Opinion
No. 1 CA-CV 16-0242
06-08-2017
JAMES DUEPNER, Plaintiff/Appellant, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, et al., Defendants/Appellees.
COUNSEL Thur & O'Sullivan, PC, Phoenix By Calvin C. Thur, Roger O'Sullivan Counsel for Plaintiff/Appellant Jones Skelton & Hochuli, PLC, Phoenix By Sanford K. Gerber, Joshua M. Snell, Sean M. Moore, Eileen Dennis GilBride Counsel for Defendants/Appellees
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Maricopa County
No. CV2014-000168
The Honorable James T. Blomo, Judge AFFIRMED IN PART, REVERSED IN PART, AND REMANDED COUNSEL Thur & O'Sullivan, PC, Phoenix
By Calvin C. Thur, Roger O'Sullivan
Counsel for Plaintiff/Appellant Jones Skelton & Hochuli, PLC, Phoenix
By Sanford K. Gerber, Joshua M. Snell, Sean M. Moore, Eileen Dennis
GilBride
Counsel for Defendants/Appellees
MEMORANDUM DECISION
Presiding Judge Peter B. Swann delivered the decision of the court, in which Judge Kent E. Cattani and Vice Chief Judge Samuel A. Thumma joined. SWANN, Judge:
¶1 James Duepner sued Government Employees Insurance Company ("GEICO") for bad faith, alleging the mishandling of his property damage claim, seeking punitive damages. The superior court entered summary judgment in favor of GEICO. Because Duepner has presented sufficient evidence from which a jury reasonably could find bad faith, we reverse and remand for further proceedings. Because Duepner has failed to provide sufficient evidence to support his claim for punitive damages, we affirm the entry of summary judgment on his punitive damages claim.
FACTS AND PROCEDURAL HISTORY
¶2 Duepner purchased insurance on his RV from GEICO, including $10,000 of property damage coverage, effective October 8, 2012. On October 29, 2012, Duepner's RV was broken into and several items were stolen. The next day, he filed a claim with GEICO. GEICO asked for proof of forced entry to confirm that the policy applied. On December 10, 2012, a GEICO representative inspected the RV and determined that there was physical damage consistent with a forced entry. The representative estimated the damage to the vehicle at $498.65, just under Duepner's $500 deductible.
¶3 Duepner opted to self-repair the door, and a year later obtained a third-party estimate of $1,400 to repair the damage. But he never submitted the estimate to GEICO. The representative later admitted in deposition that based on the pictures shown to him, his $498.65 estimate was too low.
¶4 GEICO covered the value of many of the items stolen, and its handling of those claims does not form a basis for this litigation. As relevant here, the items stolen included a plasma cutter, which Duepner valued at $1,100, and three baseball card sets from the early 1970s, which he valued at $6,000.
¶5 GEICO requested proof that Duepner owned the plasma cutter, which he provided. GEICO, however, denied coverage for the plasma cutter, because it was not "normally used in conjunction with" an RV. Duepner explained that the plasma cutter was used to build a stove for his RV. On December 31, 2012, GEICO received a letter from Duepner requesting a written explanation for the denial of coverage. Within the next month, Duepner sent two similar letters to GECIO requesting a written explanation. Having received no response, on January 25, 2013, Duepner called GEICO and again requested a written explanation. On February 5, 2013, after reviewing the claim, a GEICO supervisor noted in an internal document that, based on the language of the policy, "we have no basis to deny or disclaim as nothing [states the] plasma cutter would not be covered." GEICO informed Duepner of its decision within the next two weeks.
¶6 GEICO also initially refused to cover the baseball cards, asserting that they "have no value unless [Duepner] has a[n] appraisal for them" and otherwise had only "sentimental value." In response, Duepner estimated they were worth between $5,250 and $6,375 based on the Beckett pricing guide, similar items on eBay, and his estimation of the cards' condition when they were stolen. Later, Duepner sent GEICO a "Price Guide" survey with an approximate value of the cards. GEICO consulted its own expert who determined the current Beckett pricing guide value of the cards was between $3,000 and $6,000 depending on condition but estimated (without explanation and contrary to the values obtained) that the cards would only sell for $2,400.
¶7 On February 5, 2013, GEICO agreed to pay $1,010 for the plasma cutter (though it was determined to be worth $1,100) and $1,000 for the baseball cards. GEICO then closed the claim, erroneously informing Duepner that the coverage limit on his policy was $5,000 and had been met. At the time the claim was closed, GEICO had accepted coverage for $5,329.50 in losses. Duepner called and left a message with GEICO to ask why coverage was being limited to $5,000 when his policy was for $10,000. After two days without a reply, Duepner called again, and GEICO admitted its mistake and agreed to reopen the claim. In a deposition, the GEICO employee responsible stated it was an "oversight" and a "mistake" made because most RV policies carry a $5,000 limit. The GEICO employee admitted the error would not have been corrected if Duepner had not challenged it.
¶8 During a February 19, 2013 call requesting the claim be reopened, Duepner questioned the $1,000 payment for the baseball cards. In the voicemail closing the claim, a GEICO representative stated that "for collecting items, such as baseball cards and such, there is a $1,000 cap." Duepner asked GEICO to review the $1,000 limit determination and again requested a written explanation. GEICO's representative was "hoping" to get a letter to him by "the end of the month." On April 5, 2013, Duepner called again, asking why he had not received anything in writing despite his repeated requests. On April 9, 2013, GEICO sent a letter to Duepner with a breakdown of all the payments made on his claim and quoting the policy's $1,000 limit on "coin collections, stamps, and collecting supplies."
¶9 Duepner sued GEICO in January 2014, alleging bad faith. During a March 2015 deposition, a GEICO supervisor admitted the baseball cards were not "coin collections, stamps, and collecting supplies" and that its interpretation of the insurance contract was "a mistake" and "in error." When asked when that determination of error was made, the supervisor replied "yesterday" while he was reviewing previous depositions. The supervisor admitted that it was unfair to Duepner that it took more than two years, and fourteen months of litigation, to correct the error or mistake. In July 2015, the same supervisor sent a letter to Duepner with a check for an additional $1,500, plus interest, for the value of the baseball cards, bringing the total amount paid for the cards to $2,500, slightly more than their lowest estimated value.
¶10 Duepner moved for partial summary judgment and GEICO moved for summary judgment. The superior court granted GEICO's motion and denied Duepner's. Duepner appeals.
DISCUSSION
¶11 We review motions for summary judgment de novo, viewing the evidence in the light most favorable to the party against whom judgment was entered. Lennar Corp. v. Transamerica Ins. Co., 227 Ariz. 238, 242, ¶ 7 (App. 2011). I. DUEPNER HAS PRESENTED SUFFICENT EVIDENCE FROM WHICH A JURY COULD FIND THAT GEICO ACTED IN BAD FAITH.
¶12 Insurance companies have a legal duty to "act in good faith" and "play fairly" with the insured party. Failure to do so gives rise to an action in tort. Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 504, 506-07 (1992). To prevail on such a claim, a plaintiff must show (1) that the insurer acted unreasonably and (2) that it knew it was acting unreasonably or acted with such reckless disregard that such knowledge may be imputed. Miel v. State Farm Mut. Auto. Ins. Co., 185 Ariz. 104, 110 (App. 1995). An insurance company's belief that its insurance contract precludes coverage is not an absolute defense to liability; the reasonableness of that belief must be determined by a jury. Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 539 (1982). Eventual performance of the express terms of an insurance contract does not release an insurance company from liability for bad faith. Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 238, ¶ 20 (2000). And insurance companies cannot "force an insured to go through needless adversarial hoops to achieve its rights under the policy[,] . . . lowball claims[,] or delay claims hoping that the insured will settle for less." Id. at ¶ 21. In defending a "fairly debatable claim," insurance companies must exercise reasonable care and act in good faith. Id. at 237, ¶ 19.
¶13 Based on the sequence of events in this case, Duepner produced sufficient evidence from which a jury could find GEICO liable for bad faith. To be sure, some of the evidence demonstrates objectively reasonable behavior, and GEICO did cover some items without objection. But GEICO's ultimate coverage of other items resulted only after substantial delay, and efforts on the part of its insured that a jury could find were required by GEICO's undue recalcitrance to pay clearly covered claims.
¶14 For example, there might have been a fair debate concerning coverage for loss of the plasma cutter, because such equipment might not have been "normally used in conjunction" with the RV. But that rationale was not presented until after GEICO said it would deny coverage without proof of ownership. Only after Duepner provided proof of ownership and explained the use of the tool did GEICO accept coverage. And even then, it did not fully compensate Duepner at first, because it wrongly limited his coverage amount to half the face value of his policy.
¶15 GEICO's handling of Duepner's claim for the loss of his baseball cards also gives rise to inferences that it "lowball[ed]" the claim and forced its insured to "go through needless adversarial hoops." Zilisch, 196 Ariz. at 238, ¶ 21. Citing Aetna Cas. & Sur. Co. v. Superior Court (Gordinier), 161 Ariz. 437 (App. 1989), GEICO argues it acted reasonably regarding the baseball cards because there were questions concerning their ownership and condition, and that it made payments promptly after it "came to believe" the coins, stamps, and collecting supplies exception did not apply. GEICO's reliance on Aetna is misplaced. In Aetna, the court rejected the plaintiff's claim that the insurance company's pre-denial investigation constituted bad faith because "[t]he plaintiff [had] not advised this court, specifically or otherwise, concerning what additional pertinent facts would have been determined by any further investigation." Here, we know the result of the investigation because GEICO ultimately covered the claims and admitted that it improperly applied the policy. Its investigative steps, even if reasonable, do not preclude liability for failure to properly or timely apply the results of the investigation or the express terms of the policy. See Zilisch, 196 Ariz. at 238, ¶ 21.
¶16 GEICO's initial position, when Duepner submitted his claim, was that the baseball cards held only "sentimental value" and that he would not be reimbursed without a documented appraisal. Though GEICO may have acted reasonably in investigating the ownership, value, and condition of the cards after it realized its absolute denial was untenable, there is evidence that it acted improperly under the policy before and after that investigation. Once it accepted coverage, GEICO paid (at most) just over 40% of the cards' value, contending that they were "collecting supplies" — an interpretation of the insurance policy that stretches the limits of a "fairly debatable" coverage decision and is made more dubious by GEICO's employees' inability to defend it when questioned in deposition. GEICO offers no explanation why its reasoning changed fourteen months into this litigation, and not two years earlier when Duepner first questioned it. Finally, GEICO did not pay the additional $1,500 immediately upon "c[oming] to believe" it erred but rather waited four months after its second admission of error.
In his deposition, a GEICO claims supervisor acknowledged that requiring a formal appraisal was incorrect. GEICO's expert witness on baseball card values also agreed that the position was incorrect, and stated that most collectors do not have formal appraisals.
GEICO points out it never formally denied coverage for the baseball cards, but a formal denial is not the only unnecessary hurdle an insurance company can erect. --------
¶17 "[C]oming up with an amount that is within the range of possibility is not an absolute defense to a bad faith case." Zilisch, 196 Ariz. at 238, ¶ 21. On this record, a jury could find GEICO's actions in attempting to deny coverage and minimize payment for the baseball cards amounted to bad faith.
¶18 GEICO argues, citing Regal Homes, Inc. v. CNA Ins., 217 Ariz. 159 (App. 2007), that looking at the entirety of its actions in this case, including the items it covered without objection and the investigative steps it took, its conduct was objectively reasonable. Though it may prevail on this theory at trial, the argument does not support the entry of summary judgment. The acts alleged here do not exclusively arise from fairly debatable coverage decisions that were ultimately proven incorrect. Cf. id. at 168, 171, ¶¶ 40, 50 (interpreting multiple insurance contracts and holding "as a matter of law that CNA's decision to not participate as a primary carrier, even though ultimately incorrect, was reasonable"); see also Zilisch, 196 Ariz. at 237, ¶ 19 ("While it is clear that an insurer may defend a fairly debatable claim, all that means is that it may not defend one that is not fairly debatable. But in defending a fairly debatable claim, an insurer must exercise reasonable care and good faith."). Here, GEICO admitted that some of its actions were incorrect or contrary to the express terms of the policy. The task of resolving the competing inferences that arise from this record is reserved for the jury.
¶19 GEICO also argues that its conduct was reasonable under Rawlings v. Apodaca, 151 Ariz. 149 (1986). There the court explained that
Insurance companies, like other enterprises and all human beings, are far from perfect. Papers get lost, telephone messages misplaced and claims ignored because paperwork was misfiled or improperly processed. Such isolated mischances may result in a claim being unpaid or delayed. None of these mistakes will ordinarily constitute a breach of the implied covenant of good faith and fair dealing . . . .Id. at 157 (emphasis added). A jury could well find that the multiple failings in the handling of Duepner's claim were not "isolated mischances" but misapplications of the policy that would not have been corrected but for Duepner's repeated and persistent efforts. And the Rawlings court also reaffirmed that an insurer must give "equal consideration" to the rights of its insured. Id. at 156. On this record, it is for the jury to decide whether GEICO's coverage denials were intentional or reckless and not mere clerical errors. And a jury could conclude that GEICO failed to accord Duepner's interests equal consideration to its own.
¶20 GEICO argues that Duepner has failed to produce any evidence that it was reckless or knew its conduct was unreasonable. In view of the evidence that GEICO failed to review or disregarded its own policy, we disagree. "Actual intent may be shown by direct proof or by circumstantial evidence from which actual intent may be reasonably inferred." Gerow v. Covill, 192 Ariz. 9, 17, ¶ 33 (App. 1998); see also Waddell v. White, 56 Ariz. 420, 430 (1940) ("It is a familiar rule of law that intentions generally must be established by circumstantial evidence . . . .").
¶21 Several times, Duepner requested that GEICO send written explanations of its coverage determinations based on the relevant policy language. By the time GEICO sent its explanations, it had reversed its denials and assented to coverage (albeit while still erroneously claiming the cards were subject to a $1,000 limit). In addition, Duepner's expert testified that GEICO's behavior was consistent with "trial denials" and that the number of misapplications of the policy, any one of which in isolation could be considered a mistake, showed a pattern of behavior in which denials were issued without investigation or reference to the policy. A reasonable jury could find that GEICO was not engaged in a good faith attempt to determine the limits of the policy's coverage, but rather was defaulting to positions adverse to its insured, whether justified or not.
¶22 For these reasons, we reverse the entry of summary judgment on bad faith. II. DUEPNER HAS FAILED TO PRESENT SUFFICENT EVIDENCE FOR A JURY TO AWARD PUNITIVE DAMAGES.
¶23 GEICO argues that Duepner has failed to present sufficient evidence such that a jury could find by clear and convincing evidence that punitive damages are warranted under the stringent legal standard governing punitive damages in Arizona. We agree.
¶24 Punitive damages "penalize a party for 'outwardly aggravated, outrageous, malicious, or fraudulent conduct' that is coupled with an 'evil mind.'" Medasys Acquisition Corp. v. SDMS, P.C., 203 Ariz. 420, 424, ¶ 18 (2002) (citation omitted). They require proof of "something more" than the intentional conduct required for a bad faith claim. Rawlings, 151 Ariz. at 161-62. Indeed, punitive damages require a "defendant's motives . . . to be so improper, or its conduct so oppressive, outrageous or intolerable that . . . an 'evil mind' may be inferred." Id. at 162-63. Our supreme court held in Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326 (1986), that punitive damages:
should be appropriately restricted to only the most egregious of wrongs. "A standard that allows exemplary awards based upon gross negligence or mere reckless disregard of the circumstances overextends the availability of punitive damages, and dulls the potentially keen edge of the doctrine as an effective deterrent of truly reprehensible conduct."Id. at 331 (citation omitted). And a plaintiff must establish the entitlement to such damages by clear and convincing evidence. Id. at 332.
¶25 We concluded above that Duepner presented evidence from which a reasonable jury could conclude by a preponderance of the evidence that GEICO acted in bad faith, and that it failed to give equal consideration to the interests of its insured. But that conclusion goes to liability for the underlying tort — it does not automatically follow that a bad-faith plaintiff who survives a motion for summary judgment is also eligible for punitive damages. Here, the record does not disclose "something more" than the facts creating the prospect of liability for bad faith. And there is no evidence that tends to show, much less by a clear and convincing standard, that GEICO acted with such an "evil mind" that the processing of this claim amounts to "the most egregious of wrongs." Id. at 331.
¶26 To be sure, punitive damages may be awarded in some cases when an insurance company deliberately injures an insured. See Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 497 (1987); see also Bradshaw v. State Farm Mut. Auto. Ins. Co., 157 Ariz. 411, 422 (1988) (citing Hawkins for an example of punitive damages because of intentional conduct). An insurance company's "intent to injure the plaintiff or [its] deliberate interference with the rights of others, consciously disregarding the unjustifiably substantial risk of significant harm to them," may give rise to punitive damages. Linthicum, 150 Ariz. at 331 (emphasis added). The scienter may also exist if the "wrongful conduct was motivated by spite or ill will." Bradshaw, 157 Ariz. at 422 (citation omitted).
¶27 On this record, no reasonable jury could find by clear and convincing evidence that GEICO's actions were motivated out of spite, malice, or a deliberate intent to injure Duepner. And even viewed in the light most favorable to Duepner, GEICO's actions caused him no substantial risk of significant harm. GEICO's failings in the handling of this claim have subjected it to the potential for tort liability far exceeding the contractual liability it assumed when it sold the policy, and that itself serves as a practical deterrent against such conduct in the future. But allowing this case to go to the jury on punitive damages would run counter to the command of Linthicum to reserve that remedy to the most deplorable cases.
¶28 Duepner's reliance on Hawkins is misplaced. In Hawkins, the insured was "desperate for a [replacement] car" and the insurer left him with no choice but to accept the car it selected, which had "fewer options . . . and was not comparable in either quality or gas mileage" to the original, insured vehicle. 152 Ariz. at 494. The supreme court later classified Hawkins as an example of intentional infliction of injuries to an insured. Bradshaw, 157 Ariz. at 422. In this case, GEICO did not force Duepner to accept a lesser substitute for the cards. At most, GEICO undervalued the cards and delayed paying the claim. Though enough to potentially show bad faith, GEICO's conduct does not show the "evil mind" necessary for punitive damages. See Hawkins, 152 Ariz. at 497 ("The purpose of punitive damages is not to compensate the plaintiff, but to express society's disapproval of outrageous conduct and to deter such conduct by the defendant and others in the future.").
¶29 Duepner relies on our decision in Nardelli v. Metropolitan Group Property & Casualty Ins. Co., 230 Ariz. 592 (App. 2012), and offers evidence that GEICO employees' "report cards" included a consideration of the average amount paid out per claim. But such reports, without more, are not enough to show conduct amounting to the "evil mind" necessary for an award of punitive damages. See Sobieski v. Am. Standard Ins. Co. of Wis., 240 Ariz. 531, 539, ¶¶ 32-33 (App. 2016). But even if Duepner had presented sufficient evidence of a systemic profit motive of the kind that led employees to improperly deny claims like MetLife's employees did in Nardelli, 230 Ariz. at 605-09, ¶¶ 63-75, 79, the facts of this case are insufficient to infer that GEICO's actions in handling Duepner's claim were profit-motivated. Too much of GEICO's conduct was objectively reasonable to allow such an inference. GEICO properly covered the value of many of the items stolen. For example, GEICO promptly paid $1,400 to cover a new generator even before inspecting the RV to confirm a forced entry. Though GEICO may have underestimated the damage to the RV that prevented the door from properly functioning, Duepner repaired the damage himself and did not get a third-party estimate until a year later. He would have still had to pay the $500 deductible, and there is no evidence he would not have self-repaired if the estimate had been for a higher amount wherein GEICO would have paid for some of the cost of repair. And the fact remains that GEICO promptly covered many of the lost items that Duepner claimed with little or no proof of loss.
¶30 On this record, summary judgment on bad faith was unwarranted. But the record does not support a finding by clear and convincing evidence of the "something more" needed for punitive damages.
CONCLUSION
¶31 For the foregoing reasons, we conclude that GEICO is not entitled to summary judgment on Duepner's bad faith claim but is entitled to summary judgment on punitive damages. We therefore affirm in part, reverse in part, and remand for further proceedings.