Free Brief (Non Appeal) - District Court of Arizona - Arizona

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Richard T. Treon (No. 002064) TREON, AGUIRRE & NEWMAN, P.A. 2700 N. Central Avenue, Suite 1400 Phoenix, Arizona 85004-1133 Telephone: (602) 285-4400 Facsimile: (602) 285-4483 Daniel B. Treon (No. 014911) Douglas G. Shook (No. 005950) Stephen E. Silverman (No. 016757) TREON & SHOOK, P.L.L.C. 2700 N. Central Avenue, Suite 1000 Phoenix, Arizona 85004-1133 Telephone: (602) 265-7100 Facsimile: (602) 265-7400 Attorneys for Defendants/Counterclaimants

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA AMERICAN FAMILY INSURANCE COMPANY, Plaintiff/Counterclaim Defendant, v. ROBERT and JOY DUNN, Defendants/Counterclaimants. NO. CV2003-1277 PHX SRB

DEFENDANTS' TRIAL BRIEF

The Dunns submit their separate trial brief herein.

1.
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"Modifications" of the Appraisal Award through the testimony of only one appraiser.

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We expect that American Family will attempt to "modify" the appraisal award by the attempted use of testimony from its appraiser to change the line item for

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"Foundation Repairs."

In addition to the speculative nature of the proposed

testimony, it is contrary to the law. Arizona law provides the exclusive mechanism for the amendment or modification of an appraisal award by the appraiser. A.R.S. § 12-1509 provides the exclusive remedy for an appraiser to request a modification of the award, requires that the request be made within 20 days of the receipt of the award, and requires a motion in the Maricopa County Superior Court to commence the request. A.R.S. § 12-1513 provides the exclusive remedy for an interested party to request modification of the award, and requires that the request be made within 90 days, and requires a motion in the Maricopa County Superior Court to commence the request. On the other hand, just as testimony from a judicial officer with respect to the meaning of a ruling or order would be improper, testimony from one member of an appraisal panel with respect to what the appraisal panel determined would not be proper. Testimony from an appraiser interpreting a disputed provision of an

appraisal award "is clearly inadmissible. It has uniformly been the rule that an arbitrator may not testify to the meaning and construction of his written award." New

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York City Omnibus Corp. v. Quill, 73 NYS.2d 289 (N.Y. Sup. 1947), mod. on other grounds, 74 NYS.2d 295, aff'd, 78 NE.2d 859.

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2.

Physical inspection.

The Court has broad discretion to permit the jury to view the most critical evidence in this case: the Dunn residence itself. Clicks Billards, Inc. v. Sixshooters, Inc., 251 F.3d 1252 (9th Cir. 2001) ("If a picture is worth a thousand words, then the real thing is worth a thousand pictures.") In this case, the evidence of the structural and foundation damage cannot be accurately portrayed by photographs, videos, or the expert testimony. As a result, a visit to the Dunns' residence in Glendale, Arizona will be helpful to resolving the issues. 3. Insurance Bad Faith.

The Dunns, Defendants in this action brought by their insurer, counterclaimed for bad faith and breach of contract. The implied in law covenant of good faith and fair dealing on an insurance claim arises from "an unequal bargaining position

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between the insured and insurance company" and because the business of insurance is highly specialized with policy holders "in an especially vulnerable economic position" and dependant upon their insurance company when a loss occurs. Noble v. National American Life Ins. Co., 128 Ariz. 188, 624 P.2d 866, 867868 (1981); Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 620 P.2d (1979). Because of an insurer's superior knowledge in claim matters, it must assist the policyholder with the claim. NAIC Model Regulations § 6D provides that: Every insurer, upon receiving notification of a claim, shall promptly provide necessary claim forms, instructions and reasonable assistance so that first party claimants can comply with the policy conditions and the insurer's reasonable requirements. Knowledge or information that the insurer has that will assist an insured in
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presenting or supporting their claim must be disclosed to the insured. Rawlings v. Apodaca and Farmers Insurance Co., 151 Ariz. 149, 726 P.2d 565, 571 (1986). An

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insurer breaches the implied covenant when it fails to investigate the thoroughly possible bases that might support an insured's claim. Egan, 620 P.2d at 145; see also, McLaughlin v. Connecticut Gen. Life Ins. Co., 565 F.Supp. 434 (1983) ("Given the strength of the company's duty to investigate possible bases for its insureds' claims, as a matter of law defendant breached the implied covenant by failing to investigate the evidence supporting the plaintiff's claim." Id. at 454) The Arizona Supreme Court in Zilisch v. State Farm, 196 Ariz. 234, 995 P.2d 276, (2000) set forth certain rules and types of conduct that establish breach of that covenant. Those rules included: The insurer's obligation to play fairly with its insured . . . . some duties of a fiduciary nature, including equal consideration, fairness and honesty . . . And that, the insurer's eventual performance of the express covenant ­ by paying the claim ­ does not release it from liability for bad faith. Id. at 279. The Zilisch Court also noted that an insurance contract provides more than just security for financial loss to the insured and that, "the insured also is entitled to receive the additional security of knowing that she [he] will be dealt with fairly and in good faith," and therefore if an insurer acts unreasonably in the manner in which

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it processes a claim, it will be held liable for bad faith. Id. at 280. Our Supreme Court then stated: The carrier has an obligation to immediately conduct an adequate investigation, act reasonably in evaluating the claim, and act promptly
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in paying a legitimate claim. It should do nothing that jeopardizes the insured's security under the policy. 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. Equal consideration of the insured requires more than that. Id. A key inquiry in an insurance bad faith case is whether the insurer had a reasonable basis for its failure to process or pay the insured's claim. The tort of bad faith arises when the insurance company intentionally denies, fails to process or pay a claim without a reasonable basis for such action. Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127, 1136 (1982) An insurer's unreasonable delay in the adjustment and payment of an

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insured's claim is also grounds for bad faith. Sparks, supra; Borland v. Safeco Ins. Co. Of North America, 147 Ariz. 195, 709 P.2d 552, 557 (Ariz. App. 1985). The insurer has an obligation to promptly pay an undisputed portion of a firstparty claim and failure to do so is bad faith as a matter of law. The Arizona Supreme Court in Filasky v. Preferred Risk Mut. Ins. Co., 152 Ariz. 591, 734 P.2d 76 (1987) held: Because the amount of benefits due, rather than coverage, was contested, Preferred Risk had a duty to pay promptly any undisputed portion of the claim. This failure alone amounts to bad faith. Id. at 82. (emphasis added) The insurance industry standard for keeping the insured informed as to the status of a claim is codified in the Arizona Department of Insurance Regulations, as follows:

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F. Standards for prompt investigation of claims. Every insurer shall complete investigation of a claim within 30 days after notification of claim, unless such investigation cannot reasonably be completed within such time. G. Standards for prompt, fair and equitable settlements applicable to all insurers. 1. Notice of acceptance or denial of claim. *** b. If the insurer needs more time to determine whether a first party claim should be accepted or denied, it shall also notify the first party claimant within fifteen working days after receipt of the proofs of loss, giving the reasons more time is needed. If the investigation remains incomplete, the insurer shall, 45 days from the date of the initial notification and every 45 days thereafter, send to such claimant a letter setting forth the reasons additional time is needed for investigation.

Arizona Administrative Code, Department of Insurance Regulations, Title 20, Ch. 6, R20-6-801 (F, G1.b) Section C of that DOI Regulations requires insurers to maintain notes and papers in their claim files. 4. Punitive Damages.

In the event the Court reconsiders its pretrial ruling on punitive damages (contrary to what we expect American Family to argue, "law of the case" is not a rigid principle and does not prevent a judge from re-assessing her own prior, non-final pretrial ruling), the following legal principles are applicable. The Opinion in 20th Century Ins. Co. v. Superior Court, 109 Ca. Rptr.2d 611, 626 (Cal. App. 2 Dist. 2001), revisited the reasons why punitive damages are recoverable against insurers who handle claims in bad faith. The Court explained: [T]he relationship of insurer and insured is inherently unbalanced; the
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adhesive nature of insurance contracts places the insurer in a superior bargaining position. The availability of punitive damages is thus compatible with recognition of insurer's underlying public obligations and reflects an attempt to restore balance in the contractual relationship. Id., citing Egan, supra, 24 Cal.3d at 820. Egan is relied upon by the Arizona

Supreme Court in Rawlings, supra, 726 P.2d at 570-571, 574-575, 578, in Noble, supra, 624 P.2d at 867, and in Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 508, 838 P.2d 1265, 1268 (1992). Punitive damages are assessed to punish or deter a defendant and others from similar misconduct in the future. Such damages can be assessed by a jury when there is either direct or circumstantial evidence that the defendant acted to serve its own interest, having reason to know and consciously disregarding a substantial risk that its conduct might significantly injure the rights of others or consciously pursuing a course of conduct knowing that it created a substantial risk of significant harm to others. Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 733 P.2d 1073 (1987); Rawlings , supra; Bradshaw v. State Farm Mut. Auto. Ins. Co., 157 Ariz. 411, 758 P.2d (App. 1988). Additionally, our Supreme Court in Rawlings approved of several other categories of conduct supporting punitive damages in an insurance bad faith case as set forth by the Court of Appeals in Farr v. Transamerica Occidental Life

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Insurance Co., 145 Ariz. 1, 699 P.2d 376 (Ariz. App. 1984): Fraud will suffice. Broadly defined, fraud would encompass a failure to deal in good faith; . . . . Deliberate, overt and dishonest dealings will support punitive damages. [Citation omitted] This would encompass a willful and knowing failure
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to process or pay a claim known to be valid. Oppressive conduct will support punitive damages. [Citations omitted] The cases fail to define what is meant by oppressive conduct, but a good example would encompass the situation where the insured's loss has mad him desperate to settle, and the insurer is specifically aware of this vulnerability and plays upon it while recklessly failing to investigate, process or pay a claim. Insult and personal abuse will suffice. [Citations omitted] The question of whether punitive damages are justified should be left to the jury if there is any reasonable evidence which will support them. Farr, 145 Ariz. at 8-9, 699 P.2d at 383-84 [emphasis added]. DATED this 21st day of September, 2005. TREON, AGUIRRE & NEWMAN, P.A. By: s/Richard T. Treon Richard T. Treon, Esq. 2700 North Central Avenue, Suite 1400 Phoenix, Arizona 85004

and
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TREON & SHOOK, P.L.L.C. By: s/Stephen E. Silverman Daniel B. Treon Douglas Shook Stephen E. Silverman 2700 North Central Avenue, Suite 1000 Phoenix, Arizona 85004

Attorneys for Defendants/Counterclaimants

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ORIGINAL of the foregoing electronically filed this 21st day of September, 2005, with: U.S. District Court Clerk

COPY hand delivered this 21st day of September, 2005, to: The Honorable Susan R. Bolton United States District Court By: s/Barbara Bopp

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