Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-01700/USCOURTS-azd-2_04-cv-01700-8/pdf.json

Parties Involved:
Church Mutual Insurance Company
Counter Claimant
Holy Trinity Greek Orthodox Church
Counter Defendant

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1

See LRCiv 56.2; LRCiv 7.2(f); Lake at Las Vegas Investors Group, Inc. v. Pacific Malibu Dev.

Corp., 933 F.2d 724, 728-29 (9th Cir. 1991) (“When a party has an adequate opportunity to provide the

trial court with evidence and a memorandum of law, there is no prejudice” when oral arguments are not

held on motions for summary judgment.)

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

HOLY TRINITY GREEK

ORTHODOX CHURCH, a non-profit

organization, 

Plaintiff, 

vs. 

CHURCH MUTUAL INSURANCE

COMPANY, a foreign corporation, 

Defendant. _________________________________

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No. CIV 04-1700-PHX-SMM

MEMORANDUM OF DECISION AND

ORDER

Pending before the Court is the Defendant Church Mutual Insurance Company's (Church

Mutual) Motion for Partial Summary Judgment (Doc. No. 88) filed in accordance with

Fed.R.Civ.P. 56. Church Mutual requests the Court to enter partial summary judgment against

Plaintiff Holy Trinity Greek Orthodox Church (Holy Trinity), finding that Holy Trinity is not

entitled to punitive damages. The parties have had the opportunity to submit evidence and

briefing, and the Court would not find oral argument helpful in resolving this matter.

Accordingly, the Court finds the pending motions for summary judgment suitable for decision

without oral argument.1

 After considering the written arguments of the parties, the Court makes

the following ruling.

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2 The Breach of Contract claim relating to Holy Trinity's claim for structural damages due to

earth movement (Count One) and Holy Trinity's claim for Unfair Claim Settlement Practices (Count

Four) have been dismissed, but are not appealable at this time. Church Mutual contends that there are

no further breach of contract claims involved in the case; however, Holy Trinity contends that Count

One (other than slab damage) is still pending.

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BACKGROUND

This case involves insurance claims made by Plaintiff Holy Trinity after a water pipe

broke at Holy Trinity's education center on April 15, 2003. Defendant Church Mutual provided

Holy Trinity with first-party property insurance coverage. Ultimately, Church Mutual paid to

Holy Trinity the full appraisal amount, as well as the full claim for damages to personal

property. 

In its Complaint, Holy Trinity alleged the following claims: Breach of Contract (Count

One), Bad Faith (Count Two), Breach of the Covenant of Good Faith and Fair Dealing (Count

Three), and Unfair Claim Settlement Practices (Count Four)2

. This matter was removed from

Maricopa County Superior Court on August 16, 2004.

Currently before the Court is Church Mutual's Motion for Partial Summary Judgment as

to Punitive Damages. Church Mutual argues that there is "simply no basis given the facts of this

case to find that Church Mutual 'was guided by evil motives or willful or wanton disregard of

the interests' of its insured." Saucedo v. Salvation Army, 200 Ariz. 179, 182 (App. 2001)

(quoting Piper v. Bear Med. Sys. Inc., 180 Ariz. 170, 180(App. 1993). The Court proceeds to

address the arguments pertaining to punitive damages advanced by the parties. 

STANDARD OF REVIEW

A court must grant summary judgment if the pleadings and supporting documents,

viewed in the light most favorable to the nonmoving party, “show that there is no genuine issue

as to any material fact and that the moving party is entitled to judgment as a matter of law.”

FED. R. CIV. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Jesinger v.

Nevada Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive law determines

which facts are material. See Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986); see also

Jesinger, 24 F.3d at 1130. “Only disputes over facts that might affect the outcome of the suit

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under the governing law will properly preclude the entry of summary judgment.” Anderson,

477 U.S. at 248. The dispute must also be genuine, that is, the evidence must be “such that a

reasonable jury could return a verdict for the nonmoving party.” Id.; see Jesinger, 24 F.3d at

1130.

A principal purpose of summary judgment is “to isolate and dispose of factually

unsupported claims.” Celotex, 477 U.S. at 323-24. Summary judgment is appropriate 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 at trial.” Id. at 322;

see also Citadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th Cir. 1994). The moving party

need not disprove matters on which the opponent has the burden of proof at trial. See Celotex,

477 U.S. at 323-24. The party opposing summary judgment need not produce evidence "in a

form that would be admissible at trial in order to avoid summary judgment." Id. at 324.

However, the nonmovant “may not rest upon the mere allegations or denials of [the party's]

pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial.”

FED.R.CIV.P. 56(e); see Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,

585-88 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995).

DISCUSSION

A. Admissibility of Certain Evidence

As a preliminary matter, the Court must consider the admissibility of certain evidence

offered by Plaintiff. Although Defendant has not filed a separate and formal motion to strike,

they have objected to the admissibility of certain testimony which was advanced by Plaintiff in

an attempt to show that Defendant acted with the requisite evil mind to substantiate a claim for

punitive damages. Because the Court can only consider admissible evidence in ruling on a

motion for summary judgment, see Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir.

2002), and the evidence at issue is critical to the determination of Plaintiff's attempt to prove

an entitlement to punitive damages, the Court will proceed to evaluate the admissibility of this

evidence even without a formal motion to strike by Defendant.

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3

 The opinions expressed in paragraphs 15, 18, 22, 24, 36, 42, 68, and 69 of Mr. Speros'

Affidavit (Doc. 111, Ex. B) are currently at issue.

4

Mr. Speros' opinion testimony involves matters based on technical or specialized

knowledge which is not proper for lay opinion testimony. Fed.R.Evid.701.

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Specifically, Church Mutual objects to Mr. Speros' opinions3 pertaining to insurance

claims handling matters (Doc. 111, Ex. B) on the grounds that they constitute inadmissible

expert and or lay opinion testimony, in violation of Fed.R.Evid. 602, 701, 702, 703, and 705.

Holy Trinity has not disclosed Mr. Spero as an expert witness, nor provided Church Mutual

with information regarding Mr. Speros' opinions, as required by Fed.R.Civ.P. 26(a)(2).

Moreover, Church Mutual contends that Mr. Speros' opinion testimony necessarily involves

information that he has obtained from other people, thereby constituting inadmissible hearsay

evidencefor which there is no exception, in violation of Fed.R.Evid. 801-02. Holy Trinity has

failed to respond to Church's objection. 

1. Improper Opinion Testimony

As a witness, Mr. Speros is entitled to testify concerning facts about which he has first

hand knowledge. It is undisputed that Mr. Speros does not now and never has worked for

Church Mutual. Accordingly, none of Mr. Speros' testimony pertaining to the reasonableness

and adequacy of the investigation by Church Mutual, the legitimacy of Church Mutual's reasons

for its conduct, and the ususal conduct of insurance companies is based on first hand

knowledge, as required by Fed.R.Evid. 602. Therefore, Mr. Speros' testimony is only

admissible if it constitutes proper opinion testimony under Fed.R.Evid. 701, 702, 703, and 705.

The testimony in question pertains to matters that are not within the ordinary knowledge of the

lay person.4

 Thus, it necessarily follows that in order for Mr. Speros' opinion testimony

regarding such technical or specialized matters to be admissible, first it must constitute proper

expert opinion testimony under Fed.R.Evid. 702, 703, and 705. The record demonstrates that

Mr. Speros (1) has no relevant training or experience, (2) has not detailed the basis for his

opinions and conclusions, and (3) has not established that his opinions and conclusions are

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based on data that is reasonably relied upon by experts in the field of insurance claims handling

practices. Furthermore, Mr. Speros' opinions were not properly disclosed pursuant to

Fed.R.Civ.P. 26(a). Consequently, Mr. Speros is not an expert witness and the objection is

SUSTAINED on these grounds. 

2. Inadmissible Hearsay

Defendant contends that because Mr. Speros is expressing opinions in paragraphs 15, 18,

22, 24, 36, 42, 68, and 69 of his affidavit, his testimony is necessarily based, in whole or in part,

on information that was provided to him by others, thereby constituting inadmissible hearsay,

in violation of Fed.R.Evid. 801-802. Hearsay is “a statement, other than one made by the

declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the

matter asserted.” Fed.R.Evid. 801. Here, it is evident from the briefing that Mr. Speros'

testimony is offered to show the proof of the matter stated. Therefore, because the affidavit

testimony contains out of court statements and because it does not fit into a hearsay exception,

Defendant's objection is hereby SUSTAINED on this ground. 

B. The Standard for Proving Punitive Damages in Arizona

Defendant argues that it is entitled to summary judgment as to Plaintiff's punitive

damages claim because Plaintiff is unable to establish that Defendant acted with the requisite

intent to substantiate such a claim. Defendant contends that even if the conduct of Church

Mutual Insurance Company in allegedly "failing to give as much consideration to the interests

of its insured, Holy Trinity, as it gave to its own interests" (Complaint ¶ 17) supports a cause

of action for bad faith, which it does not concede, this conduct itself remains insufficient for a

punitive award.

In a bad faith tort case against an insurance company, punitive damages may only be

awarded if the evidence reflects "something more" than the conduct necessary to establish the

tort. Rawlings v. Apodaca, 726 P.2d 565, 576 (Ariz. 1986). In Rawlings, the Arizona Supreme

Court explained the parameters of punitive damages as follows:

We restrict [the availability of punitive damages] to those cases in which the

defendant's wrongful conduct was guided by evil motives. Thus, to obtain

punitive damages, plaintiff must prove that defendant's evil hand was guided by

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an evil mind . . . [P]unitive damages will be awarded on proof from which the

jury may find that the defendant was 'aware of and consciously disregard[ed] a

substantial and unjustifiable risk that' significant harm would occur.

726 P.2d at 578 (citations omitted).

"In deciding whether punitive damages are awardable, the inquiry should be focused on the

wrongdoer's mental state." Linthicum v. Nationwide Life Ins. Co., 723 P.2d 675, 679 (Ariz.

1986). Punitive damages must be proved by "clear and convincing evidence of the defendant's

evil mind." Id. at 681. 

According to the Arizona Supreme Court, that requisite "something more" or "evil mind"

is established by evidence that the defendant: (1) intended to cause injury; (2) engaged in

wrongful conduct motivated by spite or ill will; or (3) acted to serve its own interests, having

reason to know and consciously disregarding a substantial risk that its conduct might

significantly injure the rights of others, even though defendant had neither desire nor motive to

injure. Bradshaw v. State Farm Mut. Auto Ins. Co., 758 P.2d 1313, 1324 (Ariz. 1988). 

"Of course, the required evil mind may be established by defendant's express statements

or inferred from defendant's expressions, conduct, or objectives." Gurule v. Illinois Mut. Life

and Cas. Co., 734 P.2d 85, 87 (Ariz. 1987) (citations omitted). An inference of evil mind may

be drawn by a jury, if the defendant deliberately continued actions even though inevitable or

highly probable harm would follow. Id. "While any single piece of evidence, taken alone,

might not be clear and convincing evidence of an 'evil mind,' several such pieces of evidence,

taken together, might clear the evidentiary hurdle." Thompson v. Better-Bilt Aluminum

Products Co., Inc., 832 P.2d 203, 211 (Ariz. 1992).

Summary judgment on the issue of punitive damages must be denied if a reasonable jury

could find the requisite evil mind by clear and convincing evidence; summary judgment should

be granted if no reasonable jury could find the requisite evil mind by clear and convincing

evidence. Thompson, 832 P.2d at 211. The court should construe the evidence and all

reasonable inferences drawn from the evidence in a light most favorable to the non-moving

party. Id.

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To obtain summary judgment on the punitive damages issue in the instant case,

Defendant must show there is a complete failure of proof, Celotex, 477 U.S. at 323, such that

no reasonable jury could find the requisite evil mind by clear and convincing evidence.

Thompson, 832 P.2d at 211 (Ariz. 1992).

The Court finds it noteworthy to point out that Church Mutual ultimately paid the

appraisal award for repair and remedial work involved in this case. Notwithstanding that fact,

Plaintiff sets forth the following allegations justify an award of punitive damages, or at least

raise a genuine issue of material fact that should reserve the issue for a jury: Church Mutual

Insurance (1) did not use generally accepted procedures in drying out the facility when the

damage was first done, instead it used a cost minimizing procedure; (2) did not use trained

personnel in this type of independent adjusting; (3) hid reports and testing results that were

produced by its experts and/or did not timely share them with its insured despite its obligation

to do so; (4) hid from its insured potential life threatening situations concerning moisture

flowing from the ground into the facility when the air conditioning was turned on, which could

result in the creation of more mold; (5) did not advise Holy Trinity directly of the threat of

asbestos; advising Holy Trinity that the facility was safe when Church Mutual actually had in

its possession tests indicated the presence of mold; and (6) delayed the production of pertinent

documents (electronic notebook) in discovery and may have altered the documents. (Doc. 110).

The Court will consider these in turn.

First, Plaintiff avers that the Defendant impermissibly put its own interests ahead of the

interests of Holy Trinity by (1) not using generally accepted procedures in drying out the facility

when the damage was first done, instead using a process to minimize its own costs; and (2) not

using personnel trained in this type of independent adjusting. The Court finds this assertion to

be based on inadmissible evidence. However, even assuming the evidence to be admissible, the

Court finds that even if a jury could conclude from the disputed facts surrounding the

investigation and the drying out/removal process that the insurance company attempted to

minimize costs by using an alternate drying out procedure, and that the adjuster was not trained

in the specific type of independent adjusting, such an inference would merely support a

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possible finding of negligence or bad faith. It is axiomatic under Arizona law that punitive

damages may only be awarded if evidence reflects "something more" than the conduct

necessary to establish the tort of bad faith against insurance company. Rawlings, 726 P.2d at

576. Plaintiff would need to advance facts additional to those supporting a finding of

negligence or bad faith to prove that the conduct was "willful and knowing," such as evidence

of "[d]eliberate, overt and dishonest dealings." See Farr, 699 P.2d at 383. Here, Church Mutual

investigated Holy Trinity's water damages the day it was reported, immediately evaluated the

loss, and undertook remedial measures that are standard in the industry. The Court finds that

Holy Trinity has failed to put forth sufficient evidence to indicate that such conduct was driven

by an evil mind. 

Next, Plaintiff set forth a narrative of facts which, it purports, supports an inference that

Defendant acted with an "evil mind" when it allegedly (1) withheld testing results that were

produced by its experts and/or did not timely share them with its insured, despite its alleged

obligation to do so; (2) hid from its insured potential life threatening situations concerning the

use of the air conditioning unit and resulting moisture flowing from the ground into the facility

which could result in the increased development of mold spores; (3) failed to advise Holy

Trinity directly of the threat of asbestos; (4) advised Holy Trinity that the facility was safe when

Church Mutual had in its possession information that indicated the presence of mold.

With regard to Plaintiff's contention that Church Mutual failed to warn Holy Trinity that

its building might have asbestos, there is no evidence that there was in fact any asbestos in the

education center. Further, it is undisputed that Mr. Kemp, an independent insurance adjuster,

was notified that there was a possibility that the floor tile in the building had asbestos.

According to Mr. Kemp, he mentioned this to Church Mutual merely to warn them in cases

Holy Trinity raises the issue later in the future. Allen Environmental, Holy Trinity's own

expert, did not find any asbestos upon examination of the building and ultimately Holy Trinity

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5

Further, Mr. Spero constructed the building and therefore knew or should have known

that they type of material used might contain asbestos. 

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never claimed that asbestos really existed in the floor tile.5 Holy Trinity also alleges that

Church Mutual "hid potential life threatening situations concerning moisture flowing from the

ground into the facility when the air conditioning was turned on which could create mold."

Defendant counters by asserting that there is no evidence that Church withheld any information

about the air conditioner with the intent to harm or with reckless disregard for Holy Trinity's

interests. In fact, an expert retained by Church Mutual merely advised that he was concerned

that if Church Mutual turned the air conditioner on, Holy Trinity might accuse Church Mutual

of spreading mold spores to other places. However, the expert explained that the concern was

preliminary and not in any way proved yet. In addition, the Court finds that because there has

not been anyone working or otherwise conducting business in the building for over a year when

this occurred, the situation did not rise to the level of life threatening and the evidence lacks the

requisite finding of evil mind. The Court finds that given the evidence, there is no clear and

convincing indication that Defendant acted with an evil mind when it failed to discuss the

possibility of asbestos existing in tiles in the education building or the fact that the use of the

air conditioning might spread mold spores.

Plaintiff alleges that Mr. Spero, its representative, attempted to obtain the results of the

mold tests from Hutzel and Associates, the mold experts, on many occasions. In April of 2003,

Holy Trinity noticed visible mold growth in the education building, which was used to provide

services to elderly members and children. At the same time, Church Mutual had the mold tests

done. Despite the fact that there was visible mold, Mr. Links told the Church employees that

there was "no reason" to leave the building. Notwithstanding the possibility of inaccuracy in

Mr. Links' statement, Plaintiff must assert facts to illustrate an evil mind. Plaintiff has merely

asserted facts that may give rise to ordinary tort claims. However, Plaintiff has failed to

substantiate the punitive damages claim with facts indicating evil mind. In fact, in his affidavit,

Mr. Speros referred to the incident wherein Mr. Links' told workers that the condition of the

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building was"okay" as "uninformed" or "misleading assurances". "Uninformed' and

"misleading" do not evoke feelings of spite, ill will, reckless disregard, or any indication of evil

mind.

Finally, Holy Trinity argues that Church Mutual altered the notes its claims

representative entered into Church Mutual's electronic database. Plaintiff contends that such

conduct gives rise to the inference of impropriety on the part of Church Mutual. However,

according to Defendant, the updated information that Holy Trinity speculates may be altered

information, merely represents the last date a particular claims representative entered

information into the electronic notes computer system. This contention is supported by the

depositions of each claims representative deposed on this matter. Once again, the Court finds

that these facts do not illustrate a clear and convincing finding of "evil mind" and therefore do

not substantiate a claim for punitive damages against the Defendant under Arizona law.

CONCLUSION

Despite the fact that the parties in this case had a bona fide dispute as to the amount of

Plaintiff's water damage claim, such a dispute does not automatically give rise to a claim of

punitive damages. To establish a claim for punitive damages, Plaintiff must demonstrate by

clear and convincing evidence, that Defendant acted with the requisite "evil mind". Here,

Plaintiff was unable to do so; the evidence did not support a showing that Defendant (1)

intended to cause injury; (2) engaged in wrongful conduct motivated by spite or ill will; or (3)

acted to serve its own interests, having reason to know and consciously disregarding a

substantial risk that its conduct might significantly injure the rights of others, even though

defendant had neither desire nor motive to injure. Bradshaw v. State Farm Mut. Auto Ins. Co.,

758 P.2d 1313, 1324 (Ariz. 1988). Therefore, Defendant's Motion for Partial Summary

Judgment as to Punitive Damages is hereby GRANTED.

Accordingly, 

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IT IS THEREFORE ORDERED that Defendant's Motion for Partial Summary

Judgment as to the request for punitive damages (Doc. 88) is hereby GRANTED.

DATED this 5th day of March, 2007.

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