United States District Court, D. New Mexico
MATTER is before the Court on Plaintiff's Motion to
Bifurcate and Stay Discovery Regarding Extra-Contractual
Claims, filed August 25, 2017. (Doc. 36). Defendant
Roger Saul filed a Response opposing the
Motion on September 6, 2017. (Doc. 39). And
Plaintiff filed its Reply on September 20, 2017. (Doc. 43).
The Court notes that the Honorable Kirtan Khalsa, as referral
judge, has granted the Motion insofar as it seeks a
stay of discovery. (Doc. 56). As to the remainder of the
Motion, the Court has reviewed the parties'
submissions, the record, and the relevant law and is
otherwise fully advised. For the reasons that follow, the
Motion is well taken and shall be granted.
case commenced with Plaintiff's Complaint for
Declaratory Relief . (Doc. 1). By its declaratory
judgment action, Plaintiff seeks a declaration that a life
insurance policy that it issued to James Silva (Decedent)
prior to his death was effectively rescinded and, therefore,
no claim may be brought and no proceeds are payable under the
policy. (Doc. 1). Defendant Roseanne Silva was Decedent's
wife, and was the named beneficiary of the life insurance
policy. (Doc. 1 at 2). Defendant Roger Saul is Ms.
Silva's landlord. (Id.).
the factual allegations are that James Silva (Decedent)
applied for, and purchased, a life insurance policy from
Plaintiff in 2015. (Doc. 1 at 3). The policy was contestable
during the first two years of coverage. (Id.). In
applying for the policy, Decedent represented that in the two
years preceding the application, he had not been
“admitted to or confined in a hospital[.]” (Doc.
1 at 4). Decedent died within the first year of coverage.
(Doc. 1 at 3). Because Decedent's death occurred within
the “contestability period, ” Plaintiff
investigated his medical history. (Doc. 1 at 4). The
investigation revealed that Decedent had been hospitalized
twice within two years preceding his application for life
insurance. (Id.). This discovery led Plaintiff to
rescind the policy on the ground that Decedent “had
made a materially false statement in his application”
(Doc. 1 at 4-5).
correspondence with Ms. Silva regarding its decision to
rescind the policy, Plaintiff indicated that it would issue a
refund check for the sum that had been paid for policy
premiums plus interest, which check, if cashed, deposited, or
endorsed, would constitute Ms. Silva's “agreement
to recession of the Contract.” (Doc. 1 at 5). Ms. Silva
cashed, deposited, or endorsed the check. (Id.).
Later, in a “now-dismissed related matter” the
Bernalillo County Metropolitan Court, Ms. Silva indicated
that she did not agree that the policy had been rescinded,
and she indicated that she might file a claim against
Plaintiff related to the policy. (Doc. 1 at 5). Additionally,
Mr. Saul, claiming that Ms. Silva assigned a percentage of
the policy proceeds to him after Decedent died, “filed
claims” in Bernalillo County Metropolitan Court seeking
payment of ten percent of the proceeds of the policy; these
claims were dismissed without prejudice. (Doc. 1 at 3, 5).
Based on the foregoing, on Mr. Saul's stated intention to
assert claims related to and arising from the life insurance
policy, Plaintiff filed its declaratory judgment action.
(Doc. 1 at 6).
Saul's Answer to Plaintiff's Complaint included
Counterclaims for (1) breach of contract claim based on
Plaintiff's “[f]ailure to pay $100, 000 death
benefit proceeds” (as to which Mr. Saul claimed in his
Answer to have a fifty-percent interest) and (2) a
generalized claim of “bad faith” for Unfair
Claims Practices as defined and prohibited by NMSA 1978,
Section 59A-16-20, arising out of the manner in which
Defendant handled Ms. Silva's claim for benefits under
the life insurance policy. (Doc. 6 at 6-8).
Motion presently before the Court, Plaintiff seeks
to bifurcate and stay discovery as to, Mr. Saul's
bad-faith counterclaims pending resolution of its declaratory
judgment action. (Doc. 36 at 1). Plaintiff argues that the
bad-faith counterclaims, which are founded on the existence
of a valid life insurance policy, will be moot if the Court
grants the relief requested in the Complaint. (Doc. 36 at 1).
Therefore, Plaintiff argues, bifurcating and staying
discovery as to these counterclaims would serve the interest
of judicial economy and efficiency, would save Plaintiff the
costs and time associated with producing potentially
unnecessary discovery, and would eliminate the potential
prejudice to Plaintiff that could arise from the resolution
of its declaratory judgment action and Mr. Saul's
bad-faith counterclaims in a single trial. (Doc. 36 at 3-4).
Saul's Response to this Motion indicates his
objection, in general terms, to bifurcation, claiming that it
is “unnecessary, portends excessive litigation, is a
hardship on impecunious Defendants, and may . . . deny
vulnerable Defendants of due process[.]” (Doc. 39 at 1)
Otherwise, in substance, Mr. Saul's Response pertains to
the merits of Plaintiff's Complaint for declaratory
judgment and to matters that are not presently before the
Court (including the now-passed deadline to amend pleadings
and Mr. Saul's now-denied motion for sanctions
(See Doc. 33; Doc. 52).).
Law Governing Bifurcation
convenience, to avoid prejudice, or to expedite and
economize, the court may order a separate trial of one or
more separate issues, claims . . . [or]
counterclaims[.]” Fed.R.Civ.P. 42(b). Rule 42(b) vests
the Court with broad discretion in deciding whether to order
bifurcation. Easton v. City of Boulder, 776 F.2d
1441, 1447 (10th Cir. 1985). The Court appropriately
exercises this discretion when it orders bifurcation of
issues that are “clearly separable” in order to
promote the interests identified in Rule 42(b). Palace
Expl. Co. v. Petroleum Dev. Co., 316 F.3d 1110, 1119
(10th Cir. 2003). The Court's decision “must be
made with regard to judicial efficiency, judicial resources,
and the likelihood that a single proceeding will unduly
prejudice either party[.]” York v. Am. Tel. &
Tel. Co., 95 F.3d 948, 958 (10th Cir. 1996).
Saul's Bad-Faith Counterclaims are Clearly Separable From
Plaintiff's Declaratory Judgment Action
party's ability to pursue a claim is contingent upon the
resolution in its favor of a separate claim, the respective
claims are clearly separable. See Mandeville v. Quinstar
Corp., 109 Fed.Appx. 191, 194 (10th Cir. 2004) (holding
that issue of whether to pierce corporate veil would become
relevant only if plaintiff was successful in one of his
underlying claims, thus issues were “logically
separable” and properly bifurcated). In the present
case, Mr. Saul's counterclaims-centered upon a theory of
bad faith failure to investigate and pay Ms. Silva's
insurance claim-depend upon the existence of a valid life
insurance policy. See Charter Servs., Inc. v. Principal
Mut. Life Ins. Co., 868 P.2d 1307, 1313 (N.M. Ct. App.
1994) (stating “concept of bad faith failure to pay in
the insurance context does not arise unless there is a
contractual duty to pay under the policy).; see also
Sanchez v. Safeco Ins. Co. of Am., No. 14-926 MV/GBW,
2015 WL 12832335, at *1 (D.N.M. Sept. 11,
2015)(“[B]ifurcation of discovery is often appropriate
where the existence of coverage . . . is at issue[.]”);
Banclnsure, Inc. v. First Bank, Inc., No.
3:10-CV-580, 2011 WL 781191, at * 3 (W.D. Ky. Mar. 1, 2011)
(stating that it is logical to delay discovery on bad faith
issues pending resolution of coverage issues). Were the
fact-finder to conclude that Plaintiff, having rescinded the
life insurance policy, had no contractual duty to investigate
or ultimately pay Ms. Silva's claim, Mr. Saul's
bad-faith counterclaim would be moot. See e.g., Charter
Servs., Inc., 868 P.2d at 1313 (holding that since the
defendant “was not contractually obligated to
pay” an insurance claim, the plaintiff could not
“prevail on its claim that [the d]efendant acted in bad
faith by denying [the]claim without adequate
investigation”). Accordingly, under the circumstances
of this case, the issues raised in Plaintiff's
declaratory judgment action are clearly separable from Mr.
Saul's bad-faith counterclaims.
Advances the Interests of Judicial Efficiency, Judicial
Economy, and the Avoidance of ...