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Arizona Case Law Update

ANTI-STACKING INSURANCE POLICY PROVISIONS

Yeager v. State Farm Mutual Automobile Insurance Company, 1 CA-CV 15-0855 (Ariz. App. Feb. 2, 2017)

In this case, the Arizona Court of Appeals held insurance companies can limit underinsured motorist coverage to one applicable policy per accident, even if the insured asserts separate insurance claims for the same accident.

Jo Ann Yeager was injured in an accident as a passenger in a Jeep driven by her husband Roger Yeager. Keith Wimbley drove the other vehicle involved in the accident. At the time of the accident, the Yeagers had insured their vehicles through four State Farm automobile insurance policies, each with policy limits of $100,000 person and $300,000 per accident. Each of the policies State Farm issued to the Yeagers contained a provision limiting underinsured motorist coverage to only one applicable policy per accident (also known as an “anti-stacking” provision).

Wimbley had automobile insurance with policy limits of $15,000 per person and $30,000 per accident. Wimbley’s insurer tendered its policy limits, and State Farm tendered policy limits under its policy covering the Jeep. Jo Ann demanded State Farm pay the policy limits on two of the remaining three policies to cover these claims and State Farm refused pursuant to the anti-stacking provisions contained in the Yeagers’ policies.

Jo Ann sued State Farm and asked for declaratory relief. State Farm moved for summary judgment, arguing Jo Ann was attempting to improperly stack her underinsured motorist policies. The superior court granted State Farm’s motion and Jo Ann appealed.

The Arizona Court of Appeals affirmed the superior court’s judgment. The Court relied on A.R.S. § 20-259.01(H), which permits an insurer to limit underinsured motorist coverage to one applicable policy per accident. The Court rejected Jo Ann’s argument that she was entitled to recover under two underinsured motorist policies because she had asserted separate claims stemming from the accident. The Court reasoned that A.R.S. § 20-259.01(H) was clear in permitting insurers to limit underinsured motorist coverage to one applicable policy per accident. The Court held because State Farm’s anti-stacking policy provisions were unambiguous and followed A.R.S. § 20-259.01(H), they were valid.

INSURANCE BAD FAITH

Epperson v. AAA Fire & Casualty Insurance Company, 1 CA-CV 15-0846 (Ariz. App. Jan. 31, 2017)

In this case, the Arizona Court of Appeals affirmed the superior court’s dismissal of plaintiffs’ bad faith claim on summary judgment after the insurer defendant presented uncontroverted evidence showing the delay in the claims handling process was caused by the plaintiffs’ lack of cooperation during the investigation and the defendant insurer’s reasonable investigation of possible insurance fraud by plaintiffs.
In July 2013, a fire destroyed the Eppersons’ house. The Eppersons submitted a claim for the loss to AAA Fire & Casualty Insurance Company under their homeowner’s insurance policy. The fire was the Eppersons’ fourth significant loss at the property in less than three years.
In August 2013, AAA enlisted a private investigator to investigate the claim. On September 5, 2013, the investigator produced a report that included interview statements from fire scene witnesses Apache County Sheriff’s Office Sergeant Jeff Soderquist and St. Johns Assistant Fire Chief Jason Kirk, who both said they believed the fire was suspicious and that Eppersons’ belongings had been removed from the house prior to the fire. The report also contained an interview statement from Ron Epperson’s neighbor stating Ron told her he intended to burn the house down and use the insurance money to purchase another property.
In September and November 2013, AAA requested the Eppersons provide additional information and documentation in order to compete its investigation, including submitting to examinations under oath.
In November 2013, the Eppersons sued AAA alleging AAA acted in bad faith by unreasonably delaying its investigation of the fire loss claim and by refusing to extend coverage for the loss. The superior court stayed the lawsuit pending AAA’s completion of the claim adjustment process.
The Eppersons did not provide the information and documents AAA requested in November 2013 and did not agree until January 2014 to allow AAA to examine them under oath. After AAA completed Ron’s examination in February 2014, AAA asked its private investigator to conduct a follow-up investigation.
On April 7, 2014, the investigator produced a report that included an interview statement from Jason Kirk (now the St. Johns Fire Chief), stating Ron gave him an inconsistent account of the incident on the night of the fire. In August 2014, the Eppersons sent AAA a letter in which Ron’s doctor opined that Ron’s medical condition caused him to suffer memory lapses.
On November 7, 2014, AAA paid the Eppersons for the fire loss claim. After the lawsuit resumed, the Epersons retained a standard of care expert who opined in an affidavit that AAA committed bad faith claim handling by failing to pay the Epperson’s claim within 30 days. AAA moved for summary judgment on the Eppersons’ bad faith claim and the superior court granted the motion. The Eppersons appealed.
On appeal, the Arizona Court of Appeals affirmed the superior court’s summary judgment in favor of AAA. The Court held that no material issue of fact existed regarding the bad faith claim because AAA presented uncontroverted evidence that it promptly interviewed relevant witnesses, investigated the fire scene, and sought relevant documents. The undisputed evidence showed the Eppersons did not immediately cooperate with AAA’s investigation, failing for several months to provide the requested information and submit to examinations under oath.
The Court rejected the Eppersons argument that their standard of care expert’s affidavit opinions raised a material question of fact that precluded summary judgment. The Eppersons’ expert’s affidavit contained an admission that the standard of care did not require an insurer to pay a fire claim within 30 days if there is good reason to suspect arson. The Court held the undisputed evidence in the case, including AAA’s private investigator’s September 5, 2013 report, indicated AAA had good reason to suspect arson and not pay the claim within 30 days.
SUBJECT MATTER JURISDICTION

Herklotz v. Parkinson, U.S. Court of Appeals for the Ninth Circuit, No. 07-56657 (February 14, 2017)

In this case, the U.S. Court of Appeals for the Ninth Circuit navigated through 17 years of procedural posturing through the federal court system to reaffirm the foundational principle that federal courts are courts of limited jurisdiction.

The case began in 2000 when WRS, Inc. (a Pennsylvania company) sued Plaza Entertainment, Inc. (a California company) and Plaza directors John Herklotz, Eric Parkinson, and Charles von Bernuth (all California residents) in Pennsylvania federal district court to collect a $1.5 million debt Plaza owed WRS. Herklotz crossclaimed against Plaza, Parkinson, and von Bernuth for misrepresentation and breach of fiduciary duty—all state law claims. The Pennsylvania federal district court entered default judgments against Plaza, Parkinson, and von Bernuth. WRS prevailed against Herklotz on summary judgment and the Pennsylvania federal district court entered a judgment for $2.5 million in favor of WRS.
Herklotz subsequently moved to sever his state law crossclaim and transfer it to California federal district court. The Pennsylvania federal district court granted the motion, severed the crossclaim, and transferred the newly independent case. Later, Herklotz amended his crossclaim to add the state law claims breach of fiduciary duty and indemnity against Plaza shareholder Thomas Gehring (a California resident). Gehring and von Bernuth both moved to dismiss for failure to state a claim, and the California federal district court granted the motions. Herklotz appealed.
On appeal, the U.S. Court of Appeals for the Ninth Circuit vacated the judgment and remanded with instructions to dismiss for lack of jurisdiction. The Court held that once Herklotz’s crossclaim was severed, it became an entirely new and independent case that must have an independent jurisdictional basis. The Court held that Herklotz could no longer rely on the supplemental jurisdiction afforded by 28 U.S.C. § 1367(a). The Court concluded the California federal district court lacked subject matter jurisdiction because Herklotz’s severed crossclaim included only state law claims against non-diverse parties.

ABOUT THE AUTHOR: Arman Nafisi is an associate in Tyson & Mendes’ Phoenix, AZ office. Mr. Nafisi specializes in insurance defense, personal injury, professional liability, and general civil litigation. Contact him at (602)385-5656 or anafisi@tysonmendes.com.