Cox et al v. Allstate Insurance Company

Filing 41

ORDER; 29 Defendant Allstate Insurance Companys Motion to Reopen Discovery to Obtain Clark Lodges Newly Discovered Fee Agreement is GRANTED, by Magistrate Judge Kathleen M. Tafoya on 8/24/15.(morti, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Magistrate Judge Kathleen M. Tafoya
Civil Action No. 14–cv–01951–MSK–KMT
JOHN COX, and
TERRI FULLER,
Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY,
Defendant.

ORDER

This matter comes before the court on “Defendant Allstate Insurance Company’s Motion
to Reopen Discovery to Obtain Clark Lodge’s Newly Discovered Fee Agreement” (“Mot.”)
[Doc. No. 29]. A Response was filed on August 17, 2015 [Doc. No. 37] and a Reply on August
19, 2015 [Doc. No. 39].
The insurance contract between Plaintiffs and Allstate contains a provision allowing for
independent appraisal of claimed damages to Plaintiffs’ real property if the insureds and the
insurance company disagree about the value of the claim. The procedure provides that each
party to the dispute designate an independent, impartial appraiser1 to evaluate the damage. The

1

Both the policy and Colorado regulatory requirements obligate both sides of the disputed claim
to select an “impartial” appraiser. (Div. of Ins. Bulletin No. B-5.26 § III (“the selected appraiser
and/or umpire must be fair, competent and impartial.”); Mot., Ex. 2, Policy at 17 (“each party
must select a competent and impartial appraiser.”).

two appraisers thereafter together select an umpire who, after reviewing the two appraisals,
makes the final decision about the value of the damages. In this case, after invoking the
appraisal clause of their policy, Plaintiffs selected Clark Lodge of Lodge Adjusting & Consulting
as their impartial appraiser. (Mot. at 2.)
Recently Defendant learned that Clark Lodge, in a separate case, utilized a form of fee
agreement providing him with an interest in the value of appraisal. Allstate now seeks to obtain
the fee agreement between Plaintiffs and Clark Lodge and Lodge Adjusting & Consulting (“the
Lodge Fee Agreement”). Plaintiffs object to this out-of-time discovery request, arguing that the
appraisal award is not the subject matter involved in this bad faith lawsuit and that evidence that
the appraisal process may have been flawed is irrelevant. (Resp. at 8.) Plaintiffs devote most of
their Response to arguments concerning the potential use of the Lodge Fee Agreement by
Allstate, rather than whether or not the discovery should be allowed.
Plaintiffs’ arguments are premature. At this point, all that has been requested of the court
is to allow discovery to be reopened to permit the Defendant to issue subpoenas to Mr. Lodge
and his company for the Lodge Fee Agreement and to request the same fee agreement from
Plaintiffs through a document request. The relevant inquiry now is whether the Lodge Fee
Agreement is relevant as defined by Rule 26 and, if so, whether the Defendant’s request is
timely.
Analysis
Last month, in Colo. Hospitality Servs. Inc. v. Owners Ins. Co., No. 14-CV-001859-RBJ,
2015 WL 4245821 (D. Colo. July 14, 2015), District Judge R. Brooke Jackson issued an order
finding that a form fee agreement prepared by Clark Lodge in that case gave Mr. Lodge an

2

improper financial interest in the outcome of the appraisal rendering him not an impartial
appraiser, holding that “the appraisal award was not conducted in accordance with the policy”
and vacating the award in that case. Id., at *3. The errant fee agreement provided for a cap on
Mr. Lodge’s fees that was a percentage of the ultimate replacement cost of the claim. In other
words, the higher the award, the higher the cap on Mr. Lodge’s $200.00 per hour fees.2 Judge
Jackson’s order was issued just two weeks prior to the entry of appearance in this case by
Allstate’s current counsel and 16 days before the July 30th close of discovery.
Rule 26 provides that relevant documents include those that are “reasonably calculated to
lead to the discovery of admissible evidence.” Fed. R. Civ. P. 26(b)(1). Like Colo. Hospitality
Servs. Inc, this case involves a disputed claim concerning the extent of hail damage wherein the
insured invoked the right of appraisal to settle the claim. Unlike Colo. Hospitality Servs. Inc.,
however, this case does not seek to vacate the underlying appraisal award due to a biased
appraiser who had an interest in the outcome of the appraisal or, for that matter, for any other
reason. This case was brought against Allstate on claims of bad faith delay or denial of a
legitimate claim.
As part of their bad faith claim, however, Plaintiffs assert:
Allstate twice sent appraisers to evaluate the hail damage to Plaintiff[s’]
residence, and Allstate twice determined the amount of the loss at less than
$4,000.00. The Plaintiffs invoked the appraisal clause in their homeowner’s
insurance policy with Allstate, ultimately resulting in an appraisal award of more
than $100,000.00 more than 15 months after the initial loss report.

2

For example, a $4,000.00 appraisal under a fee agreement like that in Colo. Hospitality
Services would have resulted in a maximum fee for Mr. Lodge of $200.00 while the appraisal
amount actually awarded in this case, $107,505.56 would result in a maximum fee to Mr. Lodge
of $5,375.28.
3

(Resp. at 3.) Clearly, the disparity between Allstate’s two evaluations and the appraiser’s
ultimate award is relevant and is evidence which can be expected to be elicited at trial by
Plaintiffs. One defense to this evidence is that the disparity arose as a result of a biased appraiser
whose evaluation caused an illegal award. The Lodge Fee Agreement, therefore, is relevant to
Allstate’s defense against this particular piece of evidence of bad faith pursuant to Rule 26.
Having found the discovery relevant under this broad standard, the court must then
determine whether there are good grounds to re-open the discovery period for the limited
purpose of obtaining the document. “Whether to modify a scheduling order ‘to extend or reopen
discovery is committed to the sound discretion’ of the Court.” Benton v. Avedon Eng’g, Inc., No.
10-cv-01899-RBJ-KLM, 2013 WL 1751886, at *1 (D. Colo. Apr. 23, 2013) (citing Smith v.
United States, 834 F.2d 166, 169 (10th Cir.1987)). The Court should consider the following
factors: (1) whether trial is imminent; (2) whether the request to reopen discovery is opposed; (3)
whether the non-moving party would be prejudiced; (4) whether the moving party was diligent in
obtaining discovery; (5) the foreseeability of the need for additional discovery; and (6) the
likelihood that the discovery will lead to relevant evidence. Id.
The information that Mr. Lodge might be biased by virtue of what may be an improper
interest in the outcome of the appraisal in this case did not come to the forefront until Judge
Jackson’s order of July 14, 2015. The instant motion was filed just 22 days later, only 8 days
after counsel had entered an appearance here. There is no question Defendant’s counsel acted
expeditiously.
The court finds good cause under Benton to re-open limited discovery to allow Allstate to
serve subpoenas on Clark Lodge and his company and to issue a production request to Plaintiffs

4

to obtain the Lodge Fee Agreement as set forth in Exhibits 3, 4 and 5 of Allstate’s motion [Doc.
No. 29]. The requested discovery is relevant, and the Defendant was diligent in its pursuit of the
material once its significance was known. Although Plaintiffs oppose the request, their
objections have more to do with the ultimate use that may be made of the Lodge Fee Agreement
rather than with the actual production of the document. Trial has not yet been set in the case, and
there is no prejudice to Plaintiffs by this production. Plaintiffs know what their fee arrangement
was with Mr. Lodge and can plan for what might be the result of Defendant’s discovery about
the same. While the court agrees that under some circumstances there might be a need for
additional discovery after the Defendant learns how the fee was structured, the court will not
circumvent the quest for relevant evidence given the diligence of the Defendant and the latebreaking awareness of the significance of the Lodge Fee Agreement through no fault of the
Defendant.
Wherefore, it is ORDERED
1.

Defendant Allstate Insurance Company’s Motion to Reopen Discovery to Obtain

Clark Lodge’s Newly Discovered Fee Agreement [Doc. No. 29] is GRANTED. The Defendant
is required to serve the subject subpoenas and discovery request on or before September 7, 2015.
The subpoenas to be served upon Clark Lodge and Lodge Adjusting & Consulting shall contain a
compliance date of no later than September 21, 2015; and

5

2.

The Plaintiffs shall respond to the Request for Production of Documents within

seven days of being served with the request.
Dated this 24th day of August, 2015.

6