by Nathan Meyer | Nov 26, 2018 | Insurance
The Holding
In Doneson v. Farmers Ins. Exch., 2018 WL 4781382 (Ariz.App. Oct. 3, 2018), an insurance bad faith case, the Arizona Court of Appeals upheld an exclusion precluding MedPay benefits “if workers’ compensation benefits are required,” despite the Insured’s reimbursement of the workers’ compensationinsurer.
The Takeaways
- Arizona is more likely to enforce a MedPay exclusion regarding workers’ compensation benefits, if the exclusion applies when workers’ compensation benefits are “required” rather than “payable.”
- A proponent of parole evidence must first persuade a court that a contract is reasonably susceptible to the interpretation asserted by the proponent before a court will consider the proffered parole evidence.
The Facts
The Insured was injured in an accident and incurred $22,000 in medical expenses. A workers’ compensation insurer paid some of those medical expenses. The Insured recovered $15,000 from the tortfeasor’s liability insurer. Pursuant to ARS 23-1023(D), the Insured reimbursed the workers compensation insurer $8,750.
The Insured’s policy included $5,000 of MedPay coverage for injuries sustained in an auto accident. The MedPay coverage, however, included an exclusion for “bodily injury” that “[o]ccurred…if workers’ compensation benefits are required.” The Insured submitted a claim for the $5,000 MedPay limits. The Insurer denied the claim pursuant to the exclusion.
The Insured filed suit against the Insurer and asserted claims for breach of contract, declaratory relief, bad faith, and tortious interference with contract. The Insurer filed a motion to dismiss, and the trial court granted the motion to dismiss.
The Rationale
In upholding the Workers’ Compensation Exclusion, the Court of Appeals reasoned as follows:
- It rejected the Insured’s argument that workers’ compensation benefits are not “required” when an insured reimburses a workers’ compensation insurer.
- The cases relied upon by the Insured were not persuasive because they considered workers compensation exclusions that applied if workers’ compensation benefits were “payable”—a term other courts found ambiguous.
- The Workers’ Compensation Exclusion’s use of the word “required” creates an exclusion susceptible to only one reasonable and logical interpretation.
- The trial court correctly refused to consider the Insured’s parole evidence.
- “In determining whether to consider parole evidence to interpret a contract, a judge first considers the offered evidence and, if he or she finds that the contract language is reasonably susceptible to the interpretation asserted by its proponent, the evidence is admissible to determine the meaning intended by the parties.” Taylor v. State Farm Mt. Auto. Ins. Co., 175 Ariz. 148, 154 (1993).
- In Doneson, “the Insured did not prove the Workers Compensation Exclusion was “reasonably susceptible” to the Insured’s interpretation—that worker’s compensation benefits are not “required” when an insurer recovers from a tortfeasor and reimburses a workers compensation insurer.
Read the entire Doneson opinion here.
by Nathan Meyer | Oct 17, 2018 | Insurance
The Holding
In Fisher v. USAA Casualty Insurance Company, 2018 WL 3804114 (Ariz. App. Aug. 7, 2018), a case arising from an underinsured motorist (“UIM”) arbitration, the Arizona Court of Appeals affirmed the trial court’s refusal to vacate an arbitration award because of an arbitrator’s alleged partiality. The Insureds knew about the Arbitrator’s alleged relationship with the Insurer’s counsel before the arbitration, but did not object either before or during the arbitration. Instead, the Insureds waited until they received an unfavorable award. Thus, the Court of Appeals held the objection was untimely, and the Insureds waived their claim of partiality.
The Takeaways
- If an insured has concerns about an arbitrator’s partiality before an uninsured motorist (“UM”) or UIM arbitration, then the insured waives those concerns unless the insured objects before or during the arbitration.
- An arbitrator’s “mere service” in other matters involving an insurer’s counsel is insufficient to trigger a presumption of partiality.
The Facts
The Insureds were involved in two low-impact car accidents within one week. One Insured eventually had spinal fusion surgery. The Insureds made UIM claims, and the parties agreed to resolve the value of the UIM claims in arbitration. One day before the arbitration, the Insureds’ counsel raised concerns about the partiality of the Arbitrator to the Insureds because the Insurer’s counsel often retained the arbitrator. Nonetheless, the Insureds proceeded with the arbitration. The Arbitrator concluded the low-impact accidents did not cause the Insureds’ damages, and the Arbitrator awarded the Insureds nothing. The Insureds filed several Motions to Reconsider with the Arbitrator and eventually filed a Motion to Vacate the arbitration award with the trial court based on the Arbitrator’s failure to disclose the alleged relationship with the Insurer’s counsel. The trial court denied the Insureds’ Motion to Vacate the arbitration award and found the Insureds presented no evidence of partiality.
The Rationale
The Arizona Court of Appeals reasoned as follows:
- Judicial review of arbitration awards is limited because Arizona public policy favors arbitration to achieve a speedy and inexpensive disposition of disputes.
- A party challenging an arbitration award bears the burden of proving a statutory ground to vacate the award.
- The trial court affirms arbitration awards absent an abuse of discretion.
- Arbitrators must disclose existing or past relationships with parties or their counsel if a reasonable person would consider those relationships likely to affect the arbitrator’s impartiality. ARS § 12-3012(A)(2).
- A neutral arbitrator who does not disclose a known, existing, and substantial relationship with a party is presumed to act with evident partiality under ARS § 12-3023(A)(2). ARS § 12-3012(E).
- If a party makes a timely objection, then the trial court may vacate an arbitration award based on an arbitrator’s failure to disclose a substantial relationship with a party or counsel. ARS § 12-3012(D).
- Although Arizona has not interpreted what constitutes a “timely objection” under its arbitration statutes, commentary to the Revised Uniform Arbitration Act (“RUAA”) indicates, and other courts interpreting the RUAA have held, a party must object to an arbitrator’s partiality before or during an arbitration.
- A party cannot wait to see whether an arbitration award is favorable before objecting to an arbitrator’s partiality.
- The Ninth Circuit has adopted an even broader and widely followed approach: “waiver is appropriate where a party to an arbitration has constructive knowledge of a potential conflict but fails to timely object.” Fidelity Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306, 1313 (9th Cir. 2004).
- Thus, the Arizona Court of Appeals agreed: “parties who know or have reason to know of possible partiality must raise an objection with the arbitrator during the course of the arbitration proceeding.”
- Holding otherwise would defeat the primary purpose of arbitration (an inexpensive and speedy alternative to litigation) because it would allow parties to withhold such objections until after an unfavorable award.
- In Fisher, the Insureds presented no evidence that the arbitrator had a substantial or “non-trivial relationship” with the Insurer or the Insurer’s counsel.
- In Fisher, the Insureds also presented no evidence supporting a presumption of partiality.
o An arbitrator is presumed to act with evident partiality if she fails to disclose a “known, direct, and material interest in the outcome of the arbitration…or a known, existing, and substantial relationship with a party.” ARS 12-3012(E).
o Although the Insureds alleged the Arbitrator often worked with the Insurer’s counsel, “the cases cited by the [Insureds did] not support the proposition that mere service as an arbitrator in other matters involving a party’s counsel is sufficient to trigger a presumption of partiality.”
Read the entire Fisher decision here.
by Nathan Meyer | Aug 7, 2018 | Insurance
The Holding
In Farmers Ins. Exchange v. The Honorable David Udall, 2018 WL 2931906 (June 12, 2018), the Arizona Court of Appeals accepted special action jurisdiction to hold that Insured’s validly assigned post-loss claim/rights under a homeowners policy to a water damage mitigation and remediation contractor.
The Takeaways
- Arizona insured’s may validly assign a post-loss breach of contract claim to a contractor.
- The Arizona Court of Appeals did not address whether Arizona insured’s may validly assign a post-loss bad faith claim to a contractor.
The Facts
The Insurer issued homeowners policies to Insured’s who required damage mitigation and restoration services after water losses. The policies included an anti-assignment provision requiring the Insurer’s written consent to transfer the Insured’s’ interests under the policies. The Insured’s contracted with a water damage mitigation and restoration contractor (the “Contractor”). The contracts included assignment of benefits provisions. The Contractor submitted invoices directly to the Insurer. The Insurer paid less than the invoiced amount. The Insured’s, without consent, assigned their rights against the Insurer to the Contractor. The Contractor filed suit against the Insurer and alleged: (1) the Insured’s assigned their “post-loss” rights to the Contractor, and (2) the Insurer breached the polices by failing to pay the “reasonable, usual, and customary charges to restore the [Insured’s’] property to pre-loss condition.” The Insurer filed a motion to dismiss and argued the assignments were not valid. The superior court denied the motion to dismiss, and the Insurer sought special action review.
The Rationale
In holding the Insured’s validly assigned their breach of contract claims to the Contractor, the Court of Appeals reasoned:
- “It is well settled in Arizona that assignees of a chose-in-action [the “right to bring an action to recover a debt, money, or thing”] have standing to pursue the action in their own name.”
- Arizona also, however, recognizes that contract provisions prohibiting assignment without consent may be enforceable.
- Generally, an Arizona insured cannot assign an insurance policy without insurer consent, especially if the policy prohibits assignment, because an insurer has the right “to choose its insured so as to knows its risks.”
- In Aetna Cas. & Sur. Co. v. Valley Nat’l Bank of Ariz., 15 Ariz. App. 13, 15, 485 P.2d 837, 839 (1971), however, the Arizona Court of Appeals held an “assignment made after a loss occurs….is not of the policy itself, but of a claim under, or a right of action on, the policy. Thus, after a loss has occurred and the rights under the policy have accrued, an assignment may be made without the consent of the Insurer and the rule enforcing anti-assignment provisions is not applicable.”
- Since 2004, Arizona’s Unfair Claims Settlement Practices Act has “expressly recognize[d]” the right of an insured to assign “a loss or claim after a loss has occurred.” ARS § 20-461(A)(7).
- Allowing post-loss assignments appears to be the majority rule.
Ultimately, the Court of Appeals “h[e]ld the assignments were valid post-loss assignments of benefits under the insurance policies” because they occurred after the water damaged the Insured’s’ homes, and the Insured’s did not assign the policies. Rather, the Insured’s “each assigned a claim under and a right of action on the policy.” In so holding, the Court of Appeals rejected the Insurer’s following arguments:
- An insured may assign post-loss rights only when the claim amount is undisputed;
- The assignments would ultimately increase premiums because the assignments altered policy duties and obligations, increased expenses, and escalated payouts; and
- The assignments allowed the Contractor to pursue the claim “unhampered by the policy’s obligations.”
- The Court of Appeals rejected these arguments primarily because an assignee steps into the assignor’s shoes, an assignee assumes no greater rights or obligations than an assignor, and the policies obligated the Insurer to pay the reasonable costs of repair. The Court of Appeals also carefully limited its decision by stating it only considered assignments of post-loss rights and it did not address whether an insured could assign a post-loss bad faith claim to a contractor.
Read the entire Udall decision here.
by Nathan Meyer | Jun 8, 2018 | Insurance
The Holding
In Hanfelder v. Geico Indem. Co., WL 2018 WL 2315949 (May 22, 2018), the Arizona Court of Appeals reversed summary judgment granted to an Insurer because the Policy’s “imprecise” anti-stacking language did not apply to the “Affiliated Insurers”—GEICO Casualty Company and GEICO Indemnity Company.
The Takeaway
If affiliated insurers issue multiple policies to the same insureds, then the affiliated insurers should consider incorporating the definition of “insurer” in ARS § 20-259.01(H) into their anti-stacking provisions and/or including “affiliated insurers” language in their anti-stacking provisions.
The Facts
An Insured made UIM claims under two policies issued by affiliated Insurers. The “First Affiliated Insurer” paid policy limits. The “Second Affiliated Insurer” denied the claim based on the Policy’s anti-stacking provision: “If separate policies or coverages with us are in effect for you or any person in your household, they may not be combined to increase the limit of our liability for a loss; howeveryou have the right to select which policy or coverage is applicable to the loss.” (underlining emphasis added). The Insured filed a declaratory judgment action against the Second Affiliated Insurer. The trial court granted summary judgment to the Second Affiliated Insurer because it determined the Anti-Stacking Provision applied to the Affiliated Insurers.
The Rationale
In holding the Anti-Stacking Provision did not apply to the Affiliated Insurers, the Arizona Court of Appeals reasoned as follows:
- ARS § 20-259.01(H) allows anti-stacking provisions and defines an insurer to include affiliated insurers: “For the purposes of this subsection, ‘insurer’ includes every insurer within a group of insurers under common management.”
- Arizona construes its UIM statutes “liberally and in favor of providing coverage” and “UIM policy exclusions strictly and narrowly.”
- Although ARS § 20-259.01(H) authorized the “Insurer”—the First Affiliated Insurer and the Second Affiliated Insurer—to limit coverage to one policy, the Policy’s anti-stacking provision did not do so because it applied to “separate policies or coverages with us”—but the Policy did not define “us.”
- The Policy used the term “we” to refer to solely to the Second Affiliated Insurer, so it would “defy common sense” to construe the term “us” as referring to the Second Affiliated Insurerand the First Affiliated Insurer.
- ARS § 20-259.01(H) is not self-executing—an insurer must include policy language to incorporate its limitations.
- The Policy did not incorporate ARS § 20-259.01(H)’s definition of an insurer to include “every insurer within a group of insurers under common management.”
- The Insured’s receipt of a multi-policy discount did not place the Insured on notice that his coverage would be limited.
- The Second Affiliated Insurer could have drafted the Policy to apply to separate policies or coverage purchased from any Insurer “affiliate” but did not so.
Read the entire Hanfelder opinion here.
by Nathan Meyer | Mar 28, 2018 | Insurance
The Holding
In Hunton v. American Zurich Ins. Co., 2018 WL 1182550 (D. Ariz. Mar. 7, 2018), an insurance bad faith case arising from a workers compensation claim, the Arizona District Court excluded an Insured’s expert opinion that the Insurer’s alleged “claims handling failures” were “pervasive enough to support the conclusion that upper management had to have known of, and approved, the [alleged] deficient staffing levels, inadequate training, inadequate oversight by middle management, and the ethics-related lapses related to the financial incentives granted to employees.”
The Takeaway
Insurers should move to strike Insured experts’ opinions regarding Insurers’ alleged state of mind in Arizona bad faith cases.
The Rationale
The District Court excluded the Insured expert’s opinion regarding the Insurer’s state of mind primarily because:
- “Courts routinely exclude as impermissible expert testimony as to intent, motive, or state of mind.” Hunton, 2018 WL 1182550 * 2.
- “Expert testimony as to intent, motive, or state of mind offers no more than the drawing of an inference from the facts of the case. The jury is sufficiently capable of drawing its own inferences regarding intent, motive, or state of mind from the evidence…” Id.
- “Permitting expert testimony on [intent, motive, or state of mind] would merely be substituting the expert’s judgment for the jury’s and would not be helpful to the jury.” Id.
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