Herzog et al v. Property and Casualty Insurance Company of Hartford

Filing 48

ORDER denying 41 Plaintiffs' motion for leave to file a second amended complaint and granting 43 Defendants' request to dismiss plaintiffs' remaining claims by Judge Karen L Strombom.(TW)

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1 2 3 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA 4 5 6 7 8 DOUGLAS AND TAMMY HERZOG, husband and wife, Plaintiff, v. 9 10 11 PROPERTY AND CASUALTY INSURANCE COMPANY OF HARTFORD, a foreign insurer, Case No. 3:16-cv-05083-KLS ORDER DENYING PLAINTIFFS’ MOTION FOR LEAVE TO FILE A SECOND AMENDED COMPLAINT AND GRANTING DEFENDANT’S REQUEST TO DISMISS PLAINTIFFS’ REMAINING CLAIMS Defendant. 12 13 14 15 This matter is before the Court on plaintiffs’ filing of a motion for leave to file a second 16 amended complaint and defendant’s request that plaintiffs’ remaining claims be dismissed. Dkt. 17 41, 43. The parties have consented to have this matter heard by the undersigned Magistrate 18 Judge. 28 U.S.C. § 636(c), Federal Rule of Civil Procedure (FRCP) 73; Local Rule MJR 13. For 19 20 the reasons set forth below, the Court finds plaintiffs’ motion should be denied and defendant’s request should be granted. 21 FACTUAL AND PROCEDURAL HISTORY 22 23 On November 30, 2016, this Court issued an order finding that plaintiffs’ dock is not a 24 “building” as that term is used in the insurance policy at issue in this case, and thus that coverage 25 for only actual cash value (ACV) applies. Dkt. 37. The Court further found that because plaintiff 26 had not presented any specific argument or evidence that defendant improperly calculated ACV ORDER - 1 1 under that policy, the amount it deducted from the replacement cost value (RVC) of the dock 2 was not unreasonable. Id. Finally, in light of Perez-Crisantos v. State Farm Fire & Casualty Co., 3 which was pending before the Washington State Supreme Court at the time the Court’s order 4 was issued, the Court determined that it should refrain from deciding whether defendant’s 5 actions violated the Washington State Insurance Fair Conduct Act (IFCA), and instead wait until 6 7 the Washington State Supreme Court issued its decision to address that issue. Id. 8 On February 2, 2017, the Washington State Supreme Court issued its decision in Perez- 9 Crisantos. 389 P.3d 476 (2017). On February 22, 2017, the parties conducted a conference call 10 with the Court, at which counsel for plaintiff and counsel for defendant were both present. Dkt. 11 39. At that conference, the parties agreed it was appropriate to lift the stay of proceedings in this 12 matter. Id. Plaintiffs’ counsel advised that he intended to file a motion to amend plaintiffs’ first 13 amended complaint, which would be opposed by defendant’s counsel. Id. The Court directed the 14 15 parties to file their respective motions and agree as to a noting date. Id. Also on February 22, 2017, the Court issued an order lifting the stay and reflecting what 16 17 was agreed to in the telephone conference. Dkt. 40. On February 23, 2017, plaintiffs filed their 18 motion for leave to file a second amended complaint. Dkt. 41. That same day defendant filed its 19 20 supplemental pleading regarding plaintiffs’ remaining IFCA claims, requesting therein that such claims be dismissed in light of Perez-Crisantos. Dkt. 43. In addition, the Court has received 21 22 23 24 defendant’s opposition to plaintiff’s motion for leave to amend (Dkt. 44) and plaintiffs’ reply thereto (Dkt. 45), as well as plaintiffs’ objection to defendant’s filing of its supplemental pleading (Dkt. 46)1 and defendant’s reply to that objection (Dkt. 47). As the noting date on both 25 26 1 Plaintiff objects to the Court’s consideration of defendant’s supplemental pleading, arguing that because defendant is requesting dispositive relief in that pleading, but failed to note it for consideration on the fourth Friday after it was filed as required by Local Rule CR 7(d)(3). Defendant points out that at the February 22, 2017 telephone conference, ORDER - 2 1 plaintiffs’ motion to amend and defendant’s supplemental pleading have passed, and it appears 2 that all pertinent pleadings have been received, this matter is ripe for the Court’s consideration. 3 4 DISCUSSION Plaintiffs may amend their first amended complaint only with defendant’s written consent 5 – which has not been provided in this instance – or by leave of the Court. Federal Rule of Civil 6 7 Procedure (FRCP) 15(a)(1), (2). Such leave should be freely given “when justice so requires.” 8 FRCP 15(a)(2). “Although leave to amend” thus “is liberally granted under Fed.R.Civ.P. 15(a), 9 undue delay, bad faith in seeking amendment, or undue prejudice to the party opposing the 10 amendment are grounds for denying leave to amend,” as is “futility of amendment.” Kaplan v. 11 Rose, 49 F.3d 1363, 1370 (9th Cir. 1994); Acri v. Intil Ass’n of Mchinists & Aerospace Workers, 12 781 F.2d 1393, 1398 (9th Cir. 1986). 13 Plaintiffs argue that in light of the Washington State Supreme Court’s decision in Perez14 15 Crisantos, and the right they reserved in their original complaint to amend it to assert additional 16 causes of action, they should be allowed to assert a claim under Washington State’s Consumer 17 Protection Act (CPA) for breach of defendant’s duty to act in good faith because of defendant’s 18 violations of ICFA regulations in handling their claim. Defendant argues plaintiffs’ remaining 19 20 IFCA claims should be dismissed in light of Perez-Crisantos, which defendant asserts held the IFCA only created a cause of action for an unreasonable denial of coverage or benefits, and not 21 22 23 24 25 26 the Court asked it to file a supplement pleading so that it was before the Court, and directed the parties to agree as to a noting date for their respective motions. See Dkt. 39. According to defendant: The parties later met and conferred by telephone to agree on a noting date, and agreed on a note [sic] date as required by rule. Counsel for [defendant] later confirmed [via email] that the parties would use a “third Friday noting date.” [Defendant’s] counsel received no response to this email, and thus assumed plaintiff’s agreement, as per the phone call. Dkt. 47, p. 2 (internal citation omitted; see also Dkt. 47-1. There is no indication in the record before the Court that the parties did other than agree to file both their motions on the same day, which is what happened. See Dkt. 41, 43. In light of the above, the Court will consider defendant’s supplemental pleading. ORDER - 3 1 for mere violations of that statute’s regulations, and further argues amendment under FRCP 15(a) 2 should not be allowed. The Court agrees with defendant. 3 4 In Perez-Crisantos, the Washington State Supreme Court expressly held that the IFCA “does not create an independent cause of action for” violations of the specific regulations listed 5 in that statute. 389 P.3d at 483. Plaintiffs concede that in light of Perez-Crisantos, the IFCA does 6 7 not grant them such a cause of action. Dkt. 41, p. 3. However, plaintiffs’ now seek to amend their 8 first amended complaint to add a cause of action under the CPA and for breach of insurer duty to 9 act in good faith, based on the same alleged regulatory violations. Several factors, though, weigh 10 11 12 against allowing such an amendment. As the Washington Supreme Court in Perez-Crisantos notes, “[f]or many years, insureds have been able to sue their insurers for violations of certain insurance regulations in a CPA or 13 bad faith action.” 389 P.3d at 479 (citing Track Ins. Exch. V. VanPort Homes, Inc., 147 Wn.2d 14 15 751, 764 (2002); Indus. Indemn. Co. v. Kallevig, 114 Wn.2d 907, 921-22 (1990)). Plaintiffs first 16 argue that because Perez-Crisantos constitutes controlling precedent, and because that precedent 17 “changed midway through the litigation,” amending their complaint to allow for a CPA and bad 18 faith claim is proper. Sonoma Cnty. Ass’n of Retired Employees v. Sonoma Cnty., 708 F.3d 1109, 19 20 1117-18 (9th Cir. 2013). But unlike in Sonoma Cnty., the controlling precedent in this case came at the summary judgment rather than the motion to dismiss stage. Id. at 1113-14. Further, also 21 22 23 24 unlike in Sonoma Cnty., Perez-Crisantos does not broaden plaintiffs’ ability to sue for violations of the insurance regulations, but to the contrary significantly curtails it. Plaintiffs assert that they alleged a claim for violations of the insurance regulations in the 25 original complaint “in the good faith but mistaken belief that” the IFCA permitted such claims. 26 Dkt. 41, p. 5. Plaintiff points out that in interpreting the IFCA to bar claims for mere violations ORDER - 4 1 of the insurance regulations, the Washington Supreme Court in Perez-Crisantos admitted that the 2 law on this issue up to that point had been to say the least ambiguous, but made clear that such 3 claims could still be brought under the CPA and/or for bad faith. 389 P.2d at 480-81. Given this 4 clarification in the law, plaintiffs argue, the addition of such a claim is proper. 5 Perez-Crisantos, however, did not “clarify” the law as to plaintiffs’ ability to bring suit 6 7 under the CPA or for insurer bad faith for violations of the insurance regulations. Indeed, again 8 as the Washington State Supreme Court expressly noted in that case, “[f]or many years, insureds 9 have been able to sue their insurers for violations of certain” of those regulations under a CPA or 10 bad faith action, including for violations of WAC 284-30-330 under which plaintiffs seek relief 11 in part. Id. at 478; see also Truck Ins. Exch., 147 Wn.2d at 764 (“Violations of WAC 284-30-330 12 are per se violations of Washington’s [CPA].”). As such, it was clear at the time they filed their 13 original complaint that plaintiffs could have included a CPA or bad faith claim. There is nothing 14 15 16 17 18 19 20 to indicate that they were limited to bringing only the IFCA violation claims, or that they did not have the requisite facts at the time to assert a CPA or bad faith claim. “[L]ate amendments to assert new theories are not received favorably when the facts and the theory have been known to the party seeking amendment since the inception of the cause of action.” Acri, 691 F.2d at 898; see also Stein v. United Artists Corp., 691 F.2d 885, 898 (9th Cir. 1982) (“[The plaintiff] provided no satisfactory explanation for his failure to fully develop his 21 22 23 contentions originally, and the amended complaint was brought only to assert new theories, if anything, and was not premised on new facts.”); Jordan v. Los Angeles Cty. 669 F.2d 1311, 1324 24 (9th Cir. 1982). It matters not, furthermore, that plaintiffs were not acting in bad faith in failing 25 to include a CPA or insurer bad faith claim in their original complaint. See Royal Ins. Co. of Am. 26 v. Sw. Marine, 194 F.3d 1016-17 (9th Cir. 1999) (pointing out that the amended complaint “did ORDER - 5 1 nothing more than reassert an old theory of liability based on previously-known facts,” and that 2 the plaintiff “had knowledge of the relevant facts from the inception of the lawsuit.”). Nor does 3 plaintiffs’ assertion that they have not been dilatory persuasive, given that they themselves admit 4 the claims they seek to add are not based on any new or additional facts. Dkt. 41, p. 4 (seeking 5 leave to amend “to assert additional legal theories of recovery based on facts already described in 6 7 [plaintiffs’] Motion for Partial Summary Judgment”). The Court also finds two other bases for denying plaintiffs’ motion for leave to amend: 8 9 futility of amendment and prejudice to defendant. Two of the insurance regulations that plaintiffs 10 base their CPA and insurer bad faith claims on are WAC 284-30-330(13) and WAC 284-30-380, 11 both of which concern denials of insurance coverage or offers of a compromise settlement.2 As 12 discussed in the Court’s order granting defendant’s motion for partial summary judgment and 13 denying plaintiff’s motion for partial summary judgment, though, no denial of coverage or offer 14 15 of a compromise settlement occurred in this case. 16 Lastly, plaintiffs contend defendant will not be prejudiced by allowing amendment of the 17 complaint. But the Court agrees with defendant that at this late stage of the proceedings allowing 18 amendment would only further delay this matter – which already has been delayed once for 19 20 resolution of the IFCA issue – and further discovery would likely be required to develop the new legal theory upon which plaintiffs seek relief. In addition, defendant is likely to have to incur the 21 22 23 additional expense of retaining a “bad faith” or other similar expert to defend against plaintiffs’ allegation that it acted unreasonably in handling their claim. For all of the foregoing reasons, the 24 25 26 2 WAC 284-30-330(13) provides that it is an unfair act or practice to fail “to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.” WAC 284-30-330(1) states that “[t]he insurer must not deny a claim on the grounds of a specific policy provision, condition, or exclusion unless reference to the specific provision, condition, or exclusion is included in the denial,” which “must be given to the claimant in writing.” ORDER - 6 1 Court declines to allow plaintiffs to amend their complaint. 2 3 4 Plaintiffs argue that there remains a factual issue in this case that demands resolution, such that dismissal of this action is not proper. Specifically, plaintiffs assert that in their motion for partial summary judgment they noted that they were pursuing “a second claim – that even 5 assuming that [their] recovery was limited to [ACV], that the [ACV] of his loss was greater than 6 7 the amount [defendant] had paid him.” Dkt. 45, p. 2 (citing Dkt. 24, p. 17). “While noting the 8 existence of this claim,” plaintiffs further assert their summary judgment motion also “noted that 9 it presented a ‘factual issue,’ such that [they] did not move for summary judgment with respect 10 to it.” Id. They assert as well that the Court “did not enter any kind of dispositive ruling with 11 respect to that claim,” and thus that this “coverage claim remains to be adjudicated in this case.” 12 Id. 13 As the Court expressly stated in its order denying their summary judgment motion, 14 15 though, “plaintiffs have not provided any evidence that either [defendant’s] determination [of the 16 dock’s ACV] or the basis for arriving at it was incorrect,” and thus “they have not established a 17 genuine issue of material fact with regard thereto.”3 Dkt. 37, p. 17. Nor did plaintiffs raise the 18 method or basis for calculating ACV as an issue or claim in either their original or first amended 19 20 complaint, but instead merely alleged breach of contract based on failure to pay more than the ACV, i.e., the full replacement value thereof. Dkt. 1-1, pp. 10-11; Dkt. 19, pp. 4-5. Accordingly, 21 22 23 24 25 26 the Court that finds no issue remains to be resolved in this matter, and therefore that dismissal of plaintiff’s cause of action is warranted. 3 Nor does the Court find persuasive plaintiffs’ assertion that they in fact “presented” this issue for resolution in their summary judgment motion. See Dkt. 24, p. 17 (stating that “[t]he second issue which this case may present is whether the insurer correctly determined ‘actual cash value’”) (emphasis added). As just discussed, plaintiffs did not present any evidence that the ACV defendant determined was incorrect. Thus, while plaintiffs may have desired to have this presented as an issue and decided by the Court, they made no showing that there was actually any factual issue left to be resolved based on the evidence before the Court. ORDER - 7 CONCLUSION 1 2 3 4 For the reasons discussed above, plaintiffs’ motion for leave to file a second amended complaint (Dkt. 41) hereby is DENIED, and defendants’ request to dismiss plaintiffs’ remaining claims (Dkt. 43) hereby is GRANTED. 5 DATED this 21 day of March, 2017. 6 7 A 8 Karen L. Strombom United States Magistrate Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 ORDER - 8

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