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WO

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

James McGee, 

Plaintiff, 

v. 

Zurich American Insurance Company, 

Defendant. 

No. CV17-04024-PHX-DGC 

ORDER 

 Plaintiff James McGee sued Defendant Zurich American Insurance Company for 

breach of contract and bad faith, alleging that Defendant improperly refused to defend 

Elizabeth Foutz in an underlying tort action brought against her by Plaintiff. Defendant 

has filed a motion for summary judgment. Doc. 49. The motion is fully briefed 

(Docs. 51, 56), and oral argument will not aid in the Court’s decision. See Fed R. Civ. P.

78(b). For the following reasons, the Court will grant the motion. 

I. Background. 

 Defendant issued a general insurance policy to Underwood Bros, Inc., doing 

business as AAA Landscape (hereinafter “AAA”). Doc. 52 at ¶ 60. The Policy provides 

business auto liability coverage for bodily injury or property damages caused by an 

accident “resulting from the ownership or maintenance of a covered auto.” Id. at ¶ 61. The 

Policy defines “insured” as “[a]nyone . . . using with your permission a covered ‘auto’ you 

own.” Doc. 52 at ¶ 64. 
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 In September 2012, AAA assigned a company vehicle to its employee Elizabeth 

Foutz. Doc. 52 at ¶ 47. Foutz signed AAA’s Driver Policy and Agreement (“the 

Agreement”), which allows authorized employees to drive a company vehicle subject to 

certain terms and conditions. Id. The Agreement states that employees are responsible for 

the “safe and legal transportation of the vehicle.” Doc. 50 at ¶ 2. It also requires drivers 

to “abide by all laws.” Doc. 52 at ¶ 43. 

 On January 16, 2015, Foutz was involved in a car accident with Plaintiff. 

Doc. 52 at ¶¶ 1-10. Plaintiff was found at fault for the accident because he did not stop at 

a stop sign (Doc. 50 at ¶ 4), and Foutz was cited for driving while intoxicated. 

Doc. 52 at ¶ 10. She eventually pled guilty to driving while under extreme intoxication. 

Id. On August 17, 2016, Plaintiff sued Foutz for personal injury, and Defendant was asked 

to evaluate whether it had a duty to defend Foutz under AAA’s business auto coverage 

policy. Doc. 50 at ¶ 6. 

 After learning that Foutz was driving while intoxicated, Defendant requested an 

internal coverage opinion and the matter was referred to Defendant’s coverage counsel. 

Counsel requested additional investigation into whether Foutz had her own vehicle, 

whether she signed the Agreement, whether AAA’s employees regularly violated the 

Agreement, and whether AAA overlooked such violations. Doc. 50 at ¶¶ 9-12. Defendant 

presented these questions to George McNeely (“McNeely”), AAA’s Human Resources 

Manager. Doc. 50 at ¶ 13-14. McNeely responded that Foutz signed the Agreement, that 

AAA disciplined her for violating company policy while using her vehicle, and that Foutz 

was the only employee who used her AAA vehicle while intoxicated. Doc. 50 at 

¶¶ 15, 32-33, 36. 

 After receiving McNeely’s responses, Defendant concluded that Foutz did not 

qualify as an insured under the Policy because she exceeded any permissible use by driving 

while intoxicated. Doc. 50 at ¶ 16-17. Foutz and Plaintiff then entered into an agreement 

in which Foutz assigned her rights against Defendant to Plaintiff, the parties stipulated to 

a $5 million judgment, and Plaintiff agreed not to execute the judgment against Foutz. Id. 
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at ¶ 18. Plaintiff then filed this suit against Defendant, seeking to recover the $5 million 

judgment and asserting the assigned claims for breach of contract and bad faith. Doc. 1-1. 

 Remarkably, Plaintiff’s response to the summary judgment motion emphasizes that 

he, not Foutz, caused the underlying accident. Doc. 51 at 2. For example, Plaintiff admits 

that “[s]everal witnesses confirmed McGee had pulled directly into Foutz’s path and ‘she 

had no time to stop,’” that “McGee ran a stop sign and appeared right in front of Foutz,” 

and that “Foutz could not have avoided the crash, even if sober.” Id. at 2, 13 (citation 

omitted). Citing case law, Plaintiff further asserts that “a driver like [Foutz] – confronted 

by a sudden emergency – is only liable if she acts unreasonably,” and “Foutz had no chance 

to act unreasonably.” Id. at 13. He further maintains that “driving under the influence of 

alcohol, in and of itself, is not a tort.” Id. He states with emphasis that “Foutz was not at 

fault” and “drove safely.” Id. at 15 (emphasis in original). 

 Plaintiff never explains why, if these admissions are true, he sued Foutz for causing 

the accident. He concedes that he had no valid claim against her. Plaintiff presumably 

views his sole responsibility for the accident as irrelevant now that he has trained his aim 

on Defendant and its alleged insurance bad faith toward Foutz. But the Court cannot help 

observing that the purpose of Arizona’s insurance-claim assignment law is, at least in part, 

to make whole an underlying meritorious plaintiff who was denied recovery because the 

underlying defendant could not pay a judgment and her insurer wrongfully denied 

coverage. It assuredly is not to permit a plaintiff who has no valid claim to file a lawsuit 

and create an insurance coverage dispute from which he might profit. In light of the 

concessions Plaintiff makes in his summary judgment brief, the Court views this case as a 

misuse of Arizona law. The Court nonetheless will address the summary judgment motion 

without regard to the admitted lack of merit in Plaintiff’s underlying claim.

II. Summary Judgment Standard. 

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

to the nonmoving party, shows “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). Summary judgment is 
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also 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.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Only disputes 

over facts that might affect the outcome of the suit will preclude summary judgment, and 

the disputed evidence must be “such that a reasonable jury could return a verdict for the 

nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). 

III. Discussion. 

 A. Breach of Contract. 

To succeed on a breach of contract claim, a plaintiff must prove that a contract 

existed, defendant breached the contract, and the breach resulted in damages. Thomas v. 

Montelucia Villas, LLC, 302 P.3d 617, 621 (Ariz. 2013). A party breaches a contract when 

it “fail[s], without legal excuse, to perform any promise which forms the whole or part of 

a contract.” Snow v. W. Sav. & Loan Ass’n, 730 P.2d 204, 210 (Ariz. 1986). 

1. Permission. 

 The Policy defines an “insured” to include anyone using a covered AAA-owned 

vehicle with AAA’s “permission.” Doc. 52 at ¶ 64. Defendant asserts that Foutz did not 

have permission to drive her AAA vehicle while intoxicated. Doc. 49 at 5. Plaintiff 

provides no evidence that Foutz had such express permission (Doc. 52 at ¶¶ 43-46), but he 

argues that whether Foutz had implied permission is an issue of disputed fact precluding 

summary judgment (Doc. 51 at 14). 

 Implied permission is “shown by the practice of the parties over a period of time 

preceding the day upon which the insured vehicle was being used.” Universal 

Underwriters Ins. Co. v. State Auto. & Cas. Underwriters, 493 P.2d 495, 497 (Ariz. 1972); 

see also Stonington Ins. Co. v. McWilliams, No. 1 CA-CV 09-0235, 2010 WL 2677119, at 

*2 (Ariz. Ct. App. July 6, 2010). Implied permission also exists if the driver “reasonably 

believed” she was using the vehicle according to the permission granted by its owner. 

 Foutz admitted that she had no formal permission to drive while intoxicated. 

Docs. 49 at 6; 52 at ¶ 43. AAA’s Human Resources Manager, George McNeely, confirmed 
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that: (1) AAA disciplined Foutz after the accident because the company “needed to respond 

to the violation of [its] policy” (Doc. 50 at ¶ 24), (2) AAA did not allow employees to drive 

its vehicles while intoxicated (Doc. 50 at ¶¶ 32-33), (3) McNeely did not know of any other 

AAA employee who drove their AAA vehicle while intoxicated (Doc. 50 at ¶ 36), and (4) 

neither Foutz nor her supervisor indicated Foutz had express permission to drive while 

intoxicated. Doc. 50 at ¶ 37. 

 Plaintiff cites the following disputed facts in support of his implied permission 

argument: (1) Foutz saw AAA employees consume alcohol and drive their company 

vehicles (id. at ¶¶ 41-46), (2) Defendant’s coverage counsel admitted in deposition that an 

employee could still be a permissive user even if that driver was intoxicated, and (3) AAA’s 

Agreement did not expressly prohibit employees from driving after consuming alcohol, 

(id. at ¶ 43; see also Doc. 51 at 14-15).1

 But there is a difference between not prohibiting 

a practice and impliedly permitting it. As noted, implied permission is shown by “the 

practice of the parties over a period of time preceding the day upon which the insured 

vehicle was being used.” Universal Underwriters, 493 P.2d at 497. The fact that Foutz 

saw some employees drink and then drive does not show that AAA consented to 

intoxicated driving of its vehicles. And coverage counsel’s deposition statement does not 

say anything about whether AAA impliedly consented to drunk driving. As Plaintiff also 

concedes, McNeely stated that Foutz was the only AAA employee who drove her vehicle 

while intoxicated. See Doc. 52 at ¶ 36. 

 It is also undisputed that AAA’s Agreement requires employee drivers to abide by 

all laws, which include laws against driving under the influence. Doc. 52 at ¶ 48.2

 Plaintiff 

cites no evidence that Foutz reasonably believed the Agreement nonetheless permitted her 

to drive while intoxicated. Doc. 52 at ¶ 43. The Court concludes that Plaintiff has failed 

 1

 Plaintiff also cites much evidence that Foutz was allowed to use her vehicle for 

personal use, but this evidence does not address whether she could drive the company car while intoxicated. 

2

 Under A.R.S. § 28-1382(A), it is deemed extreme intoxication for a person to drive with a blood-alcohol concentration of 0.15 or greater. The parties dispute whether Foutz’s blood alcohol level was 0.15 or 0.202, but this dispute is not material because both levels constitute extreme DUI. Doc. 50 at ¶ 4; Doc. 52 at ¶ 10. 
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to produce evidence sufficient for a reasonable jury to find that Foutz had implied 

permission to drive her AAA-owned vehicle while intoxicated. See Celotex, 477 U.S. 

at 322; Anderson, 477 U.S. at 248. 

2. Mandatory-Minimum Coverage under A.R.S. § 28-4009(A)(2). 

 Plaintiff asserts that Foutz is “insured” under the omnibus clause of Arizona law. 

Doc. 51 at 15-16. Read into the terms of every Arizona insurance contract, the omnibus 

clause provides that “[a]n owner’s motor vehicle liability policy shall . . . insure the person 

named in the policy as the insured and any other person, as insured, using the motor vehicle 

or motor vehicles with the express or implied permission of the named insured.” 

A.R.S. § 28-4009(A)(2) (emphasis added); James v. Aetna Life & Cas., 546 

P.2d 1146, 1148 (Ariz. Ct. App. 1976). In other words, coverage under the omnibus clause 

requires permissive use. 

 Arizona follows the minor deviation rule to determine whether a deviation from 

permissive use precludes coverage under the omnibus clause. James, 546 P.2d at 1146. 

Under this rule, a bailee is covered if her “use is not a gross, substantial or major violation, 

even though it may have amounted to a deviation” from the purpose of permissible use. 

Id. at 1148. A deviation is material only when it is substantial “in terms of duration, 

distance, time, or purpose.” Id. 

 Plaintiff argues that Foutz’s short, safe trip to a local grocery store is a minor 

deviation from permissible personal use. Doc. 51 at 15. In support, he cites evidence that 

(1) Foutz witnessed other coworkers drive company vehicles after drinking 

(Doc. 52 at ¶¶ 41-46), (2) AAA’s policy never said an employee could not drive a company 

vehicle after drinking (id. at ¶ 43), (3) no one told Foutz she was not allowed to drive her 

company vehicle while intoxicated (id.), (4) Foutz was not at fault for the accident, and (5) 

the accident could not have been avoided even if Foutz was sober (Doc. 51 at 15). 

 The Court disagrees. That other AAA employees drove their AAA vehicles after 

consuming alcohol is insufficient to show they were driving while intoxicated, or that 

drunk driving of any duration is a mere minor deviation from permissible use. And even 
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assuming Foutz had permission to run personal errands using her company vehicle, it is 

undisputed that she was bound by AAA’s Agreement to abide by state law, which includes 

a prohibition on driving while intoxicated. Doc. 52-4 at 2; see also A.R.S. § 28-1382(A). 

These facts are insufficient for a reasonable jury to conclude Foutz’s deviation from 

permissible use was minor. 

 Plaintiff also cites Reisch v. M&D Terminals, Inc. 180 Ariz. 356, 365 (Ariz. Ct. 

App. 1994), to argue that failure to abide by company policy is a minor deviation. 

Doc. 51 at 15. In that case, the court held that a driver’s violation of his employer’s “no 

passenger rule” was a minor deviation from the purpose of permissible use. Id. But the 

Reisch holding was limited to the “no passenger rule,” and did not announce a general rule 

that deviations from company policies are minor. Id. (“Most cases which have considered 

the question hold that a violation of the no passenger rule will not vitiate coverage . . . The 

insurer has not cited a single decision holding that a violation of the no passenger rule 

vitiates coverage.”) (emphasis added). Moreover, Reisch did not involve an insured’s use 

that violated terms of the company policy, as well as Arizona law. 

 Plaintiff has failed to produce sufficient evidence for a reasonable jury to conclude 

that Foutz qualified as an “insured” under the Policy and was entitled to coverage under 

the omnibus clause. See Celotex, 477 U.S. at 322; Anderson, 477 U.S. at 248. The Court 

accordingly will grant summary judgment in favor of Defendant on Plaintiff’s breach of 

contract claim. 

B. Bad Faith. 

 Arizona law “implies a covenant of good faith and fair dealing in every 

contract.” Rawlings v. Apodaca, 726 P.2d 565, 569 (Ariz. 1986). The covenant requires 

“that neither party will act to impair the right of the other to receive the benefits which flow 

from their . . . contractual relationship.” Id. An insurer acts in bad faith where it 

“intentionally denies, fails to process or pay a claim without a reasonable basis.” Prieto v. 

Paul Revere Life Ins. Co., 354 F.3d 1005, 1009 (9th Cir. 2004) (quoting Noble v. Nat’l Am. 

Life Ins. Co., 624 P.2d 866, 868 (Ariz. 1981)). “To show a claim for bad faith, a plaintiff 
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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.” Noble, 624 P.2d at 868. 

 Plaintiff argues that Defendant acted in bad faith when it denied Foutz coverage. 

Doc. 51 at 14. But “a bad faith claim based solely on a carrier’s denial of coverage will 

fail on the merits if a final determination of noncoverage is ultimately made.” Manterola 

v. Farmers Ins. Exchange, 30 P.3d 639, 646 (Ariz. Ct. App. 2001) (citations omitted). 

Because the Court is making a final determination of noncoverage in this order, this portion 

of Plaintiff’s bad faith claim fails. 

 Plaintiff next asserts that Defendant failed to thoroughly investigate the crash and 

determine whether Foutz had implied permission to drive her AAA vehicle for personal 

errands, which is bad faith. Doc. 51 at 14-15. Defendant asserts that further investigation 

would not have revealed additional facts relevant to its ultimate conclusion on Foutz’s 

coverage eligibility – that Foutz was not an insured because her use was not permissible. 

Doc. 49 at 9-17. 

 The Court agrees with Defendant. Failure to adequately investigate is material only 

when further investigation would have disclosed facts relevant to whether Foutz qualified 

as an insured. See Aetna Cas. & Sur. Co. v. Superior Court in & for Cty. of Maricopa, 778 

P.2d 1333, 1336 (Ariz. Ct. App. 1989) (“Although an insurer’s subjective bad faith may be 

inferred from a flawed investigation, an improper investigation, standing alone, is not a 

sufficient cause for recovery if the insurer in fact had an objectively reasonable basis to 

deny the claim.”) (quoting Pace v. Ins. Co. of N. Am., 838 F.2d 572, 584 (1st Cir. 1988)). 

As discussed above, Plaintiff has failed to present any additional facts showing that Foutz 

had implied permission to drive the company vehicle while drunk. 

 Additionally, Plaintiff does not dispute that Defendant inquired of AAA’s Human 

Resources Manager, George McNeely, who confirmed that (1) AAA did not have a policy 

that allowed employees to drive AAA vehicles while intoxicated (Doc. 50 at ¶¶ 32-33), 

(2) he was unaware of any other instance in which a AAA employee used a AAA vehicle 
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while intoxicated (id.), (3) he did not know of any other employees who used a AAA 

vehicle after drinking since he began working for AAA (id. at ¶ 36), and (4) neither Foutz 

nor her supervisor indicated that Foutz had permission to drive her AAA vehicle while 

intoxicated (id. at ¶ 37). The assertion that Foutz saw other AAA employees drive after 

consuming alcohol is insufficient for a reasonable jury to conclude that such employees 

were intoxicated or were driving while intoxicated with AAA’s implied permission. 

 The Court has considered the expert rebuttal declaration submitted by Plaintiff 

(Doc. 52-12), and finds that it does not create a question of fact on the issue of bad faith. 

Much of the declaration contains legal conclusions, which are not appropriate for expert 

opinion. See United States v. Scholl, 166 F.3d 964, 973 (9th Cir. 1999) (holding a legal 

conclusion is inappropriate for expert testimony). 

 Further, expert testimony does not preclude summary judgment when it is not 

supported by the record. Reynolds v. Cnty. of San Diego, 84 F.3d 1162, 1169 

(9th Cir. 1996) (overruled on other grounds). Plaintiff’s expert argues that Defendant 

failed to investigate key issues including permission, the events surrounding the accident, 

and whether company officers saw or knew their employees drove company vehicles after 

consuming alcohol. Id. These arguments are not supported by the record. Plaintiff does 

not dispute that Defendant followed up with McNeely on the permission issue, and that 

McNeely confirmed Foutz had no permission to drive while intoxicated. Doc. 50 at ¶ 37. 

McNeely also confirmed that he did not know of any other employees who used AAA 

vehicles after drinking. Id. at 32-36. The conclusory opinions of Plaintiff’s rebuttal expert 

are not supported by the record. 

 In short, Plaintiff has failed to present sufficient evidence from which a reasonable 

jury could find that Defendant acted in bad faith by failing to investigate Foutz’s coverage.3

IT IS ORDERED: 

 1. Defendant’s motion for summary judgment (Doc. 49) is granted. 

 3

 Plaintiff asserts that Defendant failed to give equal consideration to Foutz’s interests, but only in the context of the alleged failure to investigate. Plaintiff does not separately develop an equal consideration argument. Doc. 51 at 14. 
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 2. The Clerk is directed to enter judgment in Defendant’s favor and terminate 

this case. 

 Dated this 23rd day of April, 2019.