JOHNSON INTERN. v. Jackson Nat. Life Ins.

• Decision Date: 27 January 1993
• Docket Number: No. CV 88-897.,CV 88-897.
• Citation: 812 F. Supp. 966
• Parties: JOHNSON INTERNATIONAL COMPANY, a Washington corporation, Plaintiff, v. JACKSON NATIONAL LIFE INSURANCE COMPANY, a Michigan corporation, Defendant.
• Court: U.S. District Court — District of Nebraska

812 F. Supp. 966

JOHNSON INTERNATIONAL COMPANY, a Washington corporation, Plaintiff, v. JACKSON NATIONAL LIFE INSURANCE COMPANY, a Michigan corporation, Defendant.

No. CV 88-897.

United States District Court, D. Nebraska.

January 27, 1993.

COPYRIGHT MATERIAL OMITTED

Daniel Duffy and Leif Erickson, Cassem, Tierney, Adams, Gotch & Douglas, Omaha, NE, for plaintiff.

David Woodke and Susan Norris, Gross & Welch, Omaha, NE, for defendant.

MEMORANDUM AND ORDER

KOPF, District Judge.

Pending before me are various posttrial motions. The motions which I now resolve are: (1) defendant's motion and renewed motions for judgment as a matter of law (Filings 103, 104, and 131); (2) defendant's motion for new trial (Filing 132); (3) plaintiff's motions for attorney fees (Filings 130 and 145); and (4) defendant's renewal of motion for award of expenses on failure to admit and request for sanctions (Filing 158).

This is a diversity case. The parties stipulated that the substantive law of the State of Washington applied. The jury returned a verdict for plaintiff and against defendant in the principal sum of $250,000. (Filing 123.) The court then entered judgment for that amount, plus interest. (Filings 127 and 128.)

I. Motions for Judgment As a Matter of Law

The motions for judgment as a matter of law were made at the appropriate times, taken under advisement, (Filing 105), and renewed within ten days of the entry of judgment.¹ With one exception, the motions merit no discussion and will be denied. As to the so-called negligence theory of recovery, I conclude that the motions must be granted as this theory of recovery was barred by the applicable statute of limitations.

A.

This case began² as a contract action by plaintiff (hereinafter Johnson), owner of an insurance policy on the life of its "key man" Howard Warford (hereinafter Warford), against defendant (hereinafter Jackson-Life), an insurance company. The claim was that Jackson-Life failed to pay Johnson when Warford died on August 13, 1986, and thus breached the contract of insurance issued on November 21, 1985. Jackson-Life defended, claiming that Warford had made false statements concerning his health on the application taken by Jackson-Life agent Bill Yaeger (hereinafter Yaeger) on or about September 20, 1985. Johnson responded by arguing, among other things, that Yaeger knew of Warford's health problems because Yaeger had taken a previous insurance application regarding Warford on or about April 10, 1985, in connection with an insurance policy later issued by Summit National Life Insurance Company (hereinafter Summit) on or about June 5, 1985. This was the posture of the case on the morning of trial.

Johnson moved to amend the complaint and the pretrial conference order, (Filing 92), on the morning of trial.³ Johnson wanted to add a theory of recovery predicated upon negligence. In essence, Johnson claimed that Jackson-Life, through its agent Yaeger, was negligent when it failed to advise Johnson of certain risks arising out of the "replacement" of the Summit policy by the Jackson-Life policy.⁴

The reason given for the late motion to amend was that the Court of Appeals for the State of Washington had decided some eight days earlier that there was a cause of action for negligence under state law when there was a violation of the so-called replacement insurance policy regulations⁵ of the State of Washington. See Strother v. Capitol Bankers Life Ins., 68 Wash.App. 224, 842 P.2d 504, 510-512 (1992).

I concluded that amendment of the pretrial conference order under Fed.R.Civ.P. 16(e) was necessary to prevent manifest injustice. I also concluded that amendment of the complaint under Fed.R.Civ.P. 15(a)⁶ was in the interests of justice. In order to cure any prejudice the defendant might suffer, I offered to continue trial of the case. I also offered to consider ordering the plaintiff to pay the defendant for nonrefundable airline tickets which had been purchased for certain trial witnesses.

Counsel for the defendant stated he did not desire a continuance and wished to proceed to trial that day, provided that: (1) he could use the deposition of a designated Summit employee; (2) the plaintiff would be precluded from offering additional witnesses with respect to the new theory; (3) defendant would be precluded from offering expert testimony on the question of whether the Jackson-Life policy was a replacement policy; and (4) the court would consider amending the pretrial conference order should it be necessary in order for the defendant to fairly present its defense. Plaintiff's counsel agreed to these provisions, and I so ordered.

Defendant filed its answer, (Filing 99), to the amended complaint the next day. In its answer, defendant specifically alleged that the applicable statute of limitations had expired. (Filing 99, ¶ 20.) The case proceeded to trial. Based partly upon the fact that the applicable statute of limitations had run on the negligence theory, the defendant moved for judgment as a matter of law at the appropriate times. I took those motions under advisement. Using a special verdict form, the jury⁷ returned a verdict for plaintiff on both theories of recovery.⁸

B.

I am satisfied that the statute of limitations⁹ relevant to the negligence theory of recovery had expired by the time plaintiff sought to amend on September 8, 1992, unless the amendment "related back" to the original complaint filed on December 14, 1988.

Plaintiff relies upon Federal Rule of Civil Procedure 15(c)(2) which allows "relation-back" where "the claim ... asserted in the amended pleading arose out of the conduct, transaction or occurrence set forth or attempted to be set forth in the original pleading." As leading text writers have stated, the addition of new theories of recovery will not defeat the "relation-back" doctrine of Rule 15 if the factual basis upon which the action depends remains the same in the new pleading as compared with the old pleading:

The fact that an amendment changes the legal theory on which the action initially was brought is of no consequence if the factual situation upon which the action depends remains the same and has been brought to defendant's attention by the original pleading.

... Indeed, an amendment that states an entirely new claim for relief will relate back as long as it satisfies the test same conduct, transaction, or occurrence embodied in ... Rule 15(c).

6A C. Wright et al., Federal Practice and Procedure § 1497, at 94-99 (1990) (footnotes omitted).

The question thus becomes whether defendant, "viewed as a reasonably prudent person, ought to have been able to anticipate or should have expected that the character of the originally pleaded claim might be altered or other aspects of the conduct, transaction, or occurrence set forth in the original pleading might be called into question." Id. at 93 (footnote omitted). Viewing the defendant as reasonably prudent, I conclude that Jackson-Life could not have reasonably anticipated it might have liability for negligent failure to give the replacement policy warning when it was served with the plaintiff's 1988 complaint and when it thereafter engaged in discovery respecting that complaint.

At issue when this case began, and during its discovery phase, was plaintiff's claim that defendant was contractually obligated to pay on the Jackson-Life insurance policy. Thus, "the conduct, transaction or occurrence set forth or attempted to be set forth in the original pleading" regarded Johnson's rights under the Jackson-Life contract of insurance. On the other hand, the amendment on the day of trial asserted an entirely different factual claim, which was that Jackson-Life was negligent for failing to give a written warning regarding the alleged replacement of the Summit policy.

At the heart of the first claim was the factual question of whether or not Jackson-Life had reason not to pay the contract of insurance because Warford intended to and did deceive Jackson-Life (or that Jackson-Life would not have issued the policy had it known the truth).¹⁰ Although Warford's conduct was not irrelevant to the negligence theory, the primary issue of the negligence claim was the propriety of Yaeger's conduct in failing to give Johnson a replacement warning without regard to Warford's conduct.¹¹

I find that the factual thrust of the two theories of recovery¹² is so different that a reasonably prudent person would not have perceived exposure on the negligence theory of recovery when served with the complaint on the contract theory of recovery. See, e.g., Morgan Distrib. Co. v. Unidynamic Corp., 868 F.2d 992, 994-95 (8th Cir.1989) (new complaint did not state simply a new theory of recovery, but an altogether different wrongful act; thus, "relation-back" principles would not apply); Fuller v. Marx, 724 F.2d 717, 720-21 (8th Cir.1984) (a different theory of recovery for the same wrongful act did not relate back because opposing party did not have notice).

An argument can be made that Jackson-Life, having been offered a continuance to engage in discovery and electing to go to trial instead, has given up any realistic claim that it was "prejudiced" by the amendment. I think this argument proves too much. As the Court of Appeals stated in the context of a discussion of prejudice, "the rule does not contemplate depriving defendants of the protection of the statute of limitations." Fuller, 724 F.2d at 720 (citations omitted). One of the principal purposes of the statute of limitations is to allow a party to make a timely investigation of the facts so as to avoid the "effects of the passage of time, which include faulty memories and missing witnesses. ..." Id. at 721. It is often impossible to prove what the passage of time has cost a party in terms of the ability to mount a defense. As counsel for the defendant explained when stating why he did not think a continuance would remedy the situation, "It's a matter...