Opinion
No. 1 CA-CV 13-0289
06-05-2014
LUZ E. ROBLES and NORBERTO ROBLES, husband and wife, Plaintiffs/Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a foreign insurer, Defendant/Appellee.
Rudolph & Hammond, LLC, Scottsdale By Kurt E. Hammond Counsel for Plaintiffs/Appellants David Bell & Associates, PLLC, Phoenix By David M. Bell, Howard L. Andari Counsel for Defendant/Appellee
NOTICE: NOT FOR PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION DOES NOT CREATE LEGAL
PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.
Appeal from the Superior Court in Maricopa County
No. CV2010-052302
The Honorable Colleen L. French, Judge Pro Tempore
The Honorable Michael R. McVey, Judge
AFFIRMED IN PART; FEE AWARD VACATED; REMANDED
COUNSEL
Rudolph & Hammond, LLC, Scottsdale
By Kurt E. Hammond
Counsel for Plaintiffs/Appellants
David Bell & Associates, PLLC, Phoenix
By David M. Bell, Howard L. Andari
Counsel for Defendant/Appellee
MEMORANDUM DECISION
Judge Patricia K. Norris delivered the decision of the Court, in which Presiding Judge Donn Kessler and Judge Maurice Portley joined.
NORRIS, Judge:
¶1 This appeal arises out a lawsuit filed by Luz E. and Norberto Robles accusing their insurer, State Farm Mutual Automobile Insurance Company, of breach of contract and bad faith in processing their uninsured motorist ("UM") bodily injury claim. On appeal, the Robleses first argue the superior court should not have dismissed their claims on summary judgment because State Farm refused to offer or disclose to them the highest amount it had internally determined their UM claim was worth and, instead, insisted on additional negotiations in an effort to persuade them to take less.
¶2 Exercising de novo review, and viewing the facts and reasonable inferences from those facts in a light most favorable to the Robleses, as the non-moving party, the record demonstrates, as a matter of law, that State Farm did not act in bad faith in processing the Robleses' UM claim. Scalia v. Green, 229 Ariz. 100, 102, ¶ 6, 271 P.3d 479, 481 (App. 2011) (citations omitted). We thus affirm summary judgment in favor of State Farm.
¶3 In Arizona, insurance contracts include an implied covenant of good faith and fair dealing whereby each party is "bound to refrain from any action which would impair the benefits which the other had the right to expect from the contract or the contractual relationship." Rawlings v. Apodaca, 151 Ariz. 149, 154, 726 P.2d 565, 570 (1986). Thus, an insurer is obligated
to immediately conduct an adequate investigation, act reasonably in evaluating the claim, and act promptly in paying a legitimate claim. . . . It should not force an insured to go through needless adversarial hoops to achieve its rights under the policy. It cannot lowball claims or delay claims hoping that the insured will settle for less.
Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 238, ¶ 21, 995 P.2d 276, 280 (2000). And, "[a]lthough a UM carrier may assert all defenses which would be available to the uninsured motorist, it still owes a duty of good faith and fair dealing to its insured/claimant." Voland v. Farmers Ins. Co. of Ariz., 189 Ariz. 448, 451, 943 P.2d 808, 811 (App. 1997) (citations omitted).
¶4 Valuing a UM personal injury claim is not, however, an "exact science" and such a claim is not generally susceptible to a precise evaluation or calculation. Id. at 453, 943 P.2d at 813. This is especially true in the UM context because such coverage blends the features of both first-party and third-party coverage and requires the insured to prove he or she is legally entitled to collect and the extent of his or her damages. Id. at 451, 943 P.2d at 811 (citation omitted). The elements of a UM claim are, thus, "inherently flexible and subject to differing and potentially changing evaluations based on various factors." Id. at 452-53, 943 P.2d at 812-13 (citation omitted). Absent the type of conduct condemned in Zilisch and other similar cases, a UM insurer does not breach the implied covenant when it makes a settlement offer that represents its best estimate of the value of a personal injury claim based on available information, and the insurer is not bound by that offer if it is rejected by the insured. Id. at 452, 943 P.2d at 812. Applying these principles here, State Farm did not breach the implied covenant and act in bad faith in its negotiations with the Robleses.
¶5 On April 15, 2010, Luz's attorney sent a demand packet to State Farm demanding $45,000 to settle the claim. State Farm acknowledged receiving the demand packet four days later. State Farm internally assessed the claim as having a value ranging from $15,000 to $18,000. On May 11, 2010, State Farm's claim representative offered $15,000 to resolve the claim, explaining State Farm had experienced "difficulty" relating certain treatment to the accident because of a "2 month gap in treatment to the accident." The representative also noted that an objective medical examination of Luz performed on July 29, 2009 revealed a "pain level of 1 . . . where 0 represent[ed] 'nothing' as per the doctor's report."
¶6 Luz rejected the offer. Asserting "[t]his was a significant impact clear liability accident" and disagreeing with State Farm's medical evaluation, through her attorney, Luz demanded $40,000. On May 17, 2010, the State Farm claims representative rejected Luz's $40,000 demand based on the existing documentation but increased State Farm's offer to
$16,500, explaining she had reviewed Luz's vehicle damage, the impact to her vehicle, and had noted Luz's claim was primarily for the treatment of neck and back strain.
¶7 Luz's attorney rejected the $16,500 offer a week later. In a letter to the representative dated that same day, he referred to a telephone conversation he had had with the representative and asserted the representative had indicated to him she was authorized and willing to settle for more than $16,500. He then accused State Farm of acting in bad faith: "By knowingly offering an amount to settle below the amount State Farm is actually willing to pay its insured for contractually owed benefits, State Farm is intentionally depriving the insured of the full benefit of the contract and breaching its duty of good faith and fair dealing." Despite additional efforts by State Farm to settle the claim with the Robleses, negotiations ended.
¶8 Subsequently, during her deposition, the representative confirmed she had determined a $15,000 to $18,000 range of value for Luz's claim and acknowledged she could have resolved the claim within that range. She also explained that, in the negotiation process, she could increase an offer if the insured expressed dissatisfaction with the offer or provided additional information. And, of critical importance here, she testified that based on the "claim documentation . . . the top end of the range of value was not offered [to Luz]."
¶9 As the foregoing demonstrates, State Farm evaluated Luz's claim and estimated its value based on the documentation it had received and its assessment of various factors. State Farm's evaluation of the claim was not objectively unreasonable, and indeed, the Robleses have not argued it was. Instead, they argue State Farm acted in bad faith because the representative had fixed a value of $18,000 on their claim and was willing to pay that sum; thus, her efforts to negotiate the claim amounted to nothing more than an attempt to persuade them to take less. But, the record evidence is uncontroverted -- the representative did not fix a value on the claim of $18,000. Instead, she estimated its value based on a range and did not offer the "top end" of that range based on the "claim documentation" provided to State Farm.
¶10 In Voland, we explained the amount an insurer offers to settle a UM claim was not a binding admission it was worth at least that amount. 189 Ariz. at 452, 943 P.2d at 812. Although Voland involved a specific settlement offer and this case involves a settlement range, just as
in Voland, State Farm's assessment that the Robleses' claims had a "top end" value of $18,000 did not constitute a binding admission their claim was worth at least that amount. Accordingly, State Farm did not breach its obligations under the policy or act in bad faith by not disclosing or offering the "top end" of the range to the Robleses in the course of the settlement negotiations.
¶11 The Robleses next argue the superior court should not have awarded $47,374 in attorneys' fees to State Farm under Arizona Revised Statutes ("A.R.S.") section 12-341.01 (Supp. 2013) because they were each partially successful. In making this argument, the Robleses point out they prevailed on the merits of their UM claim, which was decided in their favor pursuant to court-ordered arbitration.
¶12 When litigation involves multiple claims, the superior court may apply a "percentage of success" or "totality of the litigation" test to determine the successful party. Berry v. 352 E. Virginia, L.L.C., 228 Ariz. 9, 13-14, ¶ 22, 261 P.3d 784, 788-89 (quoting Schwartz v. Farmers Ins. Co. of Ariz., 166 Ariz. 33, 38, 800 P.2d 20, 25 (App. 1990)). Here, although the Robleses prevailed on their UM claim, State Farm prevailed on the Robleses' breach of contract and bad faith claims. The record demonstrates those claims drove this litigation, were monetarily far more significant in the case than the Robleses' UM claim, and were the subject of extensive discovery. Under these circumstances, we cannot say the court abused its discretion in finding that State Farm was the successful party under A.R.S. § 12-341.01. Berry, 228 Ariz. at 13, ¶ 21, 261 P.3d at 788; cf. Fulton Homes Corp. v. BBP Concrete, 214 Ariz. 566, 572, ¶ 25, 155 P.3d 1090, 1096 (App. 2007) (superior court did not abuse its discretion in concluding parties required to expend money engaging in discovery and other pretrial activities to extricate themselves from litigation successful under A.R.S. § 12-341.01).
¶13 The Robleses also argue that even if State Farm is considered the successful party, the superior court did not properly assess the factors for a fee award identified in Associated Indemnity Corp. v. Warner, 143 Ariz. 567, 570, 694 P.2d 1181, 1184 (1985) ("Warner factors"). Specifically, the Robleses argue their breach of contract and bad faith claims were not frivolous and raised a novel issue and, even if State Farm's actions did not rise to the level of bad faith, its negotiation tactics were "suspect." Most importantly, the Robleses argue the court should have accorded great weight to their argument that a fee award of $47,374, which is the amount
State Farm requested and the court awarded, would cause them extreme hardship.
¶14 We ordinarily affirm a discretionary fee award if the record reflects a reasonable basis for the superior court's decision. Fulton Homes Corp., 214 Ariz. at 569, ¶ 9, 155 P.3d at 1093. In this case, the Robleses presented evidence that the amount of fees requested by State Farm would cause them an extreme hardship if awarded by the court. Luz submitted an affidavit to the court in which she explained she was a self-employed housekeeper earning approximately $1,000 to $2,000 per month with monthly expenses of $1,600 to $1,800 per month, had sole custody and was the sole provider for her three children, and qualified for benefits under the Arizona Health Care Cost Containment System Administration. She also explained her only personal assets were a 2006 Yukon, a work van with a payment of $180 per month, a house valued at $115,000, and a bank account with an average monthly balance of $1,000.
¶15 Although State Farm argues the Robleses failed to demonstrate they could not satisfy the judgment because Norberto did not submit an affidavit to the court regarding his financial condition, his relationship with Luz and her children is not clear from the record and, although he was a named plaintiff, the record does not reflect he was involved in the case. In any event, Luz made a prima facie showing that a fee award in the amount requested by State Farm would create an extreme hardship. See Rudinsky v. Harris, 231 Ariz. 95, 102, ¶ 32, 290 P.3d 1218, 1225 (App. 2012) (party asserting financial hardship must produce prima facie evidence in support of claim). Given this, we vacate the award of attorneys' fees and remand to the superior court for a redetermination of an award of reasonable attorneys' fees. In reconsidering the award, the court should take into account evidence of hardship, including Norberto's possible financial contribution to any fee award, as well as the other Warner factors, based on the existing record or as supplemented by the parties.
¶16 State Farm requests an award of attorneys' fees on appeal pursuant to A.R.S. § 12-341.01. Exercising our discretion, we deny the request. As the prevailing party, however, we award State Farm its costs on appeal contingent upon its compliance with Arizona Rule of Civil Appellate Procedure 21.
¶17 We affirm the superior court's summary judgment in favor of State Farm on the Robleses' breach of contract and bad faith claims. We
also affirm the superior court's decision finding State Farm was the successful party for an award of attorneys' fees under A.R.S. § 12-341.01. We vacate the fee award, however, and remand for a redetermination of the amount of fees.