Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_13-cv-00268/USCOURTS-azd-2_13-cv-00268-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Insurance Contract

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WO

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Sammy Abbass, an individual man, John 

Ferguson, a married man on behalf of 

himself and the marital community, Patricia 

Ferguson, a married woman on behalf of 

herself and the marital community, 

Plaintiffs, 

v. 

American Family Insurance Group, 

American Family Mutual Insurance 

Company, American Family Mutual 

Insurance Group, Unknown Parties, named 

as: Does 1-10, 

Defendants.

No. CV-13-00268-PHX-DGC

ORDER 

 Sammy Abbass (“Sammy”), the natural child of Patricia Ferguson and the step-son 

of Jon Ferguson (collectively “the Fergusons”), sustained injuries during a vehicle rollover accident while he was the passenger in a vehicle driven by Christopher Brenneman 

on June 3, 2010. Sammy recovered $100,000 under Brenneman’s driver’s insurance 

liability coverage and $15,000 under the underinsured motorist (“UIM”) coverage of his 

own driver’s insurance policy. Sammy then submitted a claim for UIM benefits under 

the Fergusons’ automobile liability insurance policy (“the policy”), which was purchased 

from American Family Mutual Insurance Company (“AFMI”) and effective May 9, 2010 

to November 9, 2011. The policy was titled “Family Car Policy” (Doc. 12-1 at 8; 

Doc. 11-2 at 3) and included UIM coverage in the amount of $100,000 for each insured 

individual (id.). The Fergusons paid all premiums on the policy, including the additional 

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premium for UIM coverage as of June 3, 2010. Doc. 11-1, ¶ 7. AFMI denied the claim 

because Sammy was not a “relative” as defined in the policy. The policy defines 

“relative” as “a person living in your household, related to you by blood, marriage or 

adoption. This includes a ward or a foster child. It excludes any person who, or whose 

spouse, owns a motor vehicle other than an off-road vehicle.” Doc. 12-1 at 14; Doc. 11-2 

at 9. 

 Plaintiffs filed this action in state court, and Defendants removed the case to this 

Court on the basis of diversity jurisdiction. Doc. 1. Plaintiffs seek a declaration that the 

policy’s definition of “relative” is unenforceable, and assert claims for bad faith, breach 

of contract, and breach of covenant of good faith and fair dealing. Doc. 1-1 at 2-7. 

During a conference with the parties on April 3, 2013, the Court ordered additional 

briefing on the enforceability of the policy’s definition of “relative.” Doc. 10. The Court 

informed the parties that it would review the parties’ briefing and then issue a ruling or 

set further oral argument as necessary. The matter is fully briefed. Docs. 11, 12, 14-1. 

For the reasons set forth below, the Court rules that the policy’s definition of “relative” 

does not violate Arizona public policy. The Court cannot determine at this stage, 

however, whether the policy’s definition of “relative” is unenforceable under the 

reasonable expectations doctrine.1

I. Public Policy. 

 “The purpose of [Arizona’s Uninsured/Underinsured Motorist Act (“UMA”), 

A.R.S. § 20-259.01] is to afford protection to victims of financially irresponsible 

drivers.” Calvert v. Farmers Ins. Co. of Ariz., 697 P.2d 684, 687 (Ariz. 1985). The 

UMA does this by requiring all insurers writing motor vehicle liability policies to offer 

UIM coverage that “extends to and covers all persons insured under the policy.” A.R.S. 

§ 20-259.01(B). “UIM coverage applies when an insured’s total damages exceed all 

 

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 Plaintiffs’ request for oral argument is denied. The parties’ briefing and other submissions have more than amply addressed the issue raised, and oral argument will not aid the Court’s decision. See Fed. R. Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 

(9th Cir. 1998). 

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applicable liability limits, subject to any valid limitations the insurer imposes.” Am. 

Family Mut. Ins. Co. v. Sharp, 277 P.3d 192, 193 (Ariz. 2012) (citing A.R.S. § 20-

259.01(G)-(H)). “[T]he purpose of [uninsured motorist (“UM”)] and UIM coverage is 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 v. Travelers Indem, Co. of Am., 9 P.3d 1049, 1055 

(Ariz. 2000). “The UMA has ‘a remedial purpose and must be construed liberally in 

favor of coverage, with strict and narrow construction given to offsets and exclusions.’” 

Sharp, 277 P.3d at 196 (quoting Taylor, 9 P.3d at 1053). Thus, “any exceptions to UIM 

coverage not permitted by the UMA are void.” Id. at 193 (brackets and internal quotation 

marks omitted). But “[t]he protection afforded by [the UMA] is not applicable in all 

situations and may not necessarily protect all third parties in accidents caused by 

uninsured drivers.” Midland Risk Mgmt. Co. v. Watford, 876 P.2d 1203, 1207 (Ariz. Ct. 

App. 1994); see, e.g., Alcala v. Mid-Century Ins. Co., 828 P.2d 1262, 1264 (Ariz. Ct. 

App. 1992) (“[UM and UIM] coverage is afforded to strangers to the policy only when 

they occupy an insured vehicle.”). 

 Arizona courts have found that insurers violate public policy underlying the UMA 

“by inserting clauses that permit them to reduce or eliminate coverage when the 

victim/insured has not been fully compensated.” Brown v. State Farm Mut. Auto. Ins. 

Co., 788 P.2d 56, 61 (Ariz. 1989). See, e.g., Higgens v. Fireman’s Fund Ins. Co., 770 

P.2d 324, 325-27 (Ariz. 1989) (voiding “other vehicle” exclusion when it limits 

underinsured motorist coverage); State Farm Mut. Auto. Ins. Co. v. Duran, 785 P.2d 570, 

572-73 (Ariz. 1989) (eliminating “furnished for regular use” exception); Cundiff v. State 

Farm Mut. Auto. Ins. Co., 174 P.3d 270, 273 (Ariz. 2008) (eliminating intra-policy 

offsets of workers’ compensation benefits against motorist coverage). Public policy does 

not, however, “restrict the parties’ right to agree on who is insured.” Am. States Ins. Co. 

v. C & G Contracting, Inc., 924 P.2d 111, 116 (Ariz. Ct. App. 1996). As a result, policy 

provisions that have been invalidated under Arizona law are not those defining who is 

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insured by the policy in the first instance. See id. (“Public policy precludes an insurer 

from denying UIM coverage to an insured, but it does not preclude an insurer from 

denying UIM coverage to one who is not an insured.”). Although Arizona cases have 

stated that “the purpose of UM and UIM coverage is to enable the consumer to protect 

himself and family members,” Sharp, 277 P.3d at 197 (quoting Taylor, 9 P.3d at 1055), 

the UMA itself does not use the term “family members.” It instead refers only to “all 

persons insured.” Nothing in the UMA purports to restrict how parties to an insurance 

contract define who is and who is not insured. 

 Plaintiffs argue that their case is similar to Taylor. Doc. 11 at 6. The Court 

disagrees. The plaintiff in Taylor was insured as a “family member” under the policy’s 

definition of “insured.” 9 P.3d at 1051, n.1. The plaintiff’s insured status was not at 

issue in Taylor. Instead, Taylor concerned a policy provision that prohibited paying UIM 

coverage to an insured who received payment under the policy’s liability coverage. 

Taylor held that an insured was “covered up to the face amount of the applicable UIM 

insurance, less any sums recovered under the liability coverage of the same policy,” in 

order “to fill the gap between the amount she received from all applicable liability 

coverages and her UIM coverage limits.” 9 P.3d at 1051, 1060. Taylor does not support 

Plaintiffs’ argument that the policy’s definition of who is insured violates public policy. 

 Plaintiffs point to a Yavapai County Superior Court decision (Doc. 11-9) which 

found that an insurance policy’s exclusion of relatives who own private passenger 

vehicles from UIM coverage violates Arizona public policy. That decision is not 

precedent, and the Court finds it unpersuasive for two reasons. First, it is not clear that 

the policy provision at issue in the Yavapai County case did more than identify who was 

not protected by the policy’s UIM coverage, as opposed to identifying who was insured 

under the policy. Second, the decision relies on Higgens for the proposition that “[t]he 

insured and the family members insured are covered not only when occupying an insured 

vehicle, but also when in another automobile, when on foot, on bicycle or when sitting on 

a porch.” Doc. 11-9 at 1 (quoting Higgens 770 P.2d at 327 (quoting Calvert, 697 P.2d at 

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689)). But neither Higgens nor Calvert held that it is contrary to public policy to define 

“relative” in a way that excludes family members who own their own vehicles. Calvert 

held that an exclusion denying UM coverage to an insured injured by an uninsured 

motorist while the insured occupied a vehicle owned by the insured but not listed in the 

policy is invalid as contrary to coverage mandated by the UMA. 697 P.3d at 687-88. 

This was because the UMA “was created for the protection of persons, and not for the 

protection of the insured vehicle.” Id. at 689 (internal quotation marks and citations 

omitted). Higgens held the same with respect to UIM coverage. 770 P.2d at 23. 

 Plaintiffs also refer to a Colorado case that found a similar definition of “relative” 

in an insurance policy to be unenforceable as against public policy. Doc. 11-10. But 

Colorado’s statutory scheme is distinguishable from Arizona’s because Colorado has a 

statute defining “insureds” as “relatives of the named insured who reside in the same 

household as the named insured.” Doc. 11-10 at 10. The Colorado policy excluded 

relatives who own motor vehicles, and the court found that policy’s definition was 

contrary to the Colorado statute. Unlike Colorado’s statutory scheme, the UMA does not 

mention relatives or family members, let alone purport to define those terms. 

 In this case, the policy’s definition of “relative” identifies which family members 

are insured under the policy. That type of insurance provision is not contrary to Arizona 

public policy. See C & G Contracting, 924 P.2d at 116 (“Public policy does not restrict 

the parties’ right to agree on who is insured.”). 

II. Reasonable Expectations. 

 Arizona has adopted the Restatement (Second) of Contracts, including the 

“reasonable expectations” concept contained in § 211. Darner Motor Sales, Inc. v. 

Universal Underwriters Ins. Co., 682 P.2d 388, 394-99 (Ariz. 1984). Under the 

reasonable expectations doctrine for insurance claims, “Arizona courts will not enforce 

even unambiguous boilerplate terms in standardized insurance contracts in a limited 

variety of situations[.]” Gordinier v. Aetna Cas. & Sur. Co., 742 P.2d 277, 283 (Ariz. 

1987). Plaintiffs argue that the second situation listed in Gordinier applies to the policy’s 

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definition of “relative”: “Where the insured did not receive full and adequate notice of 

the term in question, and the provision is either unusual or unexpected, or one that 

emasculates apparent coverage.” 742 P.2d at 283 (internal citations and quotations 

omitted). Plaintiffs submit that the policy’s label – “Family Car Policy” – created the 

reasonable expectation that they purchased coverage for all family members. Doc. 11 at 

10. Defendants argue that there is no evidence that the Fergusons had a reasonable 

expectation that Sammy was covered under the policy, and that Darner and Restatement 

§ 211 are not applicable. Doc. 12 at 10.2

 The reasonable expectations doctrine’s applicability in a given case turns on the 

unique facts of that case. See C & G Contracting, 924 P.2d at 115 (“conclude[ing] that 

these facts . . . would not create an objective impression in the mind of a reasonable 

insured[.]”) (emphasis in original). No discovery has occurred in this case and the parties 

have not briefed motions for summary judgment. The Court accordingly concludes that a 

decision on application of the reasonable expectations doctrine would be premature. 

IT IS ORDERED: 

1. The policy’s definition of “relative” is not unenforceable as contrary to 

Arizona public policy underlying the UMA. More litigation is necessary on 

the applicability of the reasonable expectations doctrine to the policy’s 

definition of “relative.” 

 

 2

 Defendants also argue that because Sammy had nothing to do with the purchase of the policy in question he has no “reasonable expectation” as to the policy’s coverage. Doc. 12 at 10 (citing Alcala, 828 P.2d at 1264-65 (“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. 

The doctrine of reasonable expectations does not apply to her.”)). This argument would appear persuasive with respect to Sammy’s reasonable expectation claim, but the Fergusons are also plaintiffs in this action. Defendants argue that the Fergusons do not have standing because they did not file a UIM claim and have not made a separate claim for damages. Doc. 12 at 8. Briefing was limited to the issue of the enforceability of the policy’s definition of “relative,” and thus the Court will not consider the issue of standing at this stage. 

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 2. The Court will hold a Rule 16 Case Management Conference on 

August 14, 2013 at 4:30 p.m. The parties should file a revised Rule 26(f) 

report 48 hours in advance of the conference. If counsel are out of state, 

they may participate in the conference by phone. 

 Dated this 19th day of July, 2013. 

Case 2:13-cv-00268-DGC Document 15 Filed 07/19/13 Page 7 of 7