Opinion
Civil Action 1:20-cv-00380-CMA-SKC
11-16-2020
THE LODGE AT MOUNTAIN VILLAGE OWNER ASSOCIATION, INC., a Colorado Nonprofit Corporation, Plaintiff, v. EIGHTEEN CERTAIN UNDERWRITERS OF LLOYD'S OF LONDON SUBSCRIBING TO POLICY NUMBER N16NA04360, and MCLARENS LLC a Foreign Limited Liability Company, Defendants.
RECOMMENDATION RE: PLAINTIFF'S MOTION TO AMEND [#31]
S. KATO CREWS U.S. MAGISTRATE JUDGE
This is an insurance coverage dispute. In June 2017, The Lodge at Mountain Village Owners Association, Inc. (“Plaintiff”), filed a claim under insurance policy number N16NA04360 (“2016 Policy”), which covered the period of April 1, 2016 to April 1, 2017, for damages to Mountain Lodge Telluride (“Property”). [#5 at ¶¶7-9.] According to the Complaint, on February 20, 2018, Defendant McLarens LLC (“McLarens”) denied Plaintiff's claim on behalf of Defendant Eighteen Certain Underwriters of Lloyd's of London Subscribing to Policy Number N16NA04360 (“Certain Underwriters”) because the Policy does not cover faulty workmanship. [Id. at ¶11.] Believing that its claim fell under the “ensuing damages” exception, Plaintiff requested Certain Underwriters reopen the claim. [Id. at ¶¶12-20.] The request was denied, and Plaintiff filed this action. [Id.]
The Court uses “[#]” to refer to specific docket entries in CM/ECF.
The case was originally filed in San Miguel County, and Defendants removed the action on February 14, 2020. [#1.]
On April 13, 2020 this Court convened a scheduling conference to set the deadlines governing this matter. Among those, the Court set July 13, 2020, as the deadline for joinder of any parties and amendment of the pleadings. [#21 at p.7.] Following a joint request, this deadline was extended to August 12, 2020. [#25.] On August 12, 2020, Plaintiff timely moved [#31] to amend its Complaint and join the underwriters of two prior insurance policies (“additional underwriters”)-Policy Number N14NA02810, which covered April 1, 2014 through April 1, 2015, and Policy Number N15NA03820, which covered April 1, 2015 through April 1, 2016 (collectively “expired policies”). [#31-1 at ¶¶ 8, 9.] Defendants argue Plaintiff's Motion should be denied because the proposed amendments would be futile. [#34.] The Court convened Telephonic Oral Arguments on October 1, 2020. [#39.] Having considered the Motion and related briefing, the applicable law, and Counsel's oral arguments, the Court RECOMMENDS the Motion be DENIED.
The purpose of Rule 15(a) unquestionably is to facilitate a decision on the merits. Bob Marshall All. v. Lujan, 804 F.Supp. 1292, 1298 (D. Mont. 1992) (the court's exercise of discretion must “be guided by the underlying purpose of Rule 15 - to facilitate decision on the merits, rather than on the pleadings or technicalities). To that end, motions to amend should be freely granted when justice requires. See, e.g., Bellairs v. Coors Brewing Co., 907 F.Supp. 1448, 1459 (D. Colo. 1995). In considering the “needs of justice, ” the Court must take into consideration the interests of all parties, including whether the amendment is futile or will result in undue prejudice. Las Vegas Ice & Cold Storage Co. v. Far W. Bank, 893 F.2d 1182, 1185 (10th Cir. 1990); see also Arkansas-Platte & Gulf P'ship v. Dow Chem. Co., 886 F.Supp. 762, 765 (D. Colo. 1995) (“Leave to amend should be freely given based on the balancing of several factors, including futility, delay, bad faith, dilatory motive, repeated failure to cure deficiencies, and prejudice to the opposing party.”). A motion to amend must be left to the sound discretion of the district court. State Distribs., Inc. v. Glenmore Distilleries Co., 738 F.2d 405, 416 (10th Cir. 1984).
B. DISCUSSION
Plaintiff seeks to add claims for breach of contract and unreasonable delay or denial against the additional underwriters of the expired policies. Defendants argue Plaintiff never made a claim under either of the expired policies, and even setting that aside, the allegations in the proposed complaint show Plaintiff's claim for damages is excluded from coverage under any of the policies. The Court agrees at least that Plaintiff never made a claim under the expired policies.
“A proposed amendment is futile if the complaint, as amended, would be subject to dismissal.” Full Life Hospice LLC v. Sebelius, 709 F.3d 1012, 1018 (10th Cir. 2013) (internal quotation marks omitted). In determining whether a proposed amendment should be denied as futile, the Court must analyze a proposed amendment as if it were before the court on a motion to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6). Hunt v. Riverside Transp., No. 11-2020-DJW, 2012 WL 1893515, at *3 (D. Kan. May 23, 2012). Because the Court must consider futility by the same light as a Rule 12(b)(6) motion, the Court generally cannot consider matters outside of the proposed amended complaint. Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010). However, the Court may consider documents incorporated by reference or attached to the complaint, documents central to Plaintiff's claim, and matters subject to judicial notice without converting the motion into one for summary judgment pursuant to Rule 56. Id.
A claim is subject to dismissal if it does not “contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted, quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of [the alleged] facts is improbable, and that a recovery is very remote and unlikely.” Sanchez v. Hartley, 810 F.3d 750, 756 (10th Cir. 2016) (quoting Twombly, 550 U.S. at 556). The defendant bears the burden of showing futility. Hunt, 2012 WL 1893515, at *3; see also Carefusion 213, LLC v. Prof'l Disposables, Inc., No. 09-2616-KHV-DJW, 2010 WL 4004874, at *5 (D. Kan. Oct. 12, 2010).
Under Colorado law, “[a]n insurance policy is merely a contract that courts should interpret in line with well-settled principles of contract interpretation.” Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003). To establish a claim for breach of contract, Colorado law requires the plaintiff to demonstrate “(1) the existence of a contract; (2) performance by the plaintiff or some justification for nonperformance; (3) failure to perform the contract by the defendant; and (4) resulting damages to the plaintiff.” Western Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo.1992). Similarly, to establish a claim of statutory bad faith pursuant to Colo. Rev. Stat.§ 10-13-1115, a plaintiff must establish that a benefit to which he was entitled under an insurance policy was unreasonably delayed or denied. Vaccaro v. Am. Family Ins. Grp., 275 P.3d 750, 756 (Colo.App. 2012).
According to the language of the Policy (and expired policies), the insured must, “[a]s soon as practicable after any loss occurring under this policy is known to the Insured's home office insurance department...report such loss or damage with full particulars to Underwriters.” [#1-10 at p.33 (emphasis added).] In addition, the insured must “render a signed and sworn Proof of Loss to Underwriters or its appointed representative, stating: The place, time and cause of the loss, damage or expense within 90 days of such loss or damage; the interest of the Insured and of all others; the value of the property involved in this loss; and the amount of loss, damage or expense.” [Id.]
During oral arguments, Plaintiff stated the policies are identical.
In the proposed complaint, Plaintiff alleges it filed a claim under “the Policy” in June 2017 to recover sustained losses, but it omits a previous allegation that defined which policy constituted “the Policy.” [#31-1 ¶¶7, 11.] However, even with that omission, Plaintiff's Property Loss Notice is clear it was filed solely under the 2016 Policy. The Property Loss Notice also states the date of loss to be April 20, 2016. Plaintiff's counsel confirmed this during oral arguments and acknowledged it did not file Property Loss Notices under the expired policies. [#39; Oral Arguments October 1, 2020 at 9:08:34.] In other words, the proposed amendments would be futile because Plaintiff never provided Defendants or the additional underwriters with notice under the expired policies.
The Court concludes it may consider this document because it is central to the complaint. Gee, 627 F.3d at 1186.
During Oral Arguments, Plaintiff's counsel suggested a scrivener's error was the reason the additional underwriters and expired policies had not been included in the original complaint. As the Court pointed out, however, the proposed complaint did more than simply amend the caption due to a mere error by a scrivener. It instead added defendants, claims, and related allegations. Plaintiff's contention regarding simple scrivener's error is disingenuous and the parties are reminded of their duty of candor to the Court. Young v. Corbin, 889 F.Supp. 582, 585 (N.D.N.Y. 1995).
Plaintiff argues Defendants' duty of good faith and fair dealings required Defendants to determine whether other policies were implicated despite Plaintiff's specific reference to one policy and one date of loss. [#37 at pp.3-4.] The insurance contract does not contain any provision requiring the Defendants to act on a policy without notice and, outside of citations regarding duties of good faith and fair dealings generally, Plaintiff has cited no case law for this proposition. To be sure, the insurance contracts at issue in this case require notice to be given for the specific policy under which the insured is seeking to recover. [#1-10 at p.33.]
In Colorado, where an insured does not satisfy the policy's notice provision, the insurer is relieved of its duty to the insured. Cherry Grove East II Condominium Association, Inc. v. Philadelphia Indemnity Insurance Co., No. 16-cv-02687-CMA-KHR, 2017 WL 6945038 (D. Colo. Dec. 20, 2017). See also Marez v. Dairyland Ins. Co., 638 P.2d 286, 289-90 (Colo. 1981) overruled as to late-notice liability insurance cases by Friedland v. Travelers Indem. Co., 105 P.3d 639, 647 (Colo. 2005) (“[The Colorado Supreme Court] carefully couched [its] preclusion of coverage holding in Marez to the absolutely no-notice circumstances.”) (emphasis added). Here, Plaintiff (1) notified Certain Underwriters of the specific date of loss (which only fell within the 2016 Policy); and (2) specified the 2016 Policy as the one under which it was seeking coverage. Plaintiff never provided the additional underwriters with any notice under the expired policies. Consequently, the Complaint fails to allege performance (namely notice) by Plaintiff under the insurance contracts. Adding breach of contract claims against the additional underwriters would thus be futile.
With respect to Plaintiff's claims for unreasonable delay or denial, Colo. Rev. Stat. § 10-13-115(1) provides,
a) A person engaged in the business of insurance shall not unreasonably delay or deny payment of a claim for benefits owed to or on behalf of any first-party claimant.
(b) For the purposes of this section and section 10-3-1116:
(I) “First-party claimant” means an individual, corporation, association, partnership, or other legal entity asserting an entitlement to benefits owed directly to or on behalf of an insured under an insurance policy. “First-party claimant” includes a public entity that has paid a claim for benefits due to an insurer's unreasonable delay or denial of the claim.
Here, as stated above, Plaintiff did not assert an entitlement to benefits under the expired policies; therefore, it is has failed to allege it is a “first-party claimant” entitled to protection under Colo. Rev. Stat. §§ 10-3-1115 and 10-3-1116. Adding these claims would also be futile.
Considering this conclusion, the Court does not address Defendants' futility arguments regarding the ensuing damages exception.
* * *
For the foregoing reason the Court RECOMMENDS Plaintiff's Opposed Motion for Leave to Amend Complaint [#31] be DENIED.
NOTICE: Pursuant to 28 U.S.C. § 636(b)(1)(C) and Fed.R.Civ.P. 72(b)(2), the parties have fourteen (14) days after service of this recommendation to serve and file specific written objections to the above recommendation with the District Judge assigned to the case. A party may respond to another party's objections within fourteen (14) days after being served with a copy. The District Judge need not consider frivolous, conclusive, or general objections. A party's failure to file and serve such written, specific objections waives de novo review of the recommendation by the District Judge, and waives appellate review of both factual and legal questions. Thomas v. Arn , 474 U.S. 140, 148-53 (1985); Makin v. Colorado Dep't of Corrs. , 183 F.3d 1205, 1210 (10th Cir. 1999); Talley v. Hesse , 91 F.3d 1411, 1412-13 (10th Cir. 1996).