Opinion
C.A. No. 9:04-23197-23.
July 14, 2005
ORDER
This matter is before the court upon Defendant's Motion to Amend its Answer. In its motion, Defendant seeks to add additional affirmative defenses that Dr. Joseph Alexander Heslin, Jr., the Deceased, let his supplemental coverage lapse before the time of his death, as well as the defense of mistake. Plaintiff opposes this amendment. For the reasons set forth herein, Defendant's motion is granted.
BACKGROUND
On November 4, 2004, Plaintiff Keron Heslin-Kim ("Heslin-Kim") filed a complaint against Connecticut General Life Insurance Company ("Connecticut General") in the Court of Common Pleas for Beaufort County, alleging breach of contract and bad faith refusal to pay first party benefits under a supplemental coverage insurance policy. Heslin-Kim represents the estate of Dr. Joseph Alexander Heslin, Jr. ("Dr. Heslin") and the beneficiaries of Connecticut General Life Insurance Policy No. 9902939.
Dr. Heslin was employed by Fort Valley State University ("FVSU") and Savannah State University. Beginning in November 1983, Dr. Heslin was insured under Connecticut General's group life insurance policy through the Board of Regents of the University System of Georgia. In December 1987, Dr. Heslin amended his election to include supplemental coverage in the amount of $100,000, effective on January 1, 1988. The supplemental coverage plan allowed a retiree to continue to carry an amount of supplemental life insurance up to $15,000 after retirement as long as the supplemental coverage was in effect for ten years prior to retirement.
The restrictive terms of the supplemental policy are not in dispute.
After moving to South Carolina in 1996, Dr. Heslin retired on January 1, 1997, exactly nine years after adding supplemental coverage. Dr. Heslin was automatically covered by $25,000 in basic life insurance as a retiree. However, Dr. Heslin, unaware of the restrictive provisions of the supplemental policy, continued to make full premium payments on the supplemental coverage to Connecticut General through FVSU. Connecticut General claims it was unaware of these payments, as the policy is self-administered. In other words, under the policy, FVSU monitored eligibility and the amount of coverage and then submitted premium payments to Connecticut General.
Dr. Heslin died in November 2002, and the estate was probated in Beaufort County, South Carolina. Connecticut General paid the estate $25,000 in basic life insurance, but denied the supplemental claim. Connecticut General refuses to pay because, under the strict language of the policy, Dr. Heslin was ineligible for coverage since he did not carry the supplemental coverage for 10 years prior to retirement. Additionally, pursuant to the policy's provisions, after retirement Dr. Heslin would not have been allowed to carry supplemental insurance over the amount of $15,000. Heslin-Kim, on behalf of the estate and the policy's beneficiaries, argues that Connecticut General's acceptance of almost seven years of supplemental premium payments constitutes estoppel and prevents Connecticut General from denying coverage.Connecticut General removed the case to federal court on December 8, 2004. On May 3, 2005 Defendant Connecticut General moved for partial summary adjudication, seeking a decision from this court as to whether Georgia or South Carolina would apply in the matter sub judice. The court denied Defendant's motion, and concluded that South Carolina law would apply.
Connecticut General removed the case on the basis of diversity jurisdiction. The pleadings are somewhat unclear as to what state Connecticut General claims citizenship of, Connecticut or Pennsylvania. Regardless, Connecticut General's principal place of business or state of incorporation does not impact the choice of law question before the court, nor this court's exercise of diversity jurisdiction, as complete diversity exists whether Connecticut General is a citizen of Connecticut or Pennsylvania. There is no dispute that Dr. Heslin was a resident of South Carolina, and that over $75,000 is in controversy.
On June 10, 2005, just before the court's ruling on Defendant's motion for partial summary adjudication, Defendant moved to amend its Answer to assert additional affirmative defenses concerning the alleged lapse of the supplemental coverage at the time of the death of Dr. Heslin. Defendant argues that, in preparing its reply to Plaintiff's response to its partial summary adjudication motion, it "discovered for the first time that the Deceased had failed to make timely payments for the supplemental coverage at dispute in this litigation." (Def. Mot. at 2). Moreover, Defendant asserts that because of the recent discovery, its motion is not untimely, nor does it prejudice the Plaintiff or result from bad faith. In Plaintiff's view, the motion to amend should be denied because it is futile.
STANDARD OF REVIEW
Generally, motions to amend a pleading are governed by Rule 15(a) of the Federal Rules of Civil Procedure. However, when a scheduling order has been entered, as is the case here, Rule 16(b), governing modification to a scheduling order, is first implicated. See, e.g., O'Connell v. Hyatt Hotels of Puerto Rico, 357 F.3d 152, 154-55 (1st Cir. 2004) (noting that "Rule 16(b)'s `good cause' standard, rather than Rule 15(a)'s `freely given' standard, governs motions to amend filed after scheduling order deadlines."). Thus, when a motion to amend the pleadings is filed after the time period allowed by Rule 15(a), a two-step analysis is required. The movant must first show that it has a "good cause" for the amendment under Rule 16(b). Once the movant meets the "good cause" requirement under Rule 16(b), it must then adhere to the standards set forth in Rule 15(a). DilmarOil Co., Inc. v. Federated Mut. Ins. Co, 986 F. Supp. 959, 980 (D.S.C. 1997).
Interestingly, several cases have noted that the two rules are at odds, as Rule 15(a) states that ". . . leave shall be freely given when justice so requires," but under Rule 16(b) "[a] schedule shall not be modified except upon a showing of good cause and by leave of the district judge. . . ." See, e.g., Odyssey Travel Ctr., Inc. v. RO Cruises, Inc., 262 F.Supp.2d 618, 631 (D.Md. 2003).
Rule 16(b) is a more rigorous standard to meet than is Rule 15(a). Rule 16(b) concentrates on the good faith efforts of the party seeking the amendment rather than on the bad faith of the movant or the undue prejudice to the adverse party. Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to amend "shall be freely given when justice so requires." See Fed.R.Civ.P. 15(a). While this Court is given discretion to deny the amendment, "that discretion is limited by the interpretation given Rule 15(a) in [ Foman v. Davis, 371 U.S. 178 (1962)] `and by the general policy embodied in the Federal Rules favoring resolution of cases on their merits.'" Island Creek Coal Co. v. Lake Shore, Inc., 832 F.2d 274, 279 (4th Cir. 1987) (citation omitted). More specifically, a denial of a motion to amend a pleading should issue only when delay is accompanied by prejudice, bad faith or purposeful dilatoriness, or futility. Id. Mere delay alone is not sufficient reason to deny leave to amend. See Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986). For a motion to amend to be denied for futility, the amendment must be "clearly insufficient or frivolous on its face." Id. at 510-511; see also, Rambus, Inc. v. Infineon Tech., AG, 304 F.Supp.2d 812, 819 (E.D.Va. 2004) ("Courts generally favor the `resolution of cases on their merits' . . . [t]hus the substantive merits of a proposed claim [or defense] are typically best left for later resolution, e.g., motions to dismiss or for summary judgment, . . ., or for resolution at trial.") ( quoting Davis v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th Cir. 1980)).
ANALYSIS
As a threshold matter, neither of the parties address the requirements of Fed.R.Civ.P. 16(b). Instead, both cabin their arguments to the requirements for amendment pursuant to Fed.R.Civ.P. 15(a). As noted above, the court must begin its analysis by determining whether Defendant's Motion to Amend satisfies the good cause requirement of Rule 16(b). Because Defendant has filed its motion to amend on the same day it allegedly discovered new information regarding the status of Dr. Heslin's payments, see, e.g., Def. Mot. at 2, Defendant has certainly acted with diligence and not out of bad faith, and thus, the Rule 16(b) standard is satisfied. See Burton v. U.S., 199 F.R.D. 194 (S.D.W.Va. 2001) (holding that a Defendant satisfied "good cause" standard for amending its answer in a medical malpractice case after scheduling order's deadline for amending pleadings had expired, where information subsequently obtained from doctor's deposition provided basis to amend responses to deny liability, and defendant acted diligently in the matter.); see also Rassoull v. Maximus, Inc., 209 F.R.D. 372, 373 (D.Md. 2002) (noting that the Rule 16(b) inquiry focuses on the timeliness of the amendment and the reasons for its tardy submission" and, in particular, on "the diligence of the movant.").
Turning to the requirements of Fed.R.Civ.P. 15 (a), Plaintiff argues that Defendant's proposed amendment to add the defenses of non-payment and mistake would be futile for three reasons: (1) the premium was in fact paid; (2) FVSU and the Board of Regents were acting as agents for Defendant; and (3) the acceptance of the payment in question constitutes a waiver of Defendant's claim of non-payment and simultaneously equitably estops Defendant from asserting this claim. The court addresses each argument in turn.
A. Plaintiff's Proof of Timely Payment of the Premium
Plaintiff first argues that Defendant's Motion to Amend is futile insofar as Defendant's amendment would assert that Plaintiff failed to pay premiums for the months of October, November, and December of 2002 until January of 2004, two months after Dr. Heslin died and outside of the grace period allowed by the policy. According to Plaintiff, the premium was in fact paid, as Plaintiff paid the Board of Regents, and
[t]here is no proof before this [c]ourt as to when the October premium was paid by the Board of Regents of the University System of Georgia. There is no proof whether the premium covering the decedent, Joseph Alexander Heslin, Jr. was timely paid by the Board of Regents of the University System of Georgia.
(Pl. Opp. at 3).
As Defendant argues, the question of whether the premiums were actually paid by the Board is a factual issue that ought to be resolved at trial or by summary judgment. At this point, as even Plaintiff acknowledges, there is simply a lack of evidence regarding whether, and when, the premiums were paid. Given the lack of evidence regarding the payment of the premiums in question, denying leave to amend would simply amount to impermissible conjecture by the court about the ultimate resolution of this issue. See Davis, 615 F.2d at 614 ("Unless a proposed amendment may clearly be seen to be futile because of substantive or procedural considerations, conjecture about the merits of the litigation should not enter into the decision whether to allow amendment."). On the other hand, granting leave to amend will not result in prejudice to Plaintiff, as discovery is ongoing and no depositions have been taken. Moreover, allowing Defendant to amend furthers the goal of resolving cases on the merits rather than on procedural technicalities. Accordingly, Defendant's purported defense of non-payment is not futile, and thus, Defendant should be afforded leave to amend.
B. FVSU and the Board of Regents as Agents of Defendant.
Plaintiff next argues that Defendant's amendment is futile because FVSU and the Board were acting as agents of Defendant. According to Plaintiff, FVSU and the Board accepted payment by the representatives of Dr. Heslin, and therefore the representatives were entitled to rely upon the acceptance of that premium. (Pl's Opp. at 5). Consequently, Plaintiff contends, amendment to add the defense of non-payment would be futile, as Plaintiff will prevail on this issue.
The court does not agree that amendment is futile for one simple reason — even if the court were to ultimately conclude that FVSU and the Board were statutory agents of the Defendant in accepting Dr. Heslin's premium, questions concerning the extent of the agency would remain. The South Carolina Supreme Court has held that the authority of an agent under S.C. Code § 37-233, the relevant agency statute, cannot be deemed "general or unlimited." Allstate Ins. Co. v. Smoak, 182 S.E.2d 749, 753 (S.C. 1971)
Plaintiff argues at length that South Carolina Code Ann. § 38-43-10(A) dictates a finding that the Board and FVSU were agents of Defendant. Defendant counters that, because of statutory evolutions over the years, "[n]o longer does [38-43-10] address who is deemed to be the `agent' of the insurance company." (Def. Reply at 6). According to Defendant, § 38-431-0 now concerns who must be "an appointed producer of the insurer." See S.C. Code. Ann. § 38-43-10. The court need not resolve whether this is the relevant statute or not, as in any case, even if the Board and FVSU were statutory agents of Defendant under this statute, as detailed above in regards to S.C. Code Ann. § 37-233, questions concerning the scope of the agency would remain. See Hiott v. Guaranty Nat. Ins. Co., 496 S.E. 2d 417, 421 (S.C.Ct.App. 1997) (holding that, in reference to § 38-43-10, "[i]f one becomes an agent of an insurance company by reason of the operation of this statute, the extent of the authority of the statutory agent must still be determined.").
[W]hen and if one becomes the agent of an insurance company by reason of the operation of statute 37-233 the extent of the authority of the statutory agent must be determined. We do not think it can be said as a matter of law that every statutory agent coming into being by reason of the statute can be said to be a general or unlimited agent.Id. Thus, Defendant's proposed amendment is not futile, as the issue of agency remains a viable dispute that is more appropriately resolved on the merits after further discovery.
C. Waiver and Estoppel
Finally, Plaintiff argues that acceptance of the premium payment constituted the waiver of the defense of non-payment, and estops Defendant from raising arguments regarding non-payment. Defendant does not dispute that waiver and equitable estoppel may be applicable when an insurer accepts a premium and subsequently alleges that the policy does not provide coverage. (Def. Reply at 8). However, Defendant contends, the defense of mistake may be appropriate in the matter sub judice, and the invocation of waiver or equitable estoppel is inappropriate given the factual issues that remain.
As Defendant notes, mistake is an affirmative defense that must be pled. See Nat'l Grange Mut. Ins. Co. v. Firemen's Ins. Co. of Newark, New Jersey, 425 S.E. 2d 754, 756 (S.C.Ct.App. 1992).
Waiver only arises when a party clearly and knowingly relinquishes a known right, see Janasik v. Fairway Oaks Villas Horizontal Property Regime, 415 S.E.2d 384 (S.C. 1992), and the court's discretionary decision to invoke the doctrine of equitable estoppel "depend[s] upon the circumstances of the particular case." See Pitts v. New York Life Ins. Co., 148 S.E. 2d 369, 371-72 (1966). Here, the court cannot conclude that Defendant's proposed amendment to add the defenses of mistake or non-payment are futile based on these doctrines, as many unresolved factual issues must be decided before the court can find waiver or invoke equitable estoppel. For example, with respect to waiver, at this point there simply is no "clear and convincing evidence of [Defendant's] intent to relinquish [its] known right." See Potesta v. United States Fid. Guar. Co., 504 S.E. 2d 135 (W.Va. 1998). As Defendant points out "[i]t remains a mystery who made the payment, how that person or persons came to learn that the payment was necessary, why it was necessary to pay for coverage for December if [Dr. Heslin] died in November, and whether the person receiving the payment was even aware of the death of Dr. Heslin." (Def. Mem. at 8). Given this, Defendant's amendment simply is not futile, as mistake remains a potentially viable defense, as does the nonpayment of premiums, depending upon the conclusion of further factual development. See Johnson, 785 F.2d at 509 (holding that for a motion to amend to be denied for futility, the amendment must be "clearly insufficient or frivolous on its face.").