Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_09-cv-02008/USCOURTS-azd-2_09-cv-02008-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Troy Willems, husband, et al., 

Plaintiffs, 

vs.

American Family Mutual Insurance

Company, a foreign insurer,

Defendant.

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No. CV09-2008 PHX DGC

ORDER

Defendant American Family Mutual Insurance Company has filed a motion to amend

its answer to Plaintiffs Troy and Rhonda Willems’ complaint. Dkt. #33. Plaintiffs oppose

the motion. Dkt. #35. The Court will grant the motion to amend. Dkt. #33.

I. Background.

American Family sold an auto insurance policy to Plaintiffs for their 1996 Toyota

Camry. Dkt. #1-1 at 4. On August 18, 2007, Plaintiffs were involved in an accident and

subsequently made a claim for coverage. Id. at 5. American Family used a computer

database called NADA to determine the retail value of the Toyota Camry. The repair costs,

according to American Family, were $4,214.18, while the retail value of the car based on the

NADA determination was $5,125.00. American Family declared the car a total loss. Id.

American Family then subtracted 1% of the value of the car for exterior, tires, and

interior. Id. at 5-6. Plaintiffs contend that deductions had already been factored in by the

computer database and that their tires were new. They argue that the 1% deduction was a

double deduction and arbitrary. 

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 The Court’s Case Management Order set a deadline of February 6, 2010, for seeking to

amend pleadings. Dkt. #12 at 1. Defendants filed their motion before this deadline.

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On August 24, 2009, Plaintiffs filed a complaint in Arizona state court alleging breach

of contract and bad faith and seeking compensatory damages, punitive damages, and

attorneys’ fees. Id. at 6-8. Plaintiffs also seek to bring a class action for breach of contract,

bad faith, and a violation of A.R.S. § 20-443 and §44-1521. Id. at 9. American Family

removed the case to this Court and, on October 1, 2009, answered the complaint. 

II. Legal standard.

The Court should “freely give” leave to amend “when justice so requires.” Fed. R.

Civ. P. 15(a)(2).1

 This direction “is to be heeded.” Foman v. Davis, 371 U.S. 178, 182

(1962). “In exercising its discretion[,] . . . ‘a court must be guided by the underlying purpose

of Rule 15 – to facilitate decision on the merits rather than on the pleadings or

technicalities[.] Thus, ‘Rule 15’s policy of favoring amendments to pleadings should be

applied with extreme liberality.’” Eldridge v. Block, 832 F.2d 1132, 1135 (9th Cir. 1987)

(citations omitted).

Amendment may be denied if it would be futile. Foman, 371 U.S. at 182. “Generally,

this determination should be performed with all inferences in favor of granting the motion.”

Griggs v. Pace Am. Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999) (citing DCD Programs,

Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987)). The party opposing amendment bears

the burden of showing futility. DCD Programs, 833 F.2d at 187.

III. Analysis.

American Family seeks to add two affirmative defenses, “Setoff” and “Recoupment.”

Dkt. #33-1 at 7. Setoff “allows entities that owe each other money to apply their mutual

debts against each other, thereby avoiding ‘the absurdity of making A pay B when B owes

A.’” Citizens Band of Md. v. Strumpf, 516 U.S. 16, 18 (1995). Similarly, recoupment is “an

equitable doctrine” which “can be used to reduce or eliminate a judgment.” W.J. Kroeger

Co. v. Travelers Indem. Co., 541 P.2d 385, 388 (1975). American Family argues Plaintiffs

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never paid for all of the coverage they received between July 20, 2009 and October 2, 2009.

See Dkt. #37 at 2-3. It argues that Plaintiffs still owe them $257.50 for coverage during that

time period.

Plaintiffs argue that the new affirmative defenses are futile. They argue that Plaintiffs

decided to cancel the contract, which is why they did not pay, and that American Family is

now seeking “to demand payment for unpaid premiums that have long-since lapsed.”

Dkt. #35 at 2. They further argue that American Family has failed to produce any published

opinion “where a court has allowed an insurer to offset unpaid premiums, unless a claim has

been paid after cancellation.” Dkt. #35 at 3.

The Court cannot conclude at this stage that Defendants’ proposed defenses would

fail. As the facts set forth in Defendants’ reply brief show, there are disputes of fact as to

whether the premiums to be setoff or recouped were for coverage provided before

cancellation. Dkt. #37. Because the proposed defenses might be provable by Defendants

after discovery, the Court will grant leave to amend. See Miller v. Rykoff-Sexton, Inc., 845

F.2d 209, 214 (9th Cir. 1988)(“a proposed amendment is futile only if no set of facts can be

proved under the amendment to the pleadings that would constitute a valid and sufficient

claim or defense”). 

IT IS ORDERED that American Family’s motion to amend (Dkt. #33) is granted.

DATED this 30th day of March, 2010.

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