Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_13-cv-01015/USCOURTS-azd-2_13-cv-01015-0/pdf.json

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

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Derrick Allen, 

Plaintiff, 

v. 

Country Mutual Insurance Company, Inc., a 

foreign corporation dba Country Mutual 

Insurance Company dba Country Financial; 

et al., 

Defendants.

No. CV-13-01015-PHX-GMS

ORDER 

 Pending before this Court is Defendant’s Motion to Dismiss (Doc. 9) which this 

Court converted to a motion for summary judgment (Doc. 16). Pursuant to that change, 

the parties filed supplemental briefing. (Docs. 17–23.) For the following reasons, the 

Motion is granted without prejudice to Allen re-filing his claim upon compliance with the 

terms of his insurance policy. 

BACKGROUND 

 Plaintiff Derrick Allen alleges bad faith against his insurance company, Defendant 

Country Mutual Insurance Company, Inc. (“Country Mutual”), in their handling of his 

claim based on the theft of his two motorcycles and motorcycle trailer. (Doc. 1-1.) The 

theft occurred on November 2, 2012, and there is no dispute that the motorcycles and 

trailer were covered under Allen’s policy with Country Mutual. (Doc. 17 at 1–2; Doc. 18 

at 2.) Allen reported the theft to the police and Country Mutual that day. (Doc. 18 at 2.) 

 There is a dispute as to the value of the motorcycles. Allen states in his declaration 

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that before insuring the motorcycles, Country Mutual had an underwriter evaluate them 

and determined that they were of “show quality” and that each had a market value of 

$55,000. (Doc. 19 at 7.) Country Mutual ignores this allegation and points to other 

indicators of the motorcycles’ value, such as their initial purchase prices of $10,000 and 

$23,000. (Doc. 17 at 2.) Country Mutual hired an appraiser after the theft, who appears to 

have determined that they were worth $32,815.05 and $24,148.75 respectively. (Id. at 5.) 

 On December 5, Country Mutual sent Allen a letter requesting documentation to 

verify improvements made to the motorcycles and trailer. (Doc. 17, Ex. G.) Five days 

later, Country Mutual sent a Notice of Reservation of Rights regarding each motorcycle. 

(Id., Ex. H.) In those notices, Country Mutual informed Allen that his claim may not be 

covered and generally cited various sections of his policy, but did not cite any specific 

problems or concern. (Id.) On the same day it sent these notices that the claims may not 

be covered at all, Country Mutual also sent two Automobile Proof of Loss statements for 

Allen to sign which listed the values of the motorcycles as $32,815.05 and $24,148.75. 

(Id., Ex. I.) These forms included a place for Allen to sign whereby he was 

acknowledging receipt of the payment of those amounts as the contractual obligation. 

(Id.) 

 Allen acquired representation by an attorney, who sent a demand letter on January 

16, 2013, asking for payment of the alleged full value of $55,000 per motorcycle by 

February 1. (Id., at Ex. J.) For the next several months, Allen’s attorney exchanged 

multiple emails and letters with Country Mutual. (Id., Exs. J–X.) On January 21, Country 

Mutual asked the attorney to have Allen complete an Automobile Proof of Loss, which 

he did on March 19. (Doc. 17–1, at 6–7.) On March 7, Country Mutual received a 

National Insurance Crime Bureau Hotline Tip indicating that an anonymous caller felt 

that Allen was fraudulently reporting his motorcycles as stolen. (Doc. 71, Ex. M.) On 

March 28, the attorney for Country Mutual contacted Allen’s attorney to request and 

schedule an Examination Under Oath (“EUO”) pursuant to the terms of his policy. (Id., 

Ex. O.) 

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 On April 8, over five months from the time of the theft, Allen filed the present suit 

in Maricopa County. (Id., Exs. P–U; Doc. 1-1, at 3–7.) Allen’s counsel asserted that 

Allen could comply with the policy’s EUO requirement by submitting to a deposition 

during the course of this bad faith lawsuit. (Doc. 17, Ex. R.) Country Mutual then 

removed the case to this court (Doc. 1) and made the Motion to Dismiss (Doc. 9). 

Briefing is now complete on the converted motion to dismiss which will now be 

addressed as a motion for summary judgment. (Docs. 17–23.) 

DISCUSSION 

I. LEGAL STANDARD 

 Summary judgment is appropriate if the evidence, viewed in the light most 

favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to 

any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. 

P. 56(a). “[A] party seeking summary judgment always bears the initial responsibility of 

informing the district court of the basis for its motion, and identifying those portions of 

[the record] which it believes demonstrate the absence of a genuine issue of material 

fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). 

 Substantive law determines which facts are material and “[o]nly disputes over 

facts that might affect the outcome of the suit under the governing law will properly 

preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 

248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable jury could 

return a verdict for the nonmoving party.’” Villiarimo v. Aloha Island Air, Inc., 281 F.3d 

1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving 

party must show that the genuine factual issues “‘can be resolved only by a finder of fact 

because they may reasonably be resolved in favor of either party.’” Cal. Architectural 

Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) 

(quoting Anderson, 477 U.S. at 250). 

 Furthermore, the party opposing summary judgment “may not rest upon the mere 

allegations or denials of [the party’s] pleadings, but . . . must set forth specific facts 

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showing that there is a genuine issue for trial.” Fed. R. Civ. P. 56(e); see Matsushita Elec. 

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986); Brinson v. Linda Rose 

Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995). 

 When a summary judgment motion is filed “before a party has had any realistic 

opportunity to pursue discovery relating to its theory of the case, district courts should 

grant any Rule [56(d), formerly] 56(f) motion fairly freely.” Burlington N. Santa Fe R. 

Co. v. Assiniboine & Sioux Tribes of Fort Peck Reservation, 323 F.3d 767, 773 (9th Cir. 

2003). However, the burden is on the nonmoving party to show “by affidavit or 

declaration that, for specified reasons, it cannot present facts essential to justify its 

opposition.” Fed. R. Civ. P. 56(d); Margolis v. Ryan, 140 F.3d 850, 853 (9th Cir. 1998). 

The request to defer consideration must “clearly show ‘what information is sought and 

how it would preclude summary judgment.’” Spear v. United States, No. CIV. 11–1742–

PHX–PGR, 2012 WL 2029747, at *2 (D. Ariz. June 6, 2012) (citing Margolis, 140 F.3d 

at 853). More specifically, the nonmoving party must set forth in affidavit form the 

specific facts it hopes to elicit from further discovery and show that these facts are 

essential to overcoming summary judgment. Family Home & Fin. Ctr., Inc. v. Fed. Home 

Loan Mortg. Corp., 525 F.3d 822, 827 (9th Cir. 2008). 

II. ANALYSIS 

 Allen’s complaint asserts a single claim of bad faith and prays for judgment for 

breach of contract and bad faith. Country Mutual asks for summary judgment on the 

claim for bad faith or breach of contract because it alleges that Allen was contractually 

prohibited from bringing this suit until Allen complied with its request for an EUO. 

Country Mutual points to the provision in its policy contract which provides that “[n]o 

suit or action for recovery of any claim may be brought against us until the insured has 

fully complied with all the terms of this policy.” (Doc 17, Ex. A (“Auto Insurance 

Policy”) §4, Conditions, 8.) The only term of the policy with which Allen has not 

complied is the request for an EUO. The EUO provision in the contract requires that the 

insured party making a claim must “submit to an [EUO] as often as [Country Mutual] 

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reasonably require[s].” Allen argues that the reasonableness of Country Mutual’s request 

in light of its actions should be a question of fact for the jury. But the Ninth Circuit has 

rejected that argument and held that a court may determine reasonableness as a matter of 

law in the context of an insurance company’s request for an EUO. West v. State Farm 

Fire & Cas. Co., 868 F.2d 348, 351 (9th Cir. 1989) (“reasonableness becomes a question 

of law appropriate for determination on motion for summary judgment when only one 

conclusion about the conduct’s reasonableness is possible”). 

 Here, Country Mutual did not ask for an EUO until March 28. Nevertheless, the 

EUO was permissible if reasonable and an EUO would be reasonable given the high 

dollar amount of the claim even without the existence of the tip that fraud might be 

involved. It is also reasonable for Country Mutual to wait until it had the signed Proof of 

Loss statements before requesting the EUO. Country Mutual permissibly asked Allen to 

submit to an EUO, and that occurred before Allen filed his suit against Country Mutual. 

 The parties have the right to contractually agree to an EUO as one of the terms of 

their contract, and insurers have been including such provisions as a condition of 

coverage for years. Warrilow v. Superior Court of State of Ariz. In & For Pima Cnty., 

142 Ariz. 250, 253, 689 P.2d 193, 196 (Ct. App. 1984). “[T]he law is well settled that a 

failure or refusal of the insured to comply with his obligation of cooperation under such 

a[n EUO] provision will constitute a bar to any recovery against the insurance company.” 

Id. In Warrilow, the insured refused to answer certain question during his EUO and later 

brought a suit against his insurer. Id. at 252–53, 689 P.2d at 194–95. The court found that 

a motion for summary judgment should have been granted because the refusal 

“constituted a breach of the terms of the insurance contract which, as a matter of law, 

bars any recovery on his claim.” Id. at 255, 689 P.2d at 198. 

 Allen argues that he should be allowed to proceed with this suit because Country 

Mutual denied or refused his claim. See U.S. Fid. & Guar. Co. v. Powercraft Homes, 

Inc., 141 Ariz. 71, 75, 685 P.2d 136, 140 (Ct. App. 1984) (recognizing an implied waiver 

of the need for compliance with insurance company’s requests after a denial of coverage). 

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Allen provides, however, no facts from which a reasonable jury could conclude that 

Country Mutual has yet actually denied his claim, and merely repeating the assertion that 

it has done so does not take the place of admissible evidence. There was no actual denial 

here because neither the Reservation of Rights nor the failure to meet the demanded 

payout date set by Allen’s attorney constituted a denial. In fact Country Mutual was still 

investigating the claim, as evidenced by its continued demands for the Proof of Loss 

statements and the eventual demand for an EUO. Allen appears to be making an 

argument that the claims were constructively or effectively denied by Country Mutual’s 

course of conduct. But the case Allen cites makes it clear that the implied waiver “rule 

requires only that the insurer communicate to the insured its intent not to pay the claim.” 

Id. Here, Country Mutual never communicated its intent not to pay and its investigation 

of the claim did not imply an intent not to pay. 

 Allen’s request to defer consideration of this motion under Rule 56(d) is denied 

because the facts he cites would not preclude summary judgment. Specifically, Allen 

wants to discover more about the anonymous tip to the National Insurance Crime Bureau 

and the underwriting process before insuring the motorcycles. As just noted, the request 

for an EUO would have been reasonable even without a tip. The information surrounding 

the tip would not change the determination in this case that Allen needed to comply with 

the EUO request before bringing suit. 

 Allen’s uncontroverted allegation that Country Mutual already determined the 

value of the motorcycles before issuing the policy will, if proved, likely play a role in 

establishing the amount of the covered loss in this case, and possibly bear on his claim 

for bad faith. However, it does not prevent the grant of summary judgment at this time. 

Summary judgment is not granted on the merits of the claim but, rather, on the 

contractual limitations on the timing of filing this suit. That the Court grants summary 

judgment, therefore, does not, in and of itself, prevent Allen from re-filing his claim upon 

compliance with the terms of his policy. 

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 IT IS HEREBY ORDERED that Defendant’s Motion for Dismiss as converted 

to a motion for summary judgment (Doc. 9) is granted without prejudice to Allen refiling this action upon his compliance with the terms of his contract. 

 IT IS FURTHER ORDER that the Clerk terminate this action. 

Dated this 31st day of December, 2013. 

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