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Guzman v. Liberty Mutual Insurance Co.

United States District Court, D. Arizona

May 8, 2018

Alberto Guzman, Plaintiff,
v.
Liberty Mutual Insurance Company, Defendant.

          ORDER

          Neil V. Wake, Senior United States District Judge.

         Plaintiff Alberto Guzman (“Guzman”) brought this action against his insurance company Liberty Mutual Insurance Company (“Liberty Mutual”). He alleged breach of contract and bad faith. On September 29, 2017, this Court granted summary judgment in favor of Defendant Liberty Mutual. (Doc. 34.) Now before the Court are Defendant's Motion for Attorneys' Fees (Doc. 37), the Response, and the Reply.

         I. BACKGROUND

         Guzman was in an accident on I-10 in which he sustained various injuries. There are two stories about the accident. The second story is Guzman's by the time this lawsuit began. He now claims an unidentified phantom vehicle cut him off, forcing him to apply the brakes on his motorcycle. The brakes locked up, he lost control, and he fell off. The first story was everyone else's-and Guzman's original story, too. Traffic was stop and go at the time of the accident. The officer on the scene visited Guzman at the hospital and reported what Guzman told him: he was unable to brake in time when traffic suddenly stopped and he needed to lay his bike down to avoid a collision. Nowhere does the officer's report mention a phantom vehicle. (In addition, the officer cited Guzman for traveling at an unsafe speed.) Both witnesses interviewed at the scene, including witness Kovasky Aguiar, confirmed the story of braking and laying down the bike to avoid a rear-end collision. No one said anything about a phantom vehicle cutting into the lane.

         Liberty Mutual paid for Guzman's property damage under his casualty coverage. It did not, however, pay his medical expenses under his uninsured motorist coverage, which were paid by AHCCCS, the Arizona Medicaid program. Guzman's uninsured motorist coverage provided, “If there is no physical contact with the hit-and-run vehicle, the facts of the accident must be proved. The person making the claim shall provide corroboration that the unidentified motor vehicle caused the accident.” (Doc. 29, Ex. K at LMIC 000097.)

         Despite the coverage's clear requirement that he do so, Guzman never corroborated testimony of a phantom vehicle that cut him off. After multiple delays, Liberty Mutual obtained a legible police report. Liberty Mutual learned of the two witnesses and attempted to contact them. One reaffirmed her earlier statement that no car had cut Guzman off. The other, Aguiar, never responded to repeated phone calls and messages.

         Guzman filed this action for breach of contract and bad faith, and the Court found for Liberty Mutual on summary judgment. The Arizona Uninsured Motorist Act requires corroborating evidence in the form of “additional and confirming testimony.” A.R.S. § 20-259.01(M). Guzman's policy with Liberty Mutual had the same requirement. Guzman had no “additional and confirming testimony.” He offered only an alleged hearsay statement by Aguiar, who never responded to Liberty Mutual's calls or subpoena. Aguiar's account to the investigating officer contradicted Guzman's account of what Aguiar later said to him. Because Guzman had only his own statement to support his changed story, and because all other admissible evidence contradicted that story, Liberty Mutual neither breached its contract with Guzman nor acted in bad faith in denying his claim.

         Liberty Mutual now seeks attorneys' fees under A.R.S. § 12-341.01(A).

         II. ANALYSIS

         A. Whether to Award Attorneys' Fees

         A.R.S. § 12-341.01(A) provides, “In any contested action arising out of a contract, express or implied, the court may award the successful party reasonable attorney fees.” An award of fees under § 12-341.01 is discretionary. Fulton Homes Corp. v. BBP Concrete, 214 Ariz. 566, 569, 155 P.3d 1090, 1093 (Ct. App. 2007). The statute does not establish a presumption that attorney fees be awarded in contract actions. Associated Indem. Corp. v. Warner, 143 Ariz. 567, 569, 694 P.2d 1181, 1183 (1985). In determining whether attorneys' fees should be granted under § 12-341.01, courts may consider the following nonexclusive factors: the merits of the unsuccessful party's case, whether the litigation could have been avoided or settled, whether assessing fees against the unsuccessful party would cause an extreme hardship, the degree of success by the successful party, any chilling effect the award might have on other parties with tenable claims or defenses, the novelty of the legal questions presented, and whether such claim had previously been adjudicated in this jurisdiction. Id. at 570, 694 P.2d at 1184.

         Liberty Mutual was entirely successful in this action. The case was not novel; in fact, the dispositive contract and statutory language were entirely clear. This entire case turned on whether Guzman had corroborating evidence. Guzman's later account of a phantom vehicle and of Aguiar having changed his story is subject to serious doubt. Guzman is an insurance professional, having previously sold personal lines of insurance. He would have known later exactly what was needed for his policy to cover medical expenses under the uninsured motorist coverage. But the Court does not decide whether Guzman's later inconsistent story was fabricated. Guzman's counsel was entitled to rely on that story and use the coercive powers of the Court to obtain evidence from Aguiar. Yet at the end of discovery, Guzman did not file a Rule 56(d) motion for a continuance to obtain Aguiar's testimony. Having failed to obtain cooperative or subpoenaed testimony from Aguiar, Guzman had no reasonable basis to persist in the claim and to force Liberty Mutual to incur the expense of a motion for summary judgment.[1] It is not necessary to find unreasonableness to award fees under the statute, but actual unreasonableness in bringing or continuing the litigation is a powerful factor in favor of an award of fees. Just as an insurer's unreasonable denial of coverage strongly favors assessment of fees, an insured's unreasonable persistence in a claim strongly favors assessment of fees.

         Guzman contends that awarding fees to Liberty Mutual “would discourage insureds from seeking relief that is necessary to deter bad faith conduct by insurers.” (Doc. 43 at 4.) That contention is simply false. There was not even a hint of bad faith here.

         Insurance companies that perform thorough and diligent investigations of a claim, as Liberty Mutual did in this case, should not be forced to pay to defend a lawsuit once it becomes clear the lawsuit is meritless. When evaluating chilling effects, the factor to be considered is whether an insured would be deterred from bringing a claim that is sufficiently debatable to warrant neutral decision. After discovery, Guzman's claim was ultimately neither meritorious nor colorable. It became the type of lawsuit that should be discouraged. Although the statute's purpose is to compensate ...


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