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Arizona Bad Faith Insurance Law: What Every Practitioner Should Know

Arizona Bad Faith Insurance Law: What Every Practitioner Should Know


The opinions of the faculty expressed in their written materials and oral presentations are not necessarily those of the State Bar of Arizona

Copyright © 1990
State Bar of Arizona
All Rights Reserved

TABLE OF CONTENTS

I.First-Party Bad Faith in Arizona
David J. Damron
II.Discovery in a First Party Bad Faith Case and How to Prepare and Try an ERISA Case
Steven C. Dawson
III.All Things Being Considered Equal:
Third-Party Bad Faith in Arizona
Steven. Plitt

FIRST-PARTY BAD FAITH IN ARIZONA

David J. Damron
TEILBORG, SANDERS & PARKS

  • Recognition of Independent Tort of Bad Faith
  • Policy Reasons for Imposition of Bad Faith Tort Liability
  • Standard for Liability in Arizona - Noble v. National American Life Insurance Company, 128 Ariz. 188, 624 P.2d 866 (1981) (absence of reasonable basis for denying policy benefits and insurer's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim).
  • Types of Conduct Constituting Bad Faith Factors Showing Unreasonableness.
  • Factors Showing Unreasonableness.
  • A.R.S. § 20-461, Arizona's Unfair Claim Settlement Practice8 Statute.
  • A.R.S. § 12-341.01 Statutory provision for allowance of attorney's fees expended in obtaining unreasonably withheld policy benefits.
  • Types of Bad Faith Conduct Justifying Punitive Damages
  • Mere bungling or negligence does not support an award of punitive damages. Farr v. Transamerica Occidental Life Insurance Co., 145 Ariz. 1, 699 P.2d 376 (1985).
  • Punitive damages are restricted to those cases in which the defendant's wrongful conduct is guided by evil motives. Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986).
  • Duration of the insurer's misconduct, degree of insurer's awareness of harm and any concealment of it are elements to consider for purposes of awarding punitive damages. Hawkins v. Allstate Ins., Co., 152 Ariz. 490, 733 P.2d 1073 (1987).
  • Burden of proof for punitive damages is clear and convincing evidence. Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 723 P.2d 675 (1986).
  • Defenses to Bad Faith Claims
  • Unsettled Questions of Law.
  • Custom in the Industry - custom in the industry has been rejected as a defense to bad faith actions. Sparks v. Republic National Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127 (1982), cert. denied, 459 U.S. 1070 (1982).
  • Reliance on ambiguous policy provisions is not a defense to a bad faith action. Sparks, supra.
  • Insured's Duty of Good Faith.

INTRODUCTION

The focus of this article is the development of first-party bad faith jaw in Arizona. A "first party" case in insurance litigation refers to a cause of action by the insured against the insurer based on the insurance company's handling of a claim for policy benefits. Typically, these claims are for benefits under disability, health, life and fire insurance policies.

RECOGNITION OF INDEPENDENT TORT OF BAD FAITH

In Noble v. National American Life Insurance Company, the Arizona Supreme Court held there is an implied duty in all insurance contracts that the insurer must act in good faith when handling the claims of its insured. The court stated that violation of the duty would be the basis for an independent tort cause of action. With the recognition of this duty, Arizona joins a growing number of jurisdictions that have adopted the tort of first-party bad faith. Thus, insureds are no longer restricted to the damages available under a contract action. Prior to the recognition of this tort, insureds were limited by the general rule that exemplary damages are not available in ordinary contract actions since traditional contract law limits the damages recoverable for breach of contract to compensatory and consequential damages. Under a tort action, however, an insured now has the basis for recovering all the losses caused by the insurer's conduct, including damages for gain, humiliation, and inconvenience, as well as pecuniary losses. The availability of punitive damages, however, is the real victory for the insured for denial of an insurance claim that a jury finds to be tortious and in bad faith. Since actions based in tort offer recovery for a broader range of damages, insureds will certainly find bad faith actions under a tort theory superior to ones based solely in contract. Thus, the manner in which an insurance contract is breached may give rise to both contract and tort remedies.

POLICY REASONS FOR THE IMPOSITION OF TORT LIABILITY

Jurisdictions recognizing the tort of bad faith have distinguished insurance contracts from ordinary commercial contracts on the basis that a special relationship exists between the insured and insurer due to the unique nature of the insurance contract. Courts have held that insurance contracts are personal in nature not commercial, and that insurance is purchased to protect against accidental risks and not for commercial advantage. Therefore, an insured is purchasing more than financial security; he is purchasing the security of peace of mind.

The inequality of bargaining power between the parties to an insurance contract is another aspect of the special relationship. Because insureds are typically in a vulnerable economic position after sustaining a loss and insurance companies are in a superior financial position, some courts believe that the threat of tort action is necessary to prevent insurers from delaying claims or pressuring insureds to accept less than the full benefits due under the policy. These courts reason that if the insurance company's punishment for wrongly refusing to pay a claim, was merely being forced to pay that which was owed to the insured in the first place, there would be little or no incentive for the insurer to act in good faith. Accordingly, punitive damages are imposed to punish wrongdoers and to deter the defendant and others from performing the same or similar acts.

Some courts have noted that there is a fiduciary aspect to the relationship between the parties to an insurance contract. In Arizona, an insurer is not considered to be a fiduciary, but does have some duties of a fiduciary nature, including equal consideration, fairness and honesty.

STANDARD FOR LIABILITY IN ARIZONA

In Noble, an insured brought a bad faith claim against her insurance carrier for failure to pay a claim submitted under a health insurance policy. The Arizona Supreme Court relied on the Wisconsin Supreme Court's decision in Anderson v. Continental Insurance Co. for defining the elements of the tort of first-party bad faith in the insurance context. The Wisconsin court stated:

To show a claim for bad faith the plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. It is apparent that the tort of bad faith is an intentional one.

The tort of bad faith can be alleged only if the facts pleaded would, on the basis of an objective standard, show the absence of a reasonable basis for denying the claim, i.e. would a reasonable insurer under the circumstances have denied or delayed payment of the claim.

Under this standard, an insurer that intentionally and unreasonably denies or delays payment breaches the covenant of good faith owed to its insured. A failure to pay a claim is unreasonable unless the claims validity is "fairly debatable" after an adequate investigation.

The Noble court noted that under this standard an insurance company may still challenge claims which are fairly debatable. However, it has been held that the fair debatability of an insurance claim cannot be created by the insurer's reliance on ambiguity in the policy, otherwise "insurers would be encouraged to write ambiguous insurance contracts..." Furthermore, fair debatability cannot be raised where the insurer fails to make an adequate investigation. The prohibition against challenging a claim unless it is fairly debatable merely expresses the obligation to give equal consideration to the insured's interest.

The "fairly debatable" standard has been held to be improper on a cause of action for third party bad faith. In Clearwater v. State Farm Mutual Automobile Ins. Co., the Arizona Supreme Court held that while an insurer owes its insured the same duty of good faith and fair dealing in both first and third party actions, the standard for determining whether the insurer has breached its duty is different in the two types of cases because of the different relationships and duties that exist between the parties.

The court found that the "fairly debatable" standard applied in first party cases inadequately protects the interests of an insured in a third party bad faith claim because of the added risks placed on an insured. The court stated:

"Although the debatability of the claim may be an issue as to liability and damages [in third-party situations], the debatability of the claim is not determinative and the insurer must also weigh other considerations, such as the financial risk to the insured in the event of a judgment in excess of the policy limits..."

The court held that in a third party bad faith action, the insurer has acted in bad faith when the insurer fails to consider the insured's interests equally with its own interests, and the "fairly debatable" standard applied in first-party cases is inappropriate.

Although the tort of bad faith is an intentional tort, the insured need not prove that the insurer intended to injure or harm the insured. The intent element of a bad faith claim is the general intent to do the act. In fact, the jury need not even be instructed on intent.

TYPES OF CONDUCT CONSTITUTING BAD FAITH - FACTORS SHOWING UNREASONABLENESS

The standard established by the Noble court is really one of reasonableness. The following types of conduct demonstrate unreasonableness on the part of the insurer and have resulted in a finding of bad faith:

  • insurer's attempt to withhold payment of an undisputed portion of a claim on the condition of a favorable settlement of a separate, disputed portion;
  • insurer's failure to make prompt payment as coercion of insured into settling for less than full performance;
  • insurer's failure to conduct a reasonably thorough investigation before denying an insured's claim;
  • insurer's unreasonable delay in the handling of a claim;
  • insurer's failure to advise insured of his duty to submit the appropriate forms.
  • insurer's reliance on a policy provision previously ruled invalid;

It should be noted that only a showing of an initial bad faith refusal to pay a claim is a required element of a bad faith tort cause of action. The insurer's eventual performance does not release it from liability for bad faith. However, it has been explicitly held that failure to pay a claim is not the sine qua non for an action for breach of the implied covenant of good faith and fair dealing. The Rawlings court found that insurance companies cannot be expected to perform perfectly. The court stated:

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, even though the company may render itself liable for at least nominal damages for breach of contract in failing to pay the claim.

A.R.S. § 20-461, Arizona Unfair Claim Practices Statute, proscribes certain types of conduct by insurer's in the claims adjustment process. The statute prohibits the following types of conduct by insurers:

  • refusing to pay claims without conducting a reasonable investigation based upon all available information;
  • not attempting in good faith to effectuate prompt, fair and equitable settlements of claims brought by the insureds;
  • failing to promptly provide a reasonable explanation of the basis in the insurance policy relative to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.

DAMAGES

The following types of damages may be recoverable in first party bad faith cases: contract damages, attorney's fees, damages for emotional distress and punitive damages.

Contract Damages

Prior to the adoption of the tort of bad faith, the insured's only remedy for the post-loss conduct of the insurer was an action for breach of contract. However, for the expense and effort of bringing such an action, the insured could only recoup that which was already due and consequential damages when appropriate, i.e. those damages which the parties should have foreseen when they contracted as likely to result from such breach. With the recognition of the tort of bad faith, insureds are no longer restricted to the damages available under a contract action.

Attorney's Fees

In Arizona, attorney's fees are recoverable as an item of damages in a bad faith claim. A.R.S. § 12-341.01 is a statutory provision for allowance of attorney's fee's expended in obtaining unreasonably withheld policy benefits.

Damages for Emotional Distress

Damages for emotional distress may be awarded in a bad faith case. To recover damages for emotional distress caused by an insurer's bad faith, the insured must demonstrate that the insurer's bad faith resulted in an invasion of property rights. Damages for pain, humiliation, or inconvenience, as well as pecuniary losses for expenses such as attorney's fees trigger an invasion of protected property rights.

While the tort of intentional infliction of emotional distress requires outrageous conduct, damages in a bad faith case may be awarded for emotional distress even though the defendant did not intentionally cause the distress and even though the distress was not severe. The concern in a bad faith case is "with mental distress resulting from a substantial invasion of property interests of the insured and not with the independent tort of intentional infliction of emotional distress."

Punitive Damages

Punitive damages are potentially available in tort actions but not in actions for breach of contract. Thus, punitive damages for bad faith are only available in those jurisdictions recognizing a tort cause of action for an insurer's breach of the covenant of good faith.

Types of Bad Faith Conduct Justifying Punitive Damages

Conduct sufficient to establish the tort of bad faith may not give rise to the level required to recover punitive damages. In Arizona, something more than mere proof of the insurer's bad faith is required to obtain punitive damages. Punitive damages are awarded for the tort of bad faith only when there is proof that the defendant's conduct was aggravated, outrageous, malicious or fraudulent. Mere negligence is not enough to recover on a claim for punitive damages. Similarly, while indifference to facts or failure to investigate are sufficient to establish the tort of bad faith, such acts may not give rise to the level required to recover for punitive damages.

In Rawlings v. Apodaca, the Arizona Supreme Court held that punitive damages are restricted to those cases in which the defendant's wrongful conduct was guided by evil motives. The court stated that the evil mind which will justify the imposition of punitive damages may be manifested in either of two ways. It may be found where defendant intended to injure the plaintiff, or where defendant did not intend to cause injury but consciously pursued a course of conduct knowing that it created a substantial risk of significant harm to others.

In making this determination, the jury is not limited to evidence of the defendant's actual subjective intent. The court recognized in Rawlings that in most cases the plaintiff will find it difficult, if not impossible, to prove the requisite evil mind with direct evidence of a subjective intent to harm. Accordingly, the plaintiff can prove the punitive damage case by inference and with circumstantial evidence.

In Farr vs. Transamerica Occidental Life Insurance Co., the court found that while the issue of bad faith had been properly submitted to the jury on the theory of reckless disregard of the absence of a reasonable basis for the denial of claim, the evidence showed only bungling and negligence and did not support a jury award of punitive damages. However, the Farr court did set forth categories of conduct which would justify the award of punitive damages in bad faith tort cases. The Farr court stated that fraud will suffice for an award of punitive damages. Specifically, where the insurer conceals the existence of a policy. Deliberate, overt and dishonest dealings will also support punitive damages for insurer's bad faith refusal to pay benefits. This would include a willful and knowing failure to process or pay a claim known to be valid. Other examples of conduct sufficient to justify an award of punitive damages are oppressive conduct, insult and personal abuse. These categories were cited with approval by the Arizona Supreme Court in Rawlings. The Rawlings court noted, however, that these categories are not exhaustive.

The Arizona Supreme Court in Linthioum v. Nationwide Life Ins. Co., found that while the insurer had followed a "tough" claims policy in denying coverage based on an erroneous application of a "pre-existing conditions" exclusion, the policy followed by the insurer did not appear to be deliberately designed to deny valid claims. The court reiterated that in a case involving the tort of bad faith, in order to justify an award of punitive damages, there must be something more than the conduct required to establish the tort itself. The court found that because the insurer's conduct had not been aggravated, outrageous, oppressive or fraudulent it affirmed the reversal of a $2 million punitive damage award. The court did, however, allow the $150,000 award for bad faith. Additionally, the court announced that the burden of proof for punitive damages is clear and convincing evidence.

In Filasky v. Preferred Risk Nut. Ins. Co., a case involving the insurer's delay in paying claims under automobile and home owner's policies, the Arizona Supreme Court reversed a $1 million punitive damage award. The court stated:

As already discussed, Preferred Risk's reasons for its dilatory settlement of Filasky's three claims were either groundless or inadequately investigated. This conduct supported the jury's conclusion that Preferred Risk acted in bad faith. However, evidence of "something more" than indifference to facts and failure to properly and timely investigate an insurance claim must exist before the trial court can instruct the jury on punitive damages. We have read the record and conclude that evidence that Preferred Risk acted toward Filasky in an aggravated, outrageous, malicious or fraudulent manner, or that Preferred Risk was guided by an evil mind which either consciously sought to injure Filasky is slight and inconclusive at best. Therefore, the trial judge erred in submitting the issue of punitive damages to the jury.

In Hawkins v. Allstate Ins. Co., the Arizona Supreme Court held that the duration of the insurer's, misconduct, the degree of the insurer's awareness of harm and any concealment of it are elements to consider in judging the reprehensibility of the defendant's conduct for purposes of awarding punitive damages. In this case, the insurer continually attempted to compromise the claim in an amount less than the actual fair market value of the vehicle. Additionally, the amount the insurer offered to pay was reduced for items such as cleaning fees where there was no evidence that such fees were appropriately included in computing the claim. The insured presented evidence that Allstate had a history of instructing adjusters to automatically make the $35 cleaning deduction regardless of a car's condition. The Plaintiff called former claims adjusters of Allstate to the stand. These adjusters testified they were instructed to automatically make the cleaning deduction whether cleaning was needed or not. The court recognized that evidence of prior similar acts against other claimants tends to militate in favor of the "intentional" nature of the Defendant's action. The court stated:

Evidence of previous, similar acts alters the probability that the conduct in question was unintentional; the more frequently an act occurs, the more probable that it is intentional. ****

Thus, whether the defendant intended to injure the plaintiff or consciously disregarded the plaintiff's rights may be suggested by a pattern of similar unfair practices.

Here, the court found that the insurer had established a prima facie case for the recovery of punitive damages and upheld a $3.5 million punitive damage award. Additionally, the court found that the punitive damage award was not excessive or unreasonable because the amount represented approximately 3 1/2 days' net income or 1/25 of 1% of Allstate's net assets. Therefore, while self-interest alone is not evidence of an "evil mind", once the plaintiff has established the requisite evil mind necessary for the imposition of punitive damages, the profitability of the defendant's conduct becomes relevant to the appropriateness of the jury's award of punitive damages.

DEFENSES TO BAD FAITH CLAIM

To justify or excuse its conduct and thereby escape liability that may otherwise result from its delay or refusal to pay policy benefits, an insurer may assert one of the following defenses.

Unsettled Questions of Law

Insurers have not been held liable for bad faith for requiring the insured to litigate unsettled questions of law, regardless of the outcome. While, promptly filed declaratory judgment actions will not necessarily defeat a finding of bad faith, the filing of a declaratory action does not itself give rise to a finding of bad faith on the part of the insurer.

Interestingly, one court has held an insurer liable for breach of the duty of good faith even though there was no coverage under the policy. In Judah v. State Farm Fire & Cas. Co., the court found the insurer's misconduct prior to the ultimate denial of the claim was actionable notwithstanding the fact that the denial itself was proper.

Custom in the Industry

Custom in the industry has been rejected as a defense to a bad faith action. In Sparks v. Republic National Life Ins. Co., the insurer relied on various ambiguous provisions to deny policy benefits to the insured. The insurer argued that denial of the insured's claim was the result of "recognized differences in interpretation born out of their use and 'commercial customs'." The Supreme Court of Arizona rejected the insurer's arguments stating: "We are not concerned with what the commercial 'customs' are in the insurance industry, but rather, what the ordinary person's understanding of the policy would be." Although compliance with industry custom is not an absolute defense, failure to comply may be relevant to the question of an insurer's alleged bad faith.

Ambiguous Policy Provisions

It is a fundamental principle of insurance law that where the language of an insurance contract is ambiguous, the language will be construed against the insurer. Therefore, reliance on ambiguous policy provisions as a justification for nonpayment or delay of payment have been rejected as a viable defense to a bad faith action. In Sparks v. Republic National Life Ins. Ca., the court held that the fair debatability of an insurance claim cannot be created by the insurer's reliance on ambiguity in the policy, otherwise "insurers would be encouraged to write ambiguous insurance contracts..."

Insured's Duty of Good Faith

There are no Arizona cases discussing a breach of the duty of good faith and fair dealing by the insured. Other jurisdictions addressing this issue have held that the insurer's duty to act reasonably in handling an insured's claim is not excused by the insured's failure to cooperate or comply with terms of the policy. However, the duty of good faith and fair dealing is a "two-way" Street, running from the insured to his insurer, as well as vice versa. Therefore, the insurer's liability for unreasonable withholding or denial of policy benefits may be reduced by the insured's failure to Cooperate with the insurer's investigation or the insured's failure to comply with policy provisions.

CONCLUSION

The fear of a punitive damage award is becoming a major factor considered by insurers attempting to objectively evaluate questionable claims. With punitive damage claims accompanying virtually every lawsuit for breach of contract for an insurance policy, many insurance companies are paying claims merely because of their fear of a punitive damage award. In Arizona, courts imposing punitive damage awards focus on conduct by the insurer which is deceptive, malicious, oppressive or fraudulent. The insurer must be aware that any actions he has taken concerning a policy claim will be judged by a standard of "reasonableness." The question will be "whether a reasonable insurer under the circumstances would have denied or delayed payment of the claim." In applying this standard, it is appropriate to determine whether the claim was properly investigated and whether the results of the investigation were subject to a reasonable evaluation and review. Factors considered will be whether the adjuster assumed an adversarial or defensive posture in determining the validity of the claim, whether company personnel were objective (i.e. ignoring favorable information to the insured and only considering that which supported its position), and whether a thorough investigation was conducted before a decision on the claim was made. In order for a plaintiff-insured to successfully prevail on a first-party bad faith claim in Arizona, the insured must prove that the insurer intentionally denied the claim, failed to pay the claim or delayed payment of the claim without a reasonable basis for such action.


Due to the paucity of case law in Arizona in certain areas of this topic, this article will necessarily refer to cases of other jurisdictions.

128 Ariz. 188, 624 P.2d 866 (1981).

Id. 128 Ariz. at 190, 624 P.2d 868.

The following jurisdictions have expressly recognized the doctrine of first-party bad faith: Alabama, Chavers v. National Sec. Fire & Casualty Co., 405 So.2d 1 (Ala. 1981); Alaska, State Farm Fire & Casualty Co. v. Nicholson, 777 P. 2d 1152 (Alaska 1989); Arkansas, Stevenson v. Union Standard Ins. Co., 746 S.W.2d 39 (Ark. 1988); California, Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal. Rptr. 480 (1973); Colorado, Rederscheid v. Comprecare Inc., 667 P.2d 766 (Colo Ct.App. 1983); Connecticut, Grand Sheet Metal Prods. Co. v. Protection Nut. Ins. Co., 34 conn. Supp. 46, 375 A.2d 428 (Super Ct. 1977); District of Columbia, Continental Ins. Co. v. Lynham, 293 A.2d 481 (D.C. 1972); Florida, Fla. Stat. Sec. 624.155 (1984); Idaho, White v. Unigard Mut. Ins. Co., 112 Idaho 94, 730 P.2d 1014 (1986); Iowa, Dolan v. Aid Ins. Co., 431 N.W.2d 790 (Iowa 1988); Mississippi, Weems v. American Sec. Ins. Co., 486 So.2d 1222 (Miss. 1986); Montana, Lipinsi v. Title Ins. Co., 655 P.2d 970 (Mont. 1982); Nevada, United States Fidelity & Guar. co. v. Peterson, 91 nev. 617, 540 P.2d 1070 (1975); New Mexico, Travelers Ins. Co. v. Montoya, 90 N.M. 556, 566 P.2d 105 (1977); North Carolina, Dailey v. Integon Gen. Ins. Corp., 57 N.C. App. 346, 291 S. E. 2d 331 (1982); North Dakota, Farmer's Union Cent Exch. v. Reliance Ins. Co., 626 F. Supp. 583 (DN.D. 1985); Ohio, Staff Builders, Inc. v. Armstrong, 37 Ohio St. 3d 298, 525 N.E.2d 783 (1988); Oklahoma, McCorkle v. Great Atl. Ins. Co., 637 P. 2d 583(Okla. 1981); Rhode Island, Bibeault v. Hanover Ins. Co., 417 A.2d 313 (R.I. 1980); South Carolina, Nichols v. State Farm Nut. Auto Ins. Co., 306 S.E.2d 616 (S.C. 1983); South Dakota, Champion v. United States Fidelity & Guar. Co., 399 N.W.2d 320 (S.D. 1987); Texas, Arnold v. National County Nut. Fire Ins. Co., 725 S.W.2ds 165 (Tex. 1987); Utah, Gagon v. State Farm Mut. Auto. Ins. Co., 746 P.2d 1194 (Utah Ct. App. 1987); Virgin Islands, Justin v. Guardian Ins. Co., 670 F.Supp. 614 (D.V.I. 1987); Wisconsin, Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 271 N.W. 2d 368 (1978).

Farr v. Transamerica Occidental Life Insurance Co., 145 Ariz 1, 6, 699 P.2d 376, 381 (1984).

Eckenrode v. Life of Am. Ins. Co., 470 F. 2d 1 (7th Cir. 1972).

Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 819, 598 P.2d 452, 456, 157 Cal. Rptr. 482, 486 (1979).

In Spencer v. Aetna Life & Casualty Ins. Co., 227 Kan. 914, 611 P.2d 149 (1980).

Nichols v. State Farm Mutual Auto Ins. Co., 279 S.C. 336, 340, 306 S.E.2d 616, 619 (1983).

Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 108 Cal. Rptr 480, 510 P.2d 1032 (1973); Fletcher v. Western Nat. Life Ins. Co, 10 Cal.App.3d 376, 89 Cal. Rptr. 78 (1970).

Barrera v. State Farm Nut. Auto. Ins. Co., 71 Cal. 2d 659, 456 P.2d 674 (1969); Vencill v. Continental Casualty Co., 433 F. Supp. 1371 (S.D. W. Va. 1977); Egan v. Mutual of Omaha, 24 Cal. 3d 809, 157 Cal. Rptr. 482 (1979).

Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986).

85 Wis. 2d 675, 271 N.W.2d 368 (1978).

Id. at 691, 271 N.,.W.2d at 376.

Noble 128 Ariz.188, 624 P.2d 866 (1981).

Id.

Sparks v. Republic National Life Insurance Co., 132 Ariz. 529, 647 P.2d 1127 (1982).

Farr v. Transamerica Occidental Life Insurance Co., 145 Ariz. 1, 699 P.2d 376 (App. 1984).

Gruenberg v. Aetna Insurance Co., 9 Cal. 3d at 573, 108 Cal Rptr. at 485, 510 P.2d at 1037 cited in Noble v. National American Life Insurance Co., 128 Ariz. at 189, 624 P.2d at 867.

Clearwater v. State Farm Mutual Automobile Ins. Co., 59 Ariz. Adv. Rpts. 7 (1990).

Clearwater, 59 Ariz.Adv.Rpts. at 10.

Id.

Rawlings v. Apodaca, 151 Ariz. 149, 160, 726 P.2d 565, 576 (1986).

Id.

Puasky v. Preferred Risk Mut. Ins. Co., 152 Ariz. 591, 734 P.2d 76 (1987).

Lawton v. Great Southwest Fire Ins. Co., 392 A. 2d 576 (N.H. 1978).

Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809, 157 Cal. Rptr. 482 (1979).

Neal v. Farmers Ins. Exch., 21. Cal. 3d 910, 148 Cal. Rptr. 389 (1978).

Lynch v. Mid-America Fire & Marine Ins. Co., 94 Ill.App. 3d. 21, 418 N.E.2d 421 (1981).

Richards v. Allstate Ins. Co., 693 F.2d 502 (5th Cir. 1982).

Id. at 151 Ariz. 162, 726 P.2d 578.

Id

Id. 151 Ariz at 156, 726 P.2d at 573.

This is the common law rule of Hadley v. Bazendale, 9 Ex. 341, 156 Eng.Rep. 145 (1854).

Filasky, 152 Ariz. 591, 734 P.2d 76 (1987).

Farr v. Transamerica Occidental Life Insurance Company, 145 Ariz. 1, 699 P.2d 376 (1985).

Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986).

Farr v. Transamerica Occidental Life Insurance Company, 145 Ariz. 1, 699 P.2d 376 (1985).

Gruenberg v. Aetna Insurance Co., 108 Cal. Rptr. 480, 510 P.2d 1032 (1973), cited with approval by the Farr court.

Rawlings v. Apodaca, 151 Ariz. 149, 162, 726 P.2d 565, 578 (1986).

Id.

Id.

Id.

151 Ariz. at 162-63, 726 P.2d at 578-579.

145 Ariz. 1, 699 P.2d 376 (1984).

Henderson v. United States Fidelity & Guaranty Co., 695 F.2d 109 (5th Cir. 1983).

Smith v. Standard Guaranty Insurance Co., 435 So. 2d 848 (Fla.App. 1983).

Oppressive conduct was defined by the Farr court as a Situation where the insured's loss has made him desperate to settle, and the insurer is specifically aware of this vulnerability and plays upon it while recklessly failing to investigate, process 9r pay a claim.

151. Ariz. 149, 726 P.2d 565 (1986).

150 Ariz. 326, 723 P.2d 675 (1986).

152 Ariz. 591, 734 P.2d 76 (1987).

152 Ariz. at 599, 734 P.2d at 84.

733 P.2d 1073 (1987).

152 Ariz. at 495, 733 P.2d at 1078.

Id. at 1081.

On appeal, the insurer argued that the $3.5 million punitive damage award "bears more than a casual resemblance" to the amount hypothetically suggested Allstate would gain from improperly deducting $35 from 100,000 total loss claims. The court, however, found there was ample evidence to support the $3.5 million sum arrived at by the. jury.

Id at 1084. In reaching this conclusion, the court referred to punitive damage awards upheld representing greater percentages of the defendant's wealth: Acheson v. Shafter, 107 Ariz. 576, 490 P. 2d 832 (1971) (award representing 5% of net worth upheld); Dodge City Motors v. Rogers, 16 Ariz.App. 24, 490 P.2d 853 (1971)(award representing 2 + weeks' net income and 4% net worth upheld); Moore v. American United Life Ins. Co., 150 Cal.App.3d 610, 197 Cal.Rptr. 878 (1984) (award representing 3.4 weeks of defendant's income and 3.2% of net assets upheld); Wetherbee v. United Ins. Co., 18 Cal. App.3d 266, 271, 95 Cal.Rptr. 678, 681 (1971)(award equal to one week's after-tax earnings upheld).

Gurule v. Illinois Nut. Life and Cas. Co., 152 Ariz. 600, 734 P.2d 85 (Ariz. 1987).

Hawkins v. Allstate Insurance Company, 152 Ariz. 490, 497, 733 P.2d 1073, 1081 (1987).

Porter v. Utah Home Fire Ins. Co., 58 Or. App. 729, 650 P.2d 130 (1982).

State Farm Fire & Casualty Co. v. Trumble, 663 F. Supp. 317 (D. Idaho 1987).

Id.

Judah v. State Farm Fire & Cas. Co. (1990) CA3d, 266 CR 455.

Id.

State Farm fire and Casualty Company was guilty of various unfair claims handling practices, violating insurance.

Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127 (1982), cert. denied, 459 U.S. 1070 (1982).

Id. at 537.

Id.

Id. Rawlings v. Apodaca, 151 Ariz 149, 726 P.2d 565 (1986).

Sparks v. Republic Nat's Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127 (1982), cert. denied, 459 U.S. 1070 (1982).

Id.

Sparks v. Republic National Life Insurance Co., 132 Ariz. 529, 647 P.2d 1127 (1982). Sparks involved a health insurance policy with several ambiguous provisions pertaining to termination of coverage. After being shown a sales brochure, the insured purchased the policy for his family and employees of his company. One month after purchasing the insurance the insured was seriously injured in a private airplane accident. Because of the insured's injuries and inability to work, his business went bankrupt and the policy was terminated. The insurer then informed the insured that his policy was being terminated and no further benefits would be disbursed. The insurer based its decision on a policy provision terminating the policy for nonpayment of premiums. The court found that, at most, the provision, created a doubt regarding the insurance that had to be resolved against the insurer. The court upheld the jury award of $1.5 million in compensatory and $3 million in punitive damages.

Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973);

Commercial Union Assur.Cos. v. Safeway Stores, Inc. 26 Cal. 3d 912, 918, 164 Cal. Rptr. 709, 712 (1980).