Baires et al v. State Farm Mutual Automobile Insurance Company

Filing 34

ORDER signed by Judge J P Stadtmueller on 9/2/16: denying 25 Defendant's Motion to Dismiss or in the alternative to Bifurcate and Stay the bad faith claim; and, granting 16 Plaintiffs' Motion to Compel. See Order. (cc: all counsel) (nm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
ELIZABETH MOCTEZUMA BAIRES
and WALTER A. BAIRES,
Plaintiffs,
v.

Case No. 16-CV-402-JPS

BLUE CROSS BLUE SHIELD OF
MINNESOTA and STATE FARM MUTUAL
AUTOMOBILE INSURANCE COMPANY,
Involuntary Plaintiffs,
v.
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY

ORDER
Defendant.
The plaintiffs, Elizabeth Moctezuma Baires and Walter A. Baires (the
“Baireses”), bring this action against the defendant, State Farm Mutual
Automobile Insurance Company (“State Farm”) for breach of contract, loss
of society and companionship and consortium, and bad faith insurance claims.

(Docket #15). Initially, the Baireses filed a motion to compel discovery.
(Docket #16). Shortly thereafter, on July 7, 2016, State Farm filed a motion to
dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), or, in the
alternative, to bifurcate and stay the proceedings on the bad faith and
statutory interest claims. (Docket #26). Because certain arguments in the
motion to compel were more fully developed in the motion to dismiss
briefing, the Court found it prudent to address these matters together. Both
motions are now fully briefed and ready for disposition. (Docket #17, #26,
#27, #29, #31, #33). As discussed more thoroughly below, the Court will deny

State Farm’s motion to dismiss for failure to state a claim, deny State Farm’s
motion to bifurcate and stay, and will grant the Baireses’ motion to compel.
1.

FACTUAL BACKGROUND1
This action arises out of an insurance dispute between the parties.

Elizabeth Moctezuma Baires was injured in an automobile accident on
September 2, 2010. (Am. Compl. ¶ 7). The accident was caused by the
negligence of Eric Steele (“Steele”). (Am. Compl. ¶¶ 6-8). At the time of the
accident, Steele was insured by American Family Mutual Insurance
Company (“American Family”), under a policy that had $100,000.00 limits.
(Am. Compl. ¶ 9). At the time of the accident, the Baireses were insured by
State Farm. (Am. Compl. ¶ 5).
On or about March 26, 2014, American Family tendered the sum of
$100,000.00 to Ms. Baires and State Farm authorized her to accept the offer.
(Am. Compl. ¶ 11). The Baireses allege that the liability limits under the
American Family policy, however, were inadequate to make them whole
from the injuries and damages arising out of the accident. (Am. Compl. ¶ 10).
The Baireses’ insurance policy with State Farm

provided

underinsured motorist benefits (“UIM”). (Am. Compl. ¶ 5). Ms. Baires
provided State Farm with medical records and reports documenting the
significant and permanent injuries and the need for ongoing medical care;
she then requested that State Farm pay its UIM limits. (Am. Compl. ¶ 12).
State Farm declined to pay the amount demanded by Ms. Baires. (Am.
Compl. ¶ 13). State Farm offered only $40,000.00 in UIM benefits. (Am.

1

The Court notes that, at the motion to dismiss stage, the Court “take[s] as
true all well-pleaded facts alleged in the complaint...” Tamburo v. Dworkin, 601 F.3d
693, 700 (7th Cir. 2010). As such, all facts, unless otherwise noted, are taken from
the amended complaint (Docket #15).

Page 2 of 13

Compl. ¶ 12). On December 24, 2015, State Farm sent a letter to the Baireses
in response to the their further request for UIM benefits. (Am. Compl. ¶ 13).
State Farm admitted it has “a business practice in place where [it] would
advance [its] initial offer when settlement negotiations failed,” but State Farm
nonetheless failed to pay to $40,000.00 or any other benefits owed to the
Baireses. (Am. Compl. ¶ 13).
The Baireses initially brought suit in Milwaukee County Circuit Court,
and, on April 1, 2016, State Farm removed the case to this Court. (Docket #1).
On June 16, 2016, the Baireses amended the original complaint to add a claim
for bad faith. (Docket #15).
2.

MOTION TO DISMISS
State Farm argues that the Baireses’ claim for bad faith must be

dismissed for the failure to state a claim. (Docket #2-6). “A motion to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability
of a complaint by arguing that it fails to state a claim upon which relief may
be granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir.
2014). When reviewing a complaint, the Court construes it in the light most
favorable to the plaintiff, accepts as true all well-pleaded facts alleged, and
draws all reasonable inferences in the plaintiff’s favor. See Foxxxy Ladyz Adult
World, Inc. v. Vill. of Dix, Ill., 779 F.3d 706, 711 (7th Cir. 2015).
To survive a motion to dismiss under Rule 12(b)(6), “the complaint
must provide enough factual information to ‘state a claim to relief that is
plausible on its face’ and ‘raise a right to relief above the speculative level.’”
Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)); see
Runnion ex rel. Runnion v. Girl Scouts of Greater Chi. & Nw. Ind., 786 F.3d 510,
526 (7th Cir. 2015) (explaining that a plausible claim need only “‘include
enough details about the subject-matter of the case to present a story that
Page 3 of 13

holds together.’”) (quoting Carlson v. CSX Transp., Inc., 758 F.3d 819, 827 (7th
Cir. 2014)). Thus, a plausible claim is one with “enough facts to raise a
reasonable expectation that discovery will reveal evidence supporting the
plaintiff’s allegations.” Twombly, 550 U.S. at 556.
To state a plausible claim, a plaintiff is not, however, required to plead
specific or detailed facts, see Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per
curiam), nor does the plausibility standard also “impose a probability
requirement on plaintiffs: ‘a well-pleaded complaint may proceed even if it
strikes a savvy judge that actual proof of those facts is improbable, and that
recovery is very remote and unlikely.’” Alam v. Miller Brewing Co., 709 F.3d
662, 666 (7th Cir. 2013) (quoting Twombly, 550 U.S. at 556); see Olson v.
Champaign Cnty., Ill., 784 F.3d 1093, 1099 (7th Cir. 2015) (“In deciding or
reviewing a Rule 12(b)(6) motion, [courts] do not ask did these things
happen; instead, the proper question to ask is still could these things have
happened.”) (internal quotations omitted). And, there is also no requirement
that plaintiffs must state in their complaint “all possible legal theories.”
Camasta, 761 F.3d at 736 (citing Dixon v. Page, 291 F.3d 485, 486-87 (7th Cir.
2002)); see Runnion, 786 F.3d at 517 (finding a lower court’s conclusion that
a plaintiff must allege “facts supporting specific legal theories [to be]
problematic, to say the least”). “A court may dismiss a complaint [for failure
to state a claim] only if it is clear that no relief could be granted under any set
of facts that could be proved consistent with the allegations.” Hishon v. King
& Spalding, 467 U.S. 69, 73 (1984).
The tort of bad faith is a separate intentional wrong which results from
a breach of a duty imposed by a contractual relationship. Anderson v.
Continental Ins. Co., 85 Wis.2d 675, 687, 271 N.W.2d 368 (1978). It is not a
tortious breach of contract. Id. The Wisconsin Supreme Court has recognized
Page 4 of 13

bad faith claims to help “redress a bargaining power imbalance between
parties to an insurance contract.” McEvoy v. Group Health Coop. of Eau Claire,
213 Wis.2d 507, 518, 570 N.W.2d 397, 402 (1997).
To recover on a claim for bad faith, a plaintiff must prove: (1) “the
absence of a reasonable basis for denying benefits”; and (2) the insurance
company’s “knowledge or reckless disregard of the lack of a reasonable basis
for denying the claim.” Id. at 691. If the duty to pay is “fairly debatable,” that
is, if the company has investigated and developed the facts necessary to
evaluate the claim, and has not recklessly ignored or disregarded the facts
necessary to evaluate the claim, the company is entitled to argue that its
decision to deny benefits is fairly debatable. Id. However, if the company
knowingly fails “to exercise an honest and informed judgment,” such failure
“constitutes the tort of bad faith.” Id. at 692.
As to the bad faith claim, the Baireses’ amended complaint alleges the
following:
That State Farm knew it had no reasonable basis for denying
UIM benefits; and that State Farm’s conduct as set forth herein
and including denying UIM benefits and forcing the plaintiffs
to file a lawsuit to obtain any UIM benefits was intentional and
was done solely to protect its own business interests.
(Am. Compl. 20, Docket #15). State Farm argues that these allegations fail to
state a claim for two reasons: (1) the Baireses plead themselves out of court
by attaching exhibits that contradict the complaint allegations; and (2) that
the allegations are too conclusory to state a claim for bad faith.
Here, the Court finds that the amended complaint sufficiently states
a claim for bad faith. The Baireses’ complaint included a letter from State

Page 5 of 13

Farm detailing State Farm’s reasoning for denying the insurance claim.2 The
letter generally explains that State Farm denied the claim because Ms. Baires
was made whole by American Mutual’s payment of $100,000.00 (see Docket
#1-1 at 13). As such, State Farm argues that the letter contradicts the Baireses’
assertion that State Farm had no reasonable basis for denying the claim.
State Farm is correct that generally “when a written instrument
contradicts allegations in the complaint to which it is attached, the exhibit
trumps the allegations,” N. Indiana Gun & Outdoor Shows, Inc. v. City of S.
Bend, 163 F.3d 449, 454 (7th Cir. 1998). However, as the Seventh Circuit
further explained in Northern Indiana, the Court must carefully scrutinize the
tension between the allegations in the complaint and the exhibits attached
to the complaint. Id. 454-55 (“Rather than accepting every word in a
unilateral writing by a defendant and attached by a plaintiff to a complaint
as true, it is necessary to consider why a plaintiff attached the documents,
who authored the documents, and the reliability of the documents.”).
In applying this rule, the Court finds that the attached letter does not
inherently contradict the allegations of bad faith in the amended complaint.
Although State Farm’s letter undoubtably provides a reason for denying the
Baireses’ insurance claim, the reliability of the letter is questionable at this
early stage in the litigation. Id. at 456 “(Even though [the] letters include
statements that stand in direct opposition to [the] allegations, it would be
unwise to accept these unilateral statements as explaining the entire story at
this early point in the litigation.”). State Farm’s letter may be self-serving
and, therefore, does not provide a reliable basis for contradicting the

2

The Court notes that the Baireses did not attach this letter to the amended
complaint, however, it was attached to the original complaint. (Compare Docket #1
with Docket #15).

Page 6 of 13

allegations of bad faith. Indeed, one cannot imagine that an insurance
company would readily admit to having no reasonable basis for denying an
insurance claim. State Farm’s position that it had a reasonable basis for
denying the claim may or may not be true; the Court makes no
determination at this early stage as to the merit’s of this claim. As such, the
Court finds that State Farm’s letter does not inherently contradict the
Baireses’ bad faith allegations such that they have plead themselves out of
court.
Finally, the Court rejects State Farm’s argument that the allegations
in the amended complaint are too conclusory to state a claim for bad faith.
To begin, State Farm offers not a single authority to suggest that a bad faith
claim requires more factual detail to sufficiently state a claim. The Court fully
recognizes that the Baireses’ allegations are fairly conclusory because they do
not include any specific detail as to why State Farm had no reasonable basis
to deny the claim. However, notice pleading “do[es] not require a claimant
to set out in detail the facts upon which he bases his claim.” Leatherman v.
Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 168
(1993)(internal quotes omitted). The Baireses allege that State Farm had no
reasonable basis to deny their claim for the full amount of their UIM
insurance. Whether or not the Baireses will be able to prove this allegation
through discovery is an entirely different question. However, the Court
cannot say that it is clear that no relief could be granted under any set of facts
that could be proved consistent with the allegations. Hishon, 467 U.S. at 73.
As such, the Court will deny State Farm’s motion to dismiss for the failure
to state a bad faith claim.

Page 7 of 13

3.

MOTION TO BIFURCATE AND STAY
State Farm alternatively requests to bifurcate and stay the bad faith

and statutory interest claims.3 (Docket #26 at 6). State Farm argues that: (1)
the Baireses cannot make the threshold evidentiary showing necessary to
obtain bad faith discovery; and (2) bifurcation is necessary to protect State
Farm’s interest to eliminate the potential jury confusion and prejudice and
to promote judicial economy. (Docket #26 at 6). For the reasons that follow,
the Court will deny the motion to bifurcate and stay.
Although this action involves questions of state law, federal
procedural law applies to the issues of bifurcation and stay. See Klonowski v.
Int'l Armament Corp., 17 F.3d 992, 995 (7th Cir. 1994) (“As a federal court
sitting in diversity, we apply Wisconsin state law to resolve the substantive
questions concerning the accident and federal law on any procedural and
evidentiary issues.”). Pursuant to Federal Rule of Civil Procedure 26(d)(2),
this Court may sequence discovery in phases “for the parties' and witnesses'
convenience and in the interests of justice.” Under Federal Rule of Civil
Procedure 42(b), the Court may conduct separate trials of separate claims.
Together, these rules confirm that the court has the discretion to bifurcate
and stay certain issues for a later phase of discovery or trial. See McLaughlin
v. State Farm Mut. Auto. Ins. Co., 30 F.3d 861, 870 (7th Cir.1994).
The Court recognizes that Wisconsin courts have found appropriate
the bifurcation of a bad faith claim from a coverage claim and a stay of
discovery on the bad faith claim. See Brethorst v. Allstate Property & Casualty

3

The Court notes that the amended complaint alleges three claims: (1)
breach of contract; (2) loss of society and companionship and consortium; and (3)
bad faith. (Docket #15). The statutory interest claim is requested as a form of relief.
(Docket #15 at 8).

Page 8 of 13

Insurance Co., 2011 WI 41, 334 Wis.2d 23, 798 N.W.2d 467; Dahmen v. American
Family Mutual Insurance Co., 2001 WI App 198, 247 Wis.2d 541, 635 N.W.2d.
1. However, these cases are not controlling as to federal procedure and, more
importantly, the Court disagrees with the reasoning of both cases. Instead,
the Court aligns with District Judges Clevert and Adelman and Magistrate
Judge Crocker in Fiserv Sols., Inc. v. Westchester Fire Ins. Co., No. 11-C-0603,
2012 WL 2120513, at *1 (E.D. Wis. June 11, 2012), Ingram v. State Farm Mutual
Automobile Ins. Co., No. 10C1108, 2011 WL 1988442 (E.D. Wis. May 19, 2011),
and Eide v. Life Ins. Co. of N. Am. No. 09–cv–671–slc, 2010 WL 1608658 (W.D.
Wis. Apr. 19, 2010), respectively.
To begin, this Court takes very seriously its obligation to comply with
Federal Rule of Civil Procedure 1 requiring the rules to be construed and
administered “to secure the just, speedy, and inexpensive determination of
every action and proceeding.” Allowing a stay and bifurcation in this
instance would not further this goal. Further, the Court finds it likely that
“there will be significant overlap between the claims such that it would be
wasteful to take a piecemeal approach to discovery.” Ingram, 2011 WL
1988442 at *1; accord McLaughlin v. State Farm Mutual Automobile Ins. Co., 30
F.3d 861, 871 (7th Cir. 1994) (noting that evidence relating to compensatory
claim and bad faith claim “usually overlaps substantially”). As such, the
Court finds that any prejudice to State Farm from having to disclose internal
documents from its claim file is outweighed by the time and money saved by
allowing discovery on all issues to proceed simultaneously.
In light of the foregoing, the Court will exercise its discretion and deny
State Farm’s motion to bifurcate and stay the bad faith and interest claims.

Page 9 of 13

4.

MOTION TO COMPEL
The Baireses filed a motion to compel discovery pursuant to Federal

Rule of Civil Procedure 37(a). (Docket #16). The Baireses’ interrogatories and
requests for production at issue seek information regarding: (1) adjusters or
other persons who handled or reviewed the plaintiffs’ UIM claims
(Interrogatory No. 9); (2) training materials used to evaluate the plaintiffs’
UIM claims (Interrogatory No. 10); (3) reserves set on the Baireses’ UIM
claims (Interrogatory No. 17 & Request No. 11); (4) State Farm’s claims file
on the Baireses’ UIM claims (Request No. 1); (5) written evaluations of
at-fault driver’s liability and plaintiffs’ damages (Request No. 3); (6) Claim
Procedures Guide/other documents used to evaluate the Baireses’ claims
(Request No. 13); and (7) documents relating to Xactiamte, Colossus, or any
other computer based software estimators used to evaluate the Baireses’
claims. (Request No. 14) (Thomsen Aff., ¶¶ 2-3, Exhs. 1-2, Docket #30).
Under Federal Rule of Civil Procedure 26(b)(1), parties may obtain
discovery “regarding any nonprivileged matter that is relevant to any party's
claim or defense and proportional to the needs of the case.” Fed. R. Civ. P.
26(b)(1) The information sought need not itself be admissible to be
discoverable. Id.
A party may seek an order to compel discovery when an opposing
party fails to respond to discovery requests or has provided evasive or
incomplete responses. Federal Rule of Civil Procedure 37(a)(2)-(3). The
burden “rests upon the objecting party to show why a particular discovery
request is improper.” Kodish v. Oakbrook Terrace Fire Protection Dist., 235
F.R.D. 447, 449–50 (N.D. Ill. 2006). The objecting party must show with
specificity that the request is improper. Graham v. Casey's General Stores, 206
F.R.D. 251, 254 (S.D. Ind. 2002). That burden cannot be met by “a reflexive
Page 10 of 13

invocation of the same baseless, often abused litany that the requested
discovery is vague, ambiguous, overly broad, unduly burdensome or that it
is neither relevant nor reasonably calculated to lead to the discovery of
admissible evidence.” Burkybile v. Mitsubishi Motors, Corp., 2006 WL 2325506
at *6 (N.D. Ill. Aug. 2, 2006) (internal quotations and citations omitted).
Rather, the court should consider “the totality of the circumstances, weighing
the value of material sought against the burden of providing it, and taking
into account society's interest in furthering the truth-seeking function in the
particular case before the court.” Patterson v. Avery Dennison Corp., 281 F.3d
676, 681 (7th Cir. 2002) (quoting Rowlin v. Alabama, 200 F.R.D. 459, 461 (M.D.
Ala. 2001)).
Here, the Court finds that State Farm has failed to meet its burden to
show why the Baireses are not entitled to the requested discovery. State
Farm’s objections to the discovery requests are nothing more than boilerplate
objections that provide no specific reasons as to why the requested discovery
is improper. Boilerplate objections such as relevancy and “not proportional”
will not overcome this burden. Moreover, State Farm’s opposition to the
motion to compel is wrought with conclusory statements that add little to the
analysis. First, State Farm argues that the requested discovery is not relevant
to the breach of contract claim. But, rather than explain why the specific
discovery requests are not relevant as to each item, State Farm summarily
argues that this issue is not a proper breach of contract claim (oddly,
however, State Farm did not bring a motion to dismiss for the failure to state
a claim for breach of contract). (See Docket #27 at 14) (“this is an action
authorized by contract, not an action for breach of contract, because, quite
simply, neither party has breached the contract”). State Farm finishes this
argument with the conclusory statement that “in no way are the discovery
Page 11 of 13

demands proportional to the needs of the contract claim.” (Docket #27 at 15).
Similarly, rather than explain why the requested discovery is irrelevant or not
proportional to the bad faith claim, State Farm instead rests its argument on
the Baireses’ failure to state a claim for bad faith. As discussed above, the
Court has rejected this argument.4
As the objecting party, State Farm had the burden of proving with
specificity why the requested discovery is improper. State Farm has not come
even close to meeting that burden. As such, the Court will grant the Baireses’
motion to compel in its entirety. To the extent there are specific issues that
remain as to the requested information, the Court will certainly entertain
those issues should they arise. However, the Court cautions the parties that
further discovery disputes that lack specific objections to the requested
information may result in monetary sanctions.
5.

CONCLUSION
As discussed above, the Court finds that the amended complaint

sufficiently states a bad faith claim and that bifurcation and a stay of the bad
faith and statutory interest claim are not warranted. The Court further finds
that the Baireses are entitled to their requested discovery because State Farm

4

Counsel for the Baireses, Mark Thomsen, submitted a declaration to certify
that the parties were unable to reach an accord regarding the discovery dispute.
(Docket #20). The Court recognizes that the Baireses added the bad faith claim only
one day prior to filing the motion to compel discovery. (See Docket #15, #16). Mr.
Thomsen submitted emails between the parties detailing their discovery dispute
following the filing of the amended complaint. (Docket #20-5). In normal
circumstances, the Court would expect parties to allow more time for State Farm
to have considered the discovery request in light of this new claim. However, in
this case, dispositive motion deadlines are quickly approaching and State Farm has
offered no specific reasons to object to the requested discovery. As such, the Court
is sufficiently satisfied that the motion to compel was warranted at the time it was
filed.

Page 12 of 13

has failed to prove why the discovery is improper. In light of the foregoing,
the Court will: (1) deny State Farm’s motion to dismiss the bad faith claim;
(2) deny the alternative request to bifurcate and stay the bad faith and
interest claims; and (3) grant the Baireses’ motion to compel.
Accordingly,
IT IS ORDERED that State Farm’s motion to dismiss or in the
alternative to bifurcate and stay the bad faith claim (Docket #25) be and the
same is hereby DENIED; and
IT IS FURTHER ORDERED that the Baireses’ motion to compel
discovery (Docket #16) be and the same is hereby GRANTED.
Dated at Milwaukee, Wisconsin, this 2nd day of September, 2016.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

Page 13 of 13