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Residences at Olde Town Square Association v. Travelers Casualty Insurance Company of America

United States District Court, D. Colorado

March 8, 2019



          Nina Y. Wang, United States Magistrate Judge

         Magistrate Judge Nina Y. Wang This matter comes before the court for recommendation on Plaintiff Residences at Olde Town Square Association's (“Plaintiff' or “Residences”) Motion to Amend Complaint to Add Claim for Exemplary Damages (“Motion to Amend” or “Motion”), filed November 21, 2018. See [#42]. The undersigned considers the Motion pursuant to 28 U.S.C. § 636(b) and the Memorandum dated November 26, 2018 [#46]. This court concludes that oral argument will not materially assist in the resolution of this matter. Accordingly, having carefully reviewed the Motion and associated briefing, the docket, and applicable law, this court respectfully RECOMMENDS that the Motion to Amend be DENIED.


         This case arises out of an insurance dispute between Plaintiff and Defendant Travelers Casualty Insurance Company of America (“Defendant” or “Travelers”). See generally [#1]. Plaintiff “is a homeowners' association which manages real property [i.e., (the “condominiums”)]” located in Arvada, Colorado, and is the policyholder of Travelers's insurance policy 680-004F97913A (“the policy”). See [id. at ¶¶ 1-3]. On or about May 8, 2017, the condominiums “suffered a covered loss” under the policy and submitted a claim to Travelers for hail damage to the condominiums. See [id. at ¶ 4].

         Travelers first estimated the cost of repairs at $478, 086.09 with an Actual Cash Value (“ACV”) of loss to be $110, 497.41 based on “recoverable depreciation of $160, 915.30 and a deductible of $206, 673.38.” See [#1 at ¶¶ 12-15]. Residences could not determine how Travelers calculated its deductible of two-percent, but later learned that Travelers had increased the initial $7, 426, 300 value of the condominiums by “approximately $2, 600, 000 over a course of approximately four months and 13 days.” See [id. at ¶ 20]. Plaintiff alleges that in violation of Colorado law and insurance regulations, Travelers never disclosed the increase in the value of the condominiums, which necessarily reduced Plaintiff's coverage and Travelers's payment obligations. See [#1 at ¶¶ 21-25]. Further, Residences alleges that Travelers never disclosed how it calculated the initial value of the condominiums or the increased value. See [id. at ¶¶ 26-29].

         Plaintiff then received a repair estimate of $735, 467.88 (which did not include permits, a deduction, or deductible) from ASR Companies Inc. (“ASR”), a contractor Plaintiff contracted with to remediate the hail damage, which was significantly higher than Travelers's first estimate. See [id. at ¶¶ 16, 18]. ASR allegedly sent its estimate to Travelers in or about September 2017. See [id. at ¶¶ 19, 30-32, 37, 45]. Disputes soon arose regarding the required repairs, the amount of time needed to complete the repairs, and what Travelers would cover. See, e.g., [id. at ¶¶ 33-35, 38-44, 46-47].

         On or about November 4, 2017, given these disputes, Travelers informed ASR and Residences that Travelers would seek another proposal from a different contractor. See [#1 at ¶¶ 48, 53]. Travelers then received an estimate from Dynamic Roofing and Construction (“Dynamic”) of $538, 000, which Travelers later tendered to Plaintiff and which included an additional $92, 276.59 ACV payment to Plaintiff for repairs that Travelers “knew or should have known were owed” at the time of its first estimate. [Id. at ¶¶ 50-52, 55-60]. But after receiving Travelers's second estimate of $538, 000 (purportedly based on Dynamic's estimate), Dynamic submitted an estimate to Plaintiff of $571, 000; Residences believed this estimate to be unreasonably low. See [id. at ¶¶ 63-66]. Residences believed Travelers intended “to force or give incentive to [Plaintiff] to use Dynamic over a chosen contractor” in violation of Colorado law. See [id. at ¶ 70].

         Plaintiff initiated this action on February 23, 2018 asserting two claims under Colorado law against Travelers: (1) breach of contract, alleging that Travelers breached the terms of the policy by failing to cover the entire loss suffered by Plaintiff; and (2) unreasonable delay or denial of insurance benefits pursuant to Colo. Rev. Stat. §§ 10-3-1115, -1116 (“statutory bad faith”), alleging that Travelers unreasonably delayed paying the additional $92, 276.59 ACV payment to Plaintiff. See generally [#1]. Now, Plaintiff seeks to amend its Complaint to assert a claim for exemplary damages, claiming that it recently learned in discovery that Travelers fraudulently misrepresented its relationship with Dynamic and how it calculated the value of the condominiums at the time of the covered loss. See [#42; #53]. Defendant opposes the requested, arguing first that amendment is futile because exemplary damages are not available for breach of contract and statutory bad faith claims. See [#52]. Nevertheless, Defendant also contends that even if Plaintiff can seek exemplary damages, it does not make the requisite showing of entitlement to exemplary damages. See [#52]. The Motion is now ripe for Recommendation, and I turn to the Parties' arguments below.


         Ordinarily, Rule 15(a)(2) and Rule 16(b)(4) of the Federal Rules of Civil Procedure would apply when, as here, a party seeks to amend its pleading after the deadline set in the Scheduling Order. See Gorsuch, Ltd., B.D. v. Wells Fargo Nat'l Bank Ass'n, 771 F.3d 1230, 1240 (10th Cir. 2014). But Colo. Rev. Stat. § 13-21-102 governs proposed amendments concerning exemplary damages. Pursuant to section 13-21-102(1.5)(a), a plaintiff cannot move for exemplary damages in the initial pleading and may seek to amend the pleading to add a claim for exemplary damages “only after the exchange of initial disclosures pursuant to rule 26 of the Colorado rules of civil procedure” and if she establishes prima facie proof of a triable issue. In finding that there is no direct conflict between this statute and the Federal Rules of Civil Procedure and that application of the statute would not necessarily result in forum shopping or the inequitable administration of the law, courts in this District have held that § 13-21-102, rather than Rules 15(a) or 16(b), controls whether to permit the amendment of a claim for exemplary damages. See Wollam v. Wright Medical Group, Inc., No. 1:10-cv-3104-DME-BNB, 2012 WL 4510695, at *9 (D. Colo. Sept. 30, 2012) (applying Colo. Rev. Stat. § 13-21-102 to motion to amend to add exemplary damages claim); Witt v. Condominiums at the Boulders Ass'n, No. 04-cv-02000-MSK-OES, 2006 WL 348086, at *7 (D. Colo. Feb. 13, 2006) (finding the court must give effect to Colorado statute in evaluating whether exemplary damages claim properly brought in diversity action). See also Am. Econ. Ins. Co. v. William Schoolcraft, M.D., P.C., No. 05-cv-01870-LTB-BNB, 2007 WL 160951, at *2 (D. Colo. Jan. 17, 2007) (applying Jones v. Krautheim, 208 F.Supp.2d 1173, 1179 (D. Colo. 2002)). Even with the application of § 13-21-102, however, the court may deny a motion to amend to add exemplary damages because of delay, bad faith, undue expense, or other demonstrable prejudice. Stamp v. Vail Corp., 172 P.3d 437, 449 (Colo. 2007) (citation omitted).

         Section 13-21-102 provides that an award of exemplary damages is permissible when “the injury complained of is attended by circumstances of fraud, malice, or willful and wanton conduct.” Colo. Rev. Stat. § 13-21-102(1)(a). The purpose of the award of punitive damages is to punish the wrongdoer, not compensate for injuries. See Lira v. Shelter Insurance Co., 913 P.2d 514, 517 (Colo. 1996). A “finding that the elements of fraud [are] established also establishe[s] the ‘circumstances of fraud' required for punitive damages.” Berger v. Sec. Pac. Info. Sys., Inc., 795 P.2d 1380, 1386 (Colo.App. 1990) (upholding award of exemplary damages where the plaintiff prevailed on her fraudulent concealment claim at trial).

         As to the requirement of a prima facie showing, “[p]rima facie evidence is evidence that, unless rebutted, is sufficient to establish a fact.” Stamp, 172 P.3d at 449 (citation omitted). Such proof is established by “a reasonable likelihood that the issue will ultimately be submitted to the jury for resolution.” Id. (quoting Leidholt v. Dist. Court, 619 P.2d 768, 771 n.3 (Colo. 1980)). Parties may offer this proof in the form of discovery and by evidentiary means. Id. “The question of whether the plaintiff has established sufficient proof to add a claim for exemplary damages lies within the sound discretion of the trial court.” Id. (citation omitted). In reviewing the Motion to Amend, this court considers only the “preliminary question” of whether Plaintiff has made a prima facie showing that the injury complained of is attended by “circumstances of fraud, ” not whether it will ultimately prevail. Am. Econ. Ins. Co., 2007 WL 160951, at *4.


         I. ...

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