Fort Marcy Compound Condominium Association v. State Farm Fire and Casualty Company

Filing 27

ORDER by Magistrate Judge John F. Robbenhaar denying 18 Motion to Bifurcate and Stay. (kc)

Case 1:21-cv-00489-JFR-SCY Document 27 Filed 01/11/22 Page 1 of 9

IN THE UNITED STATES DISTRTICT COURT
FOR THE DISTRICT OF NEW MEXICO
FORT MARCY COMPOUND
CONDOMINIUM ASSOCIATION,
Plaintiff,
vs.

Civ. No. 21-489 JFR/SCY

STATE FARM FIRE AND
CASUALTY COMPANY,
Defendant.
ORDER DENYING MOTION TO BIFURCATE AND STAY
THIS MATTER is before the Court on Defendant State Farm Fire and Casualty
Company’s Motion to Bifurcate and Stay (“Motion”), filed October 15, 2021. Doc. 18. Plaintiff
filed a Response on November 19, 2021. Doc. 23. Defendant filed a Reply on December 3,
2021. Doc. 24. Defendant’s Motion seeks to bifurcate and stay discovery on Plaintiff’s
extra-contractual claims against Defendant until after a jury determines the merits and value of
Plaintiff’s underlying claim for damages. Having reviewed the parties’ submissions and the
relevant law, the Court finds the Motion is not well take and it is DENIED.
BACKGROUND
On April 19, 2021, Plaintiff filed a “Complaint for Breach of Contract, Bad Faith
Insurance Conduct, and Violations of the New Mexico Unfair Insurance Practices Act” in First
Judicial District Court. Doc. 1-1. Plaintiff is a condominium owners’ association responsible for
insuring, maintaining and repairing the Fort Marcy Compound Condominiums in Santa Fe,
New Mexico. Id. at 3. Plaintiff’s Complaint states that on or about June 2, 2019, a severe wind
and hailstorm swept through the Santa Fe area causing substantial harm to the Fort Marcy

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property. Id. at 5-6. Plaintiff hired an adjusting firm to determine the extent of the damages to
the property. Id. The adjusting firm prepared a sworn Proof of Loss estimating a replacement
cost value.1 Id. Plaintiff subsequently presented the Proof of Loss to Defendant and made a
claim on its insurance policy with Defendant. Id. at 6-7. Defendant then investigated the claim
and made its own assessment of the damages and value of Plaintiff’s claim which turned out to
be substantially less than the adjusting firm’s assessment.2 Id. at 7-8. Plaintiff’s Complaint
alleges that Defendant breached its contract by refusing to perform its obligations under its terms
and pursuant to New Mexico law. Id. at 10-11. Plaintiff’s Complaint also alleges that Defendant
breached the implied covenant of good faith and fair dealing and violated the New Mexico
Unfair Insurance Practices Act. Id. at 11-16.
Defendant removed the action to this Court on May 27, 2021, pursuant to 28 U.S.C.
§§ 1332, 1441 and 1446. Doc. 1.
LEGAL STANDARD
Federal Rule of Civil Procedure 42(b) allows that, “[f]or convenience, to avoid prejudice,
or to expediate and economize, the court may order a separate trial of one or more separate
issues, claims, crossclaims, counterclaims, or third-party claims.” Bifurcation under Rule 42(b)
is “appropriate ‘if such interests favor separation of issues and the issues are clearly separable,’ ”
Ortiz v. Safeco Ins. Co. of Am., 207 F. Supp. 3d 1216, 1217-18 (D.N.M. Sept. 13, 2016) (quoting
Palace Exploration Co. v. Petroleum Dev. Co., 316 F.3d 1110, 1119 (10th Cir. 2003)), such as
“when the resolution of one claim may eliminate the need to adjudicate one or more other

1
The adjusting firm, C3 Group, Inc., provided a sworn Proof of Loss estimating a Replacement Cost Value of
$3,342,102.81 to repair the damage to the property caused by the storm. Doc. 1-1 at 7.
2

Defendant estimated damages to the property at $90,286.96 ($87,068.45 in damage to HVAC systems and $3,218.51
in damage to parapet walls of two buildings). Doc. 1-1 at 7.

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claims.” Id. at 1218 (citation omitted). However, bifurcation is “inappropriate when it will not
appreciably shorten the trial or [a]ffect the evidence offered by the parties because claims are
inextricably linked.” Buccheri v. GEICO Ins. Co., No. 17-CV-0490 LF/KK, 2017 WL 3575486,
at *2 (D.N.M. Aug. 17, 2017) (quotation omitted). Further, bifurcation “is an abuse of discretion
if it is unfair or prejudicial to a party.” Ortiz, 207 F. Supp. 3d at 1218 (citing Angelo v.
Armstrong World Indus., Inc., 11 F.3d 957, 964 (10th Cir. 1993)).
The Court has broad and considerable discretion in deciding whether to sever issues for
trial. Buccheri, 2017 WL 3575486, at *1 (citing United States ex rel. Bahrani v. ConAgra, Inc.,
624 F.3d 1275, 1283 (10th Cir. 2010)). To that end, “bifurcation is decided on a case-by-case
basis and should not be regarded as routine.” Id. at *2 (citing Marshall v. Overhead Door Corp.,
131 F.R.D. 94, 97-98 (E.D. Pa. 1990)). The burden is on the moving party to show bifurcation is
needed “as a single trial normally lessens the expense and inconvenience of litigation.” Ortiz,
207 F. Supp. 3d at 1217. The Court also has broad discretion in managing its docket, including
staying portions of discovery. Willis v. Government Employees Ins. Co., No. 13-280 KG/KK,
2015 WL 11181339, at *1 (D.N.M. June 17, 2015) (citing Clinton v. Jones, 520 U.S. 681, 706
(1997)).
ANALYSIS
Defendant asserts that bifurcation and a stay of discovery related to Plaintiff’s
extra-contractual claims is appropriate because adjudication of Plaintiff’s underlying claim for
property damage is a necessary factual antecedent to any consideration of Plaintiff’s
extra-contractual claims. Doc. 18 at 3-6. Defendant explains that the value of Plaintiff’s
damages claim has not yet been determined and that a genuine dispute exists between the parties
as to the nature, extent and value of Plaintiff’s damages, and whether, and to what extent,

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benefits are owed to Plaintiff under the applicable policy. Id. Defendant argues it has a right to
first litigate the dispute over the value of the underlying claim before any extra-contractual
claims are brought and that a determination of the underlying value dispute may very well render
Plaintiff’s bad faith claims moot. Id.
Defendant further asserts that bifurcating the claims will conserve judicial resources and
avoid confusion of the jury and prejudice to Defendant at trial. Doc. 18 at 5-7. Defendant
explains that the parties would spend less time and judicial resources if the discovery was limited
to the underlying value dispute without addressing the extra-contractual claims at the same time,
and that resolution of Plaintiff’s causation and damages claim may potentially render Plaintiff’s
bad faith claim moot. Id. Defendant states that issues relevant to Plaintiff’s claim for damages
and its extra-contractual claims are distinct rendering the scope of discovery different – one
involves damages allegedly resulting from the storm and the other involves claims handling
procedures and policies. Id. Defendant also states that discovery on the extra-contractual claims
may involve proprietary and confidential claims handling procedures not relevant to Plaintiff’s
damages claim. Id. Last, Defendant contends that the jury’s consideration of testimony on
Plaintiff’s extra-contractual claims would result in confusion or improperly influence the jury’s
decision regarding whether Plaintiff is entitled to damages at all. Id. In other words, Defendant
contends that if the jury were to hear potential evidence of bad faith, it could taint the jury’s
ability to fairly decide the issues of causation and damages thereby prejudicing Defendant. Id.
Defendant primarily relies on two New Mexico District Court cases to support its
position, i.e., Aragon v. Allstate Ins. Co., 185 F.Supp.3d 1281 (D.N.M. 2016) and Ortiz v. Safeco
Ins. Co. of America, 207 F.Supp.3d 1216 (D.N.M. 2016). Id. In Aragon, the plaintiff brought a
claim against her insurer for underinsured motorist (“UIM”) benefits, as well as extra-contractual

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claims for failure to settle. 185 F.Supp.3d at 1282, 1287. The court explained that to recover
UIM benefits, a plaintiff must establish the tortfeasor’s negligence by proving duty, breach of
duty, causation, and damages that exceed the tortfeasor’s liability limits. Id. (citing State Farm
Mut. Auto. Ins. Co. v. Safeco Ins. Co., 2013-NMSC-006, 298 P.3d 452, 456). The parties in that
case disputed whether the plaintiff was entitled to UIM benefits because they disputed the extent
and value of the plaintiff’s injuries. Id. at 1283. The court further explained that, in contrast to a
claim for UIM proceeds, bad faith failure to pay requires a showing that the insurer’s “reasons
for denying payment . . . were frivolous or unfounded,” and a claim under the Unfair Insurance
Practices Act requires a showing that the insurer “failed to attempt in good faith to effectuate
prompt, fair and equitable settlements of an insured’s claim in which liability has become
reasonably clear.” Id. at 1288 (citing Sloan v. State Farm Mut. Auto. Ins. Co., 2004-NMSC-004,
85 P.3d 230, 236, and NMSA § 59A-16-20(E)).
The Aragon court held that a UIM carrier is not required to pay on the policy until the
plaintiff proves she is legally entitled to collect UIM damages. Id. at 1286. In other words, the
court determined that a plaintiff has no extra-contractual claims for failure to pay until she first
proves she is legally entitled to UIM coverage. To do this, she must prove all the elements of a
UIM claim including damages that exceed the tortfeasor’s liability limits. Accordingly, the court
reasoned that an extra-contractual claim for failure to settle “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 [plaintiff] against the insured.” Id. at 1285 (quoting Hovet
v. Allstate Ins. Co., 2004-NMSC-010, 89 P.3d 69) (emphasis in original). As such, “bifurcation
(or dismissal) is mandatory because, under New Mexico law, resolution of the UIM claim is a
condition precedent to [the plaintiff] bringing claims for bad faith [failure to pay].” Id. at 1286;

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see also Ortiz, 207 F.Supp.3d at 1222 (opinion issued four months after Aragon reaching the
same conclusion on an uninsured motorist (“UM”) claim).
Plaintiff asserts that bifurcation and staying discovery on the extra-contractual claims are
unnecessary and unwarranted in this case. Doc. 23 at 7-12. Plaintiff explains that it claims
Defendant breached the contract by not only failing to pay a sufficient amount to address the
covered damages to the insured property, but also for failing to perform its obligations under the
terms of the policy, such as failing to engage in meaningful communication, failing to affirm
coverage within a reasonable time, failing to timely and fairly investigate the claim, delaying
resolution of the claim, and wrongfully denying payment for covered damages. Id. Plaintiff also
points out that this is not a UIM case, that the case law Defendant cites does not support
bifurcation here, and that resolution of the breach of contract claim will not necessarily make its
bad faith claim moot. Id. at 13-15 To the contrary, Plaintiff cites Sanchez v. Safeco Ins. Co. of
America, 2015 WL 12832335 (D.N.M. 2015), to support its assertion that determination of
damages for a breach of contract is not always necessary before a plaintiff can demonstrate bad
faith in an insurer’s handling of a claim.3 Id. at 7-12.
Plaintiff asserts that Defendant’s claim file materials and how Defendant internally
handled the claim are relevant both to the contract claim and the bad faith claim, including
Defendant’s analytical process when arriving at its claim decision and its consideration of
putative policy exclusions. Doc. 23 at 8-12. Plaintiff states that it is entirely probable that the
same individuals for each party will need to be deposed on both the breach of contract and bad

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In Sanchez v. Safeco Ins. Co. of America, the court denied defendant’s motion to bifurcate and stay discovery on
extra-contractual claims after finding that plaintiff’s extracontractual claims were not dependent on the contractual
claim, a determination of actual damages on the contract claim was not necessary before plaintiffs could demonstrate
bad faith, that the existence of coverage was not in dispute, and there was no primary tortfeasor liability at issue. 2015
WL 12832335 at *1.

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faith claims and that bifurcating and staying discovery on the extra-contractual claims would
result in a waste of judicial time and resources. Id. Plaintiff also argues that Defendant has
failed to establish any evidence that is so prejudicial that bifurcation of Plaintiff’s claims is
necessary to avoid unfair prejudice at trial or that allowing the claims to proceed simultaneously
would result in juror confusion. Doc. 23 at 12-15.
Last, although Plaintiff urges that no bifurcation of any sort is warranted, it suggests that
were the Court concerned that some bifurcation may be necessary that the Court consider
bifurcating only the trial of this matter. Doc. 23 at 16.
The Court is not persuaded that bifurcation of and staying discovery on the
extra-contractual issues is appropriate in this case. To begin, the cases Defendant cites to
support its argument turn on the question of whether a plaintiff must establish underlying
damages before being legally entitled to UIM/UM benefits. This case, however, is not a
UIM/UM case and there is no issue of underlying tortfeasor liability to establish. Nor is this a
case where the existence of coverage is in dispute. Moreover, in New Mexico, a bad faith claim
does not require the resolution of an underlying dispute regarding coverage or the amount of a
claim. Willis v. Government Employees Ins. Co., 2015 WL 11181339, at *3 (D.N.M. 2015).
New Mexico courts have held that “an insurer acts in bad faith when it denies a first party claim
for reasons that are frivolous or unfounded” or when an insurer refuses to settle “based on a
dishonest judgment.” Id. (citations omitted). Further, 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.
(citations omitted). Here, Plaintiff’s extracontractual claims are based on more than its
allegation that State Farm failed to pay its claim in full. Instead, Plaintiff alleges that State Farm
failed to perform its obligations under the terms of the policy, such as failing to engage in

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meaningful communication, failing to affirm coverage within a reasonable time, failing to timely
and fairly investigate the claim, delaying resolution of the claim, and wrongfully denying
payment for covered damages. Thus, a determination of Plaintiff’s actual damages for breach of
contract does not appear necessary before Plaintiff can demonstrate bad faith on Defendant’s
handling of Plaintiff’s claim. Id.; see also Sanchez, 2015 WL 12832335, at *1.
The Court is also not persuaded that bifurcation and staying of discovery on the
extra-contractual are more judicially efficient or necessary to prevent jury confusion or unfair
prejudice to Defendant at trial. Bifurcation under Rule 42(d) is inappropriate where the evidence
to be presented against the parties is inextricably linked. Buccheri v. GEICO Ins. Co., 2017 WL
3575486, at *4 (D.N.M. 2017) (citation omitted). Although Defendant claims that the issues and
discovery here are distinct – one involving damages allegedly resulting from the storm and the
other involving claims handling procedures and policies, the Court is persuaded that how State
Farm determined the extent and value of the damages resulting from the storm is inextricably
intertwined with its claims handling procedures and policies. Put another way, relevant to both
issues is the amount of Plaintiff’s damages (the central issue in Plaintiff’s contractual claim) and
whether Defendant’s assessment of Plaintiff’s damages constituted bad faith (one of the issues in
Plaintiff’s extra-contractual claims). Sena-Baker v. Allstate Property and Cas. Ins. Co., 2020
WL 5748355, at *5 (D.N.M. 2020). Further, 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. Huss v. American Family Ins. Co., 2014 WL 12465421,
at *3 (D.N.M. 2014). “This [breach of contract] evidence is also relevant to the unfair trade
practices and bad faith claims.” Id. As for any concerns about producing proprietary or
privileged information, Defendant can address those concerns through a confidentiality order or

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filing discovery motion as appropriate. As such, judicial economy is best served by allowing
Plaintiff to proceed with all of its claims simultaneously.
Finally, the Court is not convinced that allowing the claims to proceed simultaneously
creates a substantial risk of juror confusion or that it will prejudice States Farm at trial. As the
Honorable District Judge Kenneth Gonzales stated, “Jurors are often asked to comprehend issues
in civil litigation that are considerably more complex than the issues in this case. Sufficiently
clear jury instructions, including limiting instructions, and clear arguments by counsel will
enable jurors to understand the different sets of issues presented and thereby, avoid any
confusion or prejudice.” Willis, 2015 WL 11181339, at*4.
CONCLUSION
For the foregoing reasons, the Court finds that Defendant’s Motion to Bifurcate and Stay
is not well taken and is DENIED.
IT IS SO ORDERED.

_______________________________________
JOHN F. ROBBENHAAR
United States Magistrate Judge
Presiding by Consent

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