United States District Court, D. Arizona
DAVID G. CAMPBELL, District Judge.
On January 5, 2015, the Court granted Plaintiff partial summary judgment on her claim that Defendant ACE American Insurance Company breached its duty of good faith and fair dealing. Doc. 101. Defendants now seek summary judgment on Plaintiff's request for punitive damages. Doc. 102. The Court will deny the motion.
On March 13, 2012, Plaintiff Jane Haney fell on a cement surface and injured her head and knee. Doc. 106-1. At the time, she worked for the Boeing Company. Id. Boeing had contracted with Defendant ACE American Insurance Company ("ACE") to insure Boeing's employees for workers' compensation and with Defendant Sedgwick Claims Management Services ("Sedgwick") to manage the claims of employees who suffered injuries while working for Boeing. Doc. 107, ¶¶ 7-8. Due to her injuries, Haney did not return to work for the next two years and received worker's compensation coverage from ACE and Sedgwick. Doc. 106-1, ¶ 2; Doc. 107, ¶¶ 10-12.
Sedgwick had assigned Defendant Lori Hasty to manage Haney's worker compensation claims. Id., ¶ 9. When initially calculating Haney's wage replacement benefits in 2012, Hasty erred in two ways. First, she based Haney's wage benefits on Haney's annual salary, as opposed to the income Haney received in the thirty days preceding her injury. Doc. 107, ¶ 14; see Doc. 106-6 at 7. Second, Hasty miscalculated Haney's annual salary as $14, 925.57. Doc. 106, ¶ 14; Doc. 111, ¶ 14. This was the amount Haney earned in the first few months of 2012, not the amount she earned over the previous twelve months. See Doc. 106-6. Because of Hasty's miscalculations, Haney received $1, 247.19 in monthly wage replacement benefits instead of the statutory maximum of $4, 062.29 that she should have received. Doc. 107, ¶ 14. This resulted in a deficiency of over $20, 000 in benefits until the miscalculation was corrected. Id., ¶¶ 61-62. Hasty later described her miscalculations as an "honest mistake." Doc. 106-16 at 28.
In July of 2012, Haney hired the Fendon Law Firm because she believed that she was not receiving her full workers' compensation benefits. Doc. 103-1 at 13-14. Although Haney had been receiving improperly calculated wage benefits for months, the Fendon Law Firm did not raise this issue with Defendants until February of 2013. See Doc. 106-19. On February 14, 2013, a bookkeeper for Fendon sent Hasty an e-mail stating that Haney's average monthly wage should be raised to the limit of $4, 062.29 and requesting "a retro check... to get her caught up." Doc. 106-20 at 6. On March 13, 2013, Haney's compensation benefits were corrected and Haney began to receive $4, 062.29 a month. Doc. 106-1, ¶ 6; Doc. 107, ¶ 38. But Defendants still did not issue a check for the previous underpayments.
On March 20, 2013, Fendon requested a hearing with ICA regarding Haney's underpaid benefits. Doc. 106-5. Defendants were notified about the hearing, but did not attend. Id. On July 31, 2013, ICA found that Haney's average monthly wage should be set to the statutory maximum of $4, 062.29 and ordered Defendants to compensate Haney for the payments that had been based on Hasty's original miscalculation. Doc. 106-5 at 5. Defendants received a copy of ICA's order. Doc. 106, ¶ 57; Doc. 111, ¶ 57. In September of 2013, Fendon sent Hasty two separate e-mails requesting payment of $23, 549.31, the amount Fendon believed was owed to Haney due to previous underpayments. Doc. 106, ¶¶ 57-62; Doc. 111, ¶¶ 57-62. Hasty received and read these e-mails, but did not respond. Id. On October 22, ICA ordered Defendants to "address why you have not paid the benefits which were ordered to be paid." Doc. 66-14. On November 20, after the matter came to the attention of Hasty's supervisors, Defendants sent Haney checks totaling $23, 549.31. Doc. 107, ¶¶ 57-63.
Throughout this time-period, Hasty had been struggling with her work. Her supervisor, Kimberly Workman, noted in August of 2012 that Hasty was "extremely" overwhelmed and "frustrated" because she was constantly "behind and putting out fires." Doc. 106-29 at 1. Workman began to regularly meet with Hasty in order to help her with the workload. Doc. 107, ¶¶ 41-44. Due to continued poor performance, however, Workman had to verbally warn Hasty in April of 2013. Id., ¶¶ 39-40; Doc. 103-1 at 51. Hasty still struggled and Workman noted that her work was "significantly behind." Doc. 103-1 at 54. By September of 2013, Workman was beginning to question Hasty's integrity because Hasty often claimed to have completed a task when she had not. Doc. 106-37. For example, Hasty noted that she had filed a document relevant to Haney's claim in March of 2012, when in fact she did not do so until September of 2012. Doc. 106, ¶¶ 21-25; Doc. 111, ¶¶ 21-25. Hasty resigned in March of 2014. Doc. 107, ¶ 50.
On November 26, 2013, Haney filed this lawsuit against ACE, Sedgwick, and Hasty. Doc. 1. On Haney's motion for partial summary judgment, the Court found as a matter of law that ACE - through the actions of Hasty - had breached its duty of good faith and fair dealing by failing to make retroactive payments to Haney until ten months after being notified of the issue. Doc. 101. The Court stated:
[T]here is no genuine dispute that Hasty knowingly failed to undertake an adequate investigation to determine whether her position was tenable. Despite notification of the issue in February, further e-mails in March, an order from ICA in July, additional e-mails in September, and a second notice from ICA in October, Hasty and Defendants failed to resolve the matter [of Haney's retroactive payments].... Upon receiving the first e-mail regarding the retroactive payments, Hasty had a duty to respond in good faith. By failing to resolve the matter for ten more months, she and Defendants breached that duty.
Doc. 101 at 10. Defendants have now moved for summary judgment on Plaintiff's request for punitive damages, arguing that they did not engage in the kind of conduct that is necessary for an award of punitive damages. Doc. 102.
II. Legal Standard.
"Punitive damages may be awarded in a bad faith insurance case." Filasky v. Preferred Risk Mut. Ins. Co., 734 P.2d 76, 83 (Ariz. 1987). "To obtain an award of punitive damages, a plaintiff must prove by clear and convincing evidence that the defendant engaged in reprehensible conduct combined with an evil mind over and above that required for commission of a tort.'" Desert Palm Surgical Grp., P.L.C. v. Petta, 343 P.3d 438, 454 (Ariz.Ct.App. 2015) (quoting Linthicum v. Nationwide Life Ins. Co., 723 P.2d 675, 681 (Ariz. 1986)). In a bad faith insurance case, "[t]he requisite evil mind is found if the insurer intended to injure the insured or consciously pursued a course of conduct knowing that it created a substantial risk of significant harm to the insured." Hawkins v. Allstate Ins. Co., 733 P.2d 1073, 1080 (Ariz. 1987) (citing Rawlings v. Apodaca, 726 P.2d 565, 578 (Ariz. 1986)).
"This standard is satisfied by evidence that [the insurer's] wrongful conduct was motivated by spite, actual malice, or intent to defraud. [The insurer's] conscious and deliberate disregard of the interests and rights of others also will suffice." Gurule v. Illinois Mut. Life & Cas. Co., 734 P.2d 85, 87 (Ariz. 1987) (citations omitted). But punitive damages "are recoverable in bad faith tort actions when, and only when, the facts establish that defendant's conduct was aggravated, outrageous, malicious or fraudulent. Indifference to facts or failure to investigate are sufficient to establish the tort of bad faith but may not rise to the level required by the punitive damage rule. Rawlings, 726 P.2d at 578 (emphasis in original) (citations omitted). "[P]unitive damages may be assessed against an insurer for the ...