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Barten v. State Farm Mut. Auto. Ins. Co.

United States District Court, D. Arizona

July 1, 2014

Bryan Barten, Plaintiff,
v.
State Farm Mutual Automobile Insurance Company, Defendant

Order Filed: March 21, 2014

Decided June 30, 2014.

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[Copyrighted Material Omitted]

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For Bryan Barten, a married man, Plaintiff: Paul Zebrowski, Thomas A Biscup, LEAD ATTORNEYS, Law Offices of Paul Zebrowski & Associates, Shelby Township, MI; James Louis Spagnuolo, Jr, Bone Bourbeau Lizza & Spagnuolo PLLC, St Clair Shores, MI; Richard H Friedman, Friedman Rubin, Bremerton, WA.

For State Farm Mutual Automobile Insurance Company, a foreign corporation doing business in Arizona, Defendant: Bennett Evan Cooper, Floyd P Bienstock, Kevin Roger Fincel, Shannon E Trebbe, LEAD ATTORNEYS, Erin Elizabeth Bradham, Steptoe & Johnson LLP - Phoenix, AZ, Phoenix, AZ.

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ORDER

Cindy K. Jorgenson, United States District Judge.

On March 21, 2014, Magistrate Judge Leslie A. Bowman issued a Report and Recommendation, (Doc. 348), which addressed defendant's three motions for partial summary judgment. (Docs. 108, 186, and 188). Magistrate Judge Bowman advised the parties that written objections to the Report and Recommendation were to be filed within fourteen days after service of a copy of the Report and Recommendation pursuant to 28 U.S.C. § 636(b). Defendant has filed an objection. (Doc. 350). Plaintiffs have filed a response. (Doc. 353). On May 7, 2014, Defendant's filed a Motion for Leave to File a Reply. (Doc. 354). Plaintiff filed an Opposition to Defendant's Motion on May 13, 2014, (Doc. 356), and Defendant filed a Reply in Support of their Motion to File a Reply to Defendant's Objections on May 23, 2014. (Doc. 357).

I. Motion for Leave to File a Reply

Rule 72 of the Federal Rules of Civil Procedure permits a party to file objections to a Magistrate Judge's Report and Recommendation and permits a party to respond to another party's objections. Fed.R.Civ.P. 72(b)(2). However, the rule does not permit the filing of replies. Moreover, in Magistrate Judge Bowman's Report and Recommendation, she specifically explained that the rules do not permit the filing of a reply to a response to a party's objections. (Doc. 348 at p. 24).

Further, the Court does not find that a reply to the response is necessary in this matter. There has been extensive briefing and argument related to the issues presented to this Court. The parties have filed three separate summary judgment motions all with corresponding responses and replies, conducted oral argument before Magistrate Judge Bowman and had an opportunity to file objections and a response to the objections to Magistrate Judge Bowman's Report and Recommendation. A review of Plaintiff's proposed reply reveals that it does not add anything significant to the briefing in this matter. As such, Defendant's Motion to File a Reply is denied. See Hess v. Ryan, 651 F.Supp.2d 1004, 1009, n.1 (D. Ariz. 2009).

II. Standard of Review

This Court " may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate." 28 U.S.C. § 636(b)(1). Pursuant to 28 U.S.C. § 636(b)(1), if a party makes a timely objection to a magistrate judge's recommendation, then this Court is required to " make a de novo determination of those portions of the [report and recommendation] to which objection is made." See also Schmidt v. Johnstone, 263 F.Supp.2d 1219, 1226 (D.Ariz. 2003) (reading the Ninth Circuit's decision in Reyna-Tapia as adopting the view that district courts are not required to review " any issue that is not the subject of an objection" ); United States v. Reyna-Tapia, 328 F.3d 1114 (9th Cir. 2003) (disregarding the standard of review employed by the district

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court when reviewing a report and recommendation to which no objections were made).

III. Background

The parties do not object to the factual background as set forth in the Report and Recommendation. As such, the Court adopts the Report and Recommendation's background information.

IV. Defendant's Motion for Partial Summary Judgment Re: Contract and Bad Faith Claims. (Doc. 108).

Defendant's Motion addresses several subjects. Defendant argues that Michigan law applies to Plaintiff's breach of contract and bad faith claims. Applying Michigan law, Plaintiff's claims for benefits are subject to Michigan's statutory one year back rule, which limits contract and tort claims for personal injury protection (" PIP" ) benefits from one year prior to the date on which the action is commenced. MCL § 500.3145(1).

Further, Michigan law does not recognize the tort of bad faith and as such, Plaintiff's claims for bad faith are barred. See Roberts v. Auto-Owners Ins. Co., 422 Mich. 594, 604, 374 N.W.2d 905, 909 (Mich. 1985) (citation omitted). Compare Zilisch v. State Farm Mutual Auto. Inc. Co., 196 Ariz. 234, 237, 995 P.2d 276, 279 (Ariz. 2000); Rawlings v. Apodaca, 151 Ariz. 149, 160, 726 P.2d 565, 576 (1986) (Arizona law does allow a bad faith tort action). In the alternative, Defendant argues that even if the Court were to apply Arizona law to Plaintiff's bad faith claim, any claims that occurred before April 13, 2010 are barred by Arizona's two-year statute of limitations.

Choice of Law -- Plaintiff's Breach of Contract Claim

Magistrate Judge Bowman found that Plaintiff's breach of contract claim should be decided pursuant to Michigan law. The parties have not raised any objections to this recommendation. As such, the Court adopts this recommendation.

One Year Limitations -- Plaintiff's Breach of Contract Claim

Magistrate Judge Bowman found that Plaintiff's recovery for breach of contract damages is limited by Michigan's one year back rule. Plaintiff has not raised any objections to this recommendation. As such, the Court adopts this recommendation.

Choice of Law -- Plaintiff's Bad Faith Claim

Magistrate Judge Bowman found that Plaintiff's bad faith claims are governed by Arizona law. Defendant timely filed an objection to this recommendation and suggests that Michigan law should apply to Plaintiff's bad faith claims.

Federal courts sitting in diversity must apply the forum state's choice of law rules. Love v. Associated Newspapers, Ltd., 611 F.3d 601, 610 (9th Cir. 2010). " Arizona courts apply the principles of the Restatement (Second) of Conflict of Laws (1971) (" Restatement" ) to determine the controlling law for multistate torts." Bates v. Superior Court of State of Ariz. In and For the County of Maricopa, 156 Ariz. 46, 48, 749 P.2d 1367, 1369 (Ariz. 1988); Pounders v. Enserch E& C, Inc., 232 Ariz. 352, 354, 306 P.3d 9, 11 (Ariz. 2013).

" Restatement § 6(2) lists the general factors relevant to choosing the applicable rule of law and § 145 gives further guidance for the application of the § 6 factors to tort issues." Bates, 156 Ariz. at 48-49, 749 P.2d at 1369-70. Pursuant to § 145, in resolving multistate tort issues, the courts must apply the law of the state

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which " has the most significant relationship to the occurrence and the parties under the principles stated in § 6." Restatement (Second) Conflict of Laws § 145(1); Bates, 156 Ariz. at 48-49, 749 P.2d at 1369-70.

In order to perform this analysis in accordance with Arizona law, this Court first considers the general tort choice of law principles of Restatement § 145 as well as the specific personal injury principles of Restatement § 146. See Bates, 156 Ariz. at 49, 749 P.2d at 1370 (finding that pursuant to Arizona law, a bad faith refusal to provide benefits to an insured can create sufficient mental distress to qualify as a personal injury). Then, the Court applies the guidelines of both of those sections to the general principles listed in Restatement § 6(2). Lange v. Penn Mut. Life Ins. Co., 843 F.2d 1175, 1178-1179 (9th Cir. 1988) (citing Bates, 156 Ariz. at 48-50, 749 P.2d at 1369-71).

Restatement § 145 provides:

(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in § 6.
(2) Contracts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
These contacts are to be evaluated accordance to their relative importance with respect to the particular issue.

Applying the first § 145 factor, Magistrate Judge Bowman concluded that the injury occurred in Arizona because Arizona is where Plaintiff experienced mental and physical harm as a result of Defendant's alleged bad faith in providing misleading information regarding the extent of his benefits. (Doc. 348, p. 9). Defendant argues that some of Plaintiff's alleged injuries occurred in Michigan.

The " place of injury" is where " the last event necessary for liability occurred (that is, the place where the injury manifested)." Pounders, 232 Ariz. at 356, 306 P.3d at 13. The last event necessary for liability can only occur in one location, which " preserves the Restatement goals of certainty, predictability, and uniformity of result." Id.

On April 21, 1995, Plaintiff lived in Hart, Michigan when he was involved in a single vehicle accident in Lansing Michigan. (Doc. 169-1 at p. 1). At the time of his injury, Plaintiff was insured under his father's insurance policy issued by Defendant in Michigan. Id. at 2. After the accident, on April 28, 1995, Plaintiff was represented by attorney George T. Sinas who applied for PIP benefits on Plaintiff's behalf. Id. at 4. Plaintiff began receiving various PIP benefits from Defendant in 1995 and all claims were handled by personnel in Michigan. Id. at 5.

Plaintiff moved to Tucson, Arizona in December 1996. Id. at 7. After moving to Tucson, Plaintiff was initially assisted by his girlfriend. Id. at 19-20. Defendant paid her for her services including shopping and transferring Plaintiff to and from his wheelchair. Id. at 20. Plaintiff's girlfriend moved in 1997 and Plaintiff subsequently experienced significant problems handling daily personal activities. Id. at

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19-20. Plaintiff contacted Defendant and advised them that he needed help with " everything." Id. at 21. He gave examples of shopping and cleaning and was advised that these services were not covered. Id. As a result, Plaintiff believed that all services other than medical bills were no longer covered. Id. In the fall of 2011, Plaintiff met Andy Zimmer in Las Vegas. Id. at 18. Mr. Zimmer was receiving PIP benefits from a Michigan no fault insurance policy and he advised Plaintiff on the actual extent of his coverage. Id.

While Plaintiff may allege that Defendant failed to provide him with his full panoply of benefits originating from his time in Michigan, he did not begin to suffer mental and physical distress as a result of Defendant's alleged bad faith in the handling of his claim until after his girlfriend moved and Defendant allegedly provided him with misleading information regarding his benefits. These acts occurred while Plaintiff was living in Arizona. Accordingly, the place of injury in this case is Arizona.

In analyzing the second § 145 factor, Magistrate Judge Bowman concluded that the conduct causing the injury occurred in Michigan where Plaintiff's claims were handled. (Doc. 348, p. 9). The Court agrees. Defendant allegedly injured Plaintiff through its bad faith practices and since Plaintiff's claims were handled in Michigan, that is where the bad faith conduct causing Plaintiff's injuries, allegedly occurred.

Analyzing the third § 145 factor, Magistrate Judge Bowman explained that Defendant is incorporated in Illinois and has its principal place of business in Illinois, while Plaintiff is domiciled in Arizona. Magistrate Judge Bowman gave more weight to Plaintiff's domicile. Defendant argues that Magistrate Judge Bowman failed to consider that Defendant does significant business in Michigan, the insurance policy was issued out of Defendant's Michigan office, and Plaintiff resided in Michigan when he suffered the underlying injuries from the vehicular accident. Defendant suggests that this factor is a split between Michigan and Arizona.

While there are geographic contacts between Michigan and Arizona amongst the parties, Arizona applies " greater weight to the residence of the alleged tort victim" in cases where the injury is to plaintiff's personal interests. Bates, 156 Ariz. at 50, 749 P.2d at 1371. While Plaintiff's residence was Michigan at the time some of Defendant's alleged bad faith conduct occurred, the Court has already determined that Plaintiff was domiciled in Arizona when he felt the impact of Defendant's alleged conduct. As a result, the Court will ascribe greater weight to Plaintiff's Arizona contacts.

Analyzing the fourth § 145 factor, Magistrate Judge Bowman found that the relationship between the parties is centered between Illinois and Arizona. (Doc. 348, p. 9). Defendant argues that all of Plaintiff's claims were handled in Michigan by Michigan PIP claim representatives and Defendant's claims representatives communicated with Plaintiff from Michigan.

As stated by the Arizona Supreme Court, in an insurance bad faith case, " the relationship would seem to be centered at the insurer's home office." Bates, 156 Ariz. at 50, 749 P.2d at 1371. It is undisputed that many of Defendant's 69 employees who were involved in Plaintiff's claim handled his claim physically out of Michigan.

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See (Doc. 169-1 at pp 5-7). The claim was initially processed in Michigan based on an automobile insurance policy issued in Michigan to Plaintiff's father, a Michigan resident, as a result of an automobile accident that occurred in Michigan. See (Doc. 169-1 at pp. 1-3, 5-7). As such, this Court finds that the parties' relationship is primarily centered in Michigan.

A review of this Court's analysis reveals that the factors are quantitatively evenly split between Michigan and Arizona. However, the Court's analysis on " which state has the most significant contacts is qualitative, not quantitative." Lange, 843 F.2d at 1180 (citing Bates, 156 Ariz. at 49, 749 P.2d at 1370). In performing this analysis, the Court must consider Restatement § 146. Lange, 843 F.2d at 1180; Bates, 156 Ariz. at 49, 749 P.2d at 1370.

Restatement § 146 states:

In an action for a personal injury, the local law of the state where the injury occurred determines the rights and liabilities of the parties, unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the occurrence and the parties, in which event the local law of the other state will be applied.

In this case, the injury occurred in Arizona. Accordingly, unless another state has a more significant relationship under the principles stated in Restatement § 6 to the occurrence and the parties, Arizona law shall apply. Pursuant to Restatement § 6:

(1) A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.
(2) When there is no such directive, the factors relevant to the choice of the applicable rule of law include:
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and,
(g) ease in the determination and application of the law to be applied.

Defendant argues that several of these factors support applying Michigan law, specifically factors (c), (d), (e), and (f). The Court finds that factor (a), " the needs of the interstate and international systems," has minimal relevance to this bad faith action. See Bates, 156 Ariz. at 50, 749 P.2d at 1371; Lange, 843 F.2d at 1180. Further, Plaintiff's bad faith action is based in tort not contract, as such, factor (d), " the protection of justified expectations," is not a relevant factor to consider. See Lange, 843 F.2d at 1180-1181 (finding that plaintiff's claim alleging a breach of the implied covenant of good faith arises in tort and " in such a case, subsection (d) of Restatement § 6(2) is not applicable" ) (citing Bates, 156 Ariz. at 50, 749 P.2d at 1371); see also Restatement § 145, comment (b) (" the protection of justified expectations of the parties, which is of extreme importance in such fields as contracts, property, wills and trusts, is of lesser importance in the field of torts." ).

Next, this Court finds that factor (e), " the basic policies underlying the particular field of law," is similarly neutral. See Restatement § 6, comment (h) (" this factor [basic policies underlying particular field of law] is of particular importance in situations where the policies of the interested states are largely the same but where there are nevertheless minor differences between their relevant local law rules." ). Additionally, factor (f), is of " lesser importance in torts." Restatement § 145, comment (b); see also Lange, 843 F.2d at 1180

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(applying § 6 factors to an insurance bad faith claim the Court determined that a consideration of the principle of certainty, predictability and uniformity of result is not helpful); Bates, 156 Ariz. at 50 (finding that the factor considering certainty, predictability and uniformity of result is neutral in the insurance bad faith context), and factor (g) is insignificant to this analysis as this Court could easily apply either Arizona law or Michigan law to this claim. See Garcia v. General Motors Corp., 195 Ariz. 510, 519, 990 P.2d 1069, 1078 (Ariz. Ct.App. 1999); see also Bates, 156 Ariz. at 50, 749 P.2d at 1371.

The Court finds that factors (b) and (c) are applicable to this case and carry greater weight than the other factors. Pounders, 232 Ariz. at 359, 306 P.3d at 16; see also Restatement § 145, comment (b) (identifying the policies of the forum and interested states as factors of relatively greater importance in tort cases). The Court evaluates the relevant policies of the forum state and other interested states " in light of § 145's contacts, considering particularly the policy of the dominant state." Pounders, 232 Ariz. at 359, 306 P.3d at 16.

The relevant policies of Arizona and Michigan are completely different in this case. Arizona permits recovery for insurance bad faith claims. See Zilisch, 196 Ariz. at 237, 995 P.2d at 279. Michigan does not recognize a separate cause of action for insurance bad faith. Roberts, 422 Mich. at 604, 374 N.W.2d at 909 (citations omitted). As the forum state, Arizona has an interest in making sure that its residents are made whole for injuries caused while in Arizona. However, Defendant correctly points out that Michigan provides a comprehensive law governing no fault claims that permits among other things lifetime attendant care benefits. While Michigan may have an interest in precluding the use of insurance bad faith litigation in light of its expansive No Fault Act, the Court finds that this interest does not create a greater interest in applying Michigan law to Plaintiff's bad faith claim in this case.

After applying the principles of Restatement § § 145, 146, and 6, this Court agrees with the Magistrate Judge and concludes that Arizona law shall apply to Plaintiff's insurance bad faith claim as it has the most significant relationship to the parties.

Defendant further argues that Michigan law should apply even though Plaintiff subsequently moved to Arizona and his resulting injuries were suffered in Arizona. See Pounders, 306 P.3d at 15, 667 P.3d at 358. In Pounders, the plaintiff was exposed to asbestos in New Mexico but was diagnosed with mesothelioma in Arizona years later. Id. The court ascribed minimal significance to the place of injury in its choice of law analysis holding that the plaintiff's move to Arizona was fortuitous and as a result it applied significant weight to the location where the conduct causing the injury occurred. Id. Defendant suggests that the facts in this case are analogous to Pounders and as such, the Court should perform a similar analysis. See Id. This Court disagrees.

While, there may be situations where the place of injury does not play an important role in determining the state law to apply such as when the place of injury is fortuitous or when it bears little relation to the occurrence and the parties with respect to the particular issue, Restatement (Second) Conflict of Laws § 145 comment (e), generally, in cases involving personal injuries, the place where the injury occurred plays an " important role in the selection of the state of the applicable law." Id.

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In this case, there was an ongoing and continuing relationship between Plaintiff and Defendant from the time of the Plaintiff's underlying accident in Michigan and continuing after he moved to Arizona. However, most of the alleged acts of bad faith occurred while Plaintiff resided in Arizona. Further, the plaintiff in Pounders did not have a continuing relationship with the defendant and there was no relationship between defendant's actions and the place of injury. As such, the Court finds this case distinguishable from the unique situation in Pounders and applies the general rule that the place of injury plays a more significant role in the Court's analysis. See Restatement (Second) Conflict of Laws § 146, comment (c).

Defendant argues that applying Arizona law to Plaintiff's insurance bad faith claim would create a new duty under Michigan's no fault insurance policy that does not exist under Michigan law, such as a duty to advise the insured on his insurance benefits. However, Defendant is a national insurer and would have known that its Michigan insureds may relocate. As a result, Defendant is aware that it may have to perform its obligations as an insurer in any state. Defendant " could not justifiably expect that every aspect of its conduct would be governed by the law of the state in which the contract originally was made." Bates, 156 Ariz. at 51, 749 P.2d at 1372. Moreover, as noted earlier, the Court is applying Arizona law only to Plaintiff's claim in tort; Plaintiff's claim for breach of contract remains subject to Michigan law.

Statute of Limitations -- Bad Faith Claim

Magistrate Judge Bowman recommended applying Arizona's two year statute of limitations to Plaintiff's bad faith claim. Neither party objects to this recommendation and it is adopted.

Magistrate Judge Bowman further recommended that this Court refer a determination on whether the discovery rule is applicable to Plaintiff's bad faith claim to the trier of fact because a reasonable jury could find that Plaintiff was not aware of the extent of his benefits prior to the deadline for the statute of limitations. Defendant objects to this recommendation.

Pursuant to Arizona law:

[I]nsurance contracts include an implied covenant of good faith and fair dealing, whereby each party is 'bound to refrain from any action which would impair the benefits which the other had the right to expect from the contract or the contractual relationship. Voland v. Farmers Ins. Co., 189 Ariz. 448, 451, 943 P.2d 808, 811 (App.1997), quoting Rawlings v. Apodaca, 151 Ariz. 149, 154, 726 P.2d 565, 570 (1986).

Rowland v. Great States Ins. Co., 199 Ariz. 577, 582, 20 P.3d 1158, 1163 (Ariz. Ct.App. 2001) (internal quotations omitted). This implied covenant is breached when an insurer's conduct damages the security which the insured sought to gain by buying insurance. Deese, 172 Ariz. at 508, 838 P.2d at 1269 (citations omitted).

Arizona's two year limitation period for bad faith claims " begins to run upon accrual." Manterola v. Farmers Ins. Exchange, 200 Ariz. 572, 576, 30 P.3d 639, 643 (Ariz. Ct.App. 2001) (citing Doe v. Roe, 191 Ariz. 313, 326, 955 P.2d 951, 964 (Ariz. 1998). " Under the common law discovery rule, a cause of action does not accrue until the plaintiff knows or with reasonable diligence should know" the defendant's wrongful conduct. Id. (internal quotations and citations omitted).

Defendant argues that Plaintiff submitted requests for reimbursement to Defendant for attendant care services such as bathing, ...


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