Insurance Fights & Federal Court

Many insurance lawyers representing claimants want to avoid Federal Court due to the procedural rules and the court’s interpretation of those rules.  These rules and their interpretation generally work in favor of the insurance companies which is why insurance companies always want a case in Federal Court and why lawyers representing insureds generally try to avoid Federal Court.

A 2017, opinion discusses some basic Federal Court rules.  The case is styled, Campmed Casualty & Indemnity Company, Inc. v. Specialists on Call, Inc., et al.  The opinion was issued by the Eastern District Court, Sherman Division.

This is an insurance coverage dispute related to whether Campmed is obligated to defend Specialists on Call (SOC) in the underlying litigation.  On December 19, 2016, Campmed filed its motion for leave to amend its complaint.  On December 28, 2016, SOC filed a response.  On January 2, 2017, Another Defendant, Dr. Leonard DaSilva filed a response that adopted and incorporated the entirety of SCO’s response.

Rule 15(a) of the Federal Rules of Civil Procedure provides that a party may amend its pleading once without seeking leave of court or the consent of the adverse party at any time before a responsive pleading is served.  After a responsive pleading is served, a party may amend only with the opposing party’s written consent or the court’s leave.  Rule 15(a) instructs the court to “freely give leave when justice so requires.”  The rule evinces a bias in favor of granting leave to amend.  But leave to amend is not automatic.  Whether to allow amendment “lies within the sound discretion of the district court.  A district court reviewing a motion to amend pleadings under Rule 15(a) may consider whether there has been undue delay, bad faith or dilatory motive, undue prejudice to the opposing party, and futility of amendment.

Campmed seeks leave to amend its original complaint to add the following allegations:

14.  SIC’s and DaSilva’s counterclaims in this action claim that if SOC had known Campmed would challenge coverage based on SOC having received the Banks’ claim after the Campmed policy period had expired, SOC would have purchased an Extended Reported Period tail-coverage endorsement under the policy, and thus Campmed should be estopped to assert lack of coverage under the policy.  In response to the counterclaims, Campmed has re-offered the tail coverage to SOC on the same terms that were available (and in fact offered) to SOC when SCO and DaSilva claim that SOC would have purchased the tail coverage endorsement.  See attached exhibit 1.  SOC has so far declined Campmed’s re-offer of the tail coverage endorsement.

15.  Because SOC told Campmed that the Banks’ claim “was made” during the policy period when in fact it was not, Campmed did not know that coverage was precluded.  Now that all parties to this action and the underlying suit know the claim was in fact made after the Campmed policy had expired, SOC should have to pay for the tail coverage it seeks.  SOC is not entitled to free coverage, and failing to pay for the required tail coverage endorsement will leave SOC and Dr. DaSilva without insurance coverage for the Banks’ claim and suit.

SOC and Dr. DaSilva respond that Campmed’s motion for leave should be precluded for introducing allegations that are inadmissible under Rule 408 of the Federal Rules of Evidence.

The Court finds that Rule 408 is not an appropriate reason to deny Campmed’s proposed amended complaint.  Rule 408 is a rule of evidence governing the admissibility of settlement discussions as evidence at trial.  Specifically, Rule 408 states that “conduct or a statement made during compromise negotiations about [a disputed] claim” is not admissible “to prove or disprove the validity or amount of [the] claim.”  The Court is unable to determine whether Campmed’s extension of tail coverage to SOC actually constituted a settlement offer.  And even if the allegations were made during settlement negotiations, Rule 408 is a rule governing the admission of evidence in court and a rule of pleading.  Since the Federal Rules instruct leave to amend to be freely given when justice so requires. the Court determines such leave is proper in this case.