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Nerdig v. Electric Insurance Co.

United States District Court, D. Arizona

August 31, 2018

Gary Nerdig, et al., Plaintiffs,
v.
Electric Insurance Company, Defendant.

          ORDER

          Honorable G. Murray Snow United States District Judge.

         Pending before the Court is the Motion for Partial Summary Judgment[1] of Defendant Electric Insurance Company (Doc. 27). For the following reasons, the Court grants the motion.

         BACKGROUND

         In November 2014, Plaintiff Gary Nerdig was stopped in his company's vehicle on the I-17 and was hit from behind by a vehicle operated by a non-party, Lidia Elisa Martinez. Mr. Nerdig was injured and required multiple surgeries. Ms. Martinez's insurance company paid its policy limit to Mr. Nerdig, for a total of $15, 000. The company vehicle Mr. Nerdig was driving was insured by Travelers Insurance Company. It included underinsured motorist coverage (“UIM”) up to a $1, 000, 000 limit. This policy was the primary UIM coverage. Defendant, Electric Insurance, provides Plaintiffs' personal automobile insurance. Electric's policy has a UIM coverage limit of $250, 000, and is in excess to the Travelers insurance.

         Electric was informed by Plaintiffs' counsel about its possible exposure in January 2016. Electric did not begin an investigation at that time, but Electric did monitor the investigation undertaken by Travelers. Plaintiffs' counsel sent other letters to Electric in February 2016 asking for Electric to identify documents that would be needed to review the claim. Electric did not respond to the letters. On March 20, 2017, Plaintiffs sent a demand letter to both Travelers and Electric, requesting a payment of the full policy limit. Travelers issued a payment of $1, 000, 000 to Mr. Nerdig on March 24, 2017. Electric began evaluating Mr. Nerdig's claim on March 28, 2017, after being informed that the UIM coverage from Travelers was exhausted.

         Electric assigned the claim to defense counsel on April 12, 2017. Defense counsel requested Mr. Nerdig to undergo an Examination Under Oath (“EUO”), an Independent Medical Examination (“IME”), and to authorize Electric to obtain additional medical records. Electric's contract with Mr. Nerdig provides that an insured may be required to submit to the above requests. On April 28, 2017, Electric offered Mr. Nerdig $50, 000. Plaintiffs, Mr. Nerdig and his wife, filed suit on May 15, 2017, alleging breach of contract and bad faith. Electric has now moved for summary judgment on such claims, Counts I and III of the Complaint.

         DISCUSSION

         I. Legal Standard

         Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Substantive law determines which facts are material and “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). When the nonmoving party “bear[s] the burden of proof at trial as to an element essential to its case, and that party fails to make a showing sufficient to establish a genuine dispute of fact with respect to the existence of that element, then summary judgment is appropriate.” Cal. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).

         II. Analysis

         A. Breach of the Implied Covenant of Good Faith and Fair Dealing

         In Arizona, “there is a legal duty implied in an insurance contract that the insurance company must act in good faith in dealing with its insured on a claim, and a violation of that duty of good faith is a tort.” Noble v. Nat'l American Life Ins. Co., 624 P.2d 866, 868 (Ariz. 1981). Where an insurer “intentionally and unreasonably denies or delays” payment of a claim, the insurer has breached the duty of good faith. Rawlings v. Apodaca, 726 P.2d 565, 572 (Ariz. 1986). A plaintiff must show (1) “the absence of a reasonable basis for denying benefits of the policy” and (2) “the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.” Noble, 624 P.2d at 868. Thus, the “initial inquiry consists of an objective finding, i.e., whether the insurer acted unreasonably, [and] the second inquiry focuses on the insurer's conduct and whether the insurer knew that its conduct was unreasonable or acted with such reckless disregard that such knowledge could be imputed to it.” Deese v. State Farm Mut. Auto. Ins. Co., 838 P.2d 1265, 1268 (Ariz. 1992). A plaintiff “may simultaneously bring an action for both breach of contract and for bad faith, and need not prevail on the contract claim in order to prevail on the bad faith claim.” Id. at 1270. Plaintiff argues that Electric breached its duty of good faith by failing to immediately conduct an investigation when it was informed of its potential exposure in January 2016 and that Electric's requirements that Mr. Nerdig submit to EUOs, an IME, and medical authorizations constituted unnecessary procedural hoops.

         Both parties agree that the “Electric underinsured motorist coverage was excess to the underinsured motorist coverage afforded by Travelers.” (Doc. 28, ¶ 7; Doc 30, ¶ 7). Under Arizona law, “[u]ntil a primary insurer offers its policy limit, the excess insurer does not have a duty to evaluate a settlement offer, to participate in the defense, or to act at all.” Twin City Fire Ins. Co. v. Burke, 63 P.3d 282, 287 (Ariz. 2003); see also Geurden v. Quantum Transportation LP, 298 F.Supp.3d 1222, 1228 (D. Ariz. 2018) (“An excess insurer has no duty to defend its insured unless the primary insurer exhausted its policy limit to defend the insured.”). Plaintiffs assert that these cases are not relevant because they do not deal with UIM coverage. While true, Plaintiffs do not explain why an insurer with UIM coverage that specifies that it is in excess to other policies should be in a different position than an insurer with other excess coverage. Electric was informed that Travelers had tendered their UIM limit to Mr. Nerdig on March 28, 2017. (Doc. 28, Ex. B, p. 2). Electric began its evaluation of Mr. Nerdig's claim on the same day. (Doc. 28, ¶ 13; Doc. 30, ¶ 13). Plaintiffs cannot meet their burden of proof and cannot show that Electric unreasonably delayed its evaluation of the claim.

         Plaintiffs also assert that Electric acted in bad faith by requiring Mr. Nerdig to submit to EUOs, an IME, and to sign medical authorizations. Mr. Nerdig's contract with Electric provided that the insured must “[s]ubmit as often as we reasonably require [t]o physical exams by physicians we select [and] [t]o examination under oath.” (Doc. 30, Ex. D). It also required the insured to “[a]uthorize [the insurer] to obtain medical reports.” Id. Electric requested Mr. Nerdig's availability for an EUO, an IME, and medical record authorizations on April 26, 2017. Courts have held that insurers may not use EUOs and IMEs to delay the process and breach the duty of good faith and fair dealing. But Plaintiffs here have provided no such evidence of an intent on Electric's part to use the contractual terms in bad faith. Plaintiffs have noted that the primary UIM insurer, Travelers, did not request any additional information. But that is hardly relevant as to whether Electric acted in bad faith by seeking additional information, especially when: (1) the Defendant did receive additional relevant documents pursuant to the signed authorizations that were relevant to the merits of the Plaintiff's claims; and (2) the evaluation of plaintiff's damages may change over time; and (3) the evaluation of the sufficiency of plaintiff's damage payments may be in a different posture after he had received the additional excess payment from Travelers than it was before that payment. Although it might not have changed the damages themselves, it might have informed an assessment of the Plaintiff's ability to meet his ongoing needs in light of the additional payment. Plaintiffs also note that two IME reports already existed, but Electric's desire to have a more up-to-date IME report does not demonstrate bad faith. In Demetrulias v. Wal-Mart Stores Inc., the court found that a fact issue for the jury existed where the insurance adjuster's notes said that the purpose of the IME was “to limit the extent of the injury.” 917 F.Supp.2d 993, 1007 (D. Ariz. 2013). ...


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