SCOT and JOANNA SOBIESKI, husband and wife, Plaintiffs/Appellees,
AMERICAN STANDARD INSURANCE COMPANY OF WISCONSIN, a Wisconsin corporation; AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin company authorized to do business in Arizona, Defendants/Appellants.
from the Superior Court in Maricopa County No. CV2010-092624
The Honorable David King Udall, Judge
Office of Richard A. Dillenburg, PC, Tempe By Richard A.
Dillenburg Co-Counsel for Plaintiffs/Appellees
& Roberts, PC, Scottsdale By David L. Abney Co-Counsel
& Mendes, LLP, Phoenix By Lynn M. Allen Co-Counsel for
Roca Rothgerber Christie, LLP, Phoenix By Steven J. Hulsman,
Jon D. Weiss, Jared L. Sutton Co-Counsel for
Presiding Judge Diane M. Johnsen delivered the opinion of the
Court, in which Judge Patricia A. Orozco and Judge Kenton D.
A motorcyclist was badly injured when he slammed into a car
that had stopped abruptly in front of him. Although the
driver of the car was uninsured, the motorcyclist had
uninsured motorist coverage. The motorcyclist's insurer
denied the claim, however, because it concluded the
motorcyclist was solely at fault in the accident. We affirm a
judgment against the insurer for breach of the duty of good
faith and fair dealing, but, in the absence of evidence
linking its denial of coverage to an improper motive, we
vacate the award of punitive damages.
AND PROCEDURAL BACKGROUND
Scot Sobieski and three others on motorcycles were riding
along a North Phoenix thoroughfare one afternoon. The driver
of a car they were following slowed to make a right turn,
then abruptly stopped. Sobieski tried to swerve around the
car, but he hit its left rear, severely injuring his leg. The
following day, February 19, 2007, Sobieski's wife,
Joanna, reported the accident to their insurer, American
Standard Insurance Company of Wisconsin. Although the driver
of the car was uninsured, the Sobieskis had purchased $100,
000 of uninsured motorist coverage, which would be implicated
if and to the extent the driver was at fault in the
At American Standard, adjuster Caroline Biddlecome was
assigned to the claim. Biddlecome reviewed the notice of
loss, which documented Joanna Sobieski's initial call to
the insurer and stated police had cited her husband for
failure to control his speed and following too closely.
Biddlecome then telephoned the motorist, who told Biddlecome
that she had stopped before turning right even though the
traffic light was green because a pedestrian had walked out
in front of her. The motorist said she felt a bump and saw
Sobieski "fly by" her on the driver's side. She
told Biddlecome her boyfriend was in the car with her at the
time of the collision. Biddlecome did not record the
motorist's statement, nor did she ask for any details
about the pedestrian, or whether the motorist was using her
turn signal or her rearview mirrors. Nor did Biddlecome try
to interview the boyfriend.
The police report of the accident did not arrive at American
Standard for several days. In the meantime, Biddlecome
completed a liability analysis worksheet attributing 100
percent fault for the accident to Sobieski. Biddlecome then
spoke again with Joanna Sobieski, who told her one of the
other three motorcyclists said the car had stopped suddenly
and that Sobieski had tried going around it on the right side
(not the left), but lost control, hitting the rear of the
vehicle. According to Biddlecome's notes of their phone
conversation, nothing Joanna Sobieski said changed her
preliminary evaluation that Scot Sobieski was 100 percent at
fault. Biddlecome told Joanna Sobieski there was no coverage
for the claim because "anyone can stop in front of you
for any reason. You have to maintain safe distance to react
to them. [Sobieski] did not do that and is considered the
cause of the accident." The police report that
eventually arrived at American Standard identified the other
three motorcyclists and named the passenger in the car, but
Biddlecome did not speak with any of them. A month later,
Biddlecome telephoned Scot Sobieski, who told her he was
unable to recall anything about the accident. Biddlecome
reiterated that the policy would not cover his medical
expenses because he was at fault in the accident. Biddlecome
closed the file on the claim shortly thereafter.
More than a year later, a lawyer for the Sobieskis submitted
a policy-limit demand to American Standard. The lawyer
recounted Sobieski's several injuries, including
"open right tibia and fibula fractures with severe
comminution, tibial topical avulsion, " along with a
right rotator cuff tear and fractured clavicle. He said
Sobieski still was not released to return to work and was
unable to walk without crutches. The lawyer enclosed medical
bills totaling $115, 667 and argued that written statements
from the three other motorcyclists suggested the driver of
the car should share some fault in the accident. The
motorcyclists' statements were enclosed; two of them cast
doubt on the motorist's assertion that there was a
pedestrian in the intersection and asserted she had not used
her turn signal. One of the motorcyclists also opined that
the collision was caused by the motorist's "erratic
driving" and failure to signal.
Upon receipt of the letter, American Standard re-opened the
claim and assigned it to adjuster Verna Holmes. Holmes,
however, did not contact the driver of the car and did not
interview any of the witnesses the Sobieskis had identified.
In her file notes, Holmes mistakenly reported that Sobieski
had been traveling 15 miles over the speed limit, when the
police report had stated he had been traveling 15 miles under
the speed limit. Based on Biddlecome's original
investigation, and with the approval of her supervisor,
Philip Nick, Holmes again denied the Sobieskis' claim. As
Nick explained in file notes, "the fault for this
accident is unfortunately with our insured. We can not [sic]
pay for the injuries he caused himself."
The Sobieskis then sued American Standard for breach of
contract. The arbitrator who heard the claim found the
Sobieskis' damages totaled $950, 000 and ruled that
Sobieski was 60 percent at fault in the accident and the
motorist, 40 percent. After American Standard paid the policy
limit of $100, 000, the Sobieskis sued again, alleging breach
of the duty of good faith and fair dealing. A jury found in
favor of the Sobieskis and awarded $500, 000 in compensatory
damages and $1, 000, 000 in punitive damages. The superior
court denied American Standard's motions for judgment as
a matter of law and for new trial. We have jurisdiction of
American Standard's timely appeal pursuant to Arizona
Revised Statutes ("A.R.S.") sections 12-2101(A)(1),
(A)(5)(a) (2016) and 12-120.21(A)(1) (2016).
Standard of Review.
The superior court may grant a motion for judgment as a
matter of law "if there is no legally sufficient
evidentiary basis for a reasonable jury to find for" the
non-moving party. Ariz. R. Civ. P. 50(a); see Shoen v.
Shoen, 191 Ariz. 64, 65 (App. 1997) ("if the facts
presented in support of a claim have so little probative
value that reasonable people could not find for the
claimant"). We review the superior court's ruling on
a motion for judgment as a matter of law de novo,
viewing the evidence and all reasonable inferences from it in
the light most favorable to the nonmoving party. See
County of La Paz v. Yakima Compost Co., 224 Ariz. 590,
596, ¶ 5 (App. 2010).
The superior court may grant a motion for new trial if the
jury's verdict is against the weight of the evidence.
Goodman v. Physical Res. Eng'g, Inc., 229 Ariz.
25, 28, ¶ 6 (App. 2011). We review the superior
court's denial of a motion for a new trial for an abuse
of discretion. Id.
Breach of the Duty of Good Faith and Fair Dealing.
In every insurance contract, there is an implied legal duty
obligating the insurer to act in good faith; breach of that
duty may give rise to a claim for the tort of bad faith.
Noble v. Natl Am. Life Ins., 128 Ariz. 188, 190
(1981). The implied covenant of good faith and fair dealing
forbids an insurer from taking any action that would
undermine its insured's realization of the expected
contractual benefits, which, in this context, are
"protection and security from economic
catastrophe." Rawlings v. Apodaca, 151 Ariz.
149, 154 (1986). "Conduct by the insurer which does
destroy the security or impair the protection purchased
breaches the implied covenant of good faith and fair dealing
implied in the contract." Id. at 155.
To establish a claim for bad faith, an insured must prove the
insurer acted unreasonably and either knew its conduct was
unreasonable or acted with such reckless disregard that
knowledge of unreasonableness may be imputed to it. See
Deese v. State Farm Mut. Auto. Ins., 172 Ariz. 504, 507
(1992). Mere negligence is not enough. Id. Here, the
Sobieskis alleged American Standard breached its duty of good
faith by unreasonably investigating and denying their claim
The Sobieskis presented sufficient evidence from which the
jury could conclude that American Standard's
investigation of the claim was not reasonable. Biddlecome
knew that, in addition to Scot Sobieski, there were five
witnesses to the accident - the driver of the car, the
driver's passenger, and the three other motorcyclists who
trailed Sobieski to the intersection. Biddlecome, however,
spoke only to the motorist and Sobieski and never tried to
contact any of the four others. She reached a conclusion
about liability without having reviewed the police report.
And after reopening the claim at the request of the
Sobieskis' lawyer, the second adjuster, Holmes, did
nothing more to investigate the accident.
Arizona's comparative negligence regime figured
prominently in the Sobieskis' coverage claim. Under
Arizona law, a party who is only partially at fault in an
accident may be liable for a proportionate share of the
claimant's damages. See A.R.S. § 12-2506
(2016). When damages are great, even a small share of the
liability can have significant financial consequences. As the
Sobieskis argue, American Standard knew early in the claims
process that damages for Sobieski's injuries likely would
well exceed the $100, 000 limits of his uninsured motorist
coverage. That being the case, if the motorist was at fault
even to a small degree, the Sobieskis' uninsured motorist
coverage would be implicated, and the insurer would have to
cover some portion of their damages.
Biddlecome knew that comparative fault and proportionate
liability are the law in Arizona, yet failed to reasonably
investigate whether the motorist might be at fault to any
degree. After hearing second-hand accounts of the accident
from Joanna Sobieski, Biddlecome had reason to question the
motorist's story of a pedestrian suddenly entering the
intersection, and knew that the motorist might not have used
her turn signal. At trial, Biddlecome explained she decided
not to interview the other three motorcyclists because she
assumed they would be biased in the Sobieskis' favor.
Yet, in deciding Sobieski was wholly at fault, she relied
entirely on the account of the motorist, who herself would be
at financial risk if Sobieski were to sue her for his
injuries. Even after the Sobieskis' ...