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Arizona Jury Awards Over $6 Million Against Insurer in Bad Faith Case

Arizona Jury Awards Over $6 Million Against Insurer in Bad Faith Case

The Award

In McClure v. CC Services Inc. & Country Life Insurance Company dba Country Life Financial, an Arizona insurance bad faith case arising from a disability claim, a jury awarded $1.29 million in compensatory damages and $5 million in punitive damages.

The Takeaway

Although Arizona has a reputation for conservative juries—particularly Phoenix juries in Maricopa County—the award of over $6 million in damages in the McClure case demonstrates an Arizona jury is willing to award significant damages in a bad faith case.

The Facts

The Insurer issued a disability policy which paid, after a ninety day waiting period,  $1,500 in monthly benefits for total disability.  The Insured walked into a pole at a shopping center, was diagnosed with a concussion, and claimed he could no longer work as a supervisor of over 100 employees at a call center.  The Insured also developed serious psychiatric issues after the incident.  After a suicide attempt, he was hospitalized for six months.  The Insurer paid total disability benefits for a year and terminated the claim based on an “inconclusive” neuropsychological evaluation.  Seven weeks after termination, the Insured was hospitalized again for suicidal ideation.  One year after suit began, the Insurer reinstated the disability claim to the date of post-termination hospitalization.

The Insured Claimed the Insurer Acted in Bad Faith by:

  • failing to order medical records from the physicians that certified the Insured’s disability, and
  • terminating the disability claim.

The Jury Awarded:

  • $243,000 for unpaid policy benefits, future policy benefits, unrefunded premiums, and loss of enjoyment of life;
  • $1.29 million in compensatory damages for emotional distress, humiliation, inconvenience, and anxiety;
  • $2.5 million in punitive damages against the Insurer; and
  • $2.5 million in punitive damages against an entity whose employees comprised the Insurer’s claims department.

Additonal Analysis

It will be interesting to see if the punitive damages award in McClure stands because of recent Arizona case law reducing punitive damages awards that exceed a 1:1 or 1:4 ratio with compensatory damages. See Sobieski v. Am. Standard Ins. Co. of Wisconsin, 240 Ariz. 531, 382 P.3d 89 (App. 2016)  (reversed an award of $1 million in punitive damages in a bad faith case); Arellano v. Primerica Life Insurance Company, 235 Ariz. 371, 332 P.3d 597 (App. 2014) (reduced a punitive damages award of $1.1 million in a bad faith case to only $328,000—a 4:1 ratio with compensatory damages); Nardelli v. Metropolitan Group Prop. & Cas. Ins., 230 Ariz. 592, 277 P.3d 789 (App. 2012) (upheld a trial court’s reduction of a $55 million punitive damages award to $620,000 in a bad faith case, and further reduced punitive damages to only $155,000—a 1:1 ratio with compensatory damages).  If a court reduces the punitive damages award to a 1:1 ratio to compensatory damages, then the punitive damages could be reduced from $5 million to $1.5 million.


If you would like additional information regarding Arizona insurance bad faith cases, please contact Nate Meyer at 602.248.1000 or ndm@jaburgwilk.com.

This post is based, in part, on a summary of the McClure trial in the Trial Reporter of Central & Northern Arizona, a bi-monthly publication that summarizes Arizona jury trials and awards.  You can reach the Trial Reporter at 800.266.7773 or www.trialreporter.com

Arizona District Court Rejects Discovery of Medical Expert’s Previous Reports in Bad Faith Case

Arizona District Court Rejects Discovery of Medical Expert’s Previous Reports in Bad Faith Case

The Holding

In Cheatwood v. Christian Brothers Services, 2018 WL 287389 (D. Ariz. Jan. 4, 2018) (unpublished) (Order), a bad faith case arising from a health benefits claim, the Arizona District Court quashed portions of the Insureds’ subpoena to a medical expert which sought:  (a) all medical review reports prepared by the medical expert during the last five years, and (b) the number of medical necessity reviews performed for plaintiffs versus defendants during the last five years.  The Insureds claimed  the Insurer acted unreasonably by relying on an “obviously biased and anti-claimant medical reviewer” to deny the Insureds’ claim.

The Takeaway

Arizona insurers should rely on Cheatwood and the cases cited therein—including the Bronick and Grant cases—to argue insureds are not entitled to discovery of medical experts’ previous reports, the number of reports prepared for claimants/plaintiffs versus insurers/defendants, and exhaustive financial information from medical experts.

The Rationale 

Generally, pursuant to Rule 45, a court “must quash or modify” a subpoena that subjects a person to undue burden.  A subpoena seeking completely irrelevant information may be quashed as unduly burdensome.

The District Court quashed the Insureds’ request for all medical review reports prepared by the medical expert during the last five years because:

  • Although evidence of an expert’s bias may be relevant to a bad faith claim, the medical expert’s “other medical necessity reviews are not likely to lead to evidence of bias, largely because they involve facts and circumstances different from the facts and circumstances involved in this case.”
  • The Insureds could not demonstrate that each previous medical necessity review was biased because the Insureds did not know the facts and circumstances underlying  each review.  Thus, an attempt to compare the medical expert’s conclusion in the previous reviews to the review in the Insureds’ case would require a “mini-trial” on each previous claim and these “mini-trials would only confuse and mislead a jury.”
  • It would be unsurprising if the expert’s previous reviews were favorable to the Insurer because insurers likely seek medical necessity reviews only on questionable claims.
  • In Bronick v. State Farm Mutual Auto Insurance Co., 2013 WL 3716600 (D. Ariz. July 15, 2013), a bad faith case arising from a UIM claim in which the insured alleged the hiring of a certain medical expert was evidence of bad faith, the District Court stated that a medical expert performing 151 IMEs for an insurer and only five of the IMEs favoring the insured was “wholly irrelevant” to the insured’s case because the facts of the other reviews were unknown.
  • Thus, the expert’s “other medical necessity reviews have nothing to do with whether the review” in the Insureds’ case was biased.

The District Court also quashed the Insureds’ request for the number of medical necessity reviews performed for plaintiffs versus defendants during the last five years because:

  • The medical expert did not know for whom he conducted previous reviews; rather, the expert simply conducted the reviews.
  • And, the Insureds’ failed to respond to the Insurer’s argument that this request was “illogical” because insureds “rarely, if ever,” seek medical necessity opinions.
An Arizona Insurer Owes No Duty to Pay the “Undisputed Amount” of a UM or UIM Claim

An Arizona Insurer Owes No Duty to Pay the “Undisputed Amount” of a UM or UIM Claim

Although the Arizona Court of Appeals resolved this issue 20 years ago, I frequently see insureds’ counsel argue that an insurer must pay the “undisputed amount” of a UM or UIM claim—and I just saw this argument last week—so this post is a refresher.

The Holding

In Voland v. Farmers Ins. Co. of Arizona, 189 Ariz. 448, 453, 943 P.2d 808, 813 (App. 1997), the Arizona Court of Appeals held “the implied covenant of good faith and fair dealing does not require a UM carrier to pay in advance (that is, before the insured executes a release or obtains an arbitration award) the amount of an unaccepted settlement offer which fully covers all aspects of a UM claim (including special and general damages).”

The Takeaway

In Arizona, the duty of good faith and fair dealing does not require an insurer to pay the “undisputed amount” of a UM or UIM claim.

The Rationale

The Arizona Court of Appeals rejected an insured’s argument that an insurer committed bad faith by failing to pay the “undisputed amount” of a UM claim—even when the insurer’s written settlement offer stated the offered amount was the “‘fair value’ of her claim”—for three primary reasons.

First, a settlement offer is simply an insurer’s evaluation of a claim, at a single point in time, based on the information known to date—not the minimum amount an insurer’s adjuster has evaluated as being owed to an insured. Voland, 180 Ariz. at 451, 943 P.2d 808, 812.   A settlement offer is “simply a proposal to compromise and resolve [a] claim, nothing more and nothing less. It represent[s] the carrier’s evaluation or best estimate, at that point in time, of what the trier [of fact] might award.”

Second, a requirement to tender the amount of any settlement offer would chill settlement negotiations of UM claims.  “The [insurer’s] settlement offer did not bind [it] if, as it turned out, the claim could not be settled and had to be arbitrated. Nor did it set a ‘floor’ on what the arbitrators had to award or what the [insurer] ultimately would have to pay.” Id.  The Court of Appeals noted that, otherwise, insurers “would have little if any incentive to settle,” imposing a requirement to pay the undisputed amount “would have a chilling effect on genuine settlement evaluations and negotiations,” and such a requirement would “deter settlement and foster litigation.” Id.

Third, personal injury claims are different from property claims — in which an insurer is obligated to pay the undisputed amount — because “a personal injury claim is unique and generally not divisible or susceptible to relatively precise evaluation or calculation.” Id.  Personal injury claims are “inherently flexible and subject to differing and potentially changing evaluations based on various factors.” Id. at 452, 453, 943 P.2d 808, 812, 813.  “In short, evaluating personal injury claims, and particularly the ‘general damage’ component, is far from an exact science. Oftentimes it is no more precise or predictable than throwing darts at a board.” Id. at 453, 943 P.2d at 808, 813.

The Voland Rationale Also Applies to UIM Claims

Although Voland involved a UM claim, the Voland rationale applies to “personal injury claims” and was not limited to UM claims. See Voland, 180 Ariz. at 453, 943 P.2d 808, 813.  Of course, UIM claims are also “personal injury claims.”  Accordingly, Arizona cases have applied Voland to UIM claims. See Daly v. Royal Ins. Co. of Am., 2002 WL 1768887 *12 (D. Ariz. July 17, 2002) (applying Voland to a UIM claim and “find[ing] that the decisions in Borland and Filasky [which require payment of the undisputed amount of a property claim] are not controlling.”) ; Young v. Allstate Ins. Co., 296 F. Supp. 2d 1111, 1118 (D. Ariz. 2003) (“in light of the acknowledged challenges surrounding the valuation of claims for personal injury, the Court finds that the decisions in Borland and Filasky are not controlling” in a UIM claim context).

Arizona District Court Denies Motion to Remand in Bad Faith Case, Despite Plaintiff Seeking Only $57,000 in Compensatory Damages

Arizona District Court Denies Motion to Remand in Bad Faith Case, Despite Plaintiff Seeking Only $57,000 in Compensatory Damages

The Holding

In Hoarau v. Safeco Ins. Co. of America, 2017 WL 3328078 (D.Ariz. August 4, 2017), the Arizona District Court denied an insured’s Motion to Remand in an insurance bad faith, punitive damages, and declaratory judgment case.

The Takeaway

Insurers may consider attorney fees and punitive damages when considering whether a case on the borderline of the $75,000 minimum amount in controversy diversity jurisdiction threshold can be removed to federal court.

The Facts

An Insurer offered $11,000 under a landlord protection policy, the Insured disagreed with that valuation, the Insured retained a public adjuster, and the public adjuster demanded $62,000 of repairs.  The Insured filed suit and alleged the above three claims.  The Insurer removed the case to District Court, and the Insured filed a Motion to Remand.  The Insurer argued the amount in controversy exceeded the $75,000 minimum amount in controversy diversity jurisdiction threshold because the Insured sought $62,000 of compensatory damages, at least $8,000 in attorney fees, and punitive damages.

The Rationale

The District Court considered $57,000 the amount of compensatory damages sought (the $62,000 of repairs the insured sought minus the insurer’s original estimate of $6,500).  The District Court confirmed that attorney fees authorized by statute may be considered in an amount in controversy determination, but it used a very conservative amount of attorney fees-the $8,000 minimum sought in the complaint.  And, the District Court confirmed that sought punitive damages may also be considered in an amount in controversy determination.

Arizona Allows Insured to Avoid Removal by Naming Adjuster as Defendant

Arizona Allows Insured to Avoid Removal by Naming Adjuster as Defendant

The Holding

In Chukly v. American Family Mut. Ins. Co., 2017 WL 3262541 (D.Ariz. Aug. 1, 2017) (Order), a breach of contract and insurance bad faith case arising from a homeowners claim after a microburst and “massive rain,” the Arizona District Court ruled that aiding and abetting claims against a non-diverse claims manager and a non-diverse adjuster were not fraudulently joined and granted an insured’s motion to remand.

The Takeaways

  •   An insured may likely avoid removal by asserting an aiding and abetting claim against a non-diverse adjuster or other insurer employee.
  • The viability of, and requirements for, an aiding and abetting claim against an insurer employee are unsettled in Arizona.

The Rationale

Although the insured named the non-diverse claims manager and adjuster in its complaint, the insurer removed the case to District Court and argued these two defendants were “fraudulently joined” solely to defeat diversity jurisdiction.

A joinder is “fraudulent” if a complaint fails to state a claim against a non-diverse defendant, and the failure is obvious under a state’s settled law.  Any ambiguity, however, is resolved in favor of remand because the defendant bears the burden of proving removal is proper and there is a strong presumption against removal.

The District Court reasoned that ambiguity in Arizona’s state law is present because both the District Court and the Arizona Court of Appeals have reached divergent outcomes regarding the elements of aiding and abetting in the bad faith context.  As an example, some courts require an adjuster to engage in a separate tortious act and others do not.