AMENDED MEMORANDUM OF DECISION AND ORDER
STEPHEN M. McNAMEE, Senior District Judge.
Pending before the Court is Defendant's Motion to Strike Undisclosed Exhibits and Legal Theories (Doc. 59) and Defendant's Motion for Partial Summary Judgment (Doc. 47). Both matters are now fully briefed. (Docs. 48, 52-53, 56-58, 60-62.) After reviewing the briefs and having determined that oral argument is unnecessary,  the Court will grant in part and deny in part Defendant's Motion to Strike Undisclosed Exhibits and Legal Theories, and will grant in part and deny in part Defendant's Motion for Partial Summary Judgment.
RELEVANT FACTUAL BACKGROUND
On July 27, 2010 Plaintiff Benjamin Taft ("Ben Taft" or "Taft") was operating a motor vehicle headed West on Bell Road in Surprise, Arizona when a motor vehicle traveling South on Grand Avenue ran a red light at an excessive speed and, from the wrong lane, turned left in front of Taft's vehicle causing a collision. (Doc. 53-1 at 2-9.) The driver of the other vehicle, Jacqueline Cox, was cited in the police reports as being at fault. (Id.) Taft was taken to the hospital for emergency treatment and evaluation, including x-rays. (Doc. 53-3 at 2-12.) Immediately after the collision, Taft indicated that he felt pain in his neck, shoulders, back, hips, and left lower extremities. (Doc. 53-2 at 2-3.) At the time of the collision Taft further indicated that he felt a popping sensation in his left knee and believed he had broken his left ankle. (Id.) Following Taft's discharge from the hospital, he continued medical treatment for his injuries with Dr. Robert Fauer, his family physician. (Doc. 53-4 at 2-20.)
Two days after the accident, Dr. Fauer noted extensive bruising and tenderness and diagnosed soft tissue traumas including neck, thorax, lumbar spine, and upper extremities and knee bruising. (Doc. 53-4 at 2-3.) Dr. Fauer prescribed medication and physical therapy. (Id. at 2.) Taft complied with his doctor's orders and followed through with physical therapy treatment. (Doc. 53-5 at 2-57.) Taft continued in physical therapy from August 5, 2010 until discharge from treatment on January 17, 2011. (Id.) Taft continued his doctor's visits with Dr. Fauer mainly for his left knee, but also for problems with his left ankle. (Doc. 53-4 at 2-20.) Dr. Fauer also referred Taft to an orthopedic specialist, Dr. Theodore Hofstedt, for an evaluation. (Doc. 53-7 at 2-9.) Dr. Fauer, Dr. Hofstedt, and MRI records support that Taft suffered from a left knee patella injury, specifically grade 2 chondromalacia, and a possible anterior cruciate ligament sprain. (Docs 53-4, 53-6 and 53-7.)
At the time of the accident, Taft was a 30-year-old executive chef employed by Fox Restaurant Concepts at North Restaurant in Scottsdale earning $44, 000 a year plus bonuses and benefits. (Doc. 53-10 at 2-7.) On July 28, 2010, one day after the collision, Taft's position at North was terminated because the restaurant closed. (Doc. 53-2 at 2.) However, in an affidavit, Taft states that he subsequently received a call from his District Manager at Fox indicating that Fox had purchased an airline ticket for him to fly to California to help a restaurant open in Newport Beach. (Id.) However, due to his injuries, Taft stated that he was not able to pursue the job opening. (Id.) District Manager John Steen stated that "[Taft] was told that had [Taft] been physically able to accept it at that time, employment would have been found at a Fox restaurant, pending permanent placement. Said employment would have been at the same pay and benefit scale that [Taft] had been receiving at North restaurant." (Doc. 56-1 at 2.)
Taft's medical file following the accident shows notes from both Dr. Fauer and Dr. Hofstedt taking him off work. (See, e.g., Dr. Fauer's notes, Doc. 53-4 at 2 ("Patient to be off work for the next two weeks..."); Doc. 53-4 at 4 (noting that Taft would continue to be "off work for four weeks."); Dr. Hofstedt's notes, Doc. 53-7 at 6 (stating that Taft is in a no work status for two weeks)). In November 2010, Taft returned to work for Fox restaurants. (Doc. 53-10.) Taft indicated that the pain in his left knee was too much and had to leave work after three days and go back for medical treatment; he was then terminated by Fox. (Doc. 53-2; Doc. 53-10.) In January 2011, Taft went to work for Fireside Grill as a chef, but allowed him to leave when in pain. At Fireside, Taft disclosed that he made $1, 200 a month less than he made with Fox. (Doc. 53-16 at 8, Doc. 57-1 at 35, Doc. 60-3 at 3 citing Doc. 60-1 at 8, Doc. 60-3 at 8-10, Doc. 60-12 at 7.) Taft now works for Amuse Bouche. (Id.)
Ultimately, Plaintiffs settled with Jacqueline Cox for her policy limits, $50, 000. (Doc. 48-1 at 10.) In August 2011, claiming injury loss above $50, 000, Plaintiffs filed a claim with their insurer, Defendant American Family Mutual Insurance Company for underinsured motorist ("UIM") benefits. (Doc. 53-16.) Defendant investigated Plaintiffs' claims which included a medical review by Registered Nurse Karen Van Belle. (Doc. 53-14.) Nurse Van Belle testified that her responsibilities were to respond to the adjuster's questions and provide information that would assist him in settling the claim. (Id.) Nurse Van Belle opined that Taft had patellar tendonitis and chondromalacia. (Id. at 6-7.) She further opined that she understood Taft to be symptom free at the time of her evaluation. (Id. at 3, 8.) She stated that she was not aware of and did not consider Dr. Fauer's opinion that Taft was not symptom free and would have expenses for future medical care. (Id. at 3.) On November 22, 2011, in a one paragraph letter, Defendant informed Plaintiffs that the $50, 000 policy limits paid by Cox's insurance company adequately compensated Taft for his injuries. (Doc. 48-1 at 10.) This litigation ensued.
STANDARD OF REVIEW
I. Motion to Strike
Federal Rule of Civil Procedure 37(c)(1), provides that "[i]f a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at trial, unless the failure is substantially justified or harmless." Rule 37(c)(1) also provides additional sanctions that a court may impose on a party "in addition to or instead of" striking the witness. Fed. R. Civ. P 37(c)(1)(A)-(C). The 1993 Advisory Committee Notes to Rule 37 state that sanctions under Rule 37(c)(1) are "automatic, " and provide "strong inducement for disclosure of material." Fed.R.Civ.P. 37 advisory committee's note (1993).
The Ninth Circuit Court of Appeals has observed that "we give particularly wide latitude to the district court's discretion to issue sanctions under Rule 37(c)(1)." Yeti by Molly, Ltd. v. Deckers Outdoor Corp. , 259 F.3d 1101, 1106 (9th Cir. 2001). As the rule provides, however, sanctions will not be imposed if the failure to disclose was substantially justified or harmless. Fed. R. Civ. P 37(c)(1). "Implicit in Rule 37(c)(1) is that the burden is on the party facing sanctions to prove harmlessness." Yeti by Molly, Ltd. , 259 F.3d at 1106.
"For purposes of Rule 37(c)(1), a party's failure to disclose is substantially justified where the non-moving party has a reasonable basis in law and fact, and where there exists a genuine dispute concerning compliance. See Nguyen v. IBP, Inc. , 162 F.R.D. 675, 680 (D. Kan. 1995)). "Failure to comply with the mandate of the Rule is harmless when there is no prejudice to the party entitled to the disclosure." Id.
II. Partial Summary Judgment
Upon motion at any time, a party defending against a claim may move for "partial summary judgment, " that is, "summary judgment in the party's favor as to... any part thereof." Fed.R.Civ.P. 56(b). A court must grant summary judgment if the pleadings and supporting documents, viewed in the light most favorable to the nonmoving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett , 477 U.S. 317, 322-23 (1986); Jesinger v. Nevada Fed. Credit Union , 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive law determines which facts are material. See Anderson v. Liberty Lobby , 477 U.S. 242, 248 (1986); see also Jesinger , 24 F.3d at 1130. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson , 477 U.S. at 248. The dispute must also be genuine, that is, the evidence must be "such that a reasonable jury could return a verdict for the nonmoving party." Id .; see Jesinger , 24 F.3d at 1130.
A principal purpose of summary judgment is "to isolate and dispose of factually unsupported claims." Celotex , 477 U.S. at 323-24. Summary judgment is appropriate against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322; see also Citadel Holding Corp. v. Roven , 26 F.3d 960, 964 (9th Cir. 1994). The moving party need not disprove matters on which the opponent has the burden of proof at trial. See Celotex , 477 U.S. at 317. The party opposing summary judgment "may not rest upon the mere allegations or denials of [the party's] pleadings, but... must set forth specific facts showing that there is a genuine issue for trial." FED. R. CIV. P. 56(e); see Matsushita Elec. Indus. Co. v. Zenith Radio , 475 U.S. 574, 585-88 (1986); Brinson v. Linda Rose Joint Venture , 53 F.3d 1044, 1049 (9th Cir. 1995).
III. Breach of Contract
A federal court sitting in diversity applies state substantive law. See Hambleton Bros. Lumber Co. v. Balkin Enterprises, Inc. , 397 F.3d 1217, 1227 (9th Cir. 2005). Thus, this Court applies Arizona law to the interpretation of the insurance contract at issue. See Benevides v. Arizona Prop. & Cas. Ins. Guar. Fund , 184 Ariz. 610, 613, 911 P.2d 616, 619 (App. 1995). In an action for breach of contract, the plaintiff has the burden of proving "the existence of a contract, breach of the contract, and resulting damages." Chartone, Inc. v. Bernini , 207 Ariz. 162, 170, 83 P.3d 1103, 1112 (App. 2004) (citing Thunderbird Metallurgical, Inc. v. Ariz. Testing Lab. , 5 Ariz.App. 48, 423 P.2d 124 (1976)).
Provisions of insurance contracts should be construed according to their plain and ordinary meaning. National Bank v. St. Paul Fire & Marine Ins. Co. , 193 Ariz. 581, 584, 975 P.2d 711, 714 (App. 1999). The interpretation of an insurance contract is a question of law, as is the question of whether the contract's terms are ambiguous. Id . In Arizona, courts must construe a clause which is subject to differing interpretations by "examining the language of the clause, public policy considerations, and the purpose of the transaction as a whole." State Farm Mut. Auto. Ins. Co. v. Wilson , 162 Ariz. 251, 257, 782 P.2d 727, 733 (1989).
IV. Bad Faith
"An insurance contract is not an ordinary commercial bargain; implicit in the contract and the relationship is the insurer's obligation to play fairly with its insured." Zilisch v. State Farm Mut. Auto. Ins. Co. , 196 Ariz. 234, 237, 995 P.2d 276, 279 (2000) (further quotation omitted). Although insurers do not owe fiduciary duties to their insureds, they do owe some duties of a fiduciary nature including equal consideration, fairness and honesty. Id . The insurer is obligated to conduct a prompt and adequate investigation, to act reasonably in evaluating the insured's claim, and to promptly pay a legitimate claim. Id. at 238, 995 P.2d at 280.
"An insurer acts in bad faith when it unreasonably investigates, evaluates, or processes a claim (an "objective" test), and either knows it is acting unreasonably or acts with such reckless disregard that such knowledge may be imputed to it (a "subjective" test)." Nardelli v. Metro. Group Prop. & Cas. Ins. Co. , 230 Ariz. 592, 597-98, 277 P.3d 789, 794-95 (App. 2012) (citing Zilisch , 196 Ariz. at 238, 995 P.2d at 280). The objective and subjective elements of bad faith are applied to both the insurer's evaluation of the claim and the insurer's claims handling process. Id.
The insurer "may challenge claims which are fairly debatable. To determine fair debatability, the Court first looks to whether the insurer's actions were objectively reasonable, which is based upon a simple negligence standard-whether the insurance company acted in a manner consistent with the way a reasonable insurer would be expected to act under the circumstances. Trus Joist Corp. v. Safeco Ins. Co. of Am. , 153 Ariz. 95, 104, 735 P.2d 125, 134 (App. 1986). If the insurer acted objectively unreasonably, then the Court moves to the subjective inquiry and determines if the insurer knew or was conscious that its conduct was unreasonable. Id . Generally, the insurer's "belief in fair debatability is a question of fact to be determined by the jury.'" Zilisch , 196 Ariz. at 280, 995 P.2d at 279 (citing Sparks v. Republic Nat'l Life Ins. Co. , 132 Ariz. 529, 539, 647 P.2d 1127, 1137 (1982). However, if the insured offers no significantly probative evidence that calls into question the insurer's subjective belief in fair debatability, the court may rule on the issue as matter of law. See Knoell v. Metropolitan Life Ins. Co. , 163 F.Supp.2d 1072, 1076 (D. Ariz. 2001). Thus, an insurance company can be liable for bad faith for either unreasonably denying a claim that was not fairly debatable or for acting unreasonably in how it processed a claim whether the claim was fairly debatable or not.
I. Motion to Strike-Legal Theories
Lost Earning Capacity
Defendant contends that Plaintiffs' Complaint did not include allegations of lost earning capacity and that Plaintiffs never disclosed this item of damages. (Doc. 59 at 6.) According to Defendant, Plaintiffs did not allege lost earning capacity damages until their response to Defendant's motion for partial summary judgment. (Id.) Defendant does not dispute that Plaintiffs timely disclosed lost wages damages, but it does dispute that by disclosing lost wages damages Plaintiffs also disclosed lost earning capacity. (Doc. 62 at 2.)
Plaintiffs argue that they did properly disclose lost earnings capacity damages to Defendant, citing their initial demand letter, supplemental disclosure statement, and answers to interrogatories. (Doc. 60 at 3.) According to Plaintiffs, these documents disclose that due to pain and debilitating injury from the accident, Taft was not able to work the hours necessary to continue in his former position as an executive chef, and that he loses $1, 200 in income every month as a result of injuries from the accident. (Doc. 60-3 at 3 citing Doc. 60-1 at 8, Doc. 60-3 at 8-10, and Doc. 60-12 at 7.)
In a personal injury action, "Arizona allows unlimited recovery for actual damages, expenses for past and prospective medical care, past and prospective pain and suffering, lost earnings, and diminished earning capacity." Wendelken v. Superior Court in and for Pima County , 137 Ariz. 455, 458, 671 P.2d 896, 899 (1983). Thus, in a personal injury action, there is recovery for a decrease in earning capacity as distinct from lost wages. Mandelbaum v. Knutson , 11 Ariz.App. 148, 149, 462 P.2d 841, 842 (1969). "[I]mpairment of earning capacity is an item of general damage, permitting recovery for loss or diminution of the power to earn in the future and is based upon such factors as plaintiff's age, life expectancy, health, habits, occupation, talents, skills, experience, training and industry." Id. at 149-50, 462 P.2d at 842-43. "To sustain such an award, the injured person must establish the fact of diminished capacity and the fact that it is permanent." Id. at 150, 462 P.2d at 842.
Based upon the Court's review of the discovery documents cited by Plaintiffs, the Court finds sufficient disclosure of Taft's claim for lost earnings capacity damages. Although Defendant claims that Taft has not offered sufficient evidence that he suffers from a permanent impairment (Doc. 62 at 2-3), a motion to strike tests insufficient disclosure, not insufficient proof. Therefore, the Court will not strike Plaintiffs' damage claim for lost earnings capacity.
Institutional Bad Faith/Hidden or Secret Requirements for UIM Benefits
Although Defendant concedes that Plaintiffs disclosed a bad faith claim based on the manner in which Defendant handled Taft's individual claim (Doc. 62 at 3-5), Defendant contends that Plaintiffs failed to properly disclose the facts they rely on in support of their new, previously undisclosed claim that Defendant engaged in institutional bad faith. (Doc. 59 at 6.) Defendant contends that Plaintiffs failed to disclose allegations that Defendant has hidden or secret requirements to obtain UIM benefits. (Doc. 62 at 3-5.) The gist of these new allegations is that Defendant had a policy that "required actual contemporaneous off-work slips and that an after-the-fact doctor's affirmation would not suffice." (Id.) Defendant contends that if it had known that Plaintiffs were pursuing an institutional bad faith claim, it would have engaged Plaintiffs in additional discovery, which cannot now be completed unless discovery is reopened. (Id.) Defendant further contends that it would have hired an expert to testify regarding the institutional bad faith claim and the hidden or secret requirements for UIM benefits. (Doc. 59 at 7.)
Plaintiffs argue that they are not raising institutional bad faith arguments or new facts in support of bad faith, and that their bad faith claim is limited to Defendant's improper evaluation of Taft's UIM benefits claim. In support, Plaintiffs state that their response to Defendant's motion for partial summary judgment only stated facts disclosed by the Defendant's representatives during depositions to the effect that Defendant had a policy of only accepting a loss of earnings statement if the doctor contemporaneously made a record taking the plaintiff off work. It would not accept an after-the-fact affirmation by the doctor. Plaintiffs argue that this does not raise a new theory of the case or disclose new facts.
The Court finds that "institutional" bad faith is not a commonly recognized and accepted legal claim. Although Defendant contends that Plaintiffs have raised a claim of "institutional" bad faith as if it were so, Defendant did not provide the Court with any controlling authority in support of this legal theory. Furthermore, the Court finds no controlling authority in Arizona establishing institutional bad faith as a claim. Absent such authority, the Court will not grant Defendant's motion to strike on this basis. Moreover, Plaintiffs concede that they are not attempting to raise institutional allegations and that they limit their bad faith claim to allegations that Defendant improperly evaluated Taft's UIM claim. Further, the Court finds that Plaintiffs raised no new allegations regarding hidden or secret requirements to obtain UIM benefits when they referenced statements made by Defendant's representatives in their response to Defendant's motion for summary judgment. The Court construes those references to be in support of Plaintiffs' allegations that Defendant improperly evaluated Taft's UIM claim. Therefore, Plaintiffs' bad faith claim is limited to allegations that Defendant improperly evaluated Taft's UIM claim, and the Court will not strike Plaintiffs' factual assertions based on statements made by Defendant's representatives during their depositions.
Defendant concedes that Plaintiffs disclosed a bad faith claim and that Plaintiffs can attempt to seek emotional distress damages related to Defendant's handling of Taft's UIM claim. (Doc. 62 at 6.) However, Defendant contends that Plaintiffs' alleged emotional damages claim for the lost equity in their home is not logically related to the administration of Taft's UIM claim and was not timely disclosed. (Id.) By not receiving timely disclosure of the lost equity claim, Defendant contends that it was prevented from submitting discovery requests on the topic and from asking relevant deposition questions. (Id.)
Plaintiffs agree that they did not lose any equity in their house. (See Doc. 52 at 8 ("The resultant statement of lost equity is just wrong.").) According to Plaintiffs, they have submitted no new claim for emotional distress damages. (Doc. 60 at 4.)
To the extent that Plaintiffs assert a claim for emotional distress damages related to lost equity in their home, the Court will strike this claim. Plaintiffs did not lose any equity in their home. Plaintiffs' claim for emotional distress is therefore limited to those damages related to Defendant's administration or handling of Taft's UIM claim. See Farr v. Transamerica Occidental Life Ins. Co. , 145 Ariz. 1, 7, 699 P.2d 376, 382 (App. 1984); see also Kaufman v. Langhofer , 223 Ariz. 249, 253, 222 P.3d 272, 276 (App. 2009).
II. Motion to Strike-Exhibits
Dr. Fauer's Medical Report
Defendant moves to strike Dr. Fauer's October 15, 2012 medical report regarding Ben Taft because it was not timely disclosed. (Doc. 59 at 3.) Plaintiffs state that Dr. Fauer testified at his October 17, 2012 deposition about this particular appointment with Taft and stated that his report of Taft's visit had not yet been finalized in writing but would be within the week. (Doc. 60-8 at 2-4.) Subsequently, counsel for Plaintiffs sent an email to Defendant stating that he had received a copy of Dr. Fauer's report and checking to ensure that Defendant had also received a copy. (Doc. 60-9 at 2.) Defendant indicated that he had not as yet but would be looking for it in the mail. (Id.) Defendant does not state when they received Dr. Fauers' report; it moves to strike because the document was untimely disclosed. (Doc. 62 at 7-8.)
Although Defendant acknowledges that the discovery cut-off deadline in this case was October 19, 2012, it moves to strike a document that Dr. Fauer created post discovery cut-off because it was untimely disclosed. The Court will deny Defendant's motion. It is undisputed that Defendant questioned Dr. Fauer about this particular visit during the deposition. (Doc. 60-8 at 2-4.) On this record, the Court finds that any delayed disclosure of Dr. Fauer's October 15, 2012 medical report regarding Taft was harmless and thus the Court will not strike the report.
December 6, 2010 Report of Illness or Physical Disability
Defendant has withdrawn its request to strike this document. (Doc. 62 at 8.)
December 9, 2012 Ben Taft Declaration
Defendant seeks to strike certain information contained in Taft's declaration as being untimely disclosed. (Doc. 59 at 3-4.) Defendant moves to strike Taft's declaration to the extent that it asserts that Taft had emotional distress related to his house going into foreclosure due to Defendant's bad faith administration of his claim for UIM benefits. (Doc. 62 at 8-9.) Defendant argues that Plaintiffs did not disclose their allegation that this item of distress damage was connected with his bad faith claim. (Id.) Plaintiffs respond that this assertion was disclosed. (Doc. 60 at 6-8.)
The Court finds that Plaintiffs did disclose the following:
The financial impact on Ben and his wife has been devastating. Their house was in foreclosure and was only recently saved to give them a chance to make a short sale. Due to the financial losses suffered as a result of this collision, Ben and his wife lost what, at one point, had been a quarter of ...