In Preciado v. Young America Insurance Company, 2017 WL 2805631 (Ariz.App. June 29, 2017) (unpublished), the Arizona Court of Appeals held the trial court erroneously failed to grant an Insurer’s motion for judgment as a matter of law on a punitive damages claim and reversed a $750,000 award of punitive damages in a bad faith case arising from an auto theft claim.
- A punitive damages claim may not be based on extrapolations from isolated portions of an adjuster’s deposition testimony unfamiliar with an Insurer’s company-wide policies and procedures.
- The Preciado case continues the trend of Arizona reducing or reversing punitive damages in bad faith cases.
- When Insurer defense counsel prepares an adjuster for a deposition, if possible, defense counsel should:
- advise the adjuster to limit testimony to that adjuster’spractices and procedures rather than the Insurer’s company-wide policies and procedures; and
- encourage the Insurer to identify and consistently use a polished 30(b)(6) or “person most knowledgeable” witness regarding the Insurer’s company-wide policies and procedures.
In Preciado, an Insured reported his truck stolen and claimed an actual cash value (“ACV”) of $13,800.? The Insurer eventually approved the claim, learned the truck could not be recovered (because it was located in a portion of Mexico controlled by a drug cartel), offered the Insured $11,600, became non-responsive, and was acquired by another Insurer.? The subsequent Insurer lost the Insured’s paperwork, asked the Insured to submit the same documents again, and eventually sent the Insured a settlement check that deducted $3,200 for the salvage value of the truck.? The Insured filed suit for breach of contract, bad faith, and punitive damages.
The Court of Appeals held the trial court erred when it failed to grant the Insurer’s motion for judgment as a matter of law regarding punitive damages.? The Court of Appeals overturned the punitive damages award because the Insured did not produce “clear and convincing evidence” that the Insurer acted with an evil mind.? The Court of Appeals reasoned as follows:
- The Insured conceded the punitive damages claim was not based on intentional harm.? Rather, the Insured alleged the Insurer maintained and followed a policy of always offering the “wholesale value” rather than “retail value” for the ACV of a stolen vehicle or total loss vehicle.
- The Insured based the punitive damages claim on extrapolations from unfair representations of a single portion of deposition testimony from a single adjuster for the subsequent Insurer.
- The adjuster was not an executive, claim manager, supervisor, or other original Insurer employee or representative that could speak knowledgeably about the original?Insurer’s policies and practices.
- There was no evidence that the original Insurer maintained and followed the alleged policy.
- The case was not similar to Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 733 P.2d 1073 (1987), in which three former Insurer employees testified the Insurer followed a policy of always deducting a $35 cleaning fee from the value of a total loss vehicle (regardless of the vehicle’s cleanliness) to save the Insurer money.
- Unlike Nardelli v. Metro. Grp. Prop. & Cas. Co., 230 Ariz. 592, 277 P.3d 789 (App. 2012), the Insured presented no evidence that the Insurer directed claims adjusters to reduce claims payouts.
Other Important Holdings in Preciado
- The trial court did not err in ruling ACV meant “retail value,” because the Insurer affirmatively conceded “retail value” was the appropriate definition of ACV when determining value for a total loss vehicle.
- The trial court did not abuse its discretion in refusing to instruct the jury regarding the Insured’s alleged “comparative bad faith,” because bad faith is an intentional tort, and the principles of comparative fault do not apply to intentional torts.
- “Without question, [the Insurer] should have itself affirmatively disclosed/produced [a] consent order” from the Arizona Department of Insurance (“ADOI”) regarding the Insurer’s failure to promptly investigate claims and maintain proper claim files while it was handling the Insured’s claim.
- The jury’s award of $34,500 in breach of contract damages was not supported by the evidence, because the difference between the Insured’s $13,800 request and the Insurer’s eventual payment of only $11,600 was only $2,200, and the Insured disclosed no other breach of contract damages.? Thus, the Court of Appeals vacated the award and directed the trial court to enter a breach of contract award of $2,200 plus interest.
- The trial court did not abuse its discretion in awarding the Insured $300,000 in attorney fees, because the Insured was the prevailing party on the breach of contract and bad faith claims.
Other Takeaways From Preciado
- At the risk of stating the obvious, an Insurer should not concede that ACV means retail value.
- Although the comments to Arizona’s model jury instructions state the “duty of good faith and fair dealing applies to both the insurer and the insured,” Arizona courts will likely refuse to allow a jury to allocate fault against an Insured in a bad faith case or otherwise instruct a jury on “comparative bad faith.”
- Insurers have an affirmative obligation to disclose Consent Orders regarding similar claims and similar alleged conduct while the Insurer adjusted the litigated claim.
- Arizona courts are willing to award and uphold attorney fees in bad faith cases that substantially exceed—and in Precadiotripled—the awarded damages.
Nate is a partner at Jaburg Wilk in Phoenix, Arizona. His practice focuses on insurance coverage, bad faith litigation, commercial litigation, general liability litigation and professional liability litigation. He represents insurance companies, contractors, policy holders, global corporations, insurance adjusters, business owners, insurance agents and professionals. If you have questions about insurance law contact Nate at 602-248-1032 or email@example.com