United States District Court, D. Arizona
ORDER AND OPINION
[RE: MOTION AT DOCKET 117]
JOHN W. SEDWICK, Senior District Judge.
I. MOTION PRESENTED
At docket 117 defendant Hartford Casualty Insurance Company ("Hartford") moved for leave to amend its answer and add a counterclaim. Plaintiff White Mountain Communities Hospital Incorporated ("White Mountain") responds at docket 125. Defendant Hartford replies at docket 128. Oral argument is requested but would not assist the court.
Hartford issued a commercial property insurance policy to White Mountain covering the period from April 1, 2011 thru April 1, 2012. The policy provided insurance coverage against business income losses as well as property losses. White Mountain's hospital located near Springerville was affected by the Wallow Fire, which began burning on May 29, 2011, and which led to the temporary evacuation of Springerville through June 13, 2011. White Mountain sought payment under the policy for property damage and business income losses. Hartford paid White Mountain $723, 548 on the claims, consisting of a little over $40, 000 on the property damage claim and $683, 520 on the business interruption claim for losses up through at least August 2011. There is no dispute about the property damage claim, but White Mountain contends in this lawsuit that it is entitled to be paid more money on the business interruption claim.
The discovery deadline in the case was originally set for August 31, 2014. Before discovery closed, during the summer of 2014, Hartford sought to obtain through discovery a letter from White Mountain's lawyer to White Mountain's CEO Jerry Campeau and a third party, Bruce Hancock with Aegis Insurance Associates LLC ("Aegis"), who was White Mountain's insurance broker. White Mountain objected to Hartford's request for production based on the work product doctrine and attorney-client privilege. Hartford then sought to obtain a copy of the letter, as well as other documents related to White Mountain's claim, by subpoenaing Aegis's claim file. Aegis complied with the subpoena and turned over the requested documents in mid-August 2014, ahead of the discovery deadline. Emails in the file indicated that a property damage and restoration specialist, Matt Heileman, toured the hospital at Aegis's request and with White Mountain's knowledge and cooperation on June 24, 2011, shortly after the hospital reopened, and he found no evidence of smoke damage inside the building. The email indicated that Heileman met Randy Mattice at the hospital. Hartford asserts Mattice did not disclose such information when asked.
At the request of White Mountain, the discovery deadline was extended by a couple of months, and at the request of Hartford, the deadline for conducting depositions was extended until early November. Hartford then deposed Heileman and confirmed what the emails had disclosed. Hartford asserts that the evidence discovered shows that White Mountain did not actually sustain covered business losses past June 2011. Thus, the issue is not simply whether White Mountain is entitled to more business interruption benefits, but also whether it should have received any insurance payments for operations past June of 2011 in the first place. Hartford believes an amendment to its answer is warranted so that it may raise an affirmative defense of setoff and recoupment and add a counterclaim for beach of contract and breach of the duty of good faith and fair dealing. Before filing the motion to amend, Hartford sought White Mountain's stipulation to no avail. It then filed the motion on December 29, 2014.
III. STANDARD OF REVIEW
Given that the court has already entered a scheduling order setting a deadline for motions to amend and that deadline has past,  this request to amend is properly analyzed first under Rule 16 as a request to amend the scheduling order. Under Rule 16, the schedule may be modified for good cause and with the judge's consent. "Rule 16(b)'s good cause' standard primarily considers the diligence of the party seeking the amendment."
If a party establishes good cause for the amendment, it must then demonstrate the amendment is proper under Rule 15 of the Federal Rules of Civil Procedure. Rule 15(a)(2) provides that "[t]he court should freely give leave [to amend pleadings] when justice so requires." The rule sets forth a very liberal amendment policy. The decision to permit or deny a motion for leave to amend rests within the sound discretion of the trial court. In deciding whether to grant leave to amend under Rule 15(a), courts generally consider the following factors: undue delay, bad faith by the moving party, prejudice to the opposing party, futility of amendment, and whether the party has previously amended his pleadings. "Generally, this determination should be performed with all inferences in favor of granting the motion." The party opposing amendment bears the burden of demonstrating a permissible reason for denying the motion to amend.
A. Rule 16
White Mountain argues that Hartford has not shown good cause to modify the scheduling order and file an amendment. As noted above, whether Hartford has good cause to seek a late amendment turns on whether it was diligent in discovering the basis for and seeking the amendment. Based on the sequence of events as detailed in Hartford's reply brief, the court concludes that Hartford has been sufficiently diligent and thus has good cause for seeking an amendment at this late stage. Hartford had no reason to anticipate the evidence that forms the basis of this requested amendment when the parties submitted their proposed scheduling order. The only dispute at that time was whether White Mountain is entitled to more money on White Mountain's business interruption claim; there was no indication that White Mountain possibly received more than they were entitled to and thus no reason for Hartford to assert an affirmative defense and counterclaim. Moreover, Hartford was unaware of the possible basis for the counterclaim until it received information that White Mountain and its own insurance broker already knew but failed to disclose. Hartford asked White Mountain representative Randy Mattice if he had met with any third-party vendors at the facility after the fire and Mattice stated he did not recall any such meeting. Upon seeking documents from Aegis for other reasons, well within the original discovery time frame, and receiving those documents from Aegis, it learned that Heileman had toured the hospital in June 2011, that he had met with Mattice at the hospital, that he did not find evidence of smoke or smoke damage, and that Mattice and Aegis knew about his conclusions. Hartford then deposed Heileman to obtain information about his visit and his observations. The motion for amendment was filed shortly after Hartford received the transcript from Heileman's deposition. The time frame was reasonable. Based on White Mountain's omission and Hartford's reasonable diligence, there is good cause for the amendment.
White Mountain asserts that Hartford should have been in contact with the insurance broker, Aegis, before the lawsuit was filed, and then it would have learned about Heileman's visit sooner. White Mountain asserts that because Aegis is authorized to write policies for Hartford, Hartford should have known everything that was in Aegis's claim file. That argument is unpersuasive. As noted by Hartford, the fact that Hartford had to subpoena Aegis for the claim file and the fact that White Mountain objected to that subpoena and requested that it be ...