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Sobieski v. American Standard Insurance Co. of Wisconsin

Court of Appeals of Arizona, First Division

September 29, 2016

SCOT and JOANNA SOBIESKI, husband and wife, Plaintiffs/Appellees,
v.
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.

         Appeal from the Superior Court in Maricopa County No. CV2010-092624 The Honorable David King Udall, Judge

          Law Office of Richard A. Dillenburg, PC, Tempe By Richard A. Dillenburg Co-Counsel for Plaintiffs/Appellees

          Knapp & Roberts, PC, Scottsdale By David L. Abney Co-Counsel for Plaintiffs/Appellees

          Tyson & Mendes, LLP, Phoenix By Lynn M. Allen Co-Counsel for Defendants/Appellants

          Lewis Roca Rothgerber Christie, LLP, Phoenix By Steven J. Hulsman, Jon D. Weiss, Jared L. Sutton Co-Counsel for Defendants/Appellants

          Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in which Judge Patricia A. Orozco and Judge Kenton D. Jones joined.

          OPINION

          JOHNSEN, Judge

         ¶1 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.

         FACTS AND PROCEDURAL BACKGROUND

         ¶2 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 collision.

         ¶3 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.

         ¶4 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.

         ¶5 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.

         ¶6 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."

         ¶7 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).[1]

         DISCUSSION

         A. Standard of Review.

         ¶8 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).

         ¶9 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.

         B. Breach of the Duty of Good Faith and Fair Dealing.

         ¶10 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.

         ¶11 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 for coverage.

         ¶12 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.

         ¶13 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.

         ¶14 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' ...


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