Colony Insurance Company v. JK Farm Labor LLC, et al.

• Court: District Court, D. Arizona
• Decided: February 27, 2026
• Docket: 2:21-cv-01964
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Colony Insurance Company, No. CV-21-01964-PHX-SMB

10 Plaintiff, ORDER

11 v.

12 JK Farm Labor LLC, et al.,

13 Defendants. 14 15 The Court now considers Cesar Salcedo’s Motion to File an Amended Complaint 16 (Doc. 121). The Motion is fully briefed. The Court denies the Motion for the following 17 reasons. 18 I. BACKGROUND 19 The salient facts of this case are as follows. Colony issued a “Commercial Farm & 20 Ranch” insurance policy (the “Policy”) to JK Farm Labor, LLC (“JK Farm”). (Doc. 91 21 at 1.) JK Farm provides farm labor services to agricultural clients. (Doc. 91 at 1.) The 22 Policy provided $1 million in coverage for bodily injury and property damage. (Id. at 2.) 23 However, an endorsement to the Policy set a $25,000 sub-limit on available coverage for 24 bodily injury and property damage liability related to the operation of farm machinery or 25 equipment on public roads (the “Endorsement”). (Id.) 26 The Endorsement became a matter of controversy when Salcedo was struck by a 27 tractor driven by a JK Farm employee. (Id.) Salcedo sued JK, among others, in state court. 28 (Id.) Colony defended JK Farm under a reservation of rights until the cost of defense 1 exceeded $25,000. (Id.) Once the cost of defense exceeded that amount, Colony brought 2 the present suit seeking declaratory relief that the Endorsement is valid and enforceable 3 and that JK Farm must reimburse Colony for any costs incurred beyond the $25,000. (Id. 4 at 2–3.) 5 Colony’s present action was consolidated with an action brought by Salcedo against 6 Colony. (Doc. 47.) There, Salcedo sued Colony for breach of contract, bad faith, and 7 producer malpractice.1 On September 18, 2025, the Court granted Colony’s Motion for 8 Summary Judgment, finding the Endorsement enforceable. (Doc. 91 at 12.) During a 9 January 5, 2026 hearing, the Court clarified that Colony is entitled to their requested relief, 10 and Salcedo’s only remaining claim is for bad faith against Colony. (Doc. 114). 11 During that hearing, Salcedo motioned for leave to amend his Complaint, which the 12 Court denied without prejudice. (Id.) The Court ordered Salcedo to file a written motion. 13 (Id.) Salcedo did so, filing the present Motion and attached Proposed Amended Complaint 14 (“PAC”). (Doc. 121.) 15 The PAC still asserts claims for breach of contract, bad faith, and producer 16 malpractice. (Doc. 121-1.) However, the PAC only amends the breach of contract and bad 17 faith claims, leaving the producer malpractice claim as previously alleged. The breach of 18 contract claim is still predicated, in part, on the Endorsement being unenforceable pursuant 19 to Arizona’s reasonable expectations doctrine. (Id. at 11.) However, the PAC amends the 20 breach of contract claim by additionally alleging that Colony breached the Policy by failing 21 to pay $1,000 in medical payments coverage. (Id. at 12–13.) The PAC amends the bad 22 faith claim by adding a litany of allegations pertaining to Colony’s conduct towards

23 1 JK Farm assigned its claims against Colony to Salcedo via a “Morris Agreement.” “Morris agreements typically come into play in liability actions when an insurer defends 24 an insured under a reservation of rights.” Centerpoint Mech. Lien Claims, LLC v. Commonwealth Land Title Ins. Co., 569 P.3d 796, 803 (Ariz. 2025). “Under those 25 circumstances, upon notice to the insurer and subject to court approval, the insured may settle the questions of liability and damages with a third-party plaintiff.” Id. Such an 26 “agreement will bind the insurer as to liability and the damages amount.” Id. Assuming the agreement receives court approval, “the insurer may not litigate the fact and amount of 27 the insured’s liability, but it may contest coverage under the policy, because otherwise the insurer may be required to provide coverage the insured did not purchase.” Id. 28 1 Salcedo and JK. (Id. at 13–14.) 2 II. LEGAL STANDARD 3 Under Federal Rule of Civil Procedure (“Rule”) 15(a)(2), “a party may amend its 4 pleading only with the opposing party’s written consent or the court’s leave.” Rule 15(a)(2) 5 goes on to provide that the “court should freely give leave when justice so requires.” 6 Generally, “there exists a presumption under Rule 15(a) in favor of granting leave to 7 amend.” Eminence Cap., LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) 8 (emphasis in original). However, “post-summary judgment amendments are disfavored.” 9 Pacesetter Consulting LLC v. Kapreilian, No. CV-19-00388-PHX-DWL, 2021 WL 10 3168471, at *23 (D. Ariz. July 27, 2021) (quoting 1 Gensler, Federal Rules of Civil 11 Procedure, Rules and Commentary, Rule 15, 447 (2021)). In considering whether to grant 12 leave to amend, the Court considers whether there is “undue delay, bad faith or dilatory 13 motive on the part of the movant, repeated failure to cure deficiencies by amendments 14 previously allowed, undue prejudice to the opposing party by virtue of allowance of the 15 amendment, futility of amendment, etc.” Foman v. Davis, 371 U.S. 178, 182 (1962). 16 III. DISCUSSION 17 As a general matter, leave to amend is inappropriate to the extent the PAC 18 rechallenges the propriety of the Endorsement. The PAC does not include any additional 19 facts that suggest the Endorsement is unenforceable. In fact, the PAC reasserts the same 20 facts the Court previously found were insufficient to establish that the Endorsement is 21 inapplicable pursuant to Arizona’s reasonable expectation doctrine. Accordingly, the 22 Court will not grant Plaintiff leave to amend to reassert challenges to the Endorsement 23 already found to be insufficient as a matter of law. See Wheeler v. City of Santa Clara, 24 894 F.3d 1046, 1059 (9th Cir. 2018) (“Leave to amend may be denied if the proposed 25 amendment is futile or would be subject to dismissal.”). Again, the Court made clear on 26 summary judgement, and during the January 5 hearing, that the Endorsement is 27 enforceable. (Doc. 91 at 11, Doc 114.) Thus, the Court will only consider the PAC to the 28 extent it amends the breach of contract and bad faith claims. 1 A. Breach of Contract Claim 2 The PAC amends the breach of contract claim to additionally allege that Colony 3 breached the Policy by failing to pay $1,000 worth of Cesar’s medical expenses pursuant 4 to Section J of the Policy. (Doc. 121-1 at 12–13.) While the Court is free to consider any 5 number of factors in deciding whether to give leave to amend, “it is the consideration of 6 prejudice to the opposing party that carries the greatest weight.” Eminence, 316 F.3d 7 at 1052. This amendment would be prejudicial because it would materially alter the nature 8 of this litigation at the final hour. 9 The Court notes that Salcedo filed his Complaint over two years ago. (Case 10 2:23-cv-01548-SMB Doc. 1.) Moreover, discovery in this case is closed and trial is set 11 less than two weeks from the date of this Order. See Underwood v. O’Reilly Auto Enters., 12 LLC, 342 F.R.D. 338, 343 (D. Nev. 2022) (“The existence of prejudice is generally 13 mitigated where the case is still in the discovery stage, no trial date is pending, and no 14 pretrial conference has occurred” (citation modified)). Salcedo does not articulate why he 15 waited over two years, after the conclusion of discovery and less than two weeks before 16 trial, to add claims that ostensibly were known to him at the time he filed this suit. 17 These procedural details aside, Salcedo’s proposed amendment “materially alter[s] 18 the nature of the claims or theories already pled.” Id. at 344. Until this point, Salcedo 19 claims he was wrongfully deprived of $1 million in coverage based on the enforceability 20 of the Endorsement. In other words, Salcedo’s entire case, up to this point, hinged on the 21 enforceability of the Endorsement. However, Salcedo now claims that he was wrongfully 22 denied $1,000 in medical coverage under the Policy. Until this point, Salcedo did not 23 challenge Colony’s alleged refusal to pay medical expenses pursuant to Section J of the 24 Policy. This allegation, or any intimation of it, is wholly absent from Salcedo’s original 25 Complaint. 26 Salcedo’s arguments to the contrary are not convincing. In short, Salcedo points to 27 limited instances during discovery where the medical coverage issue was broached in a 28 manner largely tangential to the central issue in this case—the enforceability of the 1 Endorsement. However, even the discrete examples Salcedo cites do not compel this Court 2 to grant leave to amend. For example, Salcedo argues that Colony was on notice of his 3 medical expense claim based on an August 20, 2024 deposition of Colony’s Vice President 4 of Claims and an expert report that contained 2 paragraphs discussing the medical 5 coverage. The Court is not convinced that a tangential issue raised in a deposition and 6 expert report is sufficient to put Colony on notice and cure the prejudice of amending 7 Salcedo’s breach of contract weeks before trial. Additionally, Salcedo offers no reason 8 why he failed to amend his breach of contract claim during those intervening eighteen 9 months. 10 Accordingly, the Court will not give Salcedo leave to amend his breach of contract 11 claims. 12 B. Bad Faith Claim 13 The Court now considers Salcedo’s bad faith claim. Originally, Salcedo alleged 14 that Colony “breached their duty of good faith and fair dealing to JK Farm by failing to 15 indemnify JK Farm regarding Cesar’s claims against JK Farm.” (Case 16 2:23-cv-01548-SMB Doc. 1 at 8.) The PAC additionally alleges that Colony “breached its 17 duty of good faith and fair dealing by failing to”: Adequately communicate with JK Farm in a language that JK Farm can 18 understand, 19 Adequately inform its insured of the status of the claim against it and its 20 potential for excess exposure, 21 Inform its insured of the status of the available policy limits applicable to this 22 matter since the $25,000.00 Endorsement was depleted by defense 23 expenditures,

24 Pay Cesar the $1,000.00 policy limits available under section J, 25 Obtain financial information from its insured to determine JK Farm’s ability 26 to contribute to a settlement, . . . 27 Actively engage in negotiations to resolve Cesar’s claim using financial 28 information Colony Insurance Company should have obtained from its 1 insured,

2 . . . . 3 Conditioning payment due and owing to Cesar under Coverage J on his full 4 release of all claims, and 5 Informing its insured that it would seek court costs and defense expenditures 6 incurred in the defense of Cesar’s claim only after the $25,000.00 7 Endorsement limit was exhausted and over a year had passed since the determination had been made that the Endorsement applied. 8 (Doc. 121-1 at 13–14.) The Court will not give Salcedo leave to amend his bad faith claim. 9 The earlier prejudice analysis applies with equal force here. Again, Salcedo’s bad 10 faith claim was originally predicated on Colony only paying the Endorsement’s $25,000 11 sub-limit. Again, the Complaint did not intimate that Salcedo’s claim that Colony violated 12 its duty to indemnify was based on anything other than this allegation. Thus, the PAC’s 13 attempt to rejigger the bad faith claim to incorporate the $1,000 medical expense portion 14 of the Policy is prejudicial for the reasons previously stated. 15 The Court again highlights that Salcedo, years after filing his original complaint and 16 less than a month before trial, seeks to include additional allegations based on information 17 ostensibly available to Salcedo even before he filed suit. Even if some of the foregoing 18 allegations are predicated on information made available during discovery, Salcedo does 19 not offer any explanation for his delay in seeking to amend his Complaint. 20 That aside, Salcedo’s allegations impermissibly alter the scope of his bad faith 21 claim. See Underwood, 342 F.R.D. at 344. As noted, Salcedo predicated his bad faith 22 claim solely on Colony failing to indemnify based on it enforcing the Endorsement. 23 Salcedo now recognizes, “this Court’s ruling on summary judgment prohibits Salcedo’s 24 claims for bad faith due to Colony’s threatened failure to refuse to defend JK Farm and its 25 refusal to indemnify JK Farm beyond $25,000.00.” (Doc. 123 at 6–7.) 26 Now, the PAC alleges that Colony violated its “duty to treat settlement proposals 27 with equal consideration.” (Doc. 121-1 at 14.) While this duty can be generally challenged 28 under the ambit of a bad faith claim, it is a distinct duty from the duty to indemnify. See 1 Safeway Ins. Co. v. Botma, No. CIV00-553-PHX RCB, 2003 WL 24100783, at *9 (D. Ariz. 2 Mar. 7, 2003). Additionally, the PAC seeks to interject a whole new host of allegations 3 related to settlement discussion. These sorts of allegations alter the scope of this litigation. 4 Salcedo’s claim is predicated on a different set of facts not broached in the Complaint. 5 This much is evident based on the briefing. Salcedo’s new allegations invite a flurry of 6 new factual and legal arguments that were seemingly not implicated until the present 7 Motion such as the validity of the underlying Morris agreement that. This is telling given 8 the age of this case and the fact that none of these issues were raised in Colony’s Motion 9 for Summary Judgment and the associated briefing. 10 Salcedo attempts to assuage concerns of prejudice based on a January 2025 expert 11 report. This report does not convince the Court that Salcedo should be given leave to 12 pursue an entirely different theory of bad faith at the final hour. It is unclear why Salcedo 13 waited one year to amend his bad faith claim after he had access to the very expert report 14 he argues justifies leave to amend. Additionally, Salcedo attaches seven pages of the 15 fifty-one-page expert report. This limited glance at the expert report does little to show 16 that Colony has been given fair opportunity to prepare for trial.2 17 Accordingly, the Court will not give Salcedo leave to amend his bad faith claim. 18 C. Dismissal 19 Ultimately, there are no claims remaining in this litigation. Up to this point, and as 20 made clear at the January 5 hearing, the Court’s grant of summary judgment obviated 21 Salcedo’s claims of breach of contract and producer malpractice. The only remaining 22 claim after that hearing was Salcedo’s bad faith claim, which was not specifically 23 challenged up to that point. 24 While a “court must give notice of its intention to dismiss and afford plaintiffs an 25 opportunity to at least submit a written memorandum in opposition to such motion,” Reed 26 v. Lieurance, 863 F.3d 1196, 1207 (9th Cir. 2017) (citation modified), such notice is not 27 necessary here—Salcedo is aware that dismissal is warranted. As noted, Salcedo

28 2 The Court also notes that a Joint Final Pretrial Statement would be due in this case by February 27, 2026—two days from the date of this Order. 1 || acknowledges that this “Court’s ruling on summary judgment prohibits Salcedo’s claims 2|| for bad faith due to Colony’s threatened failure to refuse to defend JK Farm and its refusal to indemnify JK Farm beyond $25,000.00.” (Doc. 123 at 6-7.) IV. CONCLUSION 5 Accordingly, 6 IT IS HEREBY ORDERED denying Salcedo’s Motion to File an Amended || Complaint (Doc. 121). 8 IT IS FURTHER ORDERED dismissing Salcedo’s Complaint (Case || 2:23-cv-01548-SMB Doc. 1). 10 Dated this 25th day of February, 2026. Se .

United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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