Walker v. Auto-Owners Insurance Company

• Court: District Court, D. Arizona
• Decided: October 1, 2021
• Docket: 4:20-cv-00449
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Gerald Walker, III, and Ada Walker, ) 10 ) Plaintiffs, ) No. CIV 20-449-TUC-CKJ 11 ) vs. ) 12 ) ORDER Auto-Owners Insurance Company, ) 13 ) Defendant. ) 14 ) 15 16 On August 5, 2021, this Court issued an Order which, inter alia, denied the Motion 17 to Dismiss and advised the parties of the Court’s intent to certify question(s) to the Supreme 18 Court of Arizona (“Supreme Court”). Aug. 5, 2021, Order (Doc. 15). Additionally, the 19 Court has afforded the parties an opportunity to provide input as to the question(s) to be 20 certified to the Supreme Court. Id., Aug 31, 2021 Order (Doc. 21). The Court considers 21 the parties’ input herein. See Docs. 17, 18, 20, 23, 24. 22 Additionally, Plaintiffs have filed a Motion for Leave to File First Amended 23 Complaint (Doc. 16). A response (Doc. 19) and a reply (Doc. 22) have been filed. As it 24 relates to the issues involved in the certifying a question to the Supreme Court, the Court 25 will address this motion prior to considering the form of question(s) to be certified to the 26 Supreme Court. 27 28 1 Plaintiffs Motion for Leave to File First Amended Complaint (Doc. 16) 2 A “party may amend its pleading only with the opposing party's written consent or 3 the court's leave. The court should freely give leave when justice so requires.” 4 Fed.R.Civ.P. 15(a)(2). In determining whether an amended pleading should be permitted, 5 “[f]ive factors are frequently used to assess the propriety of a motion for leave to amend: 6 (1) bad faith, (2) undue delay, (3) prejudice to the opposing party, (4) futility of amendment; 7 and (5) whether [plaintiff] has previously amended his complaint.” Allen v. City of Beverly 8 Hills, 911 F.2d 367, 373 (9th Cir. 1990). 9 In this case, Plaintiffs do not seek to add or modify their claims or the parties. 10 Rather, they simply seek to clarify the claims which they made in the original Complaint. 11 Plaintiffs state: 12 Because the Court will certify questions to the Arizona Supreme Court, Plaintiffs believe it is helpful to more fully explain their claims to provide the Arizona 13 Supreme Court with a more complete understanding of the issues. 14 Motion (Doc. 16, p. 2). 15 While the Court agrees with Defendant that Plaintiffs could have sought to amend 16 their complaint earlier, neither the applicable rule nor any order of the Court required such 17 an earlier request. Additionally, the Court finds there is no basis to conclude Plaintiffs have 18 acted in bad faith. Again, while Plaintiffs could have raised the issue earlier, there is no 19 basis to conclude their failure to do so was in bad faith. Furthermore, the Court finds that 20 allowing the amended complaint would not cause undue delay. There is no reason to 21 believe an amended complaint would delay the state certification process or further 22 proceedings in this Court upon the response of the state court. 23 The Court also consider whether Defendant would be prejudiced by the amendment. 24 It is this consideration that carries the greatest weight. Eminence Capital, LLC v. Aspeon, 25 Inc., 316 F.3d 1048, 1052 (9th Cir. 2003); see also Allen v. McCurry, 449 U.S. 90, 94 26 (1980). The Court recognizes that “generally a party will not be deemed prejudiced by an 27 amended pleading if the amendment relates to the same conduct, transaction, or occurrence 28 1 alleged in the original pleading, or if the opposing party is otherwise aware of the facts 2 contained in the amended pleading.” 61A Am. Jur. 2d Pleading § 724, citations omitted. 3 However, other circumstances my result in prejudice, such as when a “radical shift in 4 direction” posed by new claims require defendant to undertake, at a late hour, an entirely 5 new course of defense.” Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 6 (9th Cir.1990). Here, Plaintiffs are not making a radical shift in direction, but the proposed 7 amended complaint may require Defendant to significantly modify its arguments as to the 8 pending issues. Indeed, Defendants have not had an opportunity to address the new alleged 9 facts in this matter.1 However, any prejudice from this is minimized by the rule governing 10 certification of questions of law to the Supreme Court which indicates the parties will be 11 afforded an opportunity to submit briefs before that Court. See Ariz.R.Sup.Ct. 27(d). 12 Additionally, the proposed amendment relates to the same conduct, transaction, or 13 occurrence alleged in the original complaint and there is no reason to believe Defendant is 14 not aware of the facts contained in the amended pleading. However, Plaintiffs’ request does 15 include a conclusory allegation. See Proposed Amended Complaint (Doc. 16-1, p. 14) 16 (“Through its payment based exclusively upon the ‘replacement cost less depreciation’ 17 methodology, Auto-Owners has waived, and is estopped from asserting, any right to contend 18 that ACV should have been calculated under any methodology other than the methodology 19 actually used by Auto-Owners in this case.”). The Court finds Defendant would be 20 minimally prejudiced by the proposed amendment. 21 As to whether the proposed amendment is futile, the Court finds the amendments 22 supplement the facts alleged in the original complaint. Generally, the proposed amendment 23 24 1Although new facts are alleged in the proposed amended complaint, these facts supplement the facts alleged in the original complaint instead of contradicting them. There 25 does not appear, therefore, to be a disputed factual issue making it difficult to determine the 26 first question to be certified to the Supreme Court. See § 4248 Certification to State Court, 17A Fed. Prac. & Proc. Juris. § 4248 (3d ed. April 2021) (“Certification is not appropriate 27 if there are a number of disputed factual issues making it difficult or impossible to agree on 28 what the legal questions are.”). 1 provides additional facts as to how Defendant calculated actual cash value. However, the 2 original complaint stated, “in short and plain terms[,]” Fed.R.Civ.P. 8, the claims against 3 Defendant. In other words, the proposed amendment appears superfluous and does not 4 appear to alter the substantive legal issues presented in this case. Such amendments are 5 futile. Sims v. Cabrera, No. 1:12-CV-01904-LJO, 2014 WL 6893776, at *3 (E.D. Cal. 6 Dec. 8, 2014) (proposed amendments “are futile in that they would add purely superfluous 7 facts to the pleading”); Powell v. Wells Fargo Home Mortg., No. 14-CV-04248-MEJ, 2016 8 WL 1718189, at *23 (N.D. Cal. Apr. 29, 2016) (“leave to amend is not an invitation for 9 Plaintiff to include more redundant and unnecessary facts”). 10 “Futility of amendment can, by itself, justify the denial of a motion for leave to 11 amend.” Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995). Considering this factor, 12 along with the minimal prejudice to Defendant, the Court finds it appropriate to deny the 13 Motion for Leave to File First Amended Complaint. 14 15 First Proposed Question of Law to be Answered 16 The Court has proposed the following question be certified to the Supreme Court: 17 Where an insurance policy does not define depreciation or actual cash value, may an insurer depreciate both materials and labor from the actual cash value? 18 Plaintiffs agree with this proposed form of the question. Defendant asserts this 19 question unduly suggests a meaningful distinction between materials and labor for purposes 20 of calculating actual cash value, even though the “policy itself does not distinguish between 21 (or even mention) materials and labor, but instead permits depreciation to be taken from the 22 entire cost of the “damaged covered property.” Defendant’s Requested Modifications to 23 Proposed Certified Questions (“Defendant’s Request”) (Doc. 18, p. 2) (emphasis in 24 original). Defendant requests the Court certify the following question to the Supreme Court: 25 Where a homeowner’s insurance policy does not define the term “actual cash value” 26 but provides that actual cash value “includes a deduction for depreciation,” may an insurer estimate the actual cash value of “damaged covered property” by applying 27 depreciation to the entire cost to replace or repair the damaged covered property? 28 1 Id. at p. 3. 2 The issue before the Court, however, is whether both materials and labor may be 3 depreciated from actual cash value. In other words, if there was not this distinction, the 4 issues before the Court would be altered. Significant to the Court is that the policy is set 5 forth in a document drafted by Defendant. Had the policy specifically stated what was or 6 was not included in calculating depreciation and/or actual cash value, the arguable 7 ambiguity would not exist. In fact, at least one court has recognized a distinction between 8 instances where a policy defines or clarifies what is included in an ACV from where a 9 policy does not include such clarification. Didyoung v. Allstate Ins. Co., No. 10 CV-12-348-PHX-GMS, 2013 WL 2896847, at *3 (D. Ariz. June 13, 2013). To accept 11 Defendant’s argument as set forth in their proposed question would be to presume the 12 validity of Defendant’s position as to the issues before the Supreme Court. 13 Defendant also submits the following as an alternate proposed question: 14 When a homeowner’s insurance policy does not define the term “actual cash value,” may an insurer depreciate the cost of labor in determining the “actual cash value” of 15 a covered loss when the estimated cost to repair or replace the damaged property includes both materials and embedded labor components? 16 “Defendant’s Request”) (Doc. 18, p. 3). Plaintiffs assert, however, they do not dispute that 17 the covered property, “in its indivisible whole[,]” was the property depreciated and they 18 have not sought to recover depreciation related to embedded labor within the covered 19 property. Plaintiffs’ Response to Defendant’s Objections Regarding Proposed Certified 20 Questions (Doc. 23) (Doc. 23, p. 2). Rather, in effect, they argue this refers to the labor 21 used to build Plaintiffs’ home instead of the future repair labor costs. 22 The Court agrees with Plaintiff that Defendant’s alternate proposed question does not 23 fairly present the issue of depreciation of future repair labor costs. However, the Court 24 agrees with Defendant that their proposed questions better place the legal issue into context. 25 The parties are advised the Court will certify the following question to the Supreme Court: 26 When a homeowner’s insurance policy does not define the terms “actual cash value” 27 or “depreciation,” may an insurer depreciate both the costs of materials and labor in determining the “actual cash value” of a covered loss? 28 1 Second Proposed Question of Law to be Answered 2 The Court has proposed the following question be certified to the Supreme Court: 3 Is the broad evidence rule applicable in Arizona such that an insurer and/or fact finder may consider labor depreciation as a pertinent factor in 4 determining actual cash value? 5 Plaintiffs assert this question is redundant because, if the Supreme Court answer this 6 Court’s First Proposed Question, the answer will be dispositive as to the issues pending in 7 the Motion to Dismiss. While the Court agrees with this assertion, it also recognizes that 8 it is within the Supreme Court’s discretion whether to agree to answer the Court’s First 9 Proposed Question. The Court finds, therefore, this is not a sufficient reason to not include 10 a second question to the Supreme Court. 11 Additionally, Plaintiffs argue this question is not at issue because a replacement cost 12 less depreciation methodology of calculating actual cash value was used in this case. 13 Indeed, they point out that whether Arizona “is a broad evidence state is not at issue 14 because in this case . . . the parties agreed that the actual cash value was to be calculated 15 based on the replacement cost method.” Lammert v. Auto-Owners (Mut.) Ins. Co., 572 16 S.W.3d 170, 178 (Tenn. 2019). However, Defendant asserts “there is nothing inconsistent 17 between the replacement-cost-minus-depreciation method and the broad evidence rule.” 18 Defendant’s Motion for Leave to Respond to Plaintiffs’ Objections to Certified Questions 19 (“Motion for Leave”) (Doc. 20, p. 3). Indeed, the authority on this issue is not uniform. See 20 e.g., Stuart v. State Farm Fire & Casualty Co., 910 F.3d 371, 376 (8th Cir. 2018) (“the 21 parties agreed on a methodology and the only dispute is over including labor depreciation 22 in the calculation”), reh’g and reh’g en banc denied (8th Cir. Jan. 29, 2019); Couch on Ins. 23 § 175:34 (June 2021) (“In applying this broad evidence rule, the courts have not abandoned 24 consideration of either market or reproduction or replacement values in arriving at ‘actual 25 cash value,’ but view them merely as guides in making that determination, rather than 26 shackles compelling strict adherence thereto.”). Notably, in this case, the Policy does not 27 require a specific method of valuation. See e.g. Stuart v. State Farm Fire & Cas. Co., 910 28 1 || F.3d 371, 374 (8th Cir. 2018) (explaining that policy required use of replacement cost 2 || minus depreciation). 3 The parties have not presented this Court with any authority to indicate whether 4 || Arizona courts would determine the broad evidence rule, if applicable, is a valuation 5 || technique that replaces a replacement cost less depreciation methodology of calculating 6 || actual cash value or an evidentiary approach that allows fact finders the discretion to decide 7 || what factors are relevant to valuing property. The Court disagrees with Plaintiffs that, to 8 || the extent Defendant disputes it used a replacement cost less depreciation methodology to 9 || calculate Plaintiffs’ ACV payment, there is necessarily a factual dispute. Rather, the 10 || Supreme Court may decide a fact finder may consider all evidence in resolving an actual 11 || cash value. The Court, therefore, will submit the Second Proposed Question as drafted, with 12 || a modification to include “fact finder,” to the Supreme Court. 13 Accordingly, IT IS ORDERED Plaintiffs’ Motion for Leave to File First Amended 14 || Complaint (Doc. 16) is DENIED. 15 DATED this 30th day of September, 2021. 16 " A. ig L On gorsnore? 18 Cindy K. Jor§€énso 19 United States District Judge 20 21 22 23 24 25 26 27 28 -7-