once [damages] became reasonably clear." Id. at 3. Under the heading "Defendant's Contentions," the JSR states that "Defendant denies any claims for bad faith." Id.

At the parties' Rule 16 Scheduling Conference, held April 14, 2020, I adopted a bifurcated discovery plan, with extracontractual/bad-faith claims to be addressed in the second phase. Docs. 16, 17. A pleading amendment deadline was set for April 15, 2020 for Plaintiff. Doc. 17 at 1. On April 20, 2020, Defendant filed an Unopposed Motion toBifurcate and Stay Discovery and Proceedings as to Plaintiff's Extra-Contractual Claims. Doc. 19. Throughout this motion, Defendant presented arguments and authority specific to bad faith. See id. at 4 (citing cases in which contractual claims were bifurcated from bad-faith claims); id. at 8 (arguing that "documents may be discoverable in the bad faith claim that would be privileged in the personal injury case"); id. at 9 (noting that bifurcation would be appropriate to prevent Plaintiff from seeking "protected claim file information and other discovery which only relates to the bad faith claims" before such claims ripen).

On November 12, 2020, Plaintiff filed a Motion to Compel Production of Surveillance Videos. Doc. 69. Plaintiff argued that the requested surveillance videos were relevant to prove both damages and bad faith. Id. at ¶¶ 7, 28-30. In response to Plaintiff's argument that the surveillance video was relevant to bad faith, Defendant raised two arguments. See doc. 78. First, Defendant stated that the request was "premature as discovery regarding bad faith has yet to commence." Id. at 7. Second, Defendant contended that the mere fact of surveillance cannot be used as evidence of bad faith. Id. Defendant did not contend that evidence of bad faith was irrelevant because no bad-faith claim was raised. On January 27, 2021, I held a hearing on Plaintiff's motion, at which Plaintiff's counsel pressed his position that surveillance was relevant to bad faith. Doc. 95 at 4. Defendant's counsel did not object to the allusion to a bad-faith claim.

On February 1, 2021, I issued a Phase Two Scheduling Order requiring the parties to meet and confer and file a new JSR by February 4, 2021. Doc. 96. In the parties' second JSR, under the heading "Plaintiff's Contentions," Plaintiff asserts that "Defendant committed bad faith claims practices by engaging in unreasonable delay in investigating and paying amounts due under the subject policy." Doc. 98 at 2. Under the heading "Provisional Discovery Plan," the parties report that discovery will be needed on "[b]ad faith related allegations and applicable defenses." Id. at 3.

At the parties' Phase Two Rule 16 Scheduling Conference, held February 8, 2021, I set deadlines for Phase Two discovery, but no new pleading amendment deadlines were discussed or established. Docs. 99, 100. During the conference, Plaintiff's counsel revisited the topic of the surveillance evidence and reasserted that both the surveillance videos and depositions of the surveillance officers were relevant to bad faith. Doc. 99 at 3. The Court responded that the content of the surveillance videos was not necessary to establish bad faith and the question of deposing the surveillance officers was not properly before it. Id. The Court opined that depositions of the surveillance officers may be relevant and noted that, if Defendant disagreed, it should move for a protective order. Id. Defendant has not moved for such a protective order to date.

On April 1, 2021, Plaintiff filed a Motion to Compel Production. Doc. 117. Among other things, Plaintiff sought to compel production/disclosure of loss reserves information as relevant to a claim of bad faith. Id. at 2-3. On April 9, 2021, Defendantfiled a response, asserting for the very first time that information pertaining to bad faith is irrelevant because Plaintiff did not include a claim of bad faith in his complaint. Doc. 124 at 4. On the same day, Plaintiff filed the instant Motion to Amend Complaint, nearly a year after the expiration of his pleading amendment deadline. Doc. 122.

II. LEGAL STANDARD

Leave to amend a complaint at this stage requires either Defendant's consent or the Court's leave. See Fed. R. Civ. P. 15. The Court "should freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). The decision to grant leave to amend a complaint is within the Court's discretion. Castanon v. Cathey, 976 F.3d 1136, 1144 (10th Cir. 2020). "Refusing leave to amend is generally only justified upon a showing of undue delay, undue prejudice to the opposing party, bad faith or dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of amendment." Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir. 1993) (citation omitted); see also Foman v. Davis, 371 U.S. 178, 182 (1962)).

When a party moves to amend a pleading after the deadline set in the scheduling order, it must satisfy Rule 16's good-cause standard in addition to the requirements of Rule 15. Gorsuch, Ltd., B.C. v. Wells Fargo Nat'l Bank Ass'n, 771 F.3d 1230, 1240 (10th Cir. 2014) ("After a scheduling order deadline, a party seeking leave to amend must demonstrate (1) good cause for seeking modification under Fed R. Civ. P. 16(b)(4) and (2) satisfaction of the Rule 15(a) standard.") (emphasis added). The purpose of settingan amendment deadline in the scheduling order is to "assure[] that at some point . . . the pleadings will be fixed." Fed. R. Civ. P. 16 advisory committee's note to 1983 amendment. Nonetheless, "total inflexibility is undesirable." Summers v. Mo. Pac. R.R. Sys., 132 F.3d 599, 604 (10th Cir. 1997) (quoting Hull v. Chevron U.S.A., Inc., 812 F.2d 584, 588 (10th Cir. 1987)).

III. ANALYSIS

Plaintiff seeks to amend his complaint to add allegations of bad-faith conduct and a continuing course of such conduct by Defendant. See doc. 122 at 19-22. Plaintiff also seeks to add a request for punitive damages. Id. at 22. Defendant responds that Plaintiff's motion should be denied for untimeliness, unfair prejudice, and futility. See generally doc. 131.

As a preliminary matter, I must address Defendant's contention that violations of the UCPA are distinct causes of action from bad faith. See doc. 131 at 5. This is an inaccurate statement of the law. "An insurer is subject to a common law and statutory duty of good faith." Dydek v. Dydek, 288 P.3d 872, 878 (N.M. Ct. App. 2012) (citing N.M. Stat. Ann. § 59A-16-20(E) and Dairyland Ins. Co. v. Herman, 954 P.2d 56, 60-61 (N.M. 1997)). Under the UCPA, a statutory duty of good faith arises from the provision that prohibits "not attempting in good faith to effectuate prompt, fair and equitable settlements of an insured's claims in which liability has become reasonably clear." N.M. Stat. Ann. § 59A-16-20(E); see also Nilson v. Peerless Indem. Ins. Co., 484 F. Supp. 3d 1050,1086 (D.N.M. 2020). Plaintiff's Original Complaint mirrors this provision, alleging that Defendant "[f]ail[ed] to attempt to in good faith to [sic] effectuate a prompt, fair and equitable settlement of a claim in which liability has become reasonably clear." Doc. 2 at 7. Thus, a bad-faith claim has been included in this case from its inception. What Plaintiff seeks to add is common-law bad faith, which may be premised on other violations of an insurer's duty of good faith as well as a failure to settle. See, e.g., Sloan v. State Farm Mut. Auto. Ins. Co., 85 P.3d 230, 232 (N.M. 2004).

A. Rule 15

1. Undue Delay

The Tenth Circuit has held that objections of "undue delay" pursuant to Rule 15 require something more than mere untimeliness. Minter v. Prime Equip. Co., 451 F.3d 1196, 1205 (10th Cir. 2006) (noting that the "[e]mphasis is on the adjective"). To...