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Travelers Indemnity of Connecticut, et al v. Arch Specialty Insurance Company

January 28, 2013


The opinion of the court was delivered by: Justin L. Quackenbush Senior United States District Judge


BEFORE THE COURT is Defendant Arch Specialty Insurance Company's ("Arch") Motion for Leave to File a Second Amended Counterclaim (ECF No. 64)(the "Motion"). The court has considered the Memo in Opposition (ECF No. 68) and Reply brief (ECF No. 69) and determined that oral argument is not necessary. L.R. 230(g).

I. Introduction

At issue, is whether Arch, the excess insurance carrier, should be allowed to amend its counterclaim to expand its allegations of bad faith against Travelers, the primary insurance carrier. Arch asserted a bad faith claim against Travelers in its First Amended Counterclaim, but the allegations focused entirely on Travelers alleged failure to accept a 998 Offer of settlement for $2 million that was made in 2006. At the time of the Scheduling Conference, Arch characterized its claims as:

1) failure to accept the 998 Offer; 2) failure to notify Arch or the insured, Freeway Transport, of the 998 Offer; and 3) failure to conduct an adequate investigation prior to determining whether to accept or reject the 998 Offer. (ECF No. 16, p. 3). During the summary judgment briefing, Arch argued that Travelers also acted in 1 bad faith during the pendency of the underlying state court personal injury action 2 (generally referred to by the parties as the "Mejia action"), by failing to make an 3 offer of settlement until after liability was determined at a bench trial in 2009 and 4 not making a counter-offer to a mediation statement in 2008 which sought $14 5 million. Travelers objected in its summary judgment briefing to the expansion of 6 Arch's bad faith theory.

7 At the hearing on the summary judgment motions on December 3, 2012, Arch 8 orally requested to amend its pleadings, and the court allowed Arch until December 9 17, 2012 to file a written motion. Now before the court is that written motion.

II. Discussion

Federal Rule of Civil Procedure 15(a) provides that an opposing party's written consent or leave of court is required for amendment of pleadings. The Rule further states: "The court should freely give leave when justice so requires."

Fed.R.Civ.P. 15(a)(2). Whether to grant such leave rests in the discretion of the court. Foman v. Davis, 371 U.S. 178, 182 (1962). Although Fed.R.Civ.P. 8 requires only a "short and plain statement of the claim showing that the pleader is entitled to relief," an "unadorned the-defendant-unlawfully harmed-me accusation" will not suffice. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A pleading that offers only labels and conclusions, or a formulaic recitation of the elements of a cause of action will not do. Id. Generally, a court does not deny leave to amend unless there has been undue delay, bad faith, or dilatory motive on the part of the movant, or where the amendment would result in undue prejudice to the opposing party, or where amendment would be futile. Zucco Partners, LLC v. Digimarc Corp,, 552 F.3d 981, 1007 (9th Cir. 2009).

A. Arch's Argument in Support of Amendment

Arch first argues that its First Amended Counterclaim (ECF No. 15) adequately pleads its bad faith claim and "sweeps in all of Travelers' conduct, including conduct after Travelers rejected the $2 million settlement offer". (ECF 1 No. 64, p. 2). The court rejects this argument. Arch was unable to articulate or 2 demonstrate at the December 3, 2012 hearing where in the First Amended 3 Counterclaim allegations were made concerning conduct other than the $2 million 4 998 Offer. Now, in its written Motion, Arch relies on the weak arguments that it 5 used the word "included" or that the conclusory assertion that Travelers "acted in 6 bad faith with respect to the Underlying Action" was sufficient. (ECF No. 64, p. 7 10). The First Amended Counterclaim focused on the 998 Offer and the alleged 8 failure to accept that offer and to inform Freeway Transport of the 998 Offer. The 9 First Amended Counterclaim did not encompass Traveler's actions after the 998 Offer expired.

Arch also argues that the course and conduct of this litigation has adequately put Travelers on notice that Arch's claims include conduct after the 998 Offer. It is now clear from the summary judgment briefing, that Arch's allegations of bad faith expand beyond the 998 Offer. Arch complains of Traveler's failure to offer a settlement amount at anytime prior to the bench trial finding of liability, including in response to Plaintiff's $14 million evaluation made in a mediation statement. However, Travelers, in its opposition to summary judgment, objected that Arch's summary judgment contentions were beyond the scope of the pleadings.

Arch argues that Travelers was clearly on notice during the discovery process that conduct post-2006 was at issue. By way of example, Arch points to a statement made in a Joint Statement Re: Discovery Disagreement (ECF No. 32), where Arch states: "Arch further contends that after the ยง 998 Offer expired, Travelers continued its pattern of bad faith conduct by failing to initiate settlement discussions with the underlying plaintiff [], and by continuing to withhold critical information and case evaluations from the ...

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