Bifurcation of First-Party Auto Claims in New Mexico

A motion to bifurcate is often the first line of defense in a litigated first-party insurance claim. The Defendant carrier contends bifurcation streamlines discovery and disposes of “extra-contractual” issues without having to use the court’s time and resources. In truth, however, by moving to bifurcate, the first-party insurance is trying to accomplish two major goals: 1) prevent discovery of harmful and/or “proprietary” business and/or claims file information that the insurance company knows will support an insured’s bad faith and extra-contractual claims; and 2) delay addressing the extra contractual claims by creating another hurdle for the insured to clear, i.e. a discovery and trial on the damages before allowing a discovery or trial on the merits of the extra-contractual first-party claims.

If successful on bifurcation, the carrier will likely only negotiate with the insured based on the value of the underlying claim, regardless of the value of the extra-contractual claims, until the value of the underlying claim is determined at the first trial. However, if unsuccessful, first-party carriers often respond by increasing the negotiating authority on the case as a matter of self-preservation to prevent the discovery of harmful information and/or business practices.

The individual facts and circumstances of the case that warrant non-bifurcation should be emphasized with the court. Plaintiff should emphasize facts which could permit recovery on extracontractual claims regardless of whether or Plaintiff can prevail on the contractual claim. Plaintiff should emphasize arguments that the extra-contractual issues will have to be resolved regardless of the number of trials or the order of discovery, so in the interest of judicial efficiency, bifurcation would not be appropriate.

1. New Mexico Authority on Bifurcation

Rule 1-042(B) NMRA provides that a court may order separate trials, “in furtherance of convenience or to avoid prejudice or when separate trials will be conductive to expedition and economy”. “Bifurcation is often in the interest of efficiency and judicial economy when the resolution of one claim may obviate the need to adjudicate one or more other claims.” Desmare v. New Mexico, 2007 WL 5231690, at *2 (D.N.M.) (citing Mandeville v. Quinstar Corp., 109 Fed. Appx. 191, 194 (10th Cir. 2004)). Bifurcation should not be ordered routinely unless it is clearly necessary. Marshall v. Overhead Door Corp., 131 F.R.D. 94, 98 (E.D. Pa 1990). The party seeking bifurcation bears the burden of proving that bifurcation is proper “in light of the general principle that a single trial tends to lessen the delay, expense, and inconvenience.” Belisle v. BNSF Ry. Co., 697 F.Supp.2d 1233, 1250 (D. Kan. 2010). Bifurcation under Rule 42(b) is inappropriate where evidence to be presented against the parties is inextricably linked. Certain Underwriters at Lloyd’s, London, Subscribing to Policy No. 501/NB03ACMD v. Nance, Civ-04-0937 JB/WDS, 2007 WL 1302659 (D.N.M. Apr. 23, 2007) (citing FDIC v. Refco Grp., Ltd., 184 F.R.D. 623, 629 (D. Co. 1999) (finding that bifurcation would have no effect on evidence offered at trial because claims and evidence were inextricably linked)).

B.           The Greater Weight of New Mexico Non-Precedential Authority Finds Bifurcation is Not Appropriate

While there is no published case law directly on point, the weight of New Mexico non-precedential authority appears to support an insured’s position that bifurcation is not appropriate in first-party litigation involving both contractual and extra-contractual claims.[1]

In Sanchez v. Safeco. Ins. Co. of Amer. (D.N.M. 1:14-cv-00926-MV-GBW, Doc. 44, Sept. 11, 2015), Judge Gregory Wormuth encountered the same arguments often presented by first-party defendants that are “heavily reliant on the assertion that the extracontractual claims are dependent on the contractual ones”). Judge Wormuth held, “A determination of Plaintiffs’ actual damages for breach of contract does not appear necessary before Plaintiffs could demonstrate bad faith based on [Defendant’s] handling of Plaintiffs’ claim”. Id. (citation omitted). Judge Wormuth continued, “Bifurcation of discovery, and the staying of discovery for the extracontractual claims pending the contractual claim trial, would cause a severe delay in proceeding with the extracontractual claims”. Id. at P. 3. Judge Wormuth held that such a delay was not appropriate. Id.

In Willis v. Government Employees Insurance Company, N.M. Dist. Ct. No. 13cv00280, Doc. 100 (06/17/15), District Judge Kenneth J. Gonzales denied a Motion to Bifurcate defendant’s first-party claims. GEICO sought bifurcation of trial and discovery. Id. P. 2-3. GEICO argued bifurcation would prevent confusion and unfair prejudice to GEICO. Judge Gonzales noted that Plaintiff claims GEICO breached the insurance policy by undervaluing the damages they are legally entitled to under the UIM coverage. Id. at P. 4. Judge Gonzales, “disagrees that a determination of actual damages as such is necessary to show a bad faith claim based on GEICO’s handling of Plaintiff’s claim”. Id. at P. 6. Judge Gonzales stated, “An insurer in New Mexico can act in bad faith in its handling of a claim, “‘for reasons other than its refusal to pay’ a claim in full.” Id. (citing O’Neel v. USAA Ins. Co., 2002-NMCA-028, ¶7, 131 N.M. 630; Dellaira v. Farmers Ins. Exch., 2004-NMCA-132, ¶¶5, 14-16, 136 N.M. 552 (insureds bad faith claim against third-party handling claims for insurer even when a jury previously determined no breach of contract)). The Court noted that Plaintiff’s claims arose for “reasons other than [GEICO’s] refusal to pay” Plaintiffs’ claim in full. Id. P. 6. The Court noted that those extra-contractual claims are distinct and independent from Plaintiffs’ claim that GEICO refused to pay Plaintiffs’ claim in full, the basis for Plaintiffs’ contract claims. Judge Gonzales found that accordingly, the bad faith claims are not “contingent on the contract claims”, and GEICO failed to demonstrate that bifurcation is warranted for that reason. Id. at P. 7.

In Huss v. American Family Mutual Insurance Company, et al, N.M. Dist. Ct. No. 13cv00330, Doc. 23 (01/10/14), P. 1, District Judge William P. Johnson entered a Memorandum Opinion and Order Denying Parties’ Request for Bifurcation of Coverage from Statutory Claims. In Huss, Defendant argued that the factual underpinnings of the contract and extra-contractual claims are distinct and separate, and that without bifurcation, Defendants would be prejudiced by trying both claims before a single jury or even conducting discovery on these separate claims at the same time. Id., P. 3. In denying the Motion, Judge Johnson stated,

The Court does not share counsel’s view that bifurcation would result in more expeditious resolution of the case. Bifurcation is not mandated simply because determination of the coverage issue would dispose of the remaining extra-contractual claims, particularly here where all the claims appear to be sufficiently linked to proceed through discovery and trial together. Bifurcation under Rule 42 is inappropriate where evidence to be presented against the parties is inextricably linked. FDIC v. Refco Grp., Ltd. 184 F.R.D. 623, 629 (D. Co.o. 1999) (finding that bifurcation would have no effect on evidence offered at trial because the claims and evidence were inextricably linked). Parties claim that the evidence necessary to resolve the coverage dispute is less “voluminous” than what would be required to litigate the statutory claims. However, it seems that the same individuals associated with either American Family or Encompass would need to be deposed for all of the claims asserted by Plaintiff, and that a substantial amount of testimony from these individuals would be relevant for at least some of the elements on all the claims. Bifurcation would only require the parties to restart discovery […] This would only prolong the course of this case and result in minimal savings of effort and expense for counsel. Bifurcation would also mean that certain parties would have to appear at trial more than once, should the coverage aspect need to proceed to trial.

Id. at P. 4. Judge Johnson found that the coverage and statutory claims are similar enough to permit discovery and trial of all the claims simultaneously. Id. The Court found that bifurcation would not result in any meaningful savings of time, money or effort. Id. at P. 5. In Locicero v. Colorado Casualty Insurance Company, N.M. Dist. Ct. No. 13cv00874, Doc. 29, P. 1 (01/28/14), Chief Magistrate Judge Karen B. Molzen, citing the Huss opinion, supra, entered an Order Denying Defendant’s Motion to Bifurcate, Stay and for Protective Order, “In accordance with the sound reasoning set forth in Jude Johnson’s memorandum opinion and order”. Id.

In Falcon Auto Repair v. Travelers Casualty Insurance Company of America, N.M. Dist. Ct. No. 13cv00509, Doc. 43, P. 1 (11/24/13), Magistrate Judge Robert Hays Scott denied Travelers’ Motion to Bifurcate. Judge Hays noted that Travelers took the position that the discovery for the breach of contract claim is completely different from the UPA claim. Id. P. 1-2. Judge Hays stated, “The Court is not persuaded that the discovery is completely different and does not see that any interest in justice, efficiency, or judicial economy is served by staying discovery on the UPA claim until the resolution of the breach of contract claim”. Id. at P. 2.  Judge Hays noted the complications of bifurcating, interrogatory by interrogatory, the discovery requests related to the UPA claim versus the breach of contract claim. Id. Judge Hays indicated the discovery process can be completed more efficiently by completing it in its entirety rather than piecemeal. Id. Subsequently, Chief Magistrate Judge Karen B. Molzen stated she agreed “wholeheartedly” with Judge Hays’ analysis, and reserved her decision as to bifurcation of trial to a later date. See Id., Order Denying Motion to Bifurcate Trial (11/22/13), Doc. 45.

In Christy v. Travelers Property and Casualty Insurance Co., N.M. Dist. Ct. No. 13cv00281, Doc. No. 21, P. 1 (08/29/13), District Judge William P. Johnson denied Defendant’s Motion to Bifurcate.  Travelers argued that disposing of the coverage issue would dispose of all the remaining claims, including Plaintiff’s UPA claim. Id. at P. 3. Judge Johnson found, “The fact that a determination of the coverage issue would be dispositive of the remaining claims does not mandate bifurcation”. Id., P. 4. Judge Johnson found, “Even where claims are dependent on one another, bifurcation is not appropriate where ‘both claims rely on the same factual underpinnings and are therefore not separable’.” Id. (citing Crespin v. State Farm, CIV 10-10-881 MCA/WDS, *16 (July 12, 2011) (holding that bifurcation was inappropriate even though the bad faith claim was dependent on the contract claim); The Maranist Providence of the United States, Inc. v. ACE USA, No. 08-CV-01760-WYD-MEG, 2010 WL 268170, *2 (D. Colo. July 2, 2010) (emphasis added).  Judge Johnson found that a determination of the coverage issue is essentially contract construction. Id. He found that presenting the coverage claim would entail presenting evidence regarding the formation of the contract, parties’ intent at the time of the contract, and the terms of the contract. Id. He indicated these are the exact considerations for the breach of contract and uninsured motorist benefit claims. Id.

In Frietze v. Allstate Insurance Company, et al., N.M. Dist. Ct. No. 12cv00840 WJ/CG, Doc. No. 39 (03/18/13), Magistrate Judge Carmen E. Garza also denied bifurcation. Defendant’s Motion to Bifurcate was based on the contention that extra-contractual claims are dependent on the contractual claim. Id. at P. 3. Judge Garza questioned whether Plaintiffs’ contractual claim is dispositive of the extra-contractual claims. Id. at P. 4. Judge Garza noted that in deciding whether to bifurcate issues for trial, the Court must consider whether bifurcation would improve efficiency or be prejudicial to the parties. Plaintiffs in the Frietze case assert they would be prejudiced by bifurcation because they would have to engage in multiple depositions of the same witnesses. Additionally, Plaintiffs in Frietze contended that bifurcation would not result in efficient use of the Court’s resources or simply the issues, as the claims are inextricably linked. Judge Garza found that bifurcation of the contractual or extra-contractual claims would not expedite the proceeding or be an efficient use of judicial resources. Id. Moreover, Judge Garza found that the issues were not so separate that evidence would not be duplicated at trial. Id. at P. 4-5.

In Quezada v. Allstate Insurance Company, N.M. Dist. Ct. No. 11cv00026 GBW/LAM, Doc. No. 30 (03/29/11), The Honorable Magistrate Judge Gregory Wormuth also considered a Motion to Bifurcate. Judge Wormuth found that there are facts which could permit recovery on the extracontractual claims even without Plaintiff prevailing on the factual claim. Id. at P. 2. As such, because the Court was not persuaded that Plaintiff’s failure on the contractual claim would be dispositive of the extracontractual claims, dismissal and a stay were not warranted and were therefore denied. Judge Wormuth applied the exact same rationale in denying a motion to dismiss and bifurcate in the case of Lopez v. GEICO Insurance Company, N.M. Dist. Ct. No. 11CV00633 GBW/RHS, Doc. No. 74 (6/11/12).

Finally, in line with its progeny of courts repeatedly denying bifurcation, in Ameri v. GEICO General Insurance Company, N.M. Dist. Ct. No. 14cv00966, Doc. 70 (06/10/15), P. 1, United States District Judge James O. Browning also denied Defendant GEICO’s Motion to Bifurcate and Stay and Proceedings as to Plaintiff’s Extra Contractual Claims, and denied a stay in discovery.

C.           Application of Hovet

First-party defendants will likely cite Hovet v. Allstate Ins. Co., 2004-NMSC-010, 135 N.M. 397, to argue bifurcation will prevent jury confusion and unfair prejudice. In Hovet, a third-party claimant sued an automobile insurer for unfair settlement practices. Id. at ¶ 23. The New Mexico Supreme Court noted the “potential confusion” if the third-party claimant litigated the unfair settlement practices claim “simultaneously with the underlying negligence litigation.” Id. at ¶ 25. The New Mexico Supreme Court concluded, “[a] third-party claimant’s statutory cause of action against the insurer for unfair settlement practices must await the conclusion of the underlying negligence action between the claimant and the insured.” Id. at ¶ 26. Accordingly, “a third-party claimant may not sue both the insured and the insurer in the same lawsuit.” Id. The first-party defendant argues the distinction between a first-party claimant and a third-party claimant, as in Hovet, is not relevant.

However, as noted by the Honorable Judge Gonzales in response to this same argument raised by GEICO, unlike Hovet, in first party cases, the underlying negligence of the underinsured motorist is not at issue. See Willis, P. 7, supra. Hence, there is no risk of simultaneous litigation on the issue of underlying negligence. Id. Moreover, in a first-party claimant case, if the Court denies the request to bifurcate, a jury will not contend with a third-party claimant attempting to sue both the insured and insurer in one lawsuit, the situation described in Hovet. Id.

The first-party defendant will argue that jury confusion will ensue, because the contract claims require that a jury determine whether Plaintiffs are “legally entitled to recover” the amount of damages sought under the insurance policy, which the first party defendant contends is a condition precedent to Plaintiff’s bad faith claims. Id. P. 8. As noted by Judge Gonzales, New Mexico statutory law on UM/UIM coverage simply requires “the insured be legally entitled to recover damages and that the negligent driver be uninsured” or underinsured. Id. at P. 8 (citing Farmers Ins. Co. of Arizona v. Sandoval, 2011-NMCA-051, ¶ 7, 149 N.M. 654, 657, 253 P.3d 944, 947 (citing Schmick v. State Farm Mut. Auto. Ins. Co., 1985-NMSC-073, ¶ 11, 103 N.M. 216 (1985)). Neither New Mexico statutes nor case law require the establishment of the amount of damages before an insured can be considered legally entitled to recover damages at all. Id. An insured, therefore, can be legally entitled to recover damages even if the exact amount of damages is not yet determined. Id.

CONCLUSION

While there is no published New Mexico case law directly on point, there is an abundance of non-precedential opinions rejecting the most common bifurcation arguments proffered by insurance companies in first-party cases. These courts have often found that the contractual and extra-contractual claims are so intertwined that bifurcation of discovery is not appropriate. These courts have found that bifurcation of discovery will result in piecemeal discovery disputes, reducing judicial efficiency. Moreover, these Courts have found that a claimant may prevail on the extra-contractual claims and not the contractual claims, and as such, all of the issues should be tried together. Moreover, these Courts have repeatedly found that bifurcating discovery is so cumbersome, complicated, and inefficient, and the risk of prejudice so low, that bifurcation of discovery is not appropriate.

[1] See Yazzie v. Gov’t Emples. Ins. Co., 2017 U.S. Dist. LEXIS 61459 (D.N.M., Apr. 24, 2017); Martinez v. State Farm Mut. Auto. Ins. Co., 2017 U.S. Dist. LEXIS 44277 (D.N.M., Mar. 27, 2017); Bustamante v. Progressive Direct Ins. Co., D-202-CV-1026-04508 (2nd Judicial, N.M., Jan. 20, 2017); Sanchez v. Safeco. Ins. Co. of Amer. (D.N.M. 1:14-cv-00926-MV-GBW, Doc. 44, Sept. 11, 2015); Willis v. Government Employees Insurance Co., 2015 U.S. Dist. LEXIS 181320, (D.N.M. Jun. 17, 2015); Ameri v. GEICO Gen. Ins. Co. (D.N.M. CIV 14-0966 JB/SCY, Doc. 70, Jun. 10, 2015); Locicero v. Colo. Cas. Ins. Co. (D.N.M. 1:13-cv-00874-RHS-KBM, Doc. 29, Jan. 28, 2014); Falcon Auto Repair v. Traveler’s Cas. Ins. Co. of America, (D.N.M. 1:13-cv-00509-KBM-RHS, Doc. 43, Nov. 14, 2013); Falcon Auto Repair v. Traveler’s Cas. Ins. Co. of America, (D.N.M. Cause No. 1:13-cv-00509-KBM-RHS, Doc. 45, Nov. 22, 2013); Christy v. Travelers Prop. & Causalty Ins. Co., 2013 U.S. Dist. LEXIS 197522 (D.N.M., Aug. 29, 2013); Frietze v. Allstate Ins. Co., 2013 U.S. Dist. LEXIS 193734 (D.N.M., Mar. 18, 2013); Frietze v. Allstate Ins. Co., 2013 U.S. Dist. LEXIS 193733 (D.N.M., Apr. 5, 2013); Huss v. Am. Family Mut. Ins. Co., 2014 U.S. Dist. LEXIS 190258 (D.N.M., Jan. 10, 2014); Lopez v. GEICO Ins. Co., (D.N.M. CIV 11-633 GBW/RHS, Doc. 74, Jun. 11, 2012); Quezada v. Allstate Ins. Co. (D.N.M. 11-CV-026 GBW/LAM, Doc. 30, Mar. 29, 2011)