United States District Court, D. Arizona
ORDER
Honorable James A. Soto United States District Judge
Pending
before the Court is a motion to dismiss for failure to state
a claim filed by Defendants Liberty Insurance Corporation and
Helmsman Management Services. For the reasons stated below,
the motion is denied.[1]
STANDARD
OF REVIEW
The
dispositive issue raised by a motion to dismiss for failure
to state a claim is whether the facts as pleaded, if
established, support a valid claim for relief. See
Neitzke v. Williams, 490 U.S. 319, 328-329
(1989).[2] In reviewing a motion to dismiss for
failure to state a claim, a court's review is typically
limited to the contents of the complaint. See Clegg v.
Cult Awareness Network, 18 F.3d 752, 754 (9th Cir.
1994). Furthermore, a court must “construe the
complaint . . . in the light most favorable to the non-moving
party, and [a court must] take the allegations and reasonable
inferences as true.” Walter v. Drayson, 538
F.3d 1244, 1247 (9th Cir. 2008); Morales v.
City of Los Angeles, 214 F.3d 1151, 1153 (9th
Cir. 2000)(in reviewing a motion to dismiss for failure to
state a claim, “we accept all factual allegations of
the complaint as true and draw all reasonable inferences in
favor of the non-moving party.”); Clegg, 18
F.3d at 754 (same); see also Bell Atl. Corp. v.
Twombly, 127 S.Ct. 1955, 1964-65 (2007)(“While a
complaint attacked by a Rule 12(b)(6) motion to dismiss does
not need detailed factual allegations, a plaintiff's
obligation to provide the grounds of his entitlement to
relief requires more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action
will not do . . . Factual allegations must be enough to raise
a right to relief above the speculative level . . . on the
assumption that all allegations in the complaint are true
(even if doubtful in fact) . . . of course, a . . . complaint
may proceed even if it strikes a savvy judge that actual
proof of those facts is improbable, and that a recovery is
very remote and unlikely.”); Ashcroft v.
Iqbal, 129 S.Ct. 1937, 1949 (2009)(while Rule 8 does not
demand detailed factual allegations, “it demands more
than an unadorned, the-defendant-unlawfully-harmed-me
accusation . . . Threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do
not suffice.”).
DISCUSSION
This
case stems from a helicopter accident that occurred while an
employee was working within the course and scope of his
employment. The employee (Plaintiff) collected workers'
compensation benefits in relation to the accident, and also
received a monetary settlement from the manufacturers of the
helicopter. Plaintiff alleges that the workers'
compensation insurance carrier (Defendant) claimed a lien on
the settlement proceeds, but refused to properly engage in
settlement negotiations to reduce its lien to account for his
employers' fault in the accident, even though it was
required to do so under Arizona law. As such, Plaintiff has
filed this action against the workers' compensation
carrier, and its third-party administrator, alleging that
they engaged in bad faith in failing to reduce the lien.
Defendants
argue that Plaintiffs fail to state a claim for bad faith. As
pertinent to the circumstances of this case, the Arizona
Supreme Court has stated:
[W]e recognize that even in a settlement context, an
insurance carrier has an obligation to act in good faith
toward a claimant by giving equal consideration to the
claimant's interests. See Stout I, 197 Ariz. at
242 ¶¶ 19-22, 3 P.3d at 1162; cf. Boy, 154
Ariz. at 335, 337, 742 P.2d at 836 (concluding
pre-Aitken, that workers' compensation insurer
“did not breach its duty to act in good faith when it
refused to compromise its lien against any [third-party]
recovery, ” and noting that “[t]he duty of good
faith ... merely requires the insurer to give equal
consideration to the interests of both
parties”).[3] Under these circumstances . . . good faith
might entail a workers' compensation insurer considering
and reasonably acting on a claimant's request to reduce
the lien on third-party settlement proceeds, particularly
when evidence of employer fault is clear, undisputed, and
substantial.
Twin City Fire Insurance Company v. Leija, 422 P.3d
1033, 1039 (Ariz. Sup. Ct. 2018)
(“Leija”).[4]
As
alleged in the Complaint, Mark Ballinger (“Mark”)
was piloting a Robinson R22 Beta helicopter
(“Helicopter”) when it lost power and crashed in
Tucson, Arizona; Mark was severely injured in the crash. At
the time of the accident, Mark was acting in the course and
scope of his employment for Raytheon Missile Systems
(“Raytheon”). Defendant Liberty Insurance
Corporation (“Liberty”) provided workers'
compensation benefits to Mark via a policy issued to
Raytheon.
Mark
and his wife (the “Ballingers”) subsequently
filed a products liability suit in Pima County Superior Court
against various defendant entities involved in the design,
manufacture, and maintenance of the Helicopter (“State
Lawsuit”); the Ballingers alleged that design defects
relating to the Helicopter's carburetor caused the crash.
Liability was heavily contested in the State Lawsuit, and the
Ballingers spent over one million dollars (not including
attorneys' fees) litigating the State Lawsuit.
The
defendants in the State Lawsuit named Raytheon as a non-party
at fault, and contended that Raytheon was at least fifty
percent at fault for the Helicopter crash as Raytheon failed
to properly train its employees in the operation of
helicopters, and failed to properly develop and enforce
policies relating to the safe operation of helicopters. As
such, Raytheon's potential fault was a large factor in
the Ballingers' assessment of the case, and this
substantially reduced the value of the Ballingers' case
and the amount the Ballingers ultimately accepted to settle
the State Lawsuit.
Liberty
claimed a lien on any damages recovered in the State Lawsuit.
However, a workers' compensation insurance carrier must
reduce its lien by any percentage of fault attributable to
the employer (i.e., Raytheon). See Aitken v. Indus.
Comm'n, 183 Ariz. 387, 390 (1995). In addition, as
referenced above, “even in a settlement context, an
insurance carrier has an obligation to act in good faith
toward a claimant by giving equal consideration to the
claimant's interests . . . good faith might entail a
workers' compensation insurer considering and reasonably
acting on a claimant's request to reduce the lien on
third-party settlement proceeds . . .” Leija,
422 P.3d at 1039. The Ballingers made multiple requests to
Liberty to reduce its lien in light of the fault attributable
to Raytheon, and Liberty was informed of the law requiring it
to reduce its lien in light of the surrounding circumstances
of the ultimate settlement in the State Lawsuit.
Nevertheless, Liberty failed to respond to the
Ballingers' final demand to reduce its lien, has failed
to respond to subsequent communications from the Ballingers,
and otherwise refused to reduce its lien. Taking
Plaintiffs' allegations as true, and drawing all
reasonable inferences in their favor, Plaintiffs have
sufficiently stated a claim for bad faith. As such, the
motion to dismiss Plaintiffs' bad faith claim is denied.
On a
related note, Defendants argue that even if Plaintiffs'
bad faith claim is viable against Liberty, the bad faith
claim is not viable as it pertains to the third-party
administrator that Liberty hired (Helmsman Management
Services - “Helmsman”) to administer the
Ballingers' claim. Defendants argue that while Mark may
have had a contractual relationship with Liberty to provide
workers' compensation benefits through Raytheon, he had
no contractual relationship with Helmsman. As there was no
contractual privity between Mark and Helmsman, ...