BVM Merriam, LLC v. American Family Mutual Insurance Company

Filing 69

MEMORANDUM AND ORDER - Defendant's motion to amend the pretrial order 67 is GRANTED, and the pretrial order 59 is hereby deemed amended to include the defense of a lack of insurable interest. It is further ordered that plaintiff shall file any response to defendant's pending summary judgment motion 58 on or before 1/16/2019, and defendant shall file any reply brief on or before 1/25/2019. Signed by District Judge John W. Lungstrum on 01/02/2019. (ses)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

BVM MERRIAM, LLC,

)
)
Plaintiff,
)
)
v.
)
)
AMERICAN FAMILY MUTUAL
)
INSURANCE COMPANY,
)
)
Defendant.
)
)
_______________________________________)

Case No. 17-2563-JWL

MEMORANDUM AND ORDER
In this action, plaintiff insured asserts claims for benefits against defendant insurer
relating to damage to a motel. The matter presently comes before the Court on defendant’s
motion to amend the pretrial order to add the defense of a lack of insurable interest (Doc.
# 67). For the reasons set forth below, the Court grants the motion, and the pretrial order
is hereby deemed amended to include that defense.
On June 18, 2018, in response to plaintiffs’ motion for summary judgment,
defendant argued that plaintiff’s claim on the insurance policy under Kansas law must fail
because plaintiff lacked an insurable interest in the property (and for other reasons as
well).1 In addressing that argument in its reply brief, plaintiff did not argue that the defense

1

The Court does not agree that defendant previously asserted this defense in
discovery by propounding a request for purchase documents or by asking questions about
ownership of the property in a deposition.

had not been raised in a timely fashion. By Memorandum and Order of July 16, 2018, the
Court denied the motion for summary judgment, in part because a question of fact remained
concerning whether plaintiff actually owned the property and thus had an insurable interest.
On October 4, 2018, the Magistrate Judge conducted the pretrial conference in this
case. At the conference, the parties discussed plaintiff’s objection to defendant’s assertion
of the lack-of-insurable-interest defense. As noted in the pretrial order issued October 16,
2018, the Magistrate Judge sustained the objection on the basis that “the proposed defense
had not been timely asserted.” Defendant nevertheless argued this defense as the basis for
its own motion for summary judgment, and plaintiff moved to strike the motion. The Court
denied the motion to strike and set a deadline for defendant to move to amend the pretrial
order, so that the parties could address whether defendant should be permitted to assert the
defense in this case. Defendant has now filed such a motion, to which plaintiff has
responded.
Rule 16(e) provides that a court may modify a pretrial order only to prevent manifest
injustice, see Fed. R. Civ. P. 16(e), and the burden of making that showing falls on the
party seeking modification of the pretrial order. See Koch v. Koch Indus., 203 F.3d 1202,
1222 (10th Cir. 2000). The Tenth Circuit has identified the following factors relevant to
this issue: “(1) prejudice or surprise to the party opposing trial of the issue; (2) the ability
of that party to cure any prejudice; (3) disruption to the orderly and efficient trial of the
case by inclusion of the new issue; and (4) bad faith by the party seeking to modify the
order.” See id. at 1222 (footnote and citations omitted).

2

The Court concludes in its discretion that manifest injustice would result if
defendant is not permitted to assert this defense on the merits of plaintiff’s claim. Plaintiff
has not shown any prejudice if defendant is permitted to assert the defense at this time,
there should be no disruption to the orderly trial of this case, and there is no evidence of
bad faith by defendant. Moreover, the Court’s preference is always that a claim be decided
on its merits. See Lee v. Max Int’l, LLC, 638 F.3d 1318, 1321 (10th Cir. 2011); Sprint
Communications Co. L.P. v. Comcast Cable Communications LLC 2017 WL 3730493, at
*2 (D. Kan. Aug. 30, 2017) (Lungstrum, J.).
Plaintiff argues that it will suffer prejudice because it would need to add the
insurance agent as a party to the lawsuit. Plaintiff has not explained why any claim against
the agent could not be pursued in a separate action, however. Plaintiff argues that its
“potential negligence action may be barred by the applicable statute of limitations,” namely
Kansas’s two-year statute for negligence claims. See K.S.A. § 60-513. Plaintiff has not
shown, however, that the limitations period for any particular claim ran between the time
of defendant’s answer of January 5, 2018 (in which it admitted that plaintiff owned the
property), and June 18, 2018, when plaintiff had notice that defendant intended to assert
the defense. Nor has plaintiff discussed the application of the discovery rule contained in
Section 60-513.
Plaintiff also argues that it would suffer substantial prejudice because it would need
to take discovery from the insurance agent and from defendant’s underwriting department
with respect to those parties’ knowledge at the time the insurance policy was issued.
Plaintiff, however, has not identified any particular facts that it must discover in order to
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litigate this issue concerning whether plaintiff owned the property or otherwise had an
insurable interest---an issue that turns on facts within plaintiff’s control.2 For instance,
under Kansas law, the defense of a lack of insurable interest is not undermined by waiver
or estoppel. See Price v. Trinity Universal Ins. Co., 8 Kan. App. 2d 223, 225 (1982) (citing
Colver v. Central States Fire Ins. Co., 130 Kan. 556 (1930), and Barton v. Mercantile Ins.
Co., 127 Kan. 271 (1929)). Thus, plaintiff has not shown how any other party’s knowledge
is relevant to the defense of a lack of an insurable interest, and therefore plaintiff has not
shown that it should be allowed to conduct discovery before responding to defendant’s
summary judgment motion.3
Finally, plaintiff argues in its response to the motion to amend that it does have an
insurable interest under Kansas law. The Court concludes, however, that the merits of the
defense are better tested in the context of the summary judgment procedure, in which
plaintiff may support its contentions with evidence.
Accordingly, the Court grants defendant’s motion to amend the pretrial order, which
is hereby deemed amended to include the defense of a lack of insurable interest. Plaintiff
shall file any response to defendant’s summary judgment motion on or before January 16,
2018, and defendant shall file any reply brief on or before January 25, 2018.

2

The Court ordinarily requires a party to identify particular facts expected to be
obtained in order to obtain leave to take discovery before responding to a summary
judgment motion under Fed. R. Civ. P. 56(d). See, e.g., Turney v. DZ Bank Deutsche
Zentral Genossenschaftsbank, 2011 WL 1375587, at *4 (D. Kan. Apr. 12, 2011)
(Lungstrum, J.).
3
Moreover, even if plaintiff did need additional discovery, any such prejudice is
easily cured.
4

IT IS THEREFORE ORDERED BY THE COURT THAT defendant’s motion to
amend the pretrial order (Doc. # 67) is hereby granted, and the pretrial order is hereby
deemed amended to include the defense of a lack of insurable interest.

IT IS FURTHER ORDERED BY THE COURT THAT plaintiff shall file any
response to defendant’s pending summary judgment motion on or before January 16,
2019, and defendant shall file any reply brief on or before January 25, 2019.

IT IS SO ORDERED.

Dated this 2nd day of January, 2019, in Kansas City, Kansas.

s/ John W. Lungstrum
John W. Lungstrum
United States District Judge

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