FEBRUARY 2011 BAD FAITH CASES COURT DENIES INSUREDS’ MOTION TO AMEND TO INCLUDE BAD FAITH ALLEGATIONS TO A CLASS ACTION WHEN MOTION FILED AFTER 8 MONTHS OF DISCOVERY (Western District)

In Graham v. Progressive Direct Insurance Company, one of the two married insureds was involved in a motor vehicle accident with an underinsured motorist who failed to stop at a stop sign.  The other driver’s insurer determined that she was at fault, and the insured’s injuries were in excess of the $25,000 limits under her policy.  That insurer paid the insured the full $25,000 it owed under the policy, and the insureds then made an underinsured motorists claim with their insurer. The insureds had a stacked policy with limits of $500,000.

The insurer made a settlement offer to the insureds for $55,000, but the insureds rejected the offer and filed suit in response.  They alleged that the insurer acted in bad faith during the settlement negotiations, as its offer was “far below any reasonable value attributable to the . . . claim and [the insurer] knew that the offer was far below a fair and reasonable offer.”  They also alleged that the insurer’s offer was an attempt to pay less for their claim than similar underinsured claims it had previously handled, and that it failed to follow its own internal procedures, rules, and claim-handling practices while evaluating their claim.  Finally, it was alleged that the insurer acted in bad faith in removing the uninsured/underinsured arbitration clause from the insurance policy without giving notice to the insureds and without reducing their premiums.

After eight months of discovery, and eight months after the expiration date for filing to amend pleadings and join parties, the insureds filed a Motion for Leave to File a Second Complaint, seeking to transform the litigation to a class action suit.  They claimed that the class of plaintiffs included all Pennsylvania insureds who purchased an auto policy from the insurer with an uninsured/underinsured motorist arbitration provision that was eventually eliminated from the policy without notice.  Before the court in this opinion was the motion to file the Second Complaint.

The court analyzed the motion under Rules 16 and 15 of the Federal Rules of Civil Procedure.  Rule 16(b) states that “[a] schedule may modified only for good cause and with the judge’s consent.”  In this case, the court concluded that the insureds failed to demonstrate good cause to amend the schedule.  In addition to submitting their motion eight months after the deadline for amending pleadings and joining parties, the insured’s assertion that they relied on evidence in filing the motion that they had not learned of until months after the deadline was dismissed.  Instead, the insureds relied on facts that were in their possession since the outset of litigation.

Under Rule 15, courts are directed that “the court should freely grant leave when justice so requires.”  However, prior federal case law had stated that courts should deny motions to amend when there would be undue delay or prejudice towards a party.  The court determined that the insurer demonstrated that it would be subject to undue delay if it granted the motion, as the insurer had already spent eight months in discovery.  It also felt that the insurer would be prejudiced if it authorized the amendment, as it would “transform this litigation from a straightforward individual action brought by two plaintiffs into a complex class action involving potentially hundreds or thousands of plaintiffs.”  Because neither Rule 15 nor Rule 16 helped the insureds’ case, the court denied the insureds’ Motion for Leave to File a Second Amended Complaint.

Date of Decision:  September 15, 2010

Graham v. Progressive Direct Ins. Co., Civil Action No. 09-969, United States District Court for the Western District of Pennsylvania, 271 F.R.D. 112; 2010 U.S. Dist. LEXIS 96324, (Sept. 15, 2010) (Fischer, J.)