by Nathan Meyer | Aug 8, 2017 | Insurance
Although Arizona law regarding the implied waiver of the attorney-client privilege (the “Privilege”) is far from certain, an Insurer may avoid a waiver by following these tips:
- An Insurer should consider whether to defend a bad faith claim solely on objective reasonableness.[1]
- An Insurer should avoid, if possible, asserting its actions were subjectively reasonable based on its adjuster’s evaluation of the law, especially when the evaluation is informed by counsel.[2]
- An Insurer should not allow counsel to direct claim handling.[3]
- An Insurer should instruct its adjusters that outside counsel’s advice is simply a consideration and the Insurer’s ultimate positions—whether a coverage determination, settlement offer, etc.—are not dependent reliant upon outside counsel’s advice.[4]
- If an Insurer wants counsel to analyze the subjective or objective reasonableness of its actions, then an Insurer should perform its own analysis and reach its own conclusions first, and then obtain counsel’s analysis.[5]
- An Insurer should argue, if possible, that an Insured has alternative avenues of attempting to prove the alleged bad faith.[6]
- If an Insurer believes that whether it impliedly waived the Privilege is a close call, then it should litigate in state court rather than federal court.[7]
- If an Insurer believes that implied waiver of the Privilege may be an issue, then it should communicate with its counsel on the phone rather than in writing.[8]
[1] See Nguyen v. Am. Commerce Ins. Co., 2014 WL 1381384 *5 (Ariz.App. Apr. 8, 2014) (Memorandum Decision (Insurer did not impliedly waive the Privilege, in part, because the Insurer defended solely on objective reasonableness).
[2] See State Farm v. Lee, 199 Ariz. 52, 57, 13 P.3d 1169, 1174 (2000) (En Banc); Nguyen, 2014 WL 1381384 *5 (Insurer did not impliedly waive the Privilege, in part, because the Insurer never took the position that “its subjective view of the law was reasonable ([much less that its] subjective view necessarily incorporated advice from its counsel.”); Ingram v. Great Am. Ins. Co., 112 F.Supp. 3d 934, 939 (D.Ariz. 2015) (Insurer impliedly waived privilege where it denied workers compensation claim after Insurer’s subjective evaluation of the law).
[3] See Mendoza v. McDonald’s Corp., 222 Ariz. 139, 153-54, 213 P.3d 288, 303-04 (App. 2009) (Insurer impliedly waived the privilege, in part, because substantial evidence indicated the Insurer’s attorneys directed the Insurer’s adjusters to: (a) force the Insured to jump through needless adversarial hoops (numerous IMEs with “good doctors”); (b) take positions without a reasonable basis (the Insurer asserted the Insured’s injury was not work-related at a hearing, despite the adjuster’s belief the injury was work-related and it would be bad faith to assert otherwise); and (c) delayed the claim (“relied on counsel’s advice in delaying surgical authorization through the end of her involvement with the claim…”).
[4] See Lee, 199 Ariz. at 66, 13 P.3d at 1183 (“We assume client and counsel will confer in every case, trading information for advice. This does not waive the privilege.”) (“We assume most if not all actions taken will be based on counsel’s advice. This does not waive the privilege.”); Safety Dynamics, Inc. v. Gen. Star Indem. Co., 2013 WL 11299209 at *3, 4 (D. Ariz. Aug. 8, 2013) (Order) (Insurer did not impliedly waive the Privilege, despite an adjuster’s testimony that he relied on advice of counsel to issue a denial letter, in part, because Lee noted that “client and counsel confer[ing]” does not waive the privilege, so the deposition testimony was “insufficient by itself to waive the privilege”); Roehrs v. Minnesota Life Ins. Co., 228 F.R.D. 642, 646-647 (D. Ariz. 2005) (Order) (Insurer impliedly waived the Privilege because the adjusters affirmatively injected attorney-client communications into the litigation by testifying at their depositions that “they each considered and relied upon, among other things, the legal opinions or legal investigation [of in-house counsel] in denying” the claims) (emphasis added); but see Safety Dynamics Inc. v. Gen. Star Indem. Co., 2014 WL 268653 at *1 (D. Ariz. Jan. 24, 2014) (Order) (Roehrs is not precedent, distinguished Roehrs, and declined to follow Roehrs);
[5] See Nguyen, 2014 WL 1381384 *5 (Insurer did not impliedly waive the Privilege, in part, because the Insurer merely consulted counsel to evaluate the objective reasonableness of its position); Everest Indem. Ins. Co. v. Rea, 236 Ariz. 503, 504, 342 P.3d 417, 418 (App. 2015) (Insurer did not impliedly waive the Privilege despite asserting its actions were subjectively reasonable and admitting it consulted with counsel regarding the subject settlement agreement) (“Lee expressly held that the assertion of a subjective good faith defense coupled with consultation with counsel did not, without more, waive the attorney-client privilege.”); Safety Dynamics Inc. v. Gen. Star Indem. Co., 2014 WL 11281283 at *3, 4 (D. Ariz. Apr. 3, 2014) (“Based on counsel’s advice, the client will always have a subjective evaluations of its claims and defenses. This does not waive the privilege.”).
[6] See Lee, 199 Ariz. at 56, 13 P.3d at 1173 (stating the third criteria of the implied waiver test, i.e. a litigant impliedly waives the Privilege if, “(3) application of the privilege would have denied the opposing party access to information vital to his defense.”); Empire West Title Agency, L.L.C. v. Talamante ex rel. Cty. of Maricopa, 234 Ariz. 497, 500, 323 P.3d 1148, 1151 (2014) (an implied waiver should not be found unless the party seeking the attorney-client communications demonstrates there are not “other means of obtaining information about what [a litigant] knew or should have known…”) (even if the Purchaser’s state of mind was at issue, the Title Agent did not “demonstrate that denying it access to the requested communications would undermine its defense” because it had “other means of obtaining information about what [the Purchaser] knew or should have known regarding the easement’s purported abandonment.”); Mt. Hawley Ins. Co. v. Slayton ex rel. Cty. of Coconino, 2013 WL 708535 (Ariz.App. Feb. 26, 2013) (Memorandum Decision) (held GC Insurer did not impliedly waive the Privilege, in part, because the Sub Insurer had reasonable alternatives to seeking privileged communications to prove its case, such as retaining an expert to testify the GC Insurer did not act reasonably in defending and settling the underlying action).
[7] Of the thirteen cases—both published and unpublished—considered for this article, only two of the seven Arizona state court cases found an implied-waiver of the Privilege, but five of the six Arizona federal cases found an implied waiver.
[8] See City of Glendale v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2013 WL 1797308 at *6, 7 (D. Ariz. Apr. 29, 2013) (Order) (Insurer’s waiver extended only to “counsel’s advice that was contained in the adjuster’s notes in the claims file”).
by Nathan Meyer | Aug 8, 2017 | Insurance
Epperson v. AAA Fire & CAs. Ins Co., WL 406144 (Ariz.App January 31, 2017)
Memorandum Decision, an insurance bad faith case arising from a fire claim, the Arizona Court of Appeals affirmed the trial court’s grant of summary judgment to an Insurer, despite the Insurer paying the claim over 15 months after the fire occurred.
The Insured’s argued the trial court erroneously ruled there was no bad faith as a matter of law because the trial court improperly:
- Dismissed evidence that the Insurer failed to contact witnesses and develop information that might support the Insured’s claim; and
- Disregarded the Insured’s expert affidavit.
The Arizona Court of Appeals held the Insurer had “good reason to suspect arson” and the Insured’s expert affidavit did not raise a material question of fact, which precluded summary judgment.
The Arizona Court of Appeals noted the following undisputed evidence indicated both “good reason to suspect arson” and no material fact to issue regarding bad faith:
- The Insurer promptly interviewed relevant witnesses, performed an investigation of the fire scene, and sought relevant public documents;
- When the Insurer’s initial investigation revealed the fire was of suspicious origin, it asked the Insured’s to provide verifying documents and statements under oath;
- The Insured’s did not immediately cooperate with the Insurer’s investigation and failed for several months to both provide the requested information and submit to sworn examination; and
- After the Insured’s examinations under oath, the Insurer conducted follow-up investigation: it conducted follow-up interviews, obtained additional records, and attempted to contact witnesses identified by the Insured’s.
The Epperson opinion also provides a detailed account of the Insurer’s investigation and the “red flags” surrounding the Insured’s claim.
Regarding the Insured’s expert affidavit, the Court of Appeals:
- Noted the trial court’s ruling that the expert opinion was not evidence that created a material fact; and
- Cited Florez v. Sargeant, 185 Ariz. 521, 527, 917 P.3d 250 (1996), which held that conclusory expert affidavits do not create a triable facts issue if they:
- do not cite facts to support an expert’s opinion, or
- list facts which do not support the expert’s legal conclusion do not create a triable fact issue.
What are the takeaways for an Arizona Insurer investigating a suspicious fire claim and/or defending bad faith cases arising from the same?
- Epperson provides a detailed summary of a prompt, reasonable investigation of a fire claim, which Arizona insurers can use as a guide.
- At least one Arizona court stayed a bad faith case to allow an Insurer to complete its investigation of a fire claim. But see A.R.SCt. 111(c).
- Despite numerous “red flags” and “good reason to suspect arson,” an Insurer should still promptly attempt to interview witnesses and investigate facts that may support an Insured’s claim.
- An Insured’s conclusory expert affidavit may be insufficient to defeat an Insurer’s motion for summary judgment.
by Nathan Meyer | Aug 8, 2017 | Insurance
Many contracts or leases require one party to get insurance protection for the other party or landlord. Typically, they simply pass along the request for the insurance coverage to their insurance agent or broker and assume that their insurance will be updated to reflect the addition. To “prove” compliance with the contract requiring additional insurance coverage, the parties will often rely upon a “Certificate of Insurance.”
Unfortunately, when a personal injury occurs or property is damaged they realize that the Certificate of Insurance the parties had been relying upon actually states: “This certificate is issued as a matter of information only and confers no rights upon the certificate holder.” The parties may learn the insurance policy does not provide coverage because the insurer never completed the proper paper work to add the coverage that was required by “Endorsement.”
One of the biggest mistakes made when a contract or lease includes a provision requiring specific insurance coverage (i.e. naming the company as an additional insured or a loss payee) is reliance a Certificate of Insurance as evidence of coverage.
Certificates of Insurance:
- Do not confer rights upon the certificate holder;
- Do not affirmatively or negatively amend, extend, or alter the coverage afforded by the insurance policies; and
- Do not constitute a contract between the insurer and certificate holder.
In no uncertain terms, a Certificate of Insurance does not actually add any party listed therein to the policy in any way.
Endorsements:
A party is ONLY covered under a policy if an insurer issues an endorsement that adds that party as an “Additional Insured” or “Loss Payee.” An insurance policy is comprised of three parts – declarations, forms, and endorsements. The declarations list the forms and endorsements that comprise the policy. Any coverage form or endorsement not listed in the declarations is not part of the policy.
A specific Additional Insured endorsement is used to add coverage for specific Additional Insured’s by name. The coverage afforded to the specially-named Additional Insured depends upon the language of the endorsement itself. Review the endorsement carefully.
The best way to prevent having little or no insurance coverage, despite any contractual entitlement to coverage, is to ensure that an attorney reviews contract documents and pertinent parts of the insurance policy to ensure that contractually required coverage is in place.
To Protect Yourself:
- Never accept a Certificate of Insurance as proof that parties were properly added to the pertinent insurance policy;
- Request the endorsement and declarations page of the insurance policy.
- Ask an attorney to analyze the insurance required by the contract or lease and all pertinent insurance policy provisions to confirm compliance with any contractual insurance requirements.
by Nathan Meyer | Aug 8, 2017 | Insurance
Yeager v. State Farm Mut. Auto Ins. Co., 2017 WL 491121 (Ariz. App. February 7, 2017)
Memorandum Decision, a declaratory judgment action, the Arizona Court of Appeals rejected an Insured’s argument that she could stack UIM coverage’s in separate policies issued by the same Insurer. The Insured was involved in a single accident, but argued she made “two” claims—one UIM claim against the negligent driver of the other vehicle and a second UIM claim against the negligent driver of the vehicle in which she was a passenger.
Arizona’s anti-stacking statute, ARS § 20-259.01(H), states, “If multiple policies or coverage’s purchased by one insured on different vehicles apply to an accident or claim, the insurer may limit the coverage so that only one policy or coverage, selected by the insured, shall be applicable to any one accident.” (emphasis added)
The Court of Appeals held the anti-stacking clause in the Insurer’s policy was valid for two primary reasons.
First, the Court of Appeals relied on Giannini v. State Farm Mut. Auto. Ins. Co.,172 Ariz. 468, 837 P.2d 1203 (App. 1992), which rejected the same argument in the same situation. In Giannini,the Court of Appeals reasoned the existence of two negligent drivers in a single accident did not affect an Insurer’s ability to limit stacking under the statute because more than one accident did not occur and the “statute states clearly that the insurer may limit coverage so that only one policy is applicable to any one ‘accident.’” See also State Farm Mut. Ins. Co. v. Sharp,229 Ariz. 487, 491, 277 P.3d 192, 196 (2012) (“The most reasonable interpretation of Subsection (H) is that the phrase ‘multiple policies or coverage’s’ applies when an insured obtains coverage’s for several vehicles and then attempts to claim multiple UIM coverage’s for the same accident.”).
Second, the Court of Appeals held the anti-stacking clause was unambiguous and complied with the Statute. The policy’s anti-stacking clause stated, “If multiple policies or coverage’s purchased from the [Insurer] by one insured on different vehicles provide Underinsured Motor Vehicle Coverage which applies to the same accident or claim, the insured shall select one of these policies or coverage to apply to the accident. Only the one policy selected by the insured shall apply and no coverage will be provided by any of the other policies.” (emphasis added)
What is the primary takeaway from Yeager for Arizona insurers?
Arizona has confirmed that, even if an accident involves two tortfeasors, if an Insurer’s anti-stacking clause is unambiguous and complies with the statute, then the Insured still may not stack UIM coverage’s.
by Nathan Meyer | Aug 8, 2017 | Insurance
American Family Mut. Ins. Co. v. Verdugo, 2017 WL 2211275 (9th Cir. 2017)
Memorandum Decision, a coverage case arising from a homeowners policy, the Ninth Circuit Court of Appeals affirmed an Arizona District Court’s holding that an Abuse Exclusion precluded coverage for derivative negligence claims against Insured’s who allegedly failed to prevent or report abuse.
Insurance Case Overview
In Verdugo,the abuse victim was a minor, the underlying plaintiff was the abuse victim’s mother, the mother’s boyfriend was the abuser, and the underlying defendants/Insured’s were a physician and his wife. The abuse victim died as a result of the abuse. The underlying plaintiff obtained a jury verdict against the Insured’s. The decision did not explain how or when the Insured’s failed to prevent or stop the abuse. The Insured’s sought personal liability coverage under their homeowners policy from the Insurer.
Arizona Abuse Exclusion
The Abuse Exclusion stated the homeowners policy precluded coverage for “bodily injury…arising out of or resulting from any actual or alleged: a. sexual molestation or contact; b. corporal punishment; or c. physical or mental abuse of a person.”
Although Arizona has not addressed this issue, the Ninth Circuit held the Arizona District Court correctly predicted Arizona would rule the Abuse Exclusion precluded coverage for the derivative failure to report or prevent abuse claims, because Arizona has addressed the application of similar exclusions to derivative negligence claims and rejected the argument that such claims are separate and distinct torts not barred by the exclusions. Rather, Arizona considers claims such as negligent entrustment or supervision as claims that “cannot exist apart from the excluded conduct.”
Accordingly, the Ninth Circuit stated, “the district court correctly held that the abuse exclusion barred coverage here, because [the underlying plaintiff’s] claims against the [Insured’s] were for bodily injury arising from physical abuse. The [underlying plaintiff’s] claims necessarily included [abuse], and cannot exist apart from that excluded physical abuse.”
The Ninth Circuit also affirmed the Arizona District Court’s ruling that:
- the Abuse Exclusion is not ambiguous; rather, it “plainly and unambiguously bars coverage for bodily injury arising out of physical abuse”; and
- the District Court “correctly held that application of the[Abuse Exclusion] was not contrary to the [Insured’s’] reasonable expectations of coverage.”
What is the primary takeaway for Insurers in Arizona?
Arizona interprets exclusions to preclude coverage for derivative negligence claims, such as negligent entrustment, negligent supervision, and failure to supervise, report, or prevent the underlying excluded conduct.
