Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_09-cv-01404/USCOURTS-azd-2_09-cv-01404-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

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After the parties’ stipulated dismissal of Leo Latka and the Courts’ dismissal of the

fictitious defendants, Progressive is the sole remaining Defendant in this case.

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Roger Myer; Estate of Rita Myer, 

Plaintiffs, 

vs.

Progressive Preferred Insurance Company,

Defendant. 

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No. CV09-1404-PHX-JAT

ORDER

Currently pending before the Court is Defendant Progressive Preferred Insurance

Company’s (“Progressive”)1

 Motion for Summary Judgment (Doc. #29). For the reasons

stated herein, the Court will grant the Motion. 

I. BACKGROUND

On April 29, 2007, Roger and Rita Myer (Roger Myer and the Estate of Rita Myer are

referred to herein collectively as “Plaintiffs”) were passengers in a vehicle driven by Leo

Latka. Mr. Latka caused an automobile accident that resulted in injuries to Roger Myer and,

ultimately, in Rita Myer’s death. At the time of the accident, Mr. Latka had an insurance

policy issued by Progressive (the “Policy”). The Policy had a combined single limit of

liability coverage of $500,000 for each accident.

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The release signed by Roger Myer pursuant to the settlement specifically excluded

the release of a claim for underinsured benefits under the Policy. 

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Howard and Ada Marshall occupied the vehicle that collided with Mr. Latka’s vehicle.

Both of the Marshalls suffered injuries. Two other vehicles were involved in the accident,

but sustained only minor impacts following the collision between Mr. Latka and the

Marshalls. 

At a May 20, 2008 mediation, all involved parties, whether injured in the accident,

claiming property damage, or making claims on behalf of the decedent’s estate, entered into

a settlement agreement. Pursuant to the settlement, Progressive paid the entire liability limits

of the Policy. Roger Myer received $117,000 for his bodily injury, emotional distress, and

wrongful death claims.2

 The beneficiaries of Rita Myer’s Estate received a total of $232,000.

Plaintiffs filed this action in state court against Mr. Latka for negligence and against

Progressive for breach of contract and bad faith denial of their underinsured motorist claim.

Progressive removed to this Court on June 30, 2009. The Court dismissed Leo Latka on

September 21, 2009 (Doc. #22) per the parties’ stipulation in the Joint Proposed Case

Management Plan (Doc. #18). 

Progressive filed the pending Motion for Summary Judgment (Doc. #29) on January

15, 2010. The parties agree that no material factual disputes exist. They disagree about

whether the Policy’s underinsured motorist (“UIM”) provision covers Plaintiffs and, if it

does, whether Progressive acted in bad faith in denying Plaintiffs’ UIM claim.

II. LEGAL STANDARD

Summary judgment is appropriate when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to summary

judgment as a matter of law.” Fed. R. Civ. P. 56(c). Thus, summary judgment is mandated,

“. . . against a party who fails to make a showing sufficient to establish the existence of an

element essential to that party’s case, and on which that party will bear the burden of proof

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at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). 

III. ANALYSIS AND CONCLUSION

As an initial matter, the Court notes that Plaintiffs alleged their Count I claim for

negligence against only Leo Latka. The Court has dismissed Mr. Latka per the parties’

stipulation. The Court therefore will dismiss Count I with prejudice. 

The Court now turns to the remaining causes of action against Progressive. Plaintiffs

allege breach of contract and bad faith claims against Progressive. They seek a declaration

that they are entitled to coverage pursuant to the UIM provision of the Policy and seek

damages for breach of contract and bad faith.

A. Coverage

Plaintiffs do not dispute that the plain language of the Policy excludes them from UIM

coverage. Plaintiffs instead argue that this exclusion violates Arizona law and public policy.

The Policy provides in pertinent part:

PART III - UNINSURED AND UNDERINSURED

MOTORIST COVERAGE

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INSURING AGREEMENT - UNDERINSURED

MOTORIST COVERAGE

If you pay the premium for this coverage, we will pay for

damages that an insured person is legally entitled to recover

from the owner or operator of an underinsured motor vehicle

because of bodily injury:

1. sustained by that insured person;

2. caused by an accident; and

3. arising out of the ownership, maintenance or use of an

underinsured motor vehicle.

We will pay under this Part III only after the limits of liability

under all applicable bodily injury liability bonds and policies

have been exhausted by payment of judgments or settlements.

Any judgment or settlement for damages against an owner or

operator of an uninsured motor vehicle or underinsured

motor vehicle that arises out of a lawsuit brought without our

written consent is not binding on us.

(Doc. #30-1, pp.10-11.) The Policy defines “insured person” and “underinsured motor

vehicle” for purposes of UIM coverage as:

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When used in this Part III:

1. “Insured person” means:

a. you or a relative;

b. any person while operating a covered auto with

the permission of you or a relative;

c. any person occupying, but not operating, a

covered auto;

d. any person who is entitled to recover damages

covered by this Part III because of bodily injury sustained by

a person described in a, b, or c above.

2. “Underinsured motor vehicle” means a land or motor

vehicle or trailer of any type to which a bodily injury liability

bond or policy applies at the time of the accident, but the sum of

all applicable limits of liability for bodily injury is less than the

total damages for bodily injury resulting from the accident. 

An underinsured motor vehicle does not include any

motorized vehicle or equipment:

a. operated on rails or crawler treads;

b. designed mainly for use off public roads, while not

on public roads;

c. while located for use as a residence or premises;

d. shown on the declarations page of this policy,

unless the injured insured person is you or a relative and we

have paid that person under Part I- Liability To Others an

amount that is less than the limit shown on the declarations

page for coverage under the Part III; or

e. that is an uninsured motor vehicle.

(Doc. #30-1, p.11.)

The Policy’s declarations page lists the vehicle driven by Mr. Latka on the day of the

accident. The Policy defines “you” as a “a. person shown as a named insured on the

declarations page; and b. the spouse of a named insured if residing in the same household.”

(Doc. #30-1, p.3.) The policy defines “relative” as a “person residing in the same household

as you, and related to you by blood, marriage, or adoption, and includes a ward, stepchild

or foster child. Your unmarried dependent children temporarily away from home will

qualify as a relative if they intend to continue to reside in your household.” (Doc. #30-1,

p.2.)

Plaintiffs do not argue that they fall under the definition of “you” or “relative” for

purposes of the Policy’s UIM provision. Nor do Plaintiffs assert that the vehicle that Mr.

Latka was driving during the accident was not listed on the declarations page of the Policy.

They argue that despite the Policy’s language, Arizona law and public policy mandate that

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they receive coverage under the Policy’s UIM provision. 

Whether UIM coverage exists under the Policy is a question of law to be decided by

the Court. See, e.g., Sparks v. Republic Nat’l Life Ins. Co., 647 P.2d 1127, 1132 (Ariz. 1982).

Generally, an insured bears the burden of demonstrating coverage under an insuring clause,

and the insurer bears the burden of establishing the applicability of an exclusion. Keggi v.

Northbrook Property & Cas. Ins. Co., 13 P.3d 785, 788 (Ariz. Ct. App. 2000). 

Plaintiffs argue that the Arizona statute requiring insurers to offer UIM coverage to

policy holders mandates that the Policy provide them benefits under the UIM section.

Section 20-259.01(B) of the Arizona Revised Statutes reads:

Every insurer writing automobile liability or motor vehicle

liability policies shall also make available to the named insured

thereunder and shall by written notice offer the insured and at

the request of the insured shall include within the policy

underinsured motorist coverage which extends to and covers all

persons insured under the policy, in limits not less than the

liability limits for bodily injury or death contained within the

policy. The selection of limits or rejection of coverage by a

named insured or applicant on a form approved by the director

shall be valid for all insureds under the policy. The completion

of such form is not required where the insured purchases such

coverage in an amount equal to the limits for bodily injury or

death contained in the policy. The offer need not be made in the

event of the reinstatement of a lapsed policy or the transfer,

substitution, modification or renewal of an existing policy. At

the request of the insured, the insured may purchase and the

insurer shall then include within the policy underinsured

motorist coverage that extends to and covers all persons insured

under the policy in any amount authorized by the insured up to

the liability limits for bodily injury or death contained within the

policy.

Plaintiffs assert that because they are insured persons for some purposes under the

Policy, then they must be insured persons for all purposes. The Arizona statue requires

insurers to offer underinsured motorist coverage to an insured that would extend to and

“cover[] all persons insured under the policy . . . .” A.R.S. §20-259.01(B). Plaintiffs argue

it necessarily follows that the Policy must provide them UIM coverage because of their status

as insured persons. 

Arizona’s UIM statute has a remedial purpose and must be construed liberally in favor

of coverage, with narrow construction given to exclusions. Taylor v. Travelers Indem. Co.

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The status of an insured under a policy affects the expectation of coverage. People

without a direct relationship to the insured, such as passengers of a vehicle for a limited time,

do not have high reasonable expectations of coverage because they have paid no premiums.

Taylor, 9 P.3d at 1058 n.9; see also Alcala v. Mid-Century Ins. Co. , 828 P.2d 1262, 1265

(Ariz. Ct. App. 1992)(“Appellant had nothing to do with the purchase of the policy in

question. She never had an insurable interest or expectancy under the policy. No coverage

has been taken from her that she was entitled to receive.”). 

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of Am., 9 P.3d 1049, 1053 (Ariz. 2000). Nonetheless, not every construction that denies

coverage violates the purpose of the statute. Stuart v. Ins. Co. of N. Am., 730 P.2d 255, 257

(Ariz. Ct. Ap. 1986).

The Arizona Supreme Court has voided an insurance policy that, by its terms,

excluded the wife of the name insured from UIM coverage. Taylor, 9 P.3d at 1059. The

Taylor court construed A.R.S. §20-259.01(B) to “mean what it says: Where there is

insufficient liability coverage available to compensate for the actual damages sustained, the

named insured or a family member injured in or by the family car and by the negligence of

another insured may turn to his or her UIM coverage . . . .” Id. at 1056 (emphasis added);

see also Brown v. State Farm Mut. Auto. Ins. Co., 788 P.2d 56, 61 (Ariz. 1989)(“Implicit in

the nature of the UIM transaction contemplated by the statutes is the concept that UIM

insurance provided by the insured's own carrier will protect him or her over and above the

other insurance that may apply in a particular accident.”)(emphasis added). In reaching this

conclusion, the Arizona Supreme Court emphasized that the named insured had paid

premiums for both liability and UIM coverage and that he and his family members therefore

should be able to recover under both types of coverage purchased. Id. at 1054-1059.

The Arizona Supreme Court’s concerns in Taylor are not present here. Plaintiffs did

not purchase the Policy or pay any premiums for UIM coverage. They are strangers to the

Policy – they are not related to Mr. Latka and do not reside with him.3

 Plaintiffs simply

happen to be covered by the Policy under some circumstance. Excluding them from the UIM

provisions does not deprive them of coverage for which they have paid. 

Plaintiffs have not cited any authority for their contention that if a person is insured

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under any part of the policy, then the person must be insured for all purposes under the

policy. Arizona case law does not support their assertion. “Public policy does not restrict

the parties’ right to agree on who is an insured.” Am. States Ins. Co. v. C&G Contracting,

Inc., 924 P.2d 111, 116 (Ariz. Ct. App. 1996). A person may be an “insured” under a policy

in some circumstances, but not an insured under other circumstances. See id. (“James

Chambers was insured for liability under the C&G policy only when he was an ‘anyone else,’

. . . a status he attained only while using a covered auto . . ..”); see also Alcala, 828 P.2d at

1264 (“[A]n insurance policy can define who will be an insured under the policy and under

what circumstances coverage will be provided); Reserve Ins. Co. v. Staats, 453 P.2d 239, 243

(Ariz. Ct. App. 1969)( “While [] would have been classified as an insured if Walters had

been driving an non-owned car, pursuant to provisions (a)(2) and (b)(3) set forth above, she

has no status as an insured by application of provision (b)(iii), since at the time of the

accident Walters was driving his own car.”).

Nor have Plaintiffs cited a case holding that a policy provision that excludes unrelated

passengers from UIM coverage violates A.R.S. §20-259.01(B). In fact, Arizona case law

indicates the opposite. In Duran v. Hartford Ins. Co., the Arizona Supreme Court rejected

an injured passenger’s claim for UIM benefits where that passenger had collected under the

liability portion of the same policy. 772 P.2d 577 (Ariz. 1989). The Duran court held,

“Nothing in the underinsurance statute . . . suggests any legislative intent to allow an injured

passenger to ‘stack’ liability and UIM coverage so as to, in effect, increase the named

insured’s liability coverage.” Id. at 578.

The Arizona Court of Appeals reached the same result in Demko v. State Farm Mutual

Automobile Insurance Company, 65 P.3d 446 (Ariz. Ct. App. 2003). The plaintiff in Demko,

an injured passenger, brought an action against the negligent driver’s automobile insurer to

recover UIM benefits. The appellate court reiterated that UIM benefits are not intended to

expand a tortfeasor’s liability insurance limits, while distinguishing between a family

member’s claim against UIM benefits and an unrelated passenger’s claim. Id. at 448-49.

The court held that allowing the injured passenger to recover under the driver’s UIM

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coverage would “in effect, be providing [driver] with additional liability coverage; a result

which is not supported by the cases or the statute.” Id. at 449; see also Cundiff v. State Farm

Mut. Auto. Ins. Co., 145 P.3d 638, 644 (Ariz. Ct. App. 2006)(“A provider of UIM insurance,

however, is not the alter ego of the tort-feasor. It does not insure the tort-feasor against

liability; it insures its policyholder against the risk of inadequate compensation for his

compensable injuries.”)(internal quotations omitted), vacated on other grounds by Cundiff

v. State Farm Mut. Auto. Ins. Co., 174 P.3d 270 (Ariz. 2008). 

The unambiguous terms of the Policy exclude Plaintiffs from coverage under the UIM

section, and the Court finds that public policy does not mandate UIM coverage for Plaintiffs

under the circumstances here. Plaintiffs did not pay any premiums for the Policy, and they

have no reasonable expectation of recovery under a UIM provision designed to “enable the

consumer to protect himself and family members against the possibility that, in any given

accident, there will be no or insufficient liability coverage to compensate for the actual

damages sustained.” Taylor, 9 P.3d at 1055 (emphasis added). To allow strangers to the

Policy like Plaintiffs to recover UIM benefits would essentially provide additional liability

coverage to Mr. Latka. 

The Court therefore finds that Plaintiffs are not covered by the UIM provision of the

Policy and will award summary judgment to Progressive on the declaratory and breach of

contract causes of action. 

B. BAD FAITH AND ATTORNEYS’ FEES

The Court has determined that the Policy’s UIM section does not provide coverage

to Plaintiffs. Consequently, Progressive cannot have acted in bad faith in denying UIM

benefits to Plaintiffs. Manterola v. Farmers Ins. Exch., 30 P.3d 639, 646 (Ariz. Ct. App.

2001). The Court therefore grants summary judgment to Progressive on Plaintiffs’ bad faith

claim. 

Even if the UIM provision of the Policy covers Plaintiffs, the Court finds as a matter

of law that Progressive did not act in bad faith when it denied Plaintiffs’ UIM claims.

Arizona courts acknowledge that, “in buying insurance an insured usually does not seek to

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realize a commercial advantage but, instead, seeks protection and security from economic

catastrophe.” Rawlings v. Apodaca, 726 P.2d 565, 570 (Ariz. 1986) (internal citations

omitted). One of the benefits that flows from a first-party insurance contract, “is the

insured’s expectation that his insurance company will not wrongfully deprive him of the very

security for which he bargained or expose him to the catastrophe from which he sought

protection. Conduct by the insurer which does destroy the security or impair the protection

purchased breaches the implied covenant of good faith and fair dealing implied in the

contract.” Id. at 571. 

Although insurers do not owe fiduciary duties to their insureds, they do owe them

some duties of a fiduciary nature; including, the duties of equal consideration, fairness, and

honesty. Zilisch v. State Farm Mut. Auto. Ins. Co., 995 P.2d 276, 279 (Ariz. 2000). Insurers

must play fairly with their insureds. Id. An insurer commits bad faith when it,

“‘intentionally denies, fails to process or pay a claim without a reasonable basis.’” Id.

(quoting Noble v. Nat’l Am. Life Ins. Co., 624 P.2d 866, 868 (Ariz. 1981)). 

But if an insurance claim is fairly debatable, the insurer cannot be liable for acting in

bad faith for denying a claim. Lasma Corp. v. Monarch Ins. Co. of Ohio, 764 P.2d 1118,

1122 (Ariz. 1988). “[I]t is clear that an insurer may defend a fairly debatable claim . . . But

in defending a fairly debatable claim, an insurer must exercise reasonable care and good

faith.” Zilisch, 995 P.2d at 279. An insurer may challenge fairly debatable claims, but the

insurer’s belief in fair debatability may be a question of fact for a jury. Id. “The appropriate

inquiry is whether there is sufficient evidence from which reasonable jurors could conclude

that in the investigation, evaluation, and processing of the claim, the insurer acted

unreasonably and either knew or was conscious of the fact that its conduct was

unreasonable.” Id. at 280. 

Given the Policy’s explicit language and the lack of an on-point Arizona case

disallowing the sort of exclusion here, the Court finds that Plaintiffs’ claim for UIM benefits

was fairly debatable. No reasonable juror could find that the Plaintiffs’ entitlement to UIM

benefits, given the Policy language, was not at least “fairly debatable.” And Plaintiffs have

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introduced no evidence in response to summary judgment that would indicate Progressive

had anything other than a good faith belief in the debatability of Plaintiffs’ UIM claims.

Plaintiffs simply have not introduced any evidence from which a reasonable juror

could conclude that Progressive acted unreasonably and knew it was acting unreasonably

when it investigated, evaluated, and processed Plaintiffs’ UIM claims. Plaintiffs merely

argue that case law authority did not support Progressive’s position and that the Court

cannot reach the bad faith claim because the parties have not conducted discovery. But

parties obviously can have good faith disagreements about the interpretation of the law and

Plaintiffs did not argue pursuant to Federal Rule of Civil Procedure 56(f) that they could not

oppose the motion for summary judgment for specific reasons. 

Plaintiffs simply predict that discovery will present some evidence of bad faith. That

is insufficient to survive a motion for summary judgment. In responding to a motion for

summary judgment, a party “must do more than simply show that there is some metaphysical

doubt as to the material facts” by “com[ing] forward with ‘specific facts showing that there

is a genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574, 586-87 (1986) (quoting Fed. R. Civ. P. 56(e)). The Court grants summary judgment to

Progressive on Plaintiffs’ bad faith claim for the additional reason that Plaintiffs have not

demonstrated Progressive had anything other than a good faith belief in the debatability of

the UIM claims or that Progressive acted unreasonably in investigating and evaluating the

claims. 

Because the Court has granted summary judgment to Progressive on Plaintiffs’ bad

faith claim, their only claim for which punitive damages are awardable, Plaintiffs obviously

cannot recover punitive damages. 

Progressive has requested its reasonable attorneys’ fees and costs. At this time, the

Court will deny that request without prejudice to refiling. Progressive may file a motion for

attorneys’ fees pursuant to Local Rule of Civil Procedure 54.2, which the Court will

entertain.

Accordingly,

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IT IS ORDERED Dismissing Plaintiffs’ first cause of action for negligence.

IT IS FURTHER ORDERED Granting Defendants’ Motion for Summary Judgment

(Doc. #29) on all of Plaintiffs’ remaining claims. The Clerk of the Court shall enter

judgment for Progressive and against Plaintiffs.

DATED this 13th day of July, 2010.

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