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Herzog v. Property and Casualty Insurance Co. of Hartford

United States District Court, W.D. Washington, Tacoma

March 21, 2017

DOUGLAS AND TAMMY HERZOG, husband and wife, Plaintiff,
v.
PROPERTY AND CASUALTY INSURANCE COMPANY OF HARTFORD, a foreign insurer, Defendant.

          ORDER DENYING PLAINTIFFS' MOTION FOR LEAVE TO FILE A SECOND AMENDED COMPLAINT AND GRANTING DEFENDANT'S REQUEST TO DISMISS PLAINTIFFS' REMAINING CLAIMS

          KAREN L. STROMBOM UNITED STATES MAGISTRATE JUDGE.

         This matter is before the Court on plaintiffs' filing of a motion for leave to file a second amended complaint and defendant's request that plaintiffs' remaining claims be dismissed. Dkt. 41, 43. The parties have consented to have this matter heard by the undersigned Magistrate Judge. 28 U.S.C. § 636(c), Federal Rule of Civil Procedure (FRCP) 73; Local Rule MJR 13. For the reasons set forth below, the Court finds plaintiffs' motion should be denied and defendant's request should be granted.

         FACTUAL AND PROCEDURAL HISTORY

         On November 30, 2016, this Court issued an order finding that plaintiffs' dock is not a “building” as that term is used in the insurance policy at issue in this case, and thus that coverage for only actual cash value (ACV) applies. Dkt. 37. The Court further found that because plaintiff had not presented any specific argument or evidence that defendant improperly calculated ACV under that policy, the amount it deducted from the replacement cost value (RVC) of the dock was not unreasonable. Id. Finally, in light of Perez-Crisantos v. State Farm Fire & Casualty Co., which was pending before the Washington State Supreme Court at the time the Court's order was issued, the Court determined that it should refrain from deciding whether defendant's actions violated the Washington State Insurance Fair Conduct Act (IFCA), and instead wait until the Washington State Supreme Court issued its decision to address that issue. Id.

         On February 2, 2017, the Washington State Supreme Court issued its decision in Perez-Crisantos. 389 P.3d 476 (2017). On February 22, 2017, the parties conducted a conference call with the Court, at which counsel for plaintiff and counsel for defendant were both present. Dkt. 39. At that conference, the parties agreed it was appropriate to lift the stay of proceedings in this matter. Id. Plaintiffs' counsel advised that he intended to file a motion to amend plaintiffs' first amended complaint, which would be opposed by defendant's counsel. Id. The Court directed the 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 was agreed to in the telephone conference. Dkt. 40. On February 23, 2017, plaintiffs filed their motion for leave to file a second amended complaint. Dkt. 41. That same day defendant filed its 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 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 plaintiffs' motion to amend and defendant's supplemental pleading have passed, and it appears that all pertinent pleadings have been received, this matter is ripe for the Court's consideration.

         DISCUSSION

         Plaintiffs may amend their first amended complaint only with defendant's written consent - which has not been provided in this instance - or by leave of the Court. Federal Rule of Civil Procedure (FRCP) 15(a)(1), (2). Such leave should be freely given “when justice so requires.” FRCP 15(a)(2). “Although leave to amend” thus “is liberally granted under Fed.R.Civ.P. 15(a), undue delay, bad faith in seeking amendment, or undue prejudice to the party opposing the amendment are grounds for denying leave to amend, ” as is “futility of amendment.” Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994); Acri v. Intil Ass'n of Mchinists & Aerospace Workers, 781 F.2d 1393, 1398 (9th Cir. 1986).

         Plaintiffs argue that in light of the Washington State Supreme Court's decision in Perez-Crisantos, and the right they reserved in their original complaint to amend it to assert additional causes of action, they should be allowed to assert a claim under Washington State's Consumer Protection Act (CPA) for breach of defendant's duty to act in good faith because of defendant's violations of ICFA regulations in handling their claim. Defendant argues plaintiffs' remaining 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 for mere violations of that statute's regulations, and further argues amendment under FRCP 15(a) should not be allowed. The Court agrees with defendant.

         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 in that statute. 389 P.3d at 483. Plaintiffs concede that in light of Perez-Crisantos, the IFCA does not grant them such a cause of action. Dkt. 41, p. 3. However, plaintiffs' now seek to amend their first amended complaint to add a cause of action under the CPA and for breach of insurer duty to act in good faith, based on the same alleged regulatory violations. Several factors, though, weigh 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 bad faith action.” 389 P.3d at 479 (citing Track Ins. Exch. V. VanPort Homes, Inc., 147 Wn.2d 751, 764 (2002); Indus. Indemn. Co. v. Kallevig, 114 Wn.2d 907, 921-22 (1990)). Plaintiffs first argue that because Perez-Crisantos constitutes controlling precedent, and because that precedent “changed midway through the litigation, ” amending their complaint to allow for a CPA and bad faith claim is proper. Sonoma Cnty. Ass'n of Retired Employees v. Sonoma Cnty., 708 F.3d 1109, 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 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 original complaint “in the good faith but mistaken belief that” the IFCA permitted such claims. Dkt. 41, p. 5. Plaintiff points out that in interpreting the IFCA to bar claims for mere violations of the insurance regulations, the Washington Supreme Court in Perez-Crisantos admitted that the law on this issue up to that point had been to say the least ambiguous, but made clear that such claims could still be brought under the CPA and/or for bad faith. 389 P.2d at 480-81. Given this clarification in the law, plaintiffs argue, the addition of such a claim is proper.

         Perez-Crisantos, however, did not “clarify” the law as to plaintiffs' ability to bring suit under the CPA or for insurer bad faith for violations of the insurance regulations. Indeed, again as the Washington State Supreme Court expressly noted in that case, “[f]or many years, insureds have been able to sue their insurers for violations of certain” of those regulations under a CPA or bad faith action, including for violations of WAC 284-30-330 under which plaintiffs seek relief in part. Id. at 478; see also Truck Ins. Exch., 147 Wn.2d at 764 (“Violations of WAC 284-30-330 are per se violations of Washington's [CPA].”). As such, it was clear at the time they filed their original complaint that plaintiffs could have included a CPA or bad faith claim. There is nothing 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 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 (9th Cir. 1982). It matters not, furthermore, that plaintiffs were not acting in bad faith in failing to include a CPA or insurer bad faith claim in their original complaint. See Royal Ins. Co. of Am. v. Sw. Marine, 194 F.3d 1016-17 (9th Cir. 1999) (pointing out that the amended complaint “did nothing more than reassert an old theory of liability based on previously-known facts, ” and that the plaintiff “had knowledge of the relevant facts from the inception of the lawsuit.”). Nor does plaintiffs' assertion that they have not been dilatory ...


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