United States District Court, D. Arizona
AMENDED MEMORANDUM OF DECISION AND ORDER
Stephen M. McNamee Senior United States District Judge.
Pending before the Court is Defendant Government Employees Insurance Company’s (“GEICO”) motion for summary judgment, which is fully briefed. (Docs. 222-23, 235-36, 240, 247-48.) After reviewing and considering the briefs, the Court will grant in part and deny in part GEICO’s motion for summary judgment.
The following facts are undisputed. During the early morning hours of October 28, 2007, Eduardo Mediavilla and Plaintiff Katherine Coronel (“Coronel”), the fiancée of Eduardo, were traveling South on Interstate 17 just North of the Phoenix metro area. (Doc. 235-14.) Mr. Mediavilla was driving a 2003 Volkswagen Jetta that was owned by his father Eduardo Mediavilla. Eduardo and Coronel’s minor children, A.M. (3years old) and V.M. (19 months old) were buckled in their car seats in the rear of the Jetta. Coronel was pregnant with their third child, then unborn E.M. (Doc. 54.) While driving on I-17 the Jetta had a flat on the driver rear tire. (Id.) Mr. Mediavilla pulled over to the shoulder in front of another motorist who was also having car trouble. (Doc. 235-5.) The other motorist, Donald Crowe, was attempting to help Mr. Mediavilla change his tire, however, one of the lug nuts could not be removed. (Id.) Crowe and Mr. Mediavilla had decided that Mediavilla needed to drive the Jetta to a service station for assistance. (Id.) As Crowe was putting up his tools and facing away from Mr. Mediavilla, Mr. Mediavilla was seated in front of the Jetta’s flat tire when he was struck by another car that had veered off the road. (Id., Doc. 54.) Mr. Mediavilla was struck by the vehicle and thrown from the rear of the car into the Jetta’s front wheel well, killing him. (Doc. 54.) The vehicle which struck Mr. Mediavilla did not return to the scene of the accident, and the driver responsible for the accident has never been located. (Id.)
The Jetta was owned by Mr. Mediavilla’s father and was insured by GEICO. The policy on the Jetta was entered into in New York by decedent’s father and contained uninsured/underinsured policy limits of $100, 000 per person and $300, 000 per occurrence. (Doc. 54.) The policy contains a choice-of-law provision, which states that “the policy . . . [is] to be interpreted pursuant to the laws of the state of New York.” (Doc 223-1 at 59.)
Between the time of the accident and December 17, 2009, GEICO investigated, processed, and then paid $100, 000, in uninsured motorist coverage for Mr. Mediavilla’s wrongful death. (Doc. 235-13.) The proceeds of the wrongful death payment were split between his parents ($15, 000) and Mr. Mediavilla’s three minor children ($85, 000). (Id. at 24.)
Coronel continued to pursue a claim under the policy on behalf of herself and her children alleging that due to the accident they suffered negligent infliction of emotional distress (“NIED”) injuries. (Doc. 54 at 5.) Regarding Plaintiffs’ claims to GEICO for NIED damages arising out of the accident, the material facts are set forth in the Court’s discussion of their claims for bystander NIED damages and direct duty NIED damages.
On March 11, 2011, Plaintiffs retained counsel to represent them in the claim. (Doc. 223-1 at 85.) On April 20, 2011, Plaintiffs’ counsel made a global settlement offer. (Id. at 87-91.) GEICO acknowledges that included with the Plaintiffs’ demand letter were medical records for all Plaintiffs other than E.M. (Id.) On October 11, 2011, GEICO responded. (Doc. 223-1 at 93-94.) Based on New York law, GEICO stated that it did not believe Coronel was eligible for NIED damages. (Id.) GEICO further stated that it did not believe that A.M. or V.M were eligible for NIED damages, but offered payment of $5, 000 each for both A.M. and V.M. (Id.) The parties then decided to settle the claims of A.M. and V.M. for $7, 500 each. (Doc. 223-1 at 96.) Plaintiffs then sought court approval of the settlement involving A.M. and V.M. (Doc. 223-1 at 98-102.) Subsequently, on December 27, 2011, Plaintiffs withdrew the Petition for Approval of Settlement and Order and filed a Complaint against GEICO for breach of contract, bad faith, and punitive damages. (Doc. 223-1 at 104, 106-110.)
STANDARD OF REVIEW
“A party may move for summary judgment, identifying each claim or defense . . . on which summary judgment is sought.” Fed.R.Civ.P. 56(a). “The court shall grant summary judgment if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Id.; see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Jesinger v. Nevada Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive law determines which facts are material. See Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986); see also Jesinger, 24 F.3d at 1130. “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at 248. The dispute must also be genuine, that is, the evidence must be “such that a reasonable jury could return a verdict for the nonmoving party.” Id.; see Jesinger, 24 F.3d at 1130.
A principal purpose of summary judgment is “to isolate and dispose of factually unsupported claims.” Celotex, 477 U.S. at 323-24. Summary judgment is appropriate against a party who “fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.” Id. at 322; see also Citadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th Cir. 1994). The moving party need not disprove matters on which the opponent has the burden of proof at trial. See Celotex, 477 U.S. at 323. The party opposing summary judgment may not rest upon the mere allegations or denials of the party’s pleadings, but must set forth specific facts showing that there is a genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995).
I. Breach of Contract
Under New York law, “in the context of insurance contracts, a ‘breach’ [of contract] does not occur until an insured party makes demand upon the insurer and the insurer refuses to pay.” Continental Cas. Co. v. Stronghold Ins. Co., 866 F.Supp. 143, 145 (S.D.N.Y. 1994) (citing Niagara Frontier Transp. Auth. v. Encon Underwriting Agency, Inc., 185 A.D.2d 642 (N.Y.App.Div. 1994) (stating that the “breach . . . occurred when the insurer denied liability under the contract.”) “It is only when an insurer declines to pay a covered loss for which the insured has requested payment that the insurer has breached the insurance agreement by failing to perform its contractual obligations.” Niagara Frontier, 185 A.D.2d at 642.
A. Bystander NIED
Regarding breach of the insurance contract, the first issue is whether Coronel, and/or the minor children, were entitled to bystander NIED benefits arising out of the accident. Under New York law, in order to recover emotional distress damages proximately caused by the accident, Coronel and/or the minor children must establish each of the following four elements: (1) the plaintiff is contemporaneously aware of or witnesses; (2) serious physical injury or death; (3) to an immediate family member; (4) while in the zone of danger created by the hit-and-run motorist. See Bovsun v. Sanperi, 461 N.E.2d 843, 844 (N.Y. 1984). Bystander recovery for NIED in New York is a narrow avenue. See Trombetta v. Conkling, 626 N.E.2d 653, 654 (N.Y. 1993). As applied to the facts of this case, it requires that the hit-and-run driver breached a duty owed to each Plaintiff by exposing them to an unreasonable and negligent risk of bodily injury or death, entitling them to recover all damages sustained as a result of the defendant’s breach, including mental and physical injuries resulting from witnessing death or serious bodily to a member of the immediate family. See id. at 654-55 (citing Bovsun, 461 N.E.2d at 844).
Immediate Family Member
GEICO contends that it is entitled to summary judgment because Coronel as a fiancée of the deceased, was not an immediate family member. (Doc. 222 at 6-7.) GEICO argues that an immediate family member is limited to “a party who was “married or related in the first degree of consanguinity.” (Id. at 6.) GEICO contends that Coronel was neither married nor had a blood relationship with the decedent. (Id. at 6-7.)
Coronel contends that even though no New York case holds that she is eligible as an immediate family member, if presented with the issue, New York would permit her to assert a bystander NIED claim. (Doc. 235 at 8.) Coronel surmises this because other neighboring states allow for unmarried cohabitants to recover for bystander NIED. (Id.) Regarding the children, Coronel alleges that there is no observation requirement for bystander NIED and that the children were contemporaneously aware of their father’s death. (Id. at 8-10.)
The Court finds that Coronel is not an immediate family member. In Bovsun, the court limited bystander NIED to immediate family members, which it determined as: “married or related in the first degree of consanguinity to the injured or deceased person . . . ” 461 N.E.2d at 850 n.13. In Trombetta, the New York Court of Appeals refused to expand the immediate family requirement to those who could demonstrate a blood relationship coupled with significant emotional attachment or the equivalent of an intimate, immediate familial bond. 626 N.E.2d at 655 (stating that the availability of recovery is limited to the strictly and objectively defined class of bystanders).
Coronel was neither married to nor had the required blood relationship with the decedent. Because she was not an immediate family member of the decedent, the Court finds that she is not eligible for bystander NIED. See Trombetta, 626 N.E.2d at 655-56 (rejecting significant emotional attachment or the equivalent of an intimate, immediate familial bond as meeting the test for a decedent’s immediate family; the availability of recovery is limited to a strictly and objectively defined class of bystanders); Santana v. Salmeron, 79 A.D.3d 1122, 1123 (N.Y.App.Div. 2010) (stating that a boyfriend was not an injured girlfriend’s immediate family member); see also Thompson v Dhaiti, 103 A.D.3d 711, 712-13 (N.Y.App.Div. 2013) (finding that “stepchildren are not immediate family members”); Jun Chi Guan v. Tuscan Dairy Farms, 24 A.D.3d 725, 726 (N.Y.App.Div. 2005) (holding that a grandmother was not an immediate family member of her deceased grandson). Having found that Coronel was not an immediate family member under New York law, she has not met a required element and was thus not entitled to bystander NIED.
Awareness of Injury/Death and Zone of Danger
GEICO contends that the minor children have not established their claim to bystander NIED because: 1) New York law requires that the minor children must have witnessed or observed their father being hit in the accident, and 2) they were not in the zone of danger.
Coronel, on behalf of the minor children, contends that there is no such observation requirement; the children only must be contemporaneously aware of their father’s death. The minor children further contend that they were in the zone of danger.
Regarding A.M. and V.M, the deceased’s children who were in the back seat of the car, the Court rejects GEICO’s argument that the A.M. and V.M. were required to have witnessed or observed their father being hit in the accident. The Court finds that there is no observation requirement for bystander NIED. See Bovsun, 461 N.E.2d at 850 (stating that “[a]lthough plaintiffs in Bovsun did not actually see their husband and father being injured, they do assert their instantaneous awareness that he had been injured as well as their observation of him immediately after he was struck by defendants’ automobile.”)
The Court further finds that A.M. and V.M. were contemporaneously aware of their father’s death and therefore met this requirement. A non-party witness on the scene of the accident, Donald Crowe, testified that immediately after the accident he heard A.M. and V.M. in the car hysterically crying; he also testified that they were scared. (Doc. 235-5 at 5.) However, in-utero E.M. could not have witnessed or been contemporaneously aware of his/her father’s death and therefore could not meet this requirement.
Next, at issue is whether A.M. and V.M. were in the zone of danger created by the hit-and-run driver. A.M. and V.M. were in the back seat of the Jetta, strapped into their car seats. A.M. was 3 and V.M. was 19 months. GEICO argues that the children in the car were not in the zone of danger because they were not threatened with bodily harm as a consequence of the hit-and-run motorist’s negligence. (Doc. 222 at 7-8.)
Coronel relies on Bovsun arguing that the factual similarities from that case to the facts here demonstrate that the children were in the zone of danger. Coronel recites the Bovsun facts as involving the family vehicle parked on the side of the road when the father was seriously injured by a passing vehicle as he was standing outside the vehicle opening a tailgate window. (Doc. 235 at 9, citing 461 N.E.2d at 844.)
The Court finds that the children were not threatened with bodily harm as a consequence of the hit-and-run motorist’s negligence, as the hit-and-run driver’s negligence did not cause a collision with the Jetta. Thus, as this Court construes New York law, the children were not in the zone of danger. For instance, in Feng v. Metro. Transp. Auth., 285 A.D.2d 447, 447-48 (N.Y.App.Div. 2001), a mother took her son to a train station. Id. While waiting for the train to arrive, the mother sat on a bottom step near the approaching train tracks, and the son stood approximately five feet away facing his mother with his back to the tracks and the oncoming trains. Id. An approaching train struck the son, pushing him onto his mother. Id. The court held that the mother was not in the zone of danger or that she was even aware the train was approaching prior to the accident. Id. at 448; see also Zea v. Kolb, 204 A.D.2d 1019, 1019 (N.Y.App.Div. 1994) (holding that mother who was twelve to fifteen feet away from defendant’s vehicle when it struck and killed her daughter was not in the zone of danger because “she herself was never threatened with bodily harm in consequence of defendant’s negligence”); Gonzalez v. N.Y.C. Hous. Auth., 181 A.D.2d 440, 440 (N.Y.App.Div. 1992) (holding that mother who was held back by another passenger in the rear of the elevator when her daughter was killed by elevator doors was not in the zone of danger).
Here, Coronel testified that at the time of the accident she was on the right side (the passenger side) of the vehicle and had her hand on the vehicle. (Doc. 235-2 at 6.) She stated that when the accident occurred, there was a loud noise and the car violently shook, and moved. (Id.) However, the accident report concluded that the Jetta only had dents on the left side on the rocker panel in the lower part of the car and that such dents were caused by the body of the decedent after he was hit and thrust into the car. (Doc. 235-14 at 7.) Although there was also damage to the driver’s side mirror, after talking with all of the witnesses, it was undetermined by the accident report whether the hit-and-run vehicle caused this damage or whether it was caused by the decedent. (Id.) No one witnessed the decedent being struck by the hit-and-run driver. There is no expert testimony that would establish proof that the driver-side mirror was struck by the hit-and-run vehicle. Based on this lack of evidence, the Court finds that neither A.M., V.M., nor in-utero E.M., were in the zone of danger.
The case relied on by Coronel, Bovsun, is distinguished by its facts. In Bovsun, the father was outside the vehicle working on the rear tailgate when the back of his vehicle was struck by the negligent driver, seriously injuring the father. 461 N.E.2d at 844. Due to the force of the impact of the vehicles colliding, pinning the father, the mother and daughter were thrown about their vehicle although not seriously injured. Id. Thus, the mother and daughter who were in the car had bystander NIED claims; they were in the zone of danger based on the collision and were contemporaneously aware of the father’s serious injuries.
B. Direct Duty NIED
Under New York law, Coronel contends that she, A.M., and V.M. have two ways to establish a NIED claim: the bystander theory or the direct duty theory. (Doc. 235 at 10.) According to Coronel, under the direct duty theory, a plaintiff has a cause of action for an NIED claim if he or she “suffers emotional distress caused by ‘defendant’s breach of a duty which unreasonably endangered [plaintiff’s] own physical safety.’” (Id., citing Baker v. Dorfman, 239 F.3d 415, 421 (2nd Cir. 2000) (applying New York law)). Coronel further contends that the “direct duty” owed to she, A.M., and V.M. would include generalized duties that one would owe to the public such as operating his or her vehicle safety, prudently, and in accordance with traffic laws. (Doc. 235 at 10.)
GEICO responds that under the direct duty NIED theory, the duty “must be specific to the plaintiff, and not some amorphous, free-floating duty to society.” (Doc. 247 at 5 (quoting Mortise v. United States, 102 F.3d 693, 696 (2d Cir. 1996) (citing Johnson v. Jamaica Hosp., 467 N.E.2d 502 (N.Y. 1984))).)
The Court finds the following. In accordance with New York law, “the definition of the existence and scope of an alleged tortfeasor’s duty is usually a legal, policy-laden declaration reserved for Judges to make prior to submitting anything to fact-finding or jury consideration.” Palka v. Servicemaster Mgmt. Services Corp., 634 N.E.2d 189, 192 (N.Y. 1994). New York law narrowly defines the scope of an alleged tortfeasor’s duty in order to ensure that the legal consequences of wrongs are limited to a controllable degree. See Waters v. New York City Housing, 505 N.E.2d 922, 924 (N.Y. 1987) (further citation and quotation omitted).
Thus, the Court first must determine the scope of the duty, that is, whether the hit-and-run driver owed a direct duty to Coronel, A.M., and V.M. See In re Air Crash Disaster at Cove Neck, Long Island, N.Y. on Jan. 25, 1990, 885 F.Supp. 434, 439 (E.D.N.Y. 1995) (stating that a prerequisite to recovering for a claim of emotional injury is the existence of a duty owed directly to the plaintiffs); Kelly v. Chase Manhattan Bank, 717 F.Supp. 227, 235 (S.D.N.Y. 1989) (“recovery for [direct duty] negligent infliction of emotional distress ‘is circumscribed to unique facts where a special duty is owed.’”) (quoting Rubinstein v. New York Post Corp., 488 N.Y.S.2d 331, 334 (N.Y. Sup. Ct. 1985)). Next, if the hit-and-run driver owed Coronel, A.M., and V.M. a direct duty, the Court then determines whether the driver breached that duty and unreasonably endangered their physical safety.
“The gravamen of [a direct duty NIED] claim is whether plaintiffs can prove the defendant owed them a specific duty, rather than a general duty to society.” See Cove Neck Air Crash Disaster, 885 F.Supp. at 439 (citing Jamaica Hosp., 467 N.E.2d at 503-04). In Battalla v. State of New York, 176 N.E.2d 729 (N.Y. 1961), New York first recognized direct duty NIED claims. In that case, an infant plaintiff recovered emotional distress damages against a state-owned ski resort because a negligent employee placed the child plaintiff in a chair lift without securing the child’s safety belt and the child suffered emotional trauma. Id. at 730. However, in Jamaica Hosp., 467 N.E.2d at 503-04, the parent plaintiffs were denied emotional distress damages when their 4-month-old infant was kidnapped from the defendant hospital, the New York Court of Appeals finding that the hospital’s specific duty ran to the kidnapped infant, not the parents. In Cove Neck Air Crash Disaster, 885 F.Supp. at 439, when a plane crashed into a residential neighborhood, the district court found that the airline’s duty ran to its passengers on the plane, denying emotional distress damages to those on the ground who happened to be in the wrong place at the wrong time. Similarly, in Mortise, when the Mortises, who were out 4-wheeling and accidentally ran into a national guard exercise suffering emotional distress damages, the Second Circuit denied damages to the Mortises finding that the Guard only had a generalized duty to prevent unreasonable risks of harm to passers-by, and that this duty was not specific to the Mortises. 102 F.3d at 696.
Based on the above principles, the Court rejects Coronel’s argument that the hit-and-run driver owed a “direct duty” to she, A.M., and V.M. because the hit-and-run driver also owed generalized duties to the public such as operating his or her vehicle safety, prudently, and in accordance with traffic laws. The Court finds that the hit-and-run driver’s duty was not specific to Coronel, A.M. or V.M. Therefore, Coronel, A.M. and V.M. would not be entitled to emotional distress damages under the legal theory of direct duty NIED.
II. Arizona Bad Faith
Under Arizona law, Plaintiffs establish bad faith by an insurer by showing that the insurer acted unreasonably. The test for reasonableness contains two elements. Plaintiffs must show that (1) the insurer acted unreasonably and (2) either knew or was conscious of the fact that its conduct was unreasonable. See Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 504, 507, 838 P.2d 1265, 1268 (1992). The first prong of the test for bad faith is an objective test based on reasonableness. The second prong is a subjective test, requiring the plaintiff to show that the insurer committed consciously unreasonable conduct. See Trus Joist Corp. v. Safeco Ins. Co. of Am., 153 Ariz. 95, 104, 735 P.2d 125, 134 (App. 1986)).
First, GEICO moves for summary judgment on Plaintiffs’ Arizona bad faith allegation that GEICO unreasonably applied New York law to their NIED tort claims against the hit-and-run driver. (Doc. 222 at 12-14 (citing Doc. 54, First Amended Complaint, at 6-7.)
GEICO is entitled to summary judgment on Plaintiffs’ allegation. Based on the decedent’s GEICO Uninsured Motorist coverage, the Court has already found that New York law applies to Plaintiffs’ ...