Opinion ID: 1206059
Heading Depth: 2
Heading Rank: 3

Heading: Roof Claim

Text: A rainstorm on July 7, 1982, damaged Filasky's roof and family room. Filasky promptly reported the damage. Gordon inspected the damage on July 19, 1982. Because he did not believe Filasky was insured against structural damage, his damage estimate of $151.20 was limited to interior damage. Filasky argued that she was insured against structural damage and refused to cash Gordon's draft for $51.20. [1] Testimony at trial and the application for homeowner's insurance indicated that the roof was approved, which meant that Filasky was insured against structural damage to the roof. Filasky secured two bids in August to repair the structural and interior damage. A & J Inc. estimated the cost of repairs to be $1509.52; Apache Remodelers, Inc. estimated the cost to be $1622.25. Filasky forwarded these estimates to Preferred Risk. Gordon thought that portions of the estimate pertaining to interior damage were too high and did not authorize either bidder to repair the damage. Gordon revisited the home, and on September 7, 1982, reassessed additional damage caused by a rainstorm in late August or early September. He estimated the total repair cost to be $316.54. Filasky refused this offer because it wouldn't even cover the interior repair of the house. On December 1, 1982, Filasky telephoned Novak and told him that she wanted A & J Inc. to do the repair work. Novak wrote a memo discussing the telephone conversation but Gordon never saw the memo. Five days later, Gordon wrote a letter to Filasky asking that you select the contractor you desire to do the work so that we can arrive at a final repair figure with him. The letter also called to Filasky's attention for the first time the provision in the policy that requires that you protect the property from further damage. Filasky did not act on this letter as requested because she thought she had already selected her contractor and had informed Preferred Risk through Novak of her selection. In a letter to Filasky dated January 5, 1983, Gordon offered a repair estimate of $474.68. This estimate was based on a mid-November telephone discussion with Felton-Antrim Construction Company. No one from Felton-Antrim viewed the damage; Felton-Antrim provided price information to Gordon based on his measurements and details. The letter also suggested that Filasky contact Felton-Antrim and have them estimate the damages to your ceiling. If they do come up with an estimate higher than our figure, we will be more than happy to reconsider our position. Filasky contacted Felton-Antrim, who inspected the damage on January 12, 1983, and estimated the repair cost at $867.05. This was the first on-site contractor inspection requested by Preferred Risk since the initial rainstorm in July 1982. Filasky wrote to Gordon on January 27, 1983, advising him of and accepting the Felton-Antrim estimate. Gordon contacted Felton-Antrim, and both parties agreed that Felton-Antrim would repair the damage for $750. Gordon informed Filasky of this arrangement on February 18, 1983. Filasky accepted the arrangement and Preferred Risk settled the claim for $650 that day. BAD FAITH In 1981 we recognized that an insurer has a legal duty to act in good faith when settling its policyholders' claims; violation of that duty constitutes a tort. Noble v. National American Life Insurance Company, 128 Ariz. 188, 190, 624 P.2d 866, 868 (1981). An insurer can challenge claims that are fairly debatable; however, it breaches its legal duty when it intentionally denies or fails to process or pay a claim without a reasonable basis for such action. Linthicum v. Nationwide Life Insurance Company, 150 Ariz. 354, 362, 723 P.2d 703, 711 (App. 1985), aff'd, 150 Ariz. 326, 723 P.2d 675 (1986); see also Borland v. Safeco Insurance Co., 147 Ariz. 195, 199, 709 P.2d 552, 556 (App. 1985); Farr v. Transamerica Occidental Life Insurance Co., 145 Ariz. 1, 5, 699 P.2d 376, 380 (App. 1985). We recently wrote: To be liable for tort damages, it [the insurer] need only to have intended its act or omission [of denying or failing to provide the insured with the security and protection from calamity which is the object of the relationship], lacking a founded belief that such conduct was permitted by the policy. The founded belief is absent when the insurer either knows that its position is groundless or when it fails to undertake an investigation adequate to determine whether its position is tenable. In either event, its position is without reasonable basis and subjects it to payment of damages in addition to those traditionally recoverable in a breach of contract action. Rawlings v. Apodaca, 151 Ariz. 149, 160, 726 P.2d 565, 576 (1986) (footnote omitted). Evidence suggests that Preferred Risk's lengthy delays in settling each of Filasky's three claims resulted from Preferred Risk taking a groundless position or failing to adequately investigate its position. The roof claim could have been settled much earlier if Gordon had reviewed the homeowner's policy before insisting that Filasky was not insured against structural damage and if Gordon had initiated a contractor review of the damage long before six months had elapsed after the initial damage. The burglary claim could have been settled much earlier if Preferred Risk's rejection letters had listed reasons for rejection, if Preferred Risk had not insisted on having Jeff's signature on the proof-of-loss form after he denied any ownership interest in the stolen items and after the divorce decree eliminated his community-property interest in any settlement, and if Preferred Risk had confronted Filasky on a timely basis with its concerns about ownership of the camera equipment, stereo, and TV. The lost-benefits claim could have been settled much earlier if Preferred Risk had requested medical information directly from hospitals and physicians after waiting a reasonable period of time for the State Compensation Department to deliver its reports. In addition, Novak admitted that some lost-income benefits were due as early as September 27, 1982, but were not paid because the total amount due was questionable. Because the amount of benefits due, rather than coverage, was contested, Preferred Risk had a duty to pay promptly any undisputed portion of the claim. This failure alone amounts to bad faith. See Borland, 147 Ariz. at 200, 709 P.2d at 557. All of the evidence clearly suggests that reasons given by Preferred Risk for delaying settlement of Filasky's three claims were groundless or inadequately investigated and supports the jury's conclusion that Preferred Risk breached its duty to deal with Filasky in good faith. COMPENSATORY DAMAGES The jury awarded compensatory damages of $100,000 to Filasky for her emotional distress and attorneys' fees. To recover damages for emotional distress caused by an insurer's bad faith, the insured must demonstrate that the insurer's bad faith resulted in an invasion of property rights. Farr, 145 Ariz. at 7, 699 P.2d at 382. Damages for pain, humiliation, or inconvenience, as well as pecuniary losses for expenses such as attorney's fees, trigger an invasion of protected property rights. See Rawlings, 151 Ariz. at 161, 726 P.2d at 577; Farr, 145 Ariz. at 6-7, 699 P.2d at 382-83. Evidence supports the jury's $100,000 compensatory damage award. Not only did Filasky incur economic losses of approximately $4000 in attorneys' fees and the lost time value of her insurance proceeds, she also endured months of overwhelming inconvenience and frustration caused by Preferred Risk's callous disregard for her plight. The record indicates that Filasky may have been able to maintain her house payments if Preferred Risk had paid her lost wages claim on a timely basis. The record also indicates that Preferred Risk frustrated Filasky's attempts at resolving her claims by engaging in such dilatory tactics as not returning her telephone calls, ignoring her pleas for personal assistance in completing forms, repeating requests with which Filasky had already complied, and rejecting her claims but providing no reasons for doing so. We do not believe the jury's compensatory damage award of $100,000 was motivated by passion or prejudice; nor do we believe the amount is excessive or grossly disproportionate to the damage incurred. The evidence reveals that Filasky suffered pecuniary losses and damages for frustration, inconvenience, and humiliation. In our opinion, the record fully justifies the jury's award of $100,000 in compensatory damages for emotional distress and attorneys' fees. PUNITIVE DAMAGES Punitive damages may be awarded in a bad faith insurance case. Linthicum, 150 Ariz. at 332, 723 P.2d at 681; Rawlings, 151 Ariz. at 162, 726 P.2d at 578. However, punitive damages may not be awarded in a bad faith insurance case absent evidence reflecting something more than conduct necessary to establish the tort. Rawlings, 151 Ariz. at 161-62, 726 P.2d at 577-78; Borland, 147 Ariz. at 200, 709 P.2d at 557; Farr, 145 Ariz. at 8, 699 P.2d at 383. We recently articulated a standard for determining whether the requisite something more exists: To obtain punitive damages, plaintiff must also show that the evil hand that unjustifiably damaged the objectives sought to be reached by the insurance contract was guided by an evil mind which either consciously sought to damage the insured or acted intentionally, knowing that its conduct was likely to cause unjustified, significant damage to the insured. When defendant's motives are shown to be so improper, or its conduct so oppressive, outrageous or intolerable that such an evil mind may be inferred, punitive damages may be awarded. Rawlings, 151 Ariz. at 162-63, 726 P.2d at 578-79 (emphasis in original; citations omitted). [2] The trial judge gave the following jury instruction on punitive damages: If you find that plaintiff suffered actual damage as a result of the conduct of the defendant on which you base a finding of liability, you may then consider and in your discretion award additional damages known as punitive or exemplary damages against defendant for the sake of example and by way of punishment. In making your determination, a finding that the defendant breached the duty of good faith and fair dealing owed to plaintiff does not by that fact alone make an award of punitive damages appropriate. You must examine both the motive and intent of the defendant's conduct. You may award such damages if, but only if, you find by a preponderance of the evidence that the defendant's conduct amounted to any of the following: 1. Deliberate, overt and dishonest dealings such as a willful and knowing failure to process or pay a claim known to be valid; 2. Oppressive conduct; 3. Fraud.       We first note an absence of words such as aggravated, outrageous, malicious, or evil mind. However, the judge's use of such words as Deliberate, overt and dishonest, willful and knowing, Oppressive, and Fraud sufficiently parallel in meaning the standard articulated in Rawlings. We decline to enter into semantic warfare with the trial court and require its jury instructions to incorporate certain phraseology. All we require of the trial judge is that he convey in his instructions to the jury the substance of the applicable legal standard. Here the trial judge satisfied that requirement. [3] We also note that the judge instructed the jury that the burden of proof must be satisfied by a preponderance of the evidence. In Linthicum, we held that the burden of proof for punitive damages is by clear and convincing evidence. 150 Ariz. at 332, 723 P.2d at 681. For reasons articulated in Hawkins v. Allstate Insurance Company, 152 Ariz. 490, 503-505, 733 P.2d 1073, 1086-1088 (1987), we limited this portion of Linthicum to prospective application. Because the trial of this case occurred prior to Linthicum, the burden of proof as articulated in the jury instruction was correct. A jury's decision to award punitive damages should be affirmed if any reasonable evidence exists to support it. However, where the trial court submits the issue to the jury on slight and inconclusive evidence, an appellate court may correct the error. Borland, 147 Ariz. at 200, 202, 709 P.2d at 557, 560; Farr, 145 Ariz. at 9, 699 P.2d at 384. As already discussed, Preferred Risk's reasons for its dilatory settlement of Filasky's three claims were either groundless or inadequately investigated. This conduct supported the jury's conclusion that Preferred Risk acted in bad faith. However, evidence of something more than indifference to facts and failure to properly and timely investigate an insurance claim must exist before the trial court can instruct the jury on punitive damages. We have read the record and conclude that evidence that Preferred Risk acted toward Filasky in an aggravated, outrageous, malicious, or fraudulent manner, or that Preferred Risk was guided by an evil mind which either consciously sought to injure Filasky or acted intentionally, knowing that its conduct was likely to cause unjustified, significant damage to Filasky, is slight and inconclusive at best. Therefore, the trial judge erred in submitting the issue of punitive damages to the jury.