Periodontal Associates of Memphis, P.C. v. Liberty Mutual Group d/b/a Liberty Mutual Insurance
Filing
49
ORDER GRANTING in part and DENYING in part 22 Motion to Bifurcate and Stay Discovery; GRANTING 25 Motion for Leave to File; RESERVING ruling on 27 Motion for Extension of Time to Amend to Restore Liberty Mutual as a Party pending filing of Plaintiff's proposed amendment. Plaintiff must file its proposed amendment by September 28, 2017. Signed by Judge Samuel H. Mays, Jr on 9/18/2017. (Mays, Samuel)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION
PERIODONTAL ASSOCIATES OF
MEMPHIS, P.C.,
Plaintiff,
v.
PEERLESS INDEMNITY INSURANCE
COMPANY,
Defendant.
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No. 16-cv-2751-SHM-tmp
ORDER
Before the Court are three motions.
The first is
Defendant Peerless Indemnity Insurance Company’s (“Peerless”)
Motion to Bifurcate Claims and Stay Discovery with Respect to
Plaintiff’s Claim for Bad Faith, filed on February 28, 2017.
(ECF No. 22.)
Plaintiff Periodontal Associates of Memphis,
P.C. (“Periodontal”) filed a response in opposition on March
14, 2017.
(ECF No. 24.)
The second motion is Plaintiff’s Motion to Amend
Plaintiff’s Amended Complaint, filed on March 23, 2017.
(ECF
No. 25.)
Defendant filed its response in opposition on April
6, 2017.
(ECF No. 26.)
The third motion is Plaintiff’s First Motion to Extend
Scheduling Order Deadline and Motion to Amend Plaintiff’s
Amended Complaint to Restore Liberty Mutual as a Party, filed
April 13, 2017.
(ECF No. 27.)
opposition on April 26, 2017.
Defendant filed a response in
(ECF No. 28.)
For the reasons below, Defendant’s Motion to Bifurcate
Claims and Stay Discovery with Respect to Plaintiff’s Claim for
Bad Faith (ECF No. 22) is GRANTED in part and DENIED in part;
Plaintiff’s Motion to Amend Plaintiff’s Amended Complaint (ECF
No. 25) is GRANTED; and Plaintiff’s First Motion to Extend
Scheduling Order Deadline and Motion to Amend Plaintiff’s
Amended Complaint to Restore Liberty Mutual as a Party (ECF No.
27) is RESERVED pending filing of Plaintiff’s proposed
amendment.
I.
Background
This action arises from a commercial insurance coverage
dispute between Plaintiff and Defendant.
ECF No. 8; Order, ECF No. 23.)
(See Amend. Compl.,
Plaintiff seeks to recover
damages for losses it incurred to its computer hard drives in
December 2014 under Policy No. BOP8552307 (the “Policy”),
effective from November 19, 2014 to November 19, 2015.
No. 8 ¶¶ 7, 9B.)
(ECF
Plaintiff alleges that the Policy covers
direct, accidental physical damage to the equipment.
2
(Id. ¶¶
9E-9E 1.)
Defendant denies Plaintiff’s claim.
It has concluded
that the damage was attributable to normal wear and tear or
degradation, which is not covered by the Policy.
9G,9T.)
(Id. ¶¶ 9F-
Both parties have retained experts who have inspected
the hard drives at issue and reached different conclusions
about whether the hard drives sustained direct physical damage.
(Id. ¶¶ 9K-9L, 9O.)
is covered.
Defendant continues to deny that the claim
(Id. ¶¶ 9S-9V.)
Plaintiff originally brought suit against Liberty Mutual
Group d/b/a/ Liberty Mutual Insurance Company (“Liberty
Mutual”) on September 20, 2016.
(ECF No. 1.)
Plaintiff
amended its Complaint as of right on October 25, 2016, to
include a punitive damage claim.
(ECF No. 8.)
The Court held a scheduling conference on February 13,
2017 (Min. Entry, ECF No. 18) and entered a Scheduling Order
the next day (ECF No. 20).
The Scheduling Order establishes
the following pertinent deadlines:
JOINING PARTIES:
for Plaintiff: March 13, 2017
for Defendant: March 27, 2017
AMENDING PLEADINGS: for Plaintiff: April 3, 2017
for Defendant: April 17, 2017
1
The Complaint labels two paragraphs “9E.”
3
(ECF No. 8 at 126.)
(Id. at 190.) 2
On February 28, 2017, Liberty Mutual filed an Unopposed
Motion to Substitute Named Defendant.
(ECF No. 21.)
Liberty
Mutual represented that Plaintiff had agreed that Peerless
should be substituted as the defendant in this action and that
Liberty Mutual should be dismissed without prejudice.
193.)
(Id. at
The Court granted the unopposed motion on March 1, 2017.
(ECF No. 23.)
Also on February 28, 2017, Peerless filed a Motion to
Bifurcate Claims and Stay Discovery with Respect to Plaintiff’s
Claim for Bad Faith.
(ECF No. 196.)
Plaintiff opposed
bifurcation and stay on March 14, 2017.
(ECF No. 24.)
On March 23, 2017, Plaintiff filed a Motion to Amend
Plaintiff’s Amended Complaint.
(ECF No. 25.)
opposed the amendment on April 6, 2017.
Defendant
(ECF No. 26.)
On April 13, 2017, Plaintiff filed a First Motion to
Extend Scheduling Order Deadline and Motion to Amend
Plaintiff’s Amended Complaint to Restore Liberty Mutual as a
Party.
(ECF No. 27.)
Defendant opposed the amendment and
extension on April 26, 2017.
(ECF No. 28.)
2
Unless otherwise noted, all in-cite page numbers refer to the PageID
numbers.
4
On August 21, 2017, Defendant filed a Motion for Partial
Summary Judgment on the issue of coverage.
II.
(ECF No. 41.)
Jurisdiction & Choice Of Law
A.
Jurisdiction
This Court has diversity jurisdiction under 28 U.S.C.
§ 1332.
Plaintiff is a professional corporation organized
under Tennessee, with its principal place of business in
Tennessee.
(Am. Compl., ECF No. 8 ¶ 2.) For purposes of the
diversity jurisdiction a professional corporation is treated
like any other corporation.
Hoagland ex rel. Midwest Transit,
Inc. v. Sandberg, Phoenix & von Gontard, P.C., 385 F.3d 737,
739 (7th Cir. 2004).
Peerless is an Illinois corporation, with
its principal place of business in Massachusetts.
No. 10 ¶ 3.)
(Answer, ECF
Liberty Mutual is a Massachusetts corporation,
with its principal place of business in Massachusetts.
3.)
There is complete diversity.
(Id. ¶
Cf. 28 U.S.C. § 1332(a)(1).
Plaintiff alleges that the amount in controversy exceeds
$75,000.
(Id. at 8.)
“[T]he sum claimed by the plaintiff
controls if the claim is apparently made in good faith.”
St.
Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288
(1938); see also Mass. Cas. Ins. Co. v. Harmon, 88 F.3d 415,
416 (6th Cir. 1996).
The requirements of diversity
jurisdiction are satisfied.
5
B.
Choice of Law
A motion for bifurcation is a matter of federal procedure
to which federal law applies.
is based in contract.
law governs.
The parties' underlying dispute
In diversity actions, state substantive
64, 78 (1938).
See, e.g., Erie R.R. Co. v. Tompkins, 304 U.S.
A federal court applies the choice-of-law
provisions of the state in which it sits.
Id.; Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Cole v.
Mileti, 133 F.3d 433, 437 (6th Cir. 1998) (“It is wellestablished that federal courts sitting in diversity must apply
the choice-of-law rules of the forum state.”) (citing cases).
Plaintiff invokes Tennessee insurance law.
ECF No. 1-1 ¶¶ 37, 40, 43, 46.)
(See, e.g., Compl.,
Tennessee follows the rule of
lex loci contractus, which provides that a contract is presumed
to be governed by the law of the jurisdiction in which it was
executed, absent a contrary intent.
Vantage Tech., LLC v.
Cross, 17 S.W.3d 637, 650 (Tenn. Ct. App. 1999) (citing Ohio
Cas. Ins. Co. v. Travelers Indem. Co., 493 S.W.2d 465, 467
(Tenn. 1973)).
The Policy was executed in Tennessee.
Neither
Peerless nor Liberty Mutual challenges the application of
Tennessee law.
The Court will apply Tennessee substantive law.
6
III. Analysis
A.
Defendant’s Motion to Bifurcate Claims and Stay
Discovery on Plaintiff’s Claim for Bad Faith (ECF No.
22)
Defendant asks the Court to bifurcate Plaintiff’s claim
for declaratory judgment on coverage and Plaintiff’s claim of
bad faith under Tenn. Code Ann. § 56-7-105.
196.)
(ECF No. 22 at
Defendant asks the Court to stay discovery on
Plaintiff’s bad faith claim until after judgment on the
coverage issue.
(Id.)
Plaintiff argues against bifurcation
because there would be “a large overlap of evidence and
discovery in both the coverage and bad faith issues” and
because Defendant has failed to demonstrate actual prejudice.
(ECF No. 24 at 213.)
A court may bifurcate a trial “in furtherance of
convenience or to avoid prejudice, or when separate trials will
be conducive to expedition and economy.”
Fed. R. Civ. P.
42(b); Wilson v. Morgan, 477 F.3d 326, 339 (6th Cir. 2007).
The decision to bifurcate is within the discretion of the trial
court.
Smith v. Allstate Ins. Co., 403 F.3d 401, 407 (6th Cir.
2005).
“In determining whether separate trials are
appropriate, the court should consider several facts, including
‘the potential prejudice to the parties, the possible confusion
of the jurors, and the resulting convenience and economy.’”
Id. (quoting Martin v. Heideman, 106 F.3d 1308, 1311 (6th Cir.
7
1997)); Farmers Bank of Lynchburg, Tennessee v. BancInsure,
Inc., No. 2:10-CV-02222-DKV, 2011 WL 2023301, at *2 (W.D. Tenn.
May 20, 2011)(finding convenience, prejudice, and economy
supported bifurcation of coverage and bad faith claims in
insurance policy action).
A decision on bifurcation should be
grounded in the facts and circumstances of each case.
See
Saxio v. Titan–C–Mtg, Inc., 86 F.3d 553, 556 (6th Cir. 1996).
Unless precluded by law, courts bifurcate issues for
separate trials when the issue first tried would be dispositive
of the litigation.
In re Bendectin Litig., 857 F.2d 290, 309,
317 (6th Cir. 1988).
Where the bad faith claim depends on
resolution of the underlying coverage dispute, a court may
resolve the coverage question before allowing the bad faith
claim to proceed.
See Smith, 403 F.3d at 408 (finding no abuse
of discretion where district court bifurcated and stayed
discovery of contract claim where plaintiffs claimed the
insurance company breached the contract by not paying the
claims in full and denied the insurance claims in bad
faith).
The decision to stay discovery on a bad faith claim
while the underlying coverage claim is pending is also within
the discretion of the trial court.
8
See id.
Convenience, prejudice, and judicial economy support
bifurcation of Plaintiff’s coverage and bad faith claims for
trial, but not for discovery.
1.
Convenience
Coverage is a question of law, and bad faith is a question
of fact.
Clark v. Sputniks, LLC, 368 S.W.3d 431, 441 (Tenn.
2012) (“The question of the extent of insurance coverage is a
question of law involving the interpretation of contractual
language. . . .”); Johnson v. Tennessee Farms Mut. Ins. Co.,
205 S.W.3d 365, 371 (Tenn. 2006) (“The question of an insurance
company's bad faith is for the jury if from all of the evidence
it appears that there is a reasonable basis for disagreement
among reasonable minds as to the bad faith of the insurance
company in the handling of the claim.”).
predicate to a finding of bad faith.
370.
Coverage is a
Johnson, 205 S.W.3d at
Because resolution of the coverage claim is dispositive
of Plaintiff’s entire claim, it is more convenient to decide
the coverage claim before the bad faith claim.
It is also
appropriate that the Court decide the dispositive legal
question of coverage before the jury assesses the factual
question of bad faith.
Bifurcation of Plaintiff’s claims for
trial is appropriate.
9
Plaintiff contends that bifurcation of discovery would
duplicate discovery efforts.
Although Defendant has not asked
the Court to bifurcate discovery, its request to stay discovery
on Plaintiff’s claim of bad faith effectively bifurcates
discovery.
Plaintiff concedes that “[a] detailed analysis of
the expert opinions is necessary to determine coverage,” but an
analysis of “Liberty Mutual’s shallow use [of] its technical
report and cavalier dismissal of [Plaintiff’s] inquiry for
reconsideration of coverage” is necessary to determine bad
faith.
(ECF No. 24 at 213.)
In other words, “[t]he coverage
dispute would most likely focus on the terms of the [insurance
policy] while the bad faith claims would depend on the parties'
motives.”
BancInsure, Inc., 2011 WL 2023301, at *2.
The
overlapping evidence between the two claims, Plaintiff argues,
includes experts and expert reports.
The Court is persuaded that bifurcation of Plaintiff’s
discovery for its bad faith and coverage claims would be
inefficient and inconvenient.
Discovery used to establish
coverage may also be used to assess bad faith.
If there is no insurance coverage, bifurcation of trial
would save the parties the time and expense of a trial on the
bad faith claim.
Convenience favors bifurcation of the claims
for trial, but not for discovery.
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2.
Prejudice
Plaintiff argues that Defendant has failed to establish
actual prejudice in the absence of bifurcation and a stay of
discovery.
(Id.)
Actual prejudice is not a prerequisite to
bifurcation, but one of several factors to be considered.
Wilson, 477 F.3d at 329.
See
Without much explanation, Defendant
argues that trying the coverage and bad faith issues together
would result in prejudice.
(ECF No. 22-1 at 204-05 (citing
BancInsure, Inc., 2011 WL 2023301, at *2; G Equip. Co. v. AIG
Life Ins. Co., No. 07-CV-0556-CVE-PJC, 2009 WL 236019, at *2
(N.D. Okla. Jan. 29, 2009); General Star Indem. Co. v.
Anheuser-Busch Cos., 741 So. 2d 1259, 1261 (Fla. Dist. Ct. App.
1999).)
Plaintiff’s conflation of bad faith and coverage support
bifurcation of the claims for trial.
Plaintiff argues that it
“cannot prove its position without telling its side of why
Liberty Mutual denied coverage pointing to the flaws in the
claim process.”
(ECF No. 24 at 214.)
Plaintiff raises the
issue of Defendant’s motive for denying its claim and expert
report.
(See, e.g., id. at 210 (“[Defendant’s] dismissive
conclusion that Moulton’s lengthy report agreed with Fegan’s
report indicates [Defendant’s] intentional lack of meaningful
investigation of [Plaintiff’s] claim and an
11
unreasonable/shallow refusal to pay coverage. . . .
[Defendant’s] re-denial of the coverage without further
investigation, without properly addressing [Plaintiff’s]
reasonable challenges, and without providing requested
information was bad faith, dismissive, cavalier, and selfserving.”).)
Proving coverage does not require assessing
Defendant’s motive.
That inquiry is appropriate to determine
bad faith.
Bad faith evidence would be improper to determine coverage
and would create prejudice.
Bifurcation makes prejudice and
jury confusion less likely.
Prejudice favors bifurcation of the coverage and bad faith
claims for trial.
3.
Judicial Economy
Considerations of judicial economy favor resolving the
issue of coverage first because it can dispose of the entire
litigation.
Here, the issue of insurance coverage must be
resolved before the question of bad faith.
Tennessee's
insurance bad faith statute provides a penalty, not to exceed
25% of the liability for the loss, when an insurer's refusal to
pay the loss was not in good faith.
105(a).
Tenn. Code Ann. § 56–7–
To state a bad faith claim, a plaintiff must show: (1)
12
the policy of insurance must, by its terms, have become due and
payable; (2) a formal demand for payment has been made; (3) the
insured waited 60 days after making demand before filing suit
(unless there was a refusal to pay prior to the expiration of
the 60 days); and (4) the refusal to pay was not made in good
faith.
Patterson v. Shelter Mut. Ins. Co., No.
M201401675COAR9CV, 2015 WL 5320231, at *7 (Tenn. Ct. App. Sept.
11, 2015), appeal denied (Jan. 20, 2016).
A court must find
that there is coverage before a plaintiff can pursue a bad
faith claim against an insurance company.
It is more efficient
to decide the threshold issue of coverage.
The other bad faith
elements can be considered if there is coverage.
It is also
economical for the Court decides the dispositive legal question
of coverage before the jury assesses the factual question of
bad faith.
Judicial economy favors bifurcation of the coverage and
bad faith claims for trial.
For the above reasons, the coverage claim and bad faith
claims are bifurcated for trial, but not for discovery.
Because discovery is not bifurcated, the Court need not stay
discovery on the bad faith claim.
The Court GRANTS in part and
DENIES in part Defendant’s Motion to Bifurcate Claims and Stay
Discovery with Respect to Plaintiff’s Claim for Bad Faith (ECF
13
No. 22).
The Motion to Bifurcate Claims is GRANTED.
The
Motion to Stay Discovery is DENIED.
B.
Plaintiff’s Motion to Amend Plaintiff’s Amended
Complaint (ECF No. 25)
Plaintiff seeks to amend the Amended Complaint by adding
the following allegation:
11N: Beyond the denial of [Plaintiff’s] coverage
alleged herein, [Defendant] has committed a pattern
of unfairness in claim handling practices; more
particularly in the unreasonable denial of equipment
breakdown claims (and other coverage) in analogous
cases on the same bad faith basis as the instant
claim.
(ECF No. 25 at 220.) 3
Defendant argues that the amendment “should be denied
because the proposed amendment serves no legitimate purpose, is
being sought following unexplained delay, and appears to be
motivated by Plaintiff’s desire to improperly expand the scope
of discovery to include information on other insurance claims.”
(ECF No. 26 at 243.)
Pursuant to Rule 15(a) of the Federal Rules of Civil
Procedure, leave to amend shall be freely granted when justice
requires.
Leave should be granted under Rule 15(a) unless
3
The only defendant named in Plaintiff’s proposed Second Amended
Complaint is Liberty Mutual. (See ECF No. 25-1.) The Court has
substituted Peerless for Liberty Mutual and dismissed Liberty Mutual
without prejudice at the parties’ request. (ECF No. 23.) Plaintiff’s
references to Liberty Mutual in the proposed amendment are construed to
refer to Peerless.
14
there is “undue delay, bad faith or dilatory motive on the part
of the movant, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the opposing
party by virtue of allowance of the amendment, [or] futility of
amendment.”
Foman v. Davis, 371 U.S. 178, 182 (1962).
Defendant’s arguments on purpose, unexplained delay, and
motive are unpersuasive.
First, the purpose of Plaintiff’s
amendment is to further support its bad faith claim.
Second,
delay alone does not justify denial of a motion brought under
Rule 15(a).
Security Ins. Co. of Hartford v. Kevin Tucker &
Assocs., Inc., 64 F.3d 1001, 1009 (6th Cir. 1995).
A party
opposing an amendment based on delay must make “some
significant showing of prejudice to the opponent.”
City of Paducah, 790 F.2d 557, 562 (6th Cir. 1986).
Moore v.
Defendant
does not argue that the delay here has significantly prejudiced
it.
Plaintiff’s “unexplained delay” does not justify denial
under Rule 15(a).
Third, Defendant fails to establish that
Plaintiff has a dilatory motive to “improperly expand the scope
of discovery to include information on other insurance claims.”
Plaintiff’s Motion to Amend Plaintiff’s Amended Complaint
(ECF No. 25) is GRANTED.
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C.
Plaintiff’s First Motion to Extend Scheduling Order
Deadline and Motion to Amend Plaintiff’s Amended
Complaint to Restore Liberty Mutual as a Party (ECF
No. 27)
After the Rule 16 deadline to amend has passed, litigants
“must first show good cause under Rule 16(b) [of the Federal
Rules of Civil Procedure] for failure earlier to seek leave to
amend and the district court must evaluate prejudice to the
nonmoving party before a court will consider whether amendment
is proper under Rule 15(a).”
Commerce Benefits Grp., Inc. v.
McKesson Corp., 326 F. App'x 369, 376 (6th Cir. 2009); Leary v.
Daeschner, 349 F.3d 888, 907 (6th Cir. 2003); Fed. R. Civ. P.
16(b)(4)( modification to the scheduling order is available
“only for good cause and with the judge's consent.”).
This
requires the movant to establish that “despite their diligence
they could not meet the original deadline.”
907.
Leary, 349 F.3d at
The decision to grant leave for modification of the
scheduling order under Rule 16(b) is within the district
court's discretion.
Id. at 909.
“The district court also is
required to evaluate prejudice to the opponent before modifying
the scheduling order.”
Id.
To determine whether leave to amend is appropriate, the
district court “must have before it the substance of the
16
proposed amendment.”
Roskam Baking Co., Inc. v. Lanham Mach.
Co., Inc., 288 F.3d 895, 906 (6th Cir. 2002).
Plaintiff has established good cause to amend the case
scheduling order to permit Plaintiff to amend the complaint to
include Liberty Mutual.
Liberty Mutual.
Plaintiff brought this action against
Opposing counsel then represented that
Plaintiff had named the incorrect party and that Peerless was
the correct and sole defendant.
On that basis, Plaintiff
agreed to substitute Liberty Mutual for Peerless.
Plaintiff
now seeks leave to “restore Liberty Mutual” as a defendant.
Defendant contends that it and Liberty Mutual would be
prejudiced by Plaintiff’s amendment in conjunction with
Plaintiff’s “parallel attempt to expand its bad faith
allegations to include other claims by other policyholders. . .
.”
(ECF No. 28 at 444.)
Additional discovery alone does not
constitute prejudice for purposes of deciding whether the Court
should permit amendment.
See Janikowski v. Bendix Corp., 823
F.2d 945, 952 (6th Cir. 1987) (concluding that the burden of
additional discovery was not by itself sufficient to constitute
undue prejudice).
Any prejudice may be mitigated by adjusting
the discovery schedule.
Plaintiff has failed to include a proposed amended
complaint.
It is unclear from Plaintiff’s motion whether it
17
seeks to add Liberty Mutual as a defendant or to substitute
Liberty Mutual for Peerless.
Absent a proposed amended
complaint or a detailed description of the amendment sought,
Plaintiff has failed to provide the Court with “the substance
of the proposed amendment.”
ambiguous amendment.
The Court cannot grant an
Plaintiff must file its proposed
amendment by September 28, 2017.
The Court reserves its determination on Plaintiff’s First
Motion to Extend Scheduling Order Deadline and Motion to Amend
Plaintiff’s Amended Complaint to Restore Liberty Mutual until
the proposed amendment has been filed.
IV.
Conclusion
For the foregoing reasons, Defendant’s Motion to Bifurcate
Claims and Stay Discovery with Respect to Plaintiff’s Claim for
Bad Faith (ECF No. 22) is GRANTED in part and DENIED in part;
Plaintiff’s Motion to Amend Plaintiff’s Amended Complaint (ECF
No. 25) is GRANTED; and Plaintiff’s First Motion to Extend
Scheduling Order Deadline and Motion to Amend Plaintiff’s
Amended Complaint to Restore Liberty Mutual as a Party (ECF No.
27) is RESERVED pending filing of Plaintiff’s proposed
amendment.
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So ordered this 18th day of September, 2017.
/s/ Samuel H. Mays, Jr.
SAMUEL H. MAYS, JR.
UNITED STATES DISTRICT COURT JUDGE
19
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