of attempting to frustrate the plaintiffs' claim . . . by not
complying with their discovery obligations." Proposed Amended
Complaint ¶ 22(f). Plaintiffs also allege that "[d]espite the
fact that, between April 18, 1988 and November 1, 1988, the
defendants' designated representatives have testified under
oath to interpretations of provisions of the Umbrella Policies
consistent with plaintiffs' demand for defense costs, the
defendants have continued to resist payment of the defense
costs under the Umbrella Policies." Id. ¶ 22(g). Thus,
plaintiffs clearly have alleged sufficient facts to support a
finding of an unfounded, bad faith refusal to settle the claim,
the essential element in all of the claims contained in the
Proposed Amended Complaint.
Defendant is correct, however, that the statute provides only
for recovery of actual damages and costs, with attorney's fees
available at the court's discretion for willful violations.
N.M.Stat.Ann. § 59A-16-30. However, the unavailability of
punitive damages in connection with plaintiffs' unfair
practices claim affects neither the viability of the claim
itself, nor the availability of such damages for plaintiffs'
other causes of action.
B. Tort Claim
The proposed amended complaint alleges bad faith refusal by
defendants to pay plaintiffs' claim under the Umbrella
Policies. New Mexico Courts have "recognized the tort of bad
faith in an insurer's refusal to pay a first-party claim. The
claim for relief may be supported, inter alia, by evidence of
any frivolous or unfounded refusal to pay or delay in paying
the proceeds of the insurance contract." Jessen v. National
Excess Ins. Co., 108 N.M. 625, 776 P.2d 1244, 1246 n. 2 (1989)
(citing State Farm Gen. Ins. Co. v. Clifton, 86 N.M. 757, 759,
527 P.2d 798, 800 (1974)).
Plaintiffs rely on the same facts alleged in connection with
their unfair practices claim to support their tort claim. For
the same reasons stated above, those allegations are sufficient
to state a claim for which relief may be granted.
C. Punitive Damages Claim
Plaintiffs also seek to amend the complaint to assert a
demand for $25,000,000 in punitive and exemplary damages. Under
New Mexico law, it is well established that punitive damages
may be awarded in cases involving the breach of an insurance
policy. "To assess punitive damages for breach of an insurance
policy there must be evidence of bad faith or malice in the
insurer's refusal to pay the claim. `Bad faith' has been
defined as meaning `any frivolous or unfounded refusal to pay.
. . .'" United Nuclear Corp. v. Allendale Mut. Ins. Co.,
103 N.M. 480, 709 P.2d 649, 654 (1985) (quoting State Farm, supra,
86 N.M. at 755, 527 P.2d at 800; other citations omitted); see
also Jessen, supra, 108 N.M. 625, 776 P.2d at 1247; Green Tree
Acceptance, Inc. v. Layton, 108 N.M. 171, 173, 769 P.2d 84, 86
(1989). Punitive damages may be awarded for bad faith breach of
an insurance policy under either a contract or tort theory. See
Jessen, supra, 776 P.2d at 1246-47.
Defendants challenge this amendment to the complaint chiefly
on the grounds that "plaintiffs can never demonstrate that
defendants' refusal to honor their claim was or is so devoid of
merit as to warrant punitive damages." Defendants' Memorandum
of Law at 5. However, this argument is based on the factual
record and on defendants' "good faith" defenses. As previously
stated, the Court cannot properly consider the merits of
plaintiffs' evidence of bad faith on a motion to amend. Based
on the allegations quoted, supra, it is clear that the proposed
amendment would withstand a motion to dismiss under
III. Delay, Bad Faith, and Prejudice
This case was commenced on June 15, 1987, and the instant
motion to amend the complaint was filed on February 6, 1991.
Although there has been considerable delay before plaintiffs
moved to amend
the complaint, courts in the past have granted leave to amend
even after substantial delay. In fact, "[p]arties have been
permitted to assert new claims long after they acquired the
facts necessary to support such claims, and have even been
permitted to amend a complaint on the eve of trial."
Hannah, supra, 753 F. Supp. at 1176 (citing Green v. Wolf Corp.,
50 F.R.D. 220, 223 (S.D.N.Y. 1970) and Hanlin v. Mitchelson,
794 F.2d 834 (2d Cir. 1986)).
Furthermore, plaintiffs have reasonably justified their delay
in moving to amend the complaint. First, plaintiffs' proposed
amended complaint is based, at least in part, on facts that
came to light during discovery. Given the fact that defendants'
failure to comply with their discovery obligations led
Magistrate Judge Dolinger to impose a sanction of $19,000,
defendants' objections to plaintiffs' alleged delay are
somewhat disingenuous. Second, the parties' cross-motions for
summary judgment were not finally resolved by this Court until
September 5, 1990. The Court agrees with plaintiffs that it was
appropriate to wait until this Court had determined whether the
case could be disposed of without a trial before moving to add
new claims. Moreover, it was also appropriate for plaintiffs to
attempt to obtain defendants' consent to the addition of claims
to the pretrial order and thus avoid motion practice.
Even assuming, arguendo, that there had been undue delay in
the instant case, plaintiffs' motion to amend the complaint
could not be denied solely on that ground. "'Mere delay, . . .
absent a showing of bad faith or undue prejudice, does not
provide a basis for the district court to deny the right to
amend.'" Richardson Greenshields, supra, 825 F.2d at 653 n. 6
(quoting State Teachers, supra, 654 F.2d at 856); see also
Zeigan v. Blue Cross & Blue Shield, 607 F. Supp. 1434 (S.D.N Y
1985); Howey v. United States, 481 F.2d 1187, 1190 (9th Cir.
1973); 3 Moore's Federal Practice ¶ 15.08, at 15-76.
Defendants argue that they are prejudiced by the proposed
amendments to the complaint, and specifically by (1)
plaintiffs' introduction of evidence as to the manner in which
defendants have conducted their defense, and (2) "the
last-minute interjection of new claims, claims that are not
fully described." Defendants' Memorandum of Law at 12. However,
plaintiffs may introduce evidence of the manner in which
defendants have conducted their defense to the extent that such
evidence is relevant to the legally recognized claims contained
in the proposed amended complaint. See T.D.S. Inc. v. Shelby
Mut. Ins. Co., 760 F.2d 1520, 1527 (11th Cir. 1985); see also
Fed.R.Evid. 401. Furthermore, defendants have failed to show
that they have been specifically prejudiced by the delay. In
essence, defendants claim that they are prejudiced by having to
defend against the new claims, a burden they would have borne
had the claims been included in the original complaint. Such a
burden "hardly amounts to prejudice outweighing the policy of
Rule 15(a) in favor of permitting the parties to obtain an
adjudication of the merits." S.S. Silberblatt, supra, 608 F.2d
A claim of bad faith is implicit in defendants' speculation
as to plaintiffs' motives in attempting to amend the complaint.
"[T]he real purpose of the proposed amendments is to bludgeon
defendants into settling the case at a level more favorable to
the Journal. . . . Clearly, therefore, this motion is a last
minute attempt to punish defendants for refusing to
capitulate." Affidavit of David Holmes, sworn to on March 5,
1991, ¶ 30, at 14-15. However, to the extent that defendants
raise the issue of bad faith, it is chiefly in support of their
contention that the proposed amendments are futile. "In this
context, the proposed amendment is simply a ploy to permit
plaintiff to introduce irrelevant and prejudicial matter at
trial. The court should not permit a futile amendment that has
that as its objective." Defendants' Memorandum of Law at 6
As the Court has concluded that the proposed amendments are
not futile, plaintiffs' good faith in moving to amend is
apparent. Because defendants have failed to establish grounds
to deny leave to amend the complaint, plaintiffs' motion is
IV. Cross-Motion to Reopen Discovery
In order to avoid any possible prejudice to defendants caused
by the amended complaint, the Court will permit additional
discovery. However, defendants have requested "that the Court
reopen discovery for all purposes for sufficient time to permit
defendants a full and complete inquiry." The Court finds no
reason for further discovery on any issue other than those
raised for the first time by the added claims. Accordingly, the
additional discovery will be limited solely to that needed in
connection with the new allegations to be included in the
For the reasons stated above, plaintiffs are granted leave to
amend the complaint, pursuant to Fed.R.Civ.P. 15(a).
Defendants' cross-motion for a reopening of discovery is
granted in part, as delineated above. This matter is referred
to Magistrate Judge Michael H. Dolinger, for general pretrial
purposes including supervision of the additional limited
discovery permitted by this order.
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