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Sunflower Condominium Association, Inc. v. Auto-Owners Insurance Co.

United States District Court, D. Colorado

April 12, 2018

SUNFLOWER CONDOMINIUM ASSOCIATION, INC., a Colorado nonprofit corporation, Plaintiff,


          William J. Martínez United States District Judge

          In this insurance dispute case, Plaintiff Sunflower Condominium Association, Inc. (“Plaintiff”) brings claims against Defendant Owners Insurance Company (“Defendant”) for breach of contract, declaratory judgment, statutory bad faith under Colorado Revised Statutes §§ 10-3-1115 & -1116, and common law insurance bad faith. (See generally ECF No. 62.) Now before the Court is Defendant Owners Insurance Company's Motion for Leave to File Amended Answer and Counterclaims (ECF No. 80) (“Motion”). Plaintiff filed a Response in Opposition to Defendant's Motion for Leave to File Amended Answer and Counterclaims (ECF No. 86) (“Response”). Defendant filed a Reply in Support of its Motion for Leave to File Amended Answer and Counterclaims (ECF No. 90) (“Reply”). United States Magistrate Judge Nina Y. Wang issued her Recommendation, finding that Defendant's Motion to Amend should be granted (ECF No. 113) (“Recommendation”). Plaintiff timely filed its Objections to the Recommendation (ECF No. 120) (“Objection”) and Defendant filed a Response to Plaintiff's Objections (ECF No. 124). For the reasons set forth below, Plaintiff's Objections are overruled, Judge Wang's Recommendation is adopted in its entirety, and Defendant's Motion to Amend is granted.


         “Motions to amend are generally considered nondispositive because they do not dispose of a claim or defense of a party.” Chavez v. Hatterman, 2009 WL 82496, at *1 (D.Colo. Jan. 13, 2009). “However, courts have been split on whether to treat certain motions to amend as dispositive.” Id.; see also Grabau v. Target Corp., 2008 WL 179442, at *5 (D. Colo. Jan. 17, 2008) (noting split in this District on motions to amend to add a claim for exemplary damages). Courts in this circuit have found that a magistrate judge's ruling on a motion to amend is nondispositive “particularly where the magistrate judge's order grants leave to amend and does not have the effect of removing any claim or defense.” Cuenca v. Univ. of Kansas, 205 F.Supp.2d 1226, 1228 (D. Kan. 2002). “When the magistrate judge's order denying a motion to amend, however, effectively removes a defense or claim from the case, it may well be a dispositive ruling that the district court should review de novo.” Id. Here, because Judge Wang recommends granting Defendant's Motion to Amend, the Court considers her Recommendation to be a nondispositive ruling, subject to the clearly erroneous standard of review.

         When reviewing an objection to a magistrate judge's nondispositive ruling, the Court must adopt the ruling unless it finds that the ruling is “clearly erroneous or contrary to law.” Fed.R.Civ.P. 72(a); 28 U.S.C. § 636(b)(1)(A); Hutchinson, 105 F.3d at 566; Ariza v. U.S. West Commc'ns, Inc., 167 F.R.D. 131, 133 (D. Colo. 1996).

         The clearly erroneous standard “requires that the reviewing court affirm unless it on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1464 (10th Cir. 1988). The “contrary to law” standard permits “plenary review as to matters of law, ” 12 Charles Alan Wright et al., Federal Practice & Procedure § 3069 (2d ed., Apr. 2017 update), but the Court will set aside a Magistrate Judge's order only if he or she applied the wrong legal standard or applied the appropriate legal standard incorrectly, see Wyoming v. U.S. Dep't of Agric., 239 F.Supp.2d 1219, 1236 (D. Wyo. 2002).


         Plaintiff is a multi-family homeowners association and comprises 23 separate condominium buildings, a clubhouse, and six garage buildings (“the Sunflower Property”). (ECF No. 62 ¶¶ 2, 5.) Sunflower purchased an insurance policy from Defendant to cover the common area property (“Insurance Contract”). (Id. ¶ 21.) On September 29, 2014, a wind and hail storm damaged the roofs, gutters, and screens of some of the condominiums and garage structures. (Id. ¶¶ 14-15.) According to Plaintiff, the damage to the Sunflower Property is covered under the Insurance Contract. (Id. ¶ 16.) Plaintiff claims that its “community management team noticed damage to [the Sunflower] property during a physical inspection of [the Sunflower] Property in the latter part of 2015.” (Id. ¶ 18.) On December 23, 2015, Plaintiff “submitted an insurance claim to Defendant related to damages resulting from the September 29, 2014 date of loss.” (Id. ¶ 18.)

         Defendant hired a cost-of-repair expert, Gary Stevens (“Stevens”), as an independent adjuster to investigate and report on the loss to the Sunflower Property. (Id. ¶ 21, 27.) Meanwhile, Plaintiff engaged Matrix Business Consulting (“Matrix”), represented by David Ford (“Ford”), to adjust its claim for the hailstorm damage. (Id. ¶¶ 23-24.) Plaintiff also hired R3NG LLC (“R3NG”), partially owned and represented by Jason Domecq (“Domecq”), to provide a cost-of-repair estimate. (Id.) Defendant's adjuster, Stevens, provided a replacement cost value of $857, 233.89 and an actual cash value of $590, 458.91. (ECF No. 113 at 2.) R3NG provided an estimate of $1.8 million to Plaintiff for the cost of repair. (ECF No. 62 ¶ 25.)

         Defendant paid $515, 458.91 for the undisputed amount of its claim in August 2016. (Id. ¶ 38.) Defendant tendered a supplemental payment of $92, 951.05 in April 2017. (ECF No. 113 at 2.) Plaintiff alleges that “Defendant has refused to make further payment.” (ECF No. 62 ¶ 41.)

         Defendant filed its answer to the Plaintiff's Third Amended Complaint (ECF No. 66) (“Answer”) on June 27, 2017. In its Answer, Defendant raised ten defenses. Defendant's second defense is most relevant to the present Motion to Amend. It states,

Plaintiff's claims in the Third Amended Complaint are barred in whole or in part as a result of Plaintiff's misrepresentations, false statements, and non-cooperation with [Defendant]. Plaintiff not only reported the claim late and thereby prejudiced [Defendant's] investigation, Plaintiff also made misrepresentations and false statements regarding the date when Plaintiff first knew or should [have] known that a hailstorm may have damaged the subject property. . . . Plaintiff has attempted to maximize or inflate the cost of the claim, including by demanding that [Defendant] pay non-covered fees to its property manager and by unnecessarily agreeing to pay its property manager a previously undisclosed contingent fee based on the cost of repair projects.

(ECF No. 66 at 8-9.)

         Defendant now seeks leave to file an amended answer and counterclaims, seeking to add two counterclaims for recoupment and breach of contract. (See ECF No. 80-1.) Defendant also seeks to add an affirmative defense related to language in the Insurance Contract pertaining to acts of concealment, or fraud. (Id.)

         III. ANALYSIS

         In its Motion, Defendant claims that “Plaintiff's insurance policy prohibits the insured from misrepresenting or concealing any material fact, or from committing fraud, in making an insurance claim.” (ECF No. 80 at 1.) Defendant alleges that it has “recently discovered facts showing that Plaintiff violated this policy provision in two independent ways: (I) by knowingly misrepresenting the date that it discovered the property ...

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