Free Response to Motion - 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' RESPONSE TO PLAINTIFFS' MOTION IN LIMINE RE UNFAIR CLAIMS SETTLEMENT PRACTICES ACT

Defendants/Counterclaimants Robert and Joy Dunn (the "Dunns"), through undersigned counsel, hereby respond to Plaintiffs' Motion in Limine Re Unfair Claims Settlement Practices Act (the "Act"). Although the Act does not create a private cause of action, it can be used as evidence of the industry standards for an
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insurance carrier regarding proper investigation and adjustment of an insurance claim.

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Plaintiff/Counterdefendant American Family misstates both manner in which the Act is relevant in this action and the holding in Melancon v. USAA Casualty Insurance Co., 174 Ariz. 344, 849 P.2d 1374 (App. 1992). American Family

admittedly uses the Act as an internal guideline for the handling of claims by its insureds. [See Exhibit 1 and 2 (deposition excerpts of Janet E. Neary in this case (exhibit 1) and other cases (exhibit 2), and Exhibit 3 (filed separately under seal)] Guidelines and manuals are evidence of standard of care. See also, State v. Watson, 7 Ariz. App. 81, 436, 436 P.2d 175 (1967) (Manual for traffic-control devices adopted by Arizona State jury. Commission admissible as evidence of standard custom or usage or as evidence of failure to meet safety standards; generally, safety regulations adopted by defendant for its own guidance are admissible). American Smelting & Refining Co. V. Wusich, 92 Ariz. 159, 164, 375 P.2d 364,367. Therefore, simply based on American Family's adoption of the Act as internal guidelines for the handling of claims, the Act is admissible as evidence of the industry standards that apply to American Family. The Dunns' claim that American Family violated the guidelines it adopted is evidence of a breach of the implied covenant of good faith and fair dealing. See Thompson v. Wal-Mart Stores, Inc., 547 S.E.2d 48, 51 (N.C.

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App. 2000). Arizona is not the only state that has adopted the Act, and it is not the only

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state that does not recognize a private cause of action arising from the Act. In American Family Mutual Insurance Co. v. Allen, 102 P.3d 333 (Colo. 2004), the court

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acknowledged the Colorado version of the Act also does not create a private cause of action: "the Unfair Claims Practices Act regulates the conduct of the insurance industry but does not create a private right of action." Allen at 344 (citations, footnote omitted). Allen then concluded, "While the Unfair Claims Practices Act does not establish a standard of care actionable in tort, it may be used as valid, but not conclusive, evidence of industry standards." Id. The court reached the same conclusion in The Inland Group of Companies, Inc. v. Providence Washington Insurance Co., 985 P.2d 674 (Idaho 1999). After noting that the trial court permitted the insured's expert to use Idaho's Unfair Claims Settlement Practices Act to "show insurance industry standard practices," and noting that Idaho does not recognize a private cause of action under its version of the Act, the court held that the "[expert's] testimony did not relate to [the insured] bringing a claim under the Act. The testimony was presented to show insurance industry standards and was properly admitted for that purpose." Inland Group at 683. See also, Simon v. Omaha Public Power District, 202 N.W.2d 157 at 165 (Neb. 1972) (violation of safety code "evidence of negligence to be considered with all the other facts and circumstances").

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American Family's bare interpretation of Melancon, supra, is wrong. In Melancon, the trial court gave jury instructions that were taken verbatim from

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regulations promulgated under the Act. Melancon at 346, 849 P.2d at 1376. The court explained: "The implication of the challenged instructions is clear: If the jury

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found the [insurance company violated the regulation quoted in the jury instructions, then the insureds] were entitled to maintain an action and seek a judicial remedy. The trial court instructed the jury that violation of standards taken verbatim from the rule gave [the insureds] the right to seek a judicial remedy." Id. at 347, 849 P.2d at 1377 (emphasis added). This holding does not stand for the proposition that all references to the Act are inadmissible. The problem in Melancon was the unfair claims practices standards were stated verbatim as a jury instruction, which made violation of the rule conclusive proof of the standard of conduct and effectively created a private right of action. Id. Arizona does not accept violation of any statutes as conclusive proof of negligence, but rather as proof of a negligence per se prima facie case, subject to exceptions and affirmative defenses. Crown v. Raymond 159 Ariz 87, 764 P.2d 1146 (App. 1988) (violations of statute, negligence per se, may be "excused"). Here, the jury will be instructed in such a way that eliminates the danger that it might equate a violation of the act as conclusive proof of such. Furthermore, as noted supra, American Family has adopted the Act as part of their guidelines for the proper handling of their insureds' claims. To argue that the

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Act is nevertheless inadmissible, or somehow unfairly prejudicial, is cynical and insupportable.

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Finally, in the alternative, even if express references to the Act are not permitted under Arizona law, despite American Family's employment of the Act as

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an internalized standard, the insureds' expert should be permitted to refer to "the laundry list of practices set forth in the [Unfair Claims Practices Act], which can be taken into consideration as standards in the industry." Wood v. Allstate Insurance Co., 1997 WL 602796 *6 (E.D. Pa. 1997). However, there is no support to the

proposition that any reference to or reliance on the Act, or its particular standards, is inadmissible. Based on the foregoing, Defendants/Counterclaimants Robert and Joy Dunn oppose Plaintiff's Motion in Limine Re Unfair Claims Settlement Practices Act. DATED this 22nd 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 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/Laura L. Quesada

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