IN THE

SUPREME COURT OF THE STATE OF ARIZONA

MATTHEW CAVALLO, ET AL.,

Plaintiffs/Appellants,

v.

PHOENIX HEALTH PLANS, INC.,

Defendant/Appellee.

No. CV-21-0051-PR

Filed October 20, 2022

Appeal from the Superior Court in Maricopa County 

The Honorable Timothy J. Thomason, Judge

No. CV2016-015531

REVERSED AND REMANDED

Opinion of the Court of Appeals, Division One

250 Ariz. 525 (App. 2021)

VACATED IN PART

COUNSEL:

Steven C. Dawson (argued), Anita Rosenthal, Aaron Dawson, Sander 

Dawson, Dawson & Rosenthal, P.C., Sedona, Attorneys for Matthew and 

Jocelyn Cavallo

Michael W. Sillyman, Paul S. Gerding, Jr., Jonathan S. Schultz (argued), 

Jeffrey M. Giancana, Kutak Rock LLP, Scottsdale, Attorneys for Phoenix 

Health Plans, Inc.

Erin Rose Ronstadt, Ronstadt Law, PLLC, Phoenix, Peter S. Sessions, Kantor 

& Kantor LLP, Northridge, California, Attorneys for Amicus Curiae United 

Policyholders
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

2 

David L. Abney, Ahwatukee Legal Office, P.C., Phoenix, Attorney for 

Amici Curiae for Arizona Association for Justice and Arizona Trial Lawyers 

Association 

JUSTICE KING authored the Opinion of the Court, in which CHIEF 

JUSTICE BRUTINEL, VICE CHIEF JUSTICE TIMMER, and JUSTICES

BOLICK, LOPEZ, BEENE, and MONTGOMERY joined.

JUSTICE KING, Opinion of the Court:

¶1 This case requires us to evaluate whether the trial court erred 

in instructing the jury on waiver and mitigation of damages in the trial of a 

tort claim for first-party insurance bad faith. 1 We hold the waiver 

instruction was improperly given and we remand for a new trial on that 

basis. On the issue of mitigation of damages, we hold that a jury 

instruction based on Restatement (Second) of Torts § 918 (Am. L. Inst. 1979) 

is appropriate.

I. BACKGROUND

¶2 Matthew Cavallo was diagnosed with multiple sclerosis 

(“MS”). In 2007, Cavallo began receiving infusions of Tysabri, a 

medication manufactured by Biogen that helps prevent or reduce the 

frequency and severity of MS symptoms. Some MS patients who are 

regularly administered Tysabri have an increased risk of relapse resulting in 

recurring MS symptoms if they do not receive a dose of Tysabri within

ninety days of their last dose. Tysabri may only be administered through 

1 “Bad faith actions against insurers are generally classified as either firstor third-party claims.” Clearwater v. State Farm Mut. Auto. Ins. Co., 164 

Ariz. 256, 258 (1990). The classification is “based on the type of insurance 

coverage provided by the policy.” Id. “First-party coverage arises when 

the insurer contracts to pay benefits directly to the insured,” such as “health 

and accident, life, disability, homeowner’s, fire, title, and property damage 

insurance.” Id. “[T]hird-party coverage arises when the insurer contracts 

to indemnify the insured against liability to third parties.” Id.
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

3

Tysabri Outreach: Unified Commitment to Health (“TOUCH”) certified 

clinics. The TOUCH program is a Biogen distribution program that was 

developed to promote the safety of Tysabri treatments.

¶3 In 2015, Cavallo purchased a health insurance plan (the 

“Plan”) from Phoenix Health Plans (“PHP”) with coverage beginning on 

January 1, 2016. The Plan covered Tysabri, but only if the patient received

prior authorization from PHP. The Plan provided no out-of-network 

benefits, unless a medically necessary treatment was unavailable in

network. In December 2015, just before the Plan became effective, Cavallo 

received an infusion of Tysabri.

¶4 Christina Oth, the MS coordinator for Cavallo’s medical 

provider, testified at trial that she was attempting to schedule Cavallo’s next 

infusion of Tysabri when she learned Chandler Regional Medical Center 

(“Chandler Regional”) was both TOUCH certified and within PHP’s 

network. On February 19, 2016, Oth submitted a prior-authorization 

request to PHP for Cavallo to receive his next infusion of Tysabri at Chandler 

Regional. In response, a PHP representative, Fabian Ruiz, incorrectly 

informed Oth that Chandler Regional was not within the Plan’s network and 

Cavallo did not have out-of-network benefits under the Plan. Oth was then 

provided a list of PHP’s in-network facilities, but those facilities were not 

certified to provide Tysabri infusions. Thereafter, Oth purportedly

cancelled Cavallo’s prior-authorization request for the Tysabri infusion.

¶5 Oth pursued a dose of Tysabri for Cavallo through Biogen’s

free drug program. On February 23, 2016, Biogen approved the free dose 

of Tysabri for Cavallo, although he would have been responsible for an

administration fee of approximately $150.00. Cavallo declined Biogen’s

offer.

¶6 On March 16, 2016, Cavallo informed PHP that he was 

experiencing a recurrence of his MS symptoms. PHP began a medical 

necessity review of Cavallo’s requested treatment. PHP concluded it could 

not determine whether Tysabri was medically necessary for Cavallo and 

requested a physician review. PHP also ascertained that Chandler 

Regional was, in fact, in its provider network. PHP’s reviewing physician 

initially determined that the treatment was not medically necessary for 

Cavallo but later approved it after discussing the treatment with Cavallo’s 

neurologist.
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

4

¶7 On March 30, 2016, PHP informed Cavallo that it had

approved coverage for him to receive the Tysabri infusion. On April 4, 

2016, 117 days after his last infusion, Cavallo received the Tysabri infusion

at Chandler Regional. But, by that time, Cavallo had allegedly already 

experienced a recurrence of his MS symptoms, including loss of fine motor 

control, weakness in his arm, numbness, and a reduction in mental

functioning.

¶8 Cavallo sued PHP for insurance bad faith. During trial, 

Cavallo argued: (1) PHP unreasonably and intentionally denied and delayed 

his claim for Tysabri from February to late March 2016, even after learning 

he had experienced a recurrence of his MS symptoms; (2) pursuant to its 

policies, PHP purposefully trained its employees to tell providers and 

insureds that health plans like Cavallo’s did not permit out-of-network 

benefits, and did not educate employees on the medical necessity exception;

(3) PHP designed an overly complex system for processing claims and 

trained employees to require an insured to identify an in-network facility 

before it would review a claim; and (4) PHP incentivized its employees to 

reduce costs by delaying and denying claims. Cavallo alleged PHP 

undertook these efforts to avoid paying for covered out-of-network services.

¶9 PHP countered that it handled Cavallo’s claim reasonably, 

given the information available to it. In particular, PHP argued: (1) Ruiz

made a good faith mistake regarding Chandler Regional’s network status;

(2) Cavallo relieved PHP of its obligations pertaining to Cavallo’s initial 

request for coverage in February 2016 when Oth purportedly cancelled that

prior-authorization request; and (3) Oth then failed to sufficiently 

communicate with PHP regarding Cavallo’s claim. PHP also argued 

Cavallo failed to mitigate his damages by declining to accept the dose of 

Tysabri offered by Biogen.

¶10 PHP asked the trial court to instruct the jury on (1) waiver, in 

the form of a contract waiver instruction; and (2) mitigation of damages. 

Cavallo opposed the instructions. Cavallo argued waiver is a contract 

defense that does not apply to an insurance bad faith claim, and a waiver 

instruction would confuse the jury into thinking Cavallo had waived the 

implied duty of good faith and fair dealing. Cavallo further claimed a

mitigation instruction was improper because the mitigation doctrine does 

not require a party to waive a right, and if Cavallo had accepted the free 
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

5

Tysabri dose, he would have waived his right to receive reimbursement 

from PHP by failing to obtain prior authorization.

¶11 The trial court granted PHP’s request for both jury 

instructions. It gave the Revised Arizona Jury Instructions’ (“RAJI”) 

contract waiver instruction:

A party to a contract may waive the other party’s duty to 

perform. “Performance” refers to what a party agreed to do 

as his part of the contract. Waiver is either the express, 

voluntary, and intentional relinquishment of a known right, 

or it is conduct that is inconsistent with an intent to assert the 

right. By accepting performance known to be deficient, a 

party has waived the right to reject the contract on the basis 

of that performance. If Mr. Cavallo has waived a promised 

performance, then [PHP] is no longer bound to perform on 

that promise and Mr. Cavallo is not entitled to damages for 

that particular non-performance. [PHP] has the burden of 

proving waiver.

See Rev. Ariz. Jury Instr. (Civ.) Contract 13, at 16 (7th ed. 2021). The trial 

court also instructed the jury on mitigation of damages:

[PHP] claims that Mr. Cavallo did not make reasonable efforts 

to prevent or reduce damages. Mr. Cavallo may not recover 

for any damages that could have been avoided without undue 

risk, burden or humiliation. [PHP] must prove: A. Mr. 

Cavallo did not make reasonable efforts to prevent or reduce 

damages; B. If Mr. Cavallo had acted reasonably, Mr. Cavallo 

could have prevented or reduced damages; and C. The 

amount of plaintiff’s damages that could have been prevented 

or reduced through reasonable efforts.

¶12 The jury returned a verdict in favor of PHP. Cavallo moved 

for a new trial, arguing the trial court prejudicially erred by instructing the 

jury on waiver and mitigation of damages. The court denied the motion. 

As to the waiver instruction, the court explained that “any contractual 

provision can be waived” and it was “up to the jury to decide” if Cavallo 

had waived any of the Plan’s provisions. Further, PHP was not “arguing 
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

6

that [Cavallo] waived the covenant of good faith and fair dealing entirely 

and that PHP owed no duty of good faith and fair dealing at all.” 

Moreover, the mitigation instruction was appropriate because “[a]ny 

contracting party has a duty to mitigate damages by avoiding consequences 

of known breaches.” And Cavallo was not prejudiced because “[t]he 

failure to mitigate instruction dealt ONLY with damages,” which “only 

came into play if the defendants were found liable.” Because the jury 

rendered a defense verdict, “[t]he jury never reached the issue of damages 

and thus never considered mitigation per the instructions.”

¶13 The court of appeals affirmed. Cavallo v. Phx. Health Plans, 

Inc., 250 Ariz. 525, 537 ¶ 45 (App. 2021). The court concluded “the superior 

court did not abuse its discretion by giving the waiver instruction in this case 

because it was not contrary to the law applicable to an insurance bad-faith 

claim and did not mislead the jury.” Id. at 532 ¶ 23. The court further

explained it “need not address whether the mitigation instruction was 

contrary to the law because even assuming it was erroneous, it caused 

[Cavallo] no prejudice,” as the jury returned a defense verdict and therefore 

did not consider the mitigation of damages instruction. Id. at 533 ¶ 26.

¶14 Cavallo filed a petition for review. We have jurisdiction 

under article 6, section 5(3) of the Arizona Constitution.

II. DISCUSSION

¶15 “We review for abuse of discretion ‘whether the trial court 

erred in giving . . . requested jury instructions.’” State v. Dann, 220 Ariz. 

351, 363–64 ¶ 51 (2009) (quoting State ex rel. Thomas v. Granville, 211 Ariz. 468, 

471 ¶ 8 (2005)). “We review de novo whether jury instructions adequately

state the law.” State v. Tucker, 215 Ariz. 298, 310 ¶ 27 (2007).

A. Insurance Bad Faith and a Waiver Instruction

¶16 The first issue before us is whether the trial court improperly

gave a waiver jury instruction where Cavallo alleged a first-party insurance 

bad faith tort claim and there was no breach of contract claim.

¶17 “The law implies a covenant of good faith and fair dealing in 

every contract,” which is a duty that “arises by virtue of a contractual 
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

7 

relationship.” Rawlings v. Apodaca, 151 Ariz. 149, 153 (1986). “The essence 

of that duty is that neither party will act to impair the right of the other to 

receive the benefits which flow from their agreement or contractual 

relationship.” Id. “The covenant of good faith and fair dealing may be 

breached even though the express covenants of the contract are fully 

performed.” Id. at 163. 

¶18 “The breach of contractual covenants ordinarily sounds in 

contract.” Id. Nonetheless, “because of the special relationship between 

an insurer and its insured, the insured may maintain an action to recover 

tort damages if the insurer, by an intentional act, also breaches the implied 

covenant by failing to deal fairly and honestly with its insured’s claim or by 

failing to give equal and fair consideration to the insured’s interests.”2 Id. 

Indeed, “one of the benefits that flow from the 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.” Id. at 155. 

¶19 A bad faith claim “derive[s] from the . . . duty of good faith 

and fair dealing.” Clearwater v. State Farm Mut. Auto. Ins. Co., 164 Ariz. 256, 

259 (1990). In the insurance context, “[t]he tort of bad faith arises when the 

insurance company intentionally denies, fails to process or pay a claim 

without a reasonable basis for such action.” Noble v. Nat'l Am. Life Ins. Co., 

128 Ariz. 188, 190 (1981). “To show a claim for bad faith, a 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.” Id. (quoting Anderson v. Cont’l Ins. Co., 

271 N.W.2d 368, 376 (Wis. 1978)). 

2 “The ‘intent’ required here is an ‘evil hand’—the intent to do the act. Mere 

negligence or inadvertence is not sufficient—the insurer must intend the act

or omission and must form that intent without reasonable or fairly 

debatable grounds. But an ‘evil mind’ is not required; the insurer need not 

intend to harm the insured.” Rawlings, 151 Ariz. at 160. Instead, “[t]o be 

liable for tort damages, it need only to have intended its act or omission, 

lacking a founded belief that such conduct was permitted by the policy.” Id. 
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

8 

¶20 We start with an evaluation of whether the record supports a 

waiver jury instruction in the trial of Cavallo’s insurance bad faith claim. 

“It is reversible error to instruct the jury on a legal theory which is not 

supported by the evidence.” Sparks v. Republic Nat’l Life Ins. Co., 132 Ariz. 

529, 539 (1982); see also Spur Feeding Co. v. Fernandez, 106 Ariz. 143, 148 (1970) 

(“We agree that it is reversible error to instruct upon a theory which is not 

supported by facts to be found in the record . . . since the court thereby 

invites the jury to speculate as to possible non-existent circumstances.”); see 

also Beliak v. Plants, 84 Ariz. 211, 215 (1958) (“[T]he record is devoid of any 

evidence, even when considered in the light most favorable to defendant’s 

theory of the case, justifying the court in giving the . . . instruction . . . . It 

therefore constituted reversible error to give it.”).

¶21 The seminal argument from PHP was that Oth relieved PHP 

of its duty with respect to Cavallo’s February 2016 prior-authorization 

request by cancelling it, and Cavallo thereby waived his right to 

performance on the February 2016 prior-authorization request. Indeed, 

PHP made much of this point during its closing argument: “Mr. Cavallo’s 

provider[] expressly cancelled the February 2016 prior authorization 

relieving [PHP] from any duty to perform on that initial authorization. She 

cancelled it.”

¶22 “Waiver is the voluntary and intentional relinquishment of a 

known right or such conduct as warrants an inference of the relinquishment 

of such right.” City of Tucson v. Koerber, 82 Ariz. 347, 356 (1957); see also 

Mohave Cnty. v. Mohave-Kingman Ests., Inc., 120 Ariz. 417, 421 (1978) 

(“Waiver is an intentional relinquishment of a known right.”); Societe Jean 

Nicolas Et Fils v. Mousseux, 123 Ariz. 59, 61 (1979) (“We find no clear showing 

of an intent to waive a right as is required by our case law.”). Thus, as a 

starting point, for Cavallo to have waived PHP’s duty to perform under the 

contract, Cavallo must have voluntarily and intentionally relinquished a 

known right with respect to the February 2016 prior-authorization request. 

¶23 For his bad faith claim, Cavallo alleged PHP had a policy of 

denying out-of-network claims without exploring whether each claim was 

medically necessary and failed to properly train employees on the exception 

for medical necessity. Cavallo claimed PHP compounded its error by

incorrectly denying Cavallo’s claim and then causing delay before 

approving his claim.
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

9 

¶24 The evidence in the record, however, does not demonstrate 

that Cavallo voluntarily and intentionally waived a known right when Oth 

allegedly cancelled the February 2016 prior-authorization request because 

neither Cavallo nor Oth knew at that time that: (1) PHP had an alleged policy 

of denying out-of-network claims without exploring whether the claim was 

medically necessary; and (2) PHP had incorrectly informed Oth that 

Chandler Regional was out of network and Cavallo did not have out-ofnetwork benefits. To the contrary, Ruiz testified that Oth requested

cancellation of the February 2016 prior-authorization request only after he

told her the Tysabri treatment was outside the Plan’s coverage. PHP was 

required “to fully disclose to [Cavallo] all pertinent benefits, coverages or 

other provisions of [the] insurance policy or insurance contract under which 

a claim is presented.” See Ariz. Admin. Code R20-6-801(D)(1). Thus, the 

record does not support that Cavallo voluntarily and intentionally 

relinquished a known right pertaining to his February 2016 priorauthorization request.

¶25 PHP’s claim that we can find a voluntary and intentional

relinquishment of a known right based on Oth’s subsequent pursuit of

Biogen’s free drug program is unavailing. Oth’s conduct does not 

demonstrate that Cavallo knew about PHP’s alleged policies and the 

inaccuracy of PHP’s statements to Oth, and yet still voluntarily and 

intentionally cancelled the February 2016 prior-authorization request. 

Oth’s pursuit of the free drug program simply demonstrates she was 

exploring an alternative method of obtaining the Tysabri treatment for 

Cavallo in the face of PHP’s denial. 

¶26 Because the record does not support a conclusion that 

Cavallo’s purported cancellation of the February 2016 prior-authorization 

request was a “voluntary and intentional relinquishment of a known right,” 

Koerber, 82 Ariz. at 356, the waiver jury instruction was improper and 

constituted reversible error. See Sparks, 132 Ariz. at 539 (“It is reversible 

error to instruct the jury on a legal theory which is not supported by the 

evidence.”). The waiver instruction prejudiced Cavallo “since the court 

thereby invite[d] the jury to speculate as to possible non-existent 

circumstances.” See Spur Feeding Co., 106 Ariz. at 148 (“We agree that it is 

reversible error to instruct upon a theory which is not supported by facts to 

be found in the record.”). 
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

10 

¶27 The waiver instruction was reversible error in this case for an 

additional reason. Here, neither party contends that the covenant of good 

faith and fair dealing can be waived. PHP even points out that it has “never 

argued the duty of good faith could be waived.” And in fact, this Court

has determined that parties may not “erase,” “limit,” or “eliminate” the 

covenant of good faith and fair dealing in an operating agreement. See In 

re Sky Harbor Hotel Props., LLC, 246 Ariz. 531, 532 ¶ 2, 534 ¶¶ 12–14 (2019). 

In reaching that decision, we specifically cited Rawlings’ holding that a 

“covenant of good faith and fair dealing is implied in every contract . . . . The 

covenant . . . may be breached even though the express covenants of the 

contract are fully performed.” Id. ¶ 12 (citing Rawlings, 151 Ariz. at 163). 

Our conclusion in In re Sky Harbor Hotel Props., 246 Ariz. at 534, that the 

covenant of good faith and fair dealing may not be waived applies equally 

in the context of an insurance bad faith claim, which was at issue in Rawlings,

151 Ariz. at 161. 

¶28 Here, the waiver jury instruction, supra ¶ 11, in combination

with PHP’s closing argument that the cancellation “reliev[ed] [PHP] from 

any duty to perform on that initial authorization,” supra ¶ 21, was 

misleading and prejudicial to Cavallo because it reasonably could have 

caused a jury to incorrectly conclude Cavallo could waive the covenant of 

good faith and fair dealing in the context of a tort claim for insurance bad 

faith. See In re Sky Harbor Hotel Props., 246 Ariz. at 532, 534. This 

constitutes reversible error. See Kwik-Teck, Inc. v. Esper, 107 Ariz. 508, 510 

(1971) (“[U]nder the circumstances in the present case, we find that the trial 

court committed reversible error by giving the punitive damage instruction 

advanced by [plaintiffs’] counsel since the language used tended to obscure 

the proper standard to be applied by the jury.”); Noland v. Wootan, 102 Ariz. 

192, 194 (1967) (“If an instruction is misleading to the jury and prejudices the 

appellant’s rights, then the giving of that instruction constitutes reversible 

error,” and “the trial court committed reversible error by giving the 

instruction complained of here since the language used tended to obscure 

the proper standard to be applied.”).

¶29 We reach this conclusion based on the record before us. To 

be clear, however, we are not barring a waiver jury instruction in all bad faith 

cases. Depending on the case, a waiver jury instruction could be relevant 

to explain the defendant’s conduct and whether the defendant acted 

reasonably under the circumstances. But, in such cases, the trial court 

should carefully evaluate whether a waiver instruction is supported by 
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

11

evidence in the record and relevant to explain the defendant’s conduct, and

whether it would otherwise confuse or mislead the jury. See Ariz. Pub. Serv. 

Co. v. Brittain, 107 Ariz. 278, 282 (1971) (concluding the trial court properly 

refused a proposed instruction because it would “only heighten the 

confusion of the jury in an already sufficiently confused area”).

¶30 The trial court should also consider that Arizona’s bad faith 

jury instruction already requires a plaintiff to prove the defendant 

“intentionally [denied the claim] [failed to pay the claim] [delayed payment 

of the claim] without a reasonable basis for such action.” See Rev. Ariz. Jury 

Instr. (Civ.) Bad Faith 1 (First-Party), at 2 (7th ed. 2021) (emphasis added). 

By instructing the jury to determine whether there was “a reasonable basis 

for [the defendant’s] action,” the jury can already consider the plaintiff’s

entire course of conduct up to the alleged breach, including whether the 

defendant’s action was a reasonable response to the plaintiff’s conduct. 

The trial court, therefore, should carefully consider whether the RAJI 

instruction is the best option to avoid possible juror confusion under the

circumstances.

B. Jury Instruction on Mitigation of Bad Faith Damages 

¶31 Because we reverse and remand for a new trial, we need not 

determine whether the specific mitigation of damages instruction given was

error. Nonetheless, because the issue was “briefed, argued, and 

thoroughly explored,” we provide guidance on a proper mitigation of 

damages instruction on remand. Schwab v. Matley, 164 Ariz. 421, 422 n.2 

(1990).

¶32 Here, PHP presented evidence and argued at trial that 

Cavallo could have prevented most of his damages by paying a $150 

administration fee for a free dose of Tysabri from Biogen. The record 

supports the theory that, by the time Cavallo rejected the Biogen offer, PHP 

had already implemented its alleged improper policy and told Oth that 

Tysabri was out of network and Cavallo did not have out-of-network 

benefits (events that form the basis of Cavallo’s bad faith claim). Thus, PHP

had already engaged in alleged bad faith conduct when Cavallo rejected the 

dose of Tysabri.
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

12

¶33 Based on the record, the basis for a proper jury instruction is

set forth in Restatement § 918(1):

[O]ne injured by the tort of another is not entitled to recover

damages for any harm that he could have avoided by the use

of reasonable effort or expenditure after the commission of

the tort.

See Fulton v. Woodford, 17 Ariz. App 490, 494 (1972) (“The doctrine of 

avoidable consequences precludes a plaintiff from recovering damages for 

losses he could have avoided by reasonable conduct on his part.”); S.A. 

Gerrard Co. v. Fricker, 42 Ariz. 503, 508 (1933) (describing a “duty upon the 

person injured to exercise reasonable care to mitigate the injury, according 

to the opportunities that may fairly be or appear to be within his reach”

(quoting 17 C.J. 844, § 166)); see also Coury Bros. Ranches, Inc. v. Ellsworth, 

103 Ariz. 515, 518 (1968) (explaining that “[t]he obligation to avoid the 

consequences of known injuries was recognized” in S.A. Gerrard Co.). 

Restatement § 918(1) provides the basis for a proper jury instruction where, 

as here, a party has allegedly failed to use “reasonable effort or expenditure 

after the commission of the tort” to avoid harm. See Restatement § 918 cmt. 

a (explaining that “recovery for the harm is denied because it is in part the 

result of the injured person’s lack of care”).

¶34 Cavallo has expressed concern about injecting comparative 

fault principles into a mitigation of damages instruction. Restatement 

§ 918(1) provides that a plaintiff “injured by the tort of another” may not

“recover damages for any harm that he could have avoided by the use of

reasonable effort or expenditure after the commission of the tort.” This 

language properly focuses on whether part of the plaintiff’s injury could 

have been reasonably avoided by the plaintiff. See Dan B. Dobbs & Caprice 

L. Roberts, Law of Remedies § 8.5(1) (3d ed. 2018) (discussing the “avoidable 

consequences rule” and that, for example, the “part of plaintiff’s injury that 

occurs because he unreasonably refused medical attention is causally 

apportioned to plaintiff, as if he were the only relevant cause of that injury”). 

Restatement § 918(1) does not discuss the plaintiff’s fault with respect to the 

conduct that constitutes the alleged bad faith. See id. (explaining that 

“comparative fault rules attempt to apportion liability by assessing the 

respective fault of the relevant actors” and the “comparative fault system 
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Opinion of the Court

13

need only identify the separate conduct of the parties”). 3 Therefore, 

Restatement § 918(1) will provide the appropriate guidance to the jury in 

this case.

¶35 We note that subsection (1) of Restatement § 918 contains an

exception set forth in subsection (2). Restatement § 918(2) states,

One is not prevented from recovering damages for a

particular harm resulting from a tort if the tortfeasor intended

the harm or was aware of it and was recklessly disregardful

of it, unless the injured person with knowledge of the danger

of the harm intentionally or heedlessly failed to protect his

own interests.

Therefore, if there is evidence in the record supporting the exception in

Restatement § 918(2) for this bad faith action, the trial court should instruct

the jury on both subsections (1) and (2) of § 918.

¶36 On the issue of Restatement § 918(2), it is also worth noting 

that, to be liable for tort damages in an insurance bad faith case, it must be 

established that the insurer “intended its act or omission, lacking a founded 

belief that such conduct was permitted by the policy,” but “the insurer need 

not intend to harm the insured.” Rawlings, 151 Ariz. at 160–61 (“Although 

the tort of bad faith is founded upon the defendant’s intentional conduct, the 

intent need not be an intent to injure, harm or oppress.”). Therefore, not all 

bad faith cases will involve an insurer that “intended the harm” to the 

insured under Restatement § 918(2).

¶37 Finally, we observe that during closing arguments, PHP told 

the jury that if it found Cavallo “did not act reasonably to prevent or mitigate 

his damages, you’re going to have to rule with the defendant or, at least, reduce 

the damages accordingly.” (Emphasis added). The italicized portion of 

3 Cavallo argues the duty to mitigate should not require him to jeopardize 

his right to coverage under the Plan by failing to obtain prior authorization

before accepting the free Tysabri dose from Biogen. If true, Cavallo may 

be able to present these arguments to the jury. See Restatement § 918(1)

(discussing “harm that [plaintiff] could have avoided by the use of

reasonable effort or expenditure”).
CAVALLO, ET AL. V. PHOENIX HEALTH PLANS, INC.

Opinion of the Court

14 

PHP’s statement was improper. If the jury concludes PHP engaged in bad 

faith, but also concludes Cavallo failed to avoid harm “by the use of 

reasonable effort or expenditure after the commission of the tort,” this may

result in a reduction in damages. See Restatement § 918(1). But the jury 

does not “have to rule with the defendant.” See id. at cmt. a (“[T]he rule 

stated in this Section applies only to the diminution of damages and not to 

the existence of a cause of action.”); see also Fulton, 17 Ariz. at 494 (stating the 

doctrine of avoidable consequences precludes recovery of those “damages 

for losses [that plaintiff] could have avoided by reasonable conduct”). 

C. Attorney Fees 

¶38 Cavallo requested attorney fees but failed to specify a basis 

for the award as required by Arizona Rule of Civil Appellate Procedure

21(a)(2) (“A claim for fees under this Rule must specifically state the statute, 

rule, decisional law, contract, or other authority for an award of attorneys’ 

fees. If a party fails to comply with this requirement, the appellate court 

may decline to award fees on that basis.”). We deny Cavallo’s request for 

attorney fees.

¶39 PHP also requested attorney fees under Rule 21 and A.R.S. 

§ 12-341.01. We decline PHP’s request for attorney fees because it was not 

the successful party in this action.

III. CONCLUSION

¶40 We vacate ¶¶ 11–23 of the court of appeals’ opinion. We 

reverse the judgment of the trial court and remand for a new trial consistent 

with this opinion.