GWYNNE E. BIRZER, Magistrate Judge.
This matter is before the Court on Plaintiff's Motion for Leave to File an Amended Complaint (
A hailstorm in 2013 was the impetus for what has been three years of litigation between these parties. In April 2013, a hailstorm damaged two commercial buildings in Merriam, Kansas owned by plaintiff Flex Financial Holding Company. Both buildings were insured under a policy issued by defendant OneBeacon Insurance Group, LLC and/or its member company, defendant Atlantic Specialty Insurance Company. Plaintiff presented a claim to Defendants for loss under the policy, but disputes arose regarding the appropriate coverage, loss payments, and deductible for the claim. Defendants were still reviewing the loss when Plaintiff filed for bankruptcy in 2013. During the bankruptcy case, on September 3, 2014, Plaintiff filed a "Complaint for Declaratory Judgment" against Defendants in the U.S. Bankruptcy Court. In that original Complaint, Plaintiff asked the Bankruptcy Court to determine and resolve the rights and obligations of the parties under the insurance contract.
In April 2015, Defendants asked that the matter be transferred from the Bankruptcy Court to the U. S. District Court. Over opposition from Plaintiff, the case was transferred to this Court in 2016. Following the transfer, and after the case was referred to the undersigned U.S. Magistrate Judge for case management, a scheduling order was entered in February 2017 (ECF No. 20). That scheduling order established a deadline of May 2, 2017 for amendment of the pleadings.
Plaintiff then timely filed its Motion for Leave to File an Amended Complaint (ECF No. 21), seeking to add counts for breach of contract and good faith and fair dealing. Defendants oppose the amendment. All related briefing is complete, and the issue of amendment is ripe for decision.
The standard for permitting a party to amend his or her complaint is well established. A party may amend its pleading as a matter of course under Fed. R. Civ. P. 15(a)(1), either before the responding party answers or within 21 days after service of a responsive pleading. However, in cases such as this, where the time to amend as a matter of course has passed, without the opposing party's consent a party may amend its pleading only by leave of the court under Rule 15(a)(2).
Rule 15(a)(2) provides leave "shall be freely given when justice so requires," and the decision to allow an amendment is within the sound discretion of the court.
After this case was transferred to District Court, Plaintiff retained new legal counsel. Its new counsel seeks to amend its pleading to include not only the original declaratory judgment claim, but to add a second count claiming breach of contract, and a third claim for breach of the covenant of good faith and fair dealing.
Of the factors analyzed by the Court when considering amendment, Defendants oppose Plaintiff's amendment solely based on the alleged futility of Plaintiff's proposed third claim for breach of the covenant of good faith and fair dealing. Defendants also oppose Plaintiff's addition of claims for attorneys' fees and punitive or exemplary damages as futile. Plaintiff responded by offering to amend several paragraphs in its proposed amendment, and contending its claim for attorneys' fees is valid. Each argument raised by the parties is addressed in turn.
Of the factors analyzed by the Court when considering amendment, Defendants oppose Plaintiff's amendment only on the basis of futility. As the party opposing amendment, Defendants bear the burden of establishing its futility.
Because this is a diversity action, the court must apply "the substantive law of the forum state, including its choice of law rules."
Defendants focus their futility arguments on the third count of the proposed amendment. They largely contend specific language in the proposed amendment sound in tort, and any proposed tort claims are subject to dismissal. They first contend Kansas Page 6> law does not recognize the independent torts of bad faith or breach of the covenant of good faith and fair dealing. Additionally, they interpret language in the proposed amendment citing "breach of a non-delegable duty" as asserting a fiduciary relationship between the parties (insured and insurer), which is not recognized under Kansas law. The proposed pleading also claims Defendants knew a denial of benefits "would cause emotional distress and harm", but as a corporation, Plaintiff cannot suffer emotional distress. Defendants further contend the exemplary damages included in Plaintiff's proposed amended complaint are only recoverable in a tort action, but Plaintiff proposes no viable tort claim. Along with their objections to any tort claims, Defendants argue Plaintiff's request for attorneys' fees and expert witness fees is subject to dismissal, and Plaintiff inappropriately cited the Kansas Unfair Settlement Claims Act in its Reply brief.
Plaintiff disputes the futility of its proposed amendment, and maintains it does not intend to assert any tort claims; rather, it intends its claims to sound solely in contract. Plaintiff offers to "clarify any language in the proposed amended complaint that could be interpreted" to bring a tort claim (Pl.'s Reply, ECF No. 24 at 2).
Defendants admit that an insurer has an obligation to act in good faith when reviewing and responding to an insured's claim (Resp., ECF No. 22, at 14), therefore they do not deny that a claim of good faith and fair dealing, sounding in contract, would be appropriate. It appears Plaintiff is both willing and able to modify the language in its proposed pleading to address Defendants' concerns regarding any potential tort claims. Given Plaintiff's willingness to clarify its contractual claims in its amended pleading, it appears the only disputed topics remaining are the issues of attorneys' and expert witness fees, and whether Plaintiff may utilize the Kansas Unfair Settlement Claims Act in its pleading.
Defendant contends Plaintiff's claim for attorneys' fees and expert witness fees is subject to dismissal and therefore futile. Conversely, Plaintiff argues it is allowed to seek both types of fees. Both the statutes—specifically, K.S.A. § 40-256
The final dispute centers on Plaintiff's citation to the Kansas Unfair Settlement Claims Act, K.S.A. § 40-2404, in its Reply brief. Presumably, to simply illustrate its position that its bad faith claim is appropriately plead, Plaintiff claims the law provides statutory remedies to rectify bad faith. Defendant accurately points out, however, in its Surreply that this Act does not provide a private cause of action; rather, it gives the Kansas Insurance Commissioner the exclusive authority to enforce the Act.
In light of the concessions of Plaintiff and the rulings on the disputed issues above, the Court does not find Plaintiff's proposed amendment futile, provided Plaintiff modifies its amended complaint as both agreed and directed herein. If Plaintiff makes the above modifications to its pleading, the Court cannot say its claims are not plausible, nor that they would otherwise fail as a matter of law. Exercising its discretion, and recognizing Defendants will have an opportunity to challenge the sufficiency of the new claims through a later dispositive motion,
Although the parties confront only the issue of futility in their briefs, the other factors weighed by the Court, such as prejudice to the non-moving party and timeliness of amendment, were not so thoroughly addressed. Despite the parties' lack of attention, the Court briefly considers each topic.
Most importantly, Defendants fail to present any argument regarding the prejudice they might face if the amendment were permitted. As the party opposing the amendment, Defendants bear the burden to demonstrate undue prejudice within the meaning of Rule 15.
Given Defendants' complete disregard of this "most important factor,"
Additionally, the Court does not find the timeliness of the amendment to be problematic. Although these parties have been litigating for some time, the schedule of this particular case is young, and Plaintiff sought amendment within the deadline established in the Scheduling Order. Likewise, as noted in the paragraph above, the current procedural posture of the case weighs in Plaintiff's favor.
Plaintiff's request to amend its Complaint is timely. Additionally, Defendants failed to demonstrate any amount of prejudice that may occur as a result of the amendment. Therefore, finding Plaintiff's proposed amendment not futile, and would cause no undue prejudice, the Court prefers this case to proceed on its full merits.