Court Opinion

ID: 5128479
Source: CourtListenerOpinion
Date Created: 2021-11-22 21:01:35.161362+00
Date Added: 2024-06-11T08:23:06.983351
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                              NOV 22 2021
                    UNITED STATES COURT OF APPEALS                         MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

BRIDGET DORFMEISTER,                             No.   20-16776

              Plaintiff-Appellant,               D.C. No. 2:20-cv-00057-DWL

 v.
                                                 MEMORANDUM*
ZURICH AMERICAN INSURANCE
COMPANY, a foreign insurer,

              Defendant-Appellee.

                    Appeal from the United States District Court
                             for the District of Arizona
                     Dominic Lanza, District Judge, Presiding

                    Argued and Submitted November 15, 2021
                               Phoenix, Arizona

Before: CLIFTON, BRESS, and VANDYKE, Circuit Judges.

      Plaintiff-Appellant Bridget Dorfmeister brought this bad faith claim against

Zurich American Insurance Company following Zurich’s issuance of a Notice of

Claim Status on June 5, 2017, that denied Dorfmeister’s benefits and closed her

workers’ compensation claim. Dorfmeister now challenges the District Court’s

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
grant of Zurich’s motion to dismiss for failure to state a claim pursuant to Federal

Rule of Civil Procedure 12(b)(6), which we review de novo. Starr v. Baca, 652

F.3d 1202, 1205 (9th Cir. 2011). We also review de novo the application of

substantive state law by a district court exercising diversity jurisdiction. Giles v.

Gen. Motors Acceptance Corp., 494 F.3d 865, 872 (9th Cir. 2007).

      We affirm the District Court’s grant of Zurich’s motion to dismiss because

Dorfmeister’s sole claim is time-barred.1 Under Arizona law, bad faith claims are

subject to a two-year statute of limitations that “begins to run upon accrual” of the

claim. Manterola v. Farmers Ins. Exch., 30 P.3d 639, 643 (Ariz. Ct. App. 2001)

(quoting Doe v. Roe, 955 P.2d 951, 963 (Ariz. 1998)); see also Ariz. Rev. Stat. §

12-542.

      Arizona courts have established that, under the common law discovery rule

governing accrual of bad faith claims, “a cause of action does not accrue until the

plaintiff knows or with reasonable diligence should know the facts underlying the

cause.” Doe, 955 P.2d at 960 (citation omitted). For claims arising from an

insurer’s denial of benefits, a bad faith “cause of action should accrue only when

the insurer terminates all negotiations with the insured because only at that point
1
 For the same reason, we affirm the District Court’s denial of leave to amend. No
amendment to Dorfmeister’s complaint could have allowed it to proceed because
she alleged only one claim of bad faith that is time-barred under Arizona law. See
Missouri ex rel. Koster v. Harris, 847 F.3d 646, 655 (9th Cir. 2017).

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can the nature and extent of [the] insurer’s breach of the covenant of good faith and

fair dealing and of the damages that were proximately caused by this breach be

determined.” Ness v. W. Sec. Life Ins. Co., 851 P.2d 122, 126 (Ariz. Ct. App. 1992)

(citation omitted).

      Dorfmeister’s bad faith claim accrued on June 5, 2017, because on that date,

Zurich issued a Notice of Claim Status denying Dorfmeister’s benefits and closing

her workers’ compensation claim, thereby unequivocally “terminat[ing] all

negotiations with the insured[.]” Id. (citation omitted). On that date, Dorfmeister

knew or reasonably should have known of Zurich’s wrongful conduct and was put

on notice of the accrual of her bad faith claim. The two-year statute-of-limitations

period ended on June 5, 2019. Dorfmeister did not file her bad faith claim until

December 9, 2019. Therefore, we affirm the District Court’s grant of Zurich’s

motion to dismiss because Dorfmeister’s bad faith claim is time-barred.

      Dorfmeister argues that the statute of limitations did not begin to run until

the Industrial Commission of Arizona issued her a favorable compensability

determination on May 1, 2018, but Arizona law compels a different conclusion.

The Arizona Court of Appeals noted in Manterola that a bad faith claim “accrues

when [the] plaintiff has actual or constructive knowledge of [the] ‘defendant’s

wrongful conduct[.]’” Manterola, 30 P.3d at 643 (quoting Taylor v. State Farm

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Mut. Ins. Co., 913 P.2d 1092, 1095 (Ariz. 1996)). As the District Court noted in

this case, Manterola held that a bad faith claim may accrue once there are

“appreciable, nonspeculative damages[,]” even if those damages may subsequently

be foreclosed in a separate action determining the issue of liability in favor of the

defendant. Id. at 647. In other words, liability need not be determined before a bad

faith claim may accrue. See id. at 646. In this case, while Dorfmeister could not

know with certainty that Zurich’s denial of benefits was “wrongful” until the

Commission issued its compensability determination, such certainty is not required

for statute-of-limitations purposes because all elements of a claim need not be

indisputably proven before that claim may accrue.

      Likewise, contrary to Dorfmeister’s argument, Merkens is not dispositive in

this case because it addressed jurisdiction, not accrual, and narrowly held that a

plaintiff must “have at least sought a compensability determination” from the

Commission before filing a bad faith claim based on an insurer’s denial of benefits.

Merkens v. Fed. Ins. Co., 349 P.3d 1111, 1115 (Ariz. Ct. App. 2015). In fact, the

Merkens court explicitly recognized that “there can be simultaneous proceedings in

both the Industrial Commission [on compensability] and superior court” on the bad

faith claim, during which the court adjudicating the bad faith claim “should wait to

resolve any dispositive motions, or allow the case to proceed to a jury, until after

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the [Commission] has resolved the challenges to the denial or termination of

benefits.” Id. at 1115 n.6 (citing Sandoval v. Salt River Project Agric. Improvement

& Power Dist., 571 P.2d 706, 709 (Ariz. 1977)).

      Finally, Dorfmeister’s reliance on Taylor, which the Arizona Supreme Court

expressly limited to failure-to-settle cases, is unpersuasive. See Taylor, 913 P.2d at

1097. This case is distinct from failure-to-settle cases, as well as from legal

malpractice cases, because no injury or non-speculative damages occur in those

cases until final judgment is rendered in the underlying proceedings. In contrast,

Zurich’s issuance of the June 5, 2017 Notice of Claim Status that denied

Dorfmeister’s benefits and closed her workers’ compensation claim gave rise to an

injury and non-speculative damages. As the District Court succinctly stated, “the

injury in a denial-of-coverage case is the denial of coverage itself.”

      Dorfmeister is not a “successful party” on appeal and is therefore ineligible

for an award of attorney’s fees under Arizona law. See Ariz. Rev. Stat. § 12-

341.01. Although Zurich is a “successful party” on appeal and is thus eligible for

such an award, we have discretion to grant, in full or in part, or deny requests for

attorney’s fees under Arizona law. See id. We decline to award attorney’s fees to

Zurich in light of the Associated Indemnity factors that guide Arizona courts’

discretionary choice to award fees under § 12-341.01. See Associated Indem. Corp.

                                           5                                      20-16776
v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985). The third Associated Indemnity

factor—whether “[a]ssessing fees against [Dorfmeister] would cause an extreme

hardship”—supports our decision to decline to award fees to Zurich, because

Dorfmeister has been “negatively impact[ed in her] credit, her living situation, and

her marriage” following Zurich’s refusal to pay for her medical bills even after the

Commission’s May 1, 2018 ruling that rescinded Zurich’s closure of Dorfmeister’s

workers’ compensation claim, required Zurich to pay for continued treatment and

disability benefits, and assessed Dorfmeister with a 4% permanent disability rating.

See id. The sixth Associated Indemnity factor—whether awarding fees on appeal to

Zurich “would discourage other parties with tenable claims or defenses from

litigating or defending legitimate contract issues for fear of incurring liability for

substantial amounts of attorneys’ fees”—supports our decision because in the

workers’ compensation context, the difference in the economic positions of the

insured and the insurer may render potential plaintiffs wary of bringing even

meritorious bad faith claims. See id.

      AFFIRMED.

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