Martinez v. State Farm Mutual Automobile Insurance Company
MEMORANDUM OPINION AND ORDER by District Judge William P. Johnson DENYING 17 Defendant State Farm Mutual Automobile Insurance Company's Motion to Bifurcate and Stay. (mag)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
Case No.: 1:16-cv-01029 WJ/LF
STATE FARM MUTUAL AUTOMOBILE
MEMORANDUM OPINION AND ORDER DENYING DEFENDANT STATE FARM’S
MOTION TO BIFURCATE AND STAY
THIS MATTER comes before the Court on Defendant State Farm Mutual Automobile
Insurance Company’s (“State Farm”) Motion to Bifurcate and Stay, filed on February 22, 2017
(Doc. 17). Having reviewed the relevant pleadings and the applicable law, the Court finds the
Motion is not well-taken, and is therefore DENIED.
Plaintiff Theresa Martinez claims she was injured in a rear-end vehicle accident on
November 12, 2014 in Deming, New Mexico. The alleged tortfeasor, Charlene Ramos, struck
Plaintiff’s vehicle on the rear bumper. Ms. Ramos had automobile liability coverage with Farm
Bureau Insurance Company (“Farm Bureau”) in the amount of $25,000. Plaintiff alleges she
experienced personal injuries from the accident extending beyond the limits of Ms. Ramos’ Farm
Bureau policy. Thus, Plaintiff made a claim against her own auto insurer, State Farm, under a
policy that provided bodily injury liability coverage in the amount of $100,000/$300,000 and
uninsured/underinsured motorist coverage limits in the amount of $25,000/$50,000. Plaintiff
states that under the terms of the State Farm policy, State Farm is liable to pay Plaintiff’s
damages, because Plaintiff sustained bodily injuries as a result of Ms. Ramos’ negligent driving.
Plaintiff states that she made a timely and reasonable underinsured motorist (“UIM”) claim with
State Farm, but State Farm has failed to honor the claim.
Ms. Martinez filed suit against State Farm. In Count I of her Complaint, Plaintiff seeks
to recover damages for Breach of Contract and Fiduciary Duties Under Contract. Count I is
principally based on Plaintiff’s contention that State Farm breached its policy with Plaintiff in
failing to honor Plaintiff’s requests for UIM coverage at limits equal to the bodily injury liability
coverages in the policy and in failing to pay claims under the policy. See Compl. ¶ 18. In Count
II, Plaintiff alleges Breach of the Covenant of Good Faith and Fair Dealing. The basis of this
claim is that State Farm failed to act in good faith and deal honestly with Plaintiff in denying
coverage to her under the policy. Id. ¶¶ 20–21. Count III alleges Violations of the New Mexico
Unfair Claims and Trade Practices Act. These claims are primarily based on allegations that
State Farm mishandled Plaintiff’s UIM claim, breached its duty in bad faith by failing to honor
Plaintiff’s requests for UIM coverage, and failed to pay the UIM claim under the policy. Id. ¶¶
Fed. R. Civ. P. 42 states, in pertinent part:
(b) Separate Trials. The court, in furtherance of convenience or to avoid
prejudice, or when separate trials will be conducive to expedition and economy,
may order a separate trial of any claim . . . or issue . . . .
Fed. R. Civ. P. 42(b). District courts have broad discretion in deciding whether to sever issues
for trial and the exercise of that discretion will be set aside only if clearly abused. U.S. ex rel.
Bahrani v. ConAgra, Inc., 624 F.3d 1275, 1283 (10th Cir. 2010) (quoting Anaeme v. Diagnostek,
Inc., 164 F.3d 1275, 1285 (10th Cir. 1999)). “Bifurcation is not an abuse of discretion if such
interests favor separation of issues and the issues are clearly separable.” Angelo v. Armstrong
World Industries, Inc., 11 F.3d 957, 964 (10th Cir. 1993). Bifurcation is often in the interest of
efficiency and judicial economy when the resolution of one claim may obviate the need to
adjudicate one or more other claims. See Mandeville v. Quinstar Corp., 109 Fed. Appx. 191, 194
(10th Cir. 2004). “Regardless of efficiency and separability, however, bifurcation is an abuse of
discretion if it is unfair or prejudicial to a party.” Angelo, 11 F.3d at 964.
The party seeking bifurcation bears the burden of proving that bifurcation is proper “in
light of the general principle that a single trial tends to lessen the delay, expense, and
inconvenience.” Belisle v. BNSF Ry. Co., 697 F.Supp.2d 1233, 1250 (D. Kan. 2010). Bifurcation
under Rule 42(b) is inappropriate where evidence to be presented against the parties is
inextricably linked. Certain Underwriters at Lloyd’s, London, Subscribing to Policy No.
501/NB03ACMD v. Nance, CIV-04-0937 JB/WDS, 2007 WL 1302569 (D.N.M. Apr. 23, 2007)
(quoting FDIC v. Refco Grp., Ltd.,184 F.R.D. 623, 629 (D. Colo. 1999) (finding that bifurcation
would have no effect on evidence offered at trial because claims and evidence were inextricably
State Farm seeks to bifurcate and stay Plaintiff’s extra-contractual bad faith claims for
both discovery and trial purposes until after a jury determines the value of Plaintiff’s UIM claim.
State Farm contends Plaintiff’s right to recover on her extra-contractual bad faith claims is
predicated on the determination of value of her UIM benefits. State Farm urges the Court to
consider bifurcation to reserve judicial and attorney resources, because if it is determined that
there is no coverage under the policies, the remaining claims fail. See Sloan v. State Farm Mut.
Auto. Ins. Co., 2004–NMSC–004, 135 N.M. 106, 85 P.3d 230.
First, State Farm argues that whether it acted in bad faith cannot be determined without
first determining the value of Plaintiff’s UIM claim. State Farm argues that disagreeing with
Plaintiff’s evaluation of her UIM claim and negotiating with her to resolve the claim does not
constitute bad faith. To establish a claim for bad faith to settle in New Mexico, Plaintiff must
prove that State Farm refused to pay or delayed in paying the claim for “reasons which are
frivolous or unfounded.” See UJI 13–1702 NMRA; Sloan, 2004–NMSC–004, ¶¶ 3, 18. An
insurer is not guilty of bad faith simply because the insured believes her claim is worth more
than the insurer offers. State Farm states it never denied Plaintiff’s claim but rather the value of
her UIM claim has not yet been determined.
As such, State Farm argues bifurcation is
mandatory because resolution of the UIM claim is a condition precedent to Plaintiff bringing
claims for bad faith. State Farm maintains it has a right to first litigate the dispute over value
before any extra-contractual claims are brought. If a jury agrees with State Farm’s evaluation of
damages, then there cannot be any bad faith.
Second, State Farm argues bifurcation and stay of Plaintiff’s bad faith claims would
promote convenience and judicial efficiency. Because a determination of value is a pre-requisite
to any bad faith claim, bifurcation would best serve judicial efficiency by focusing this litigation
on value first. State Farm contends that Plaintiff is using unsupportable bad faith allegations in
order to serve overbroad discovery to leverage State Farm by increasing the time, aggravation,
and expense of discovery in this case.
Furthermore, State Farm contends bifurcation of Plaintiff’s bad faith claims is also
necessary to avoid prejudice. See Mendenhall v. Vandeventer, 1956–NMSC–064, ¶ 7, 61 N.M.
277, 299 P.2d 457 (bifurcation is appropriate when trying all issues in one trial would “create an
atmosphere which will produce an unconscious influence upon the triers of fact as to … entirely
disconnected and distinct issue[s]”). If Plaintiff’s contractual and bad faith claims were tried
together, State Farm maintains, the jury would hear evidence regarding extra-contractual claims
that could taint the jury’s view of the value of the underlying case. See Oulds v. Principal Mut.
Life Ins. Co., 6 F.3d 1431, 1435-36 (10th Cir. 1993) (affirming district court’s bifurcation of
contract and bad faith claims to avoid potential prejudice to the insurer). Also, bifurcation would
avoid the prejudice that would arise if State Farm had to respond to time consuming discovery
regarding bad faith claims that would be irrelevant if Plaintiff’s contractual claims fail.
Defendant relies upon Hovet v. Allstate Ins. Co., 2004–NMSC–010, 135 N.M. 397, 89
P.3d 69, where the New Mexico Supreme Court held a third party claimant could sue an insurer
for unfair claims practice for failure to settle under the Insurance Code. The court noted the
potential confusion of allowing claims for unfair claims practices to proceed simultaneously with
the underlying negligence action, and imposed certain preconditions on such a suit. The court
held that a third-party claimant’s bad faith claim “may only be filed after the conclusion of the
underlying negligence litigation, and after there has been a judicial determination of fault in
favor of the third party and against the insured.” Id. ¶ 25 (emphasis in original).
In the Response, Plaintiff argues this is not a straightforward dispute with State Farm
regarding a UIM claim, but is a suit that includes claims that State Farm failed to properly
investigate Plaintiff’s claim and refused to carry out its duties in a timely manner. Plaintiff
agrees that the ultimate value of her claim is a legitimate dispute between the parties, but
Plaintiff is not suing solely for State Farm’s failure to accurately evaluate her UIM claim.
Plaintiff likens this case to Willis v. Government Employees Insurance Company, N.M.
Dist. Ct. No. 13cv00280, Doc. 100 (06/17/15), where U.S. District Judge Kenneth J. Gonzales
denied GEICO’s motion to bifurcate and stay discovery. The defendant in Willis made the same
argument as State Farm does here by claiming a determination of actual damages was necessary
before the plaintiff could proceed to her bad faith claims. Id. at 2–3. Judge Gonzales disagreed
“that a determination of actual damages as such is necessary to show a bad faith claim based on
GEICO’s handling of Plaintiff’s claim … An insurer in New Mexico can act in bad faith in its
handling of a claim for reasons other than its refusal to pay a claim in full.” Id. at 6 (quoting
O’Neel v. USAA Ins. Co., 2002–NMCA–028, ¶ 7, 131 N.M. 630; Dellaira v. Farmers Ins. Exh.,
2004–NMCA–132, ¶¶ 5, 14–16, 136 N.M. 552). Judge Gonzales found the plaintiff’s bad faith
claims were not contingent upon the contractual claims, thus bifurcation was not warranted.
Plaintiff argues that here, as in Willis, her extra-contractual claims arise for reasons other than
State Farm’s refusal to pay the UIM claim, so bifurcation is not appropriate.
considers Judge Gonzales’ opinion in Willis on bifurcation to be very persuasive.
In distinguishing Hovet, Plaintiff points out that the underlying negligence of Ms. Ramos
(the underinsured motorist) is not at issue in this case and this is not a third-party bad faith
lawsuit but instead deals with Plaintiff’s claims against her own insurer.1 Thus, there is no risk
of simultaneous litigation on the issue of the tortfeasor’s negligence. Also, unlike Hovet, this is a
first-party claimant case so a jury will not need to grapple with a third-party claimant attempting
to sue both the insured and the insurer in one lawsuit.
Plaintiff argues there is nothing out of the ordinary about the evidence in this case
warranting bifurcation and a stay on discovery. She states there is no evidence of prejudice to
State Farm and the interests of judicial economy are not well-served by bifurcation.
contends under Rule 42(b) bifurcation is inappropriate because the evidence is inextricably
A first-party claimant is the insured under his or her own automobile insurance policy. A third-party claimant, on
the other hand, is the victim of an automobile collision who sues the liability insurer of another. In Hovet, the
plaintiff was a third-party claimant who was injured in a car accident and sued the drivers as well as the drivers’
insurer. See 2004–NMSC–010, ¶ 2.
linked. Specifically, Plaintiff has more than one claim against State Farm and the evidence on
valuation and claims handling goes hand-in-hand with how State Farm handled the case in its
entirety. Plaintiff concludes that bifurcation here would lead to piecemeal discovery, duplicative
litigation, multiple pleadings, and a drawn-out course of discovery.
The Court does not share Defendant’s view that bifurcation would result in a more
expeditious resolution of this case. Bifurcation is not mandated simply because determination of
the coverage issue would dispose of the remaining extra-contractual claims, particularly here
where all the claims appear to be sufficiently linked to proceed through discovery and trial
together. Bifurcation under Rule 42(b) is inappropriate where evidence to be presented against
the parties is inextricably linked. See FDIC v. Refco Grp., Ltd., 184 F.R.D. 623, 629 (D. Colo.
1999) (finding that bifurcation would have no effect on evidence offered at trial because claims
and evidence were inextricably linked). It seems that the same individuals associated with State
Farm would need to be deposed for all of the claims asserted by Plaintiff, and that a substantial
amount of the testimony from these individuals would be relevant for at least some of the
elements on all of the claims. Bifurcation would only require the parties to restart discovery in
the event it was determined that coverage existed. This would only prolong the course of this
case and result in minimal savings of effort and expense for counsel. Bifurcation would also
mean that certain parties would have to appear at trial more than once, should the coverage
aspect need to proceed to trial.
The Court further finds that determining the value of Plaintiff’s UIM claim is not
necessary before Plaintiff can establish bad faith based on the way State Farm handled her claim.
See O’Neel, 2002–NMCA–028, ¶ 7 (insurer can act in bad faith during its handling of insured’s
claim for reasons other than a refusal to pay a claim in full). For example, Count III of the
Complaint raises a claim under the New Mexico Unfair Trade Practices Act. A claim under the
Act is not contingent upon the value of Plaintiff’s UIM claim. A claim under the Act may be
viable without a determination of value. See NMSA 1978 § 57–12–2(D) (“unfair or deceptive
trade practice” means . . . a false or misleading oral or written statement, visual description or
other representation of any kind knowingly made in connection with the sale, lease, rental or
loan of goods or services . . .”).
The Court agrees with Plaintiff that Hovet is readily distinguishable from the instant case
because Hovet involved a third-party claimant whereas here, Plaintiff brings bad faith claims
against her own insurer. The holding in Hovet was limited to third-party bad faith claims. The
court reasoned, “a third-party claimant may not sue both the insured and the insurer in the same
lawsuit. Not only that, the third-party claimant will not even have an action … unless and until
there has been a judicial determination of the insured’s fault and the amount of damages awarded
in the underlying negligence action.” Hovet, 2004–NMSC–010, ¶ 26 (emphasis added).
The contractual and bad faith claims are similar enough to permit discovery and trial of
all the claims simultaneously.
A determination of the coverage issue is essentially contract
construction. See Essex Ins. Co. v. Vincent, 52 F.3d 894, 896 (10th Cir. 1995) (“A court
interprets an insurance contract using traditional principles of contractual interpretation.”).
Presenting the coverage claim would entail presenting evidence regarding the formation of the
contract, the parties’ intent at the time of the contract, and the terms of the contract. These are
the exact considerations for the breach of contract and uninsured motorist benefits claims. This
evidence is also relevant to the unfair trade practices and bad faith claims. Moreover, evidence
regarding the coverage issue would have to be presented twice if this matter were to be
The Court concludes that a bifurcation and stay in this case would significantly delay
litigation, and it would result in duplicative trials and repetitious evidence. Bifurcation would be
expensive and inconvenient for the litigants. There is little risk to State Farm of any prejudice,
because the Court finds the jury would not be confused merely because it will consider evidence
regarding the contractual and bad faith claims at the same time. State Farm’s Motion (Doc. 17)
is therefore DENIED.
UNITED STATES DISTRICT JUDGE
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