Assyia v. State Farm Mut. Auto. Ins. Co.

• Court: Arizona Court of Appeals
• Writing for the Court: DOWNIE
• Citation: Assyia v. State Farm Mut. Auto. Ins. Co., 229 Ariz. 216, 273 P.3d 668, 630 Ariz. Adv. Rep. 9 (Ariz. App. 2012)
• Decision Date: 22 March 2012
• Docket Number: No. 1 CA–CV 10–0678.,1 CA–CV 10–0678.
• Parties: Sylvia ASSYIA, individually, Plaintiff/Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a foreign corporation, Defendant/Appellant.

229 Ariz. 216

273 P.3d 668

630 Ariz. Adv. Rep. 9

Sylvia ASSYIA, individually, Plaintiff/Appellee,

v.STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a foreign corporation, Defendant/Appellant.

No. 1 CA–CV 10–0678.

Court of Appeals of Arizona, Division 1, Department C.

March 22, 2012.

Plattner Verderame P.C. By Richard S. Plattner, Phoenix, Attorneys for Plaintiff/Appellee.

Edythe H. Kelly & Associates By Edwin R. Roberts, DeCiancio Robbins P.L.C. By Joel DeCiancio, Christopher Robbins, Tempe, Co-counsel for Defendant/Appellant.

OPINION

DOWNIE, Judge.

¶ 1 State Farm Mutual Automobile Insurance Company (“State Farm”) appeals from a judgment awarding attorneys' fees and costs to Sylvia Assyia. State Farm contends Assyia's breach of contract action, alleging a failure to pay uninsured motorist (“UM”) policy benefits to which she was entitled, sounds in tort, not contract, rendering a fee award under Arizona Revised Statutes (“A.R.S.”) section 12–341.01(A) improper. We disagree and therefore affirm the judgment of the superior court.

FACTS AND PROCEDURAL HISTORY

¶ 2 In June 2008, 90–year–old Assyia was a passenger in a vehicle that was involved in an accident caused by an uninsured motorist. She suffered a concussion, chest wall injury, open scalp wound, and compression fractures of her thoracic spine. Assyia was hospitalized for three days and then discharged to a rehabilitation center. In late June, she returned home. In August, Assyia sustained additional injuries when she fell while walking.

¶ 3 State Farm insured both Assyia and her host driver. Assyia's counsel wrote to State Farm in November 2008, documenting medical expenses and other financial losses exceeding $52,000, and explaining that the injuries had affected Assyia's daily living activities. Assyia asked State Farm to tender the host driver's $100,000 UM policy limits, plus her own UM policy limits of $50,000. State Farm paid Assyia the host driver's $100,000 policy limits, but determined her claim “was only worth another $2,000” and paid that amount under Assyia's policy.

¶ 4 Assyia filed a breach of contract action against State Farm, alleging it had failed to adequately compensate her under the insurance policy. She sought the balance of her UM policy limits, plus costs and attorneys' fees. State Farm answered and claimed, inter alia, that Assyia was not entitled to recover attorneys' fees because her action sounded in tort, not contract.

¶ 5 After Assyia and her treating physician were deposed, Assyia amended her disclosure statement to assert that injuries and complications from the August 2008 fall were causally related to the automobile accident. Her amended disclosures also re-characterized previously disclosed medical records from the 2008 fall as being “crash related.” State Farm re-evaluated Assyia's claim and tendered the $48,000 balance of her UM coverage.

¶ 6 The parties agreed to submit the question of Assyia's entitlement to fees, costs, and Arizona Rule of Civil Procedure (“Rule”) 68 sanctions to the superior court. After briefing and argument, the court ruled that Assyia was the successful party to a dispute arising out of contract and awarded her fees and costs, but denied Rule 68 sanctions.¹

¶ 7 Assyia's counsel filed an affidavit itemizing the time spent before State Farm tendered the $48,000 in UM benefits (19.9 attorney hours, 12.7 paralegal hours) and the time expended after (32.5 attorney hours, 3.8 paralegal hours). Assyia sought reimbursement for 52.4 hours of attorney time at $400 an hour ($20,960), 16.5 legal assistant hours ($1237.50), and $764.99 in computerized legal research fees. Assyia also filed a statement of costs. State Farm objected to any fee award and alternatively suggested the court award “only a small percentage” of the fees requested. It did not object to the amount of costs, but argued Assyia was not entitled to taxable costs.

¶ 8 The superior court awarded Assyia $19,000 in fees and $763.80 in costs. State Farm timely appealed. We have jurisdiction pursuant to A.R.S. § 12–2101(B).

DISCUSSION

¶ 9 State Farm contends the superior court erred by: (1) awarding Assyia fees pursuant to A.R.S. § 12–341.01(A); (2) awarding an unreasonable amount of fees; and (3) awarding costs. We address each argument in turn.

I. Applicability of A.R.S. § 12–341.01(A)

¶ 10 According to State Farm, Assyia's claim is tort-based, making a fee award under A.R.S. § 12–341.01(A) improper. Section 12–341.01(A) authorizes a fee award to the successful party in “any contested action arising out of a contract.” Application of this provision is a question of statutory interpretation that we review de novo. Ramsey Air Meds, L.L.C. v. Cutter Aviation, Inc., 198 Ariz. 10, 13, ¶ 12, 6 P.3d 315, 318 (App.2000) (citing Hampton v. Glendale Union High Sch. Dist., 172 Ariz. 431, 433, 837 P.2d 1166, 1168 (1992)).

A. Fundamental Nature of the Action

¶ 11 State Farm argues Assyia's claim “is no different than if she had filed a negligence claim against the uninsured motorist,” with the insurer merely stepping into the shoes of the uninsured driver to compensate her for damages caused by that driver's negligence. See State Farm Mut. Auto. Ins. Co. v. Arrington, 192 Ariz. 255, 259, ¶¶ 17–18, 963 P.2d 334, 338 (App.1998) (citations and internal quotation marks omitted) (the purpose of UM coverage is to place the victim's insurer “in the shoes of the tortfeasor” to pay damages for which the uninsured driver is legally liable).² State Farm suggests it is “the ‘functional equivalent’ of a liability carrier for the uninsured motorist.”

¶ 12 An action sounds in contract when the duty breached is “created by the contractual relationship, and would not exist ‘but for’ the contract.” Barmat v. John & Jane Doe Partners A–D, 155 Ariz. 519, 523, 747 P.2d 1218, 1222 (1987); see also ASH, Inc. v. Mesa Unified Sch. Dist. No. 4, 138 Ariz. 190, 192, 673 P.2d 934, 936 (App.1983) (“[A]s used in A.R.S. § 12–341.01, the words ‘arising out of a contract’ describe an action in which a contract was a factor causing the dispute.”). An action sounds in tort when a “mere bystander” could recover because the liability exists without a contract. Barmat, 155 Ariz. at 523 n. 1, 747 P.2d at 1222 n. 1.

¶ 13 Assyia sued State Farm based on her contract with the insurer. See Liberty Ins. Underwriters, Inc. v. Weitz Co., 215 Ariz. 80, 83, ¶ 7, 158 P.3d 209, 212 (App.2007) (citing Tolifson v. Globe Am. Cas. Co., 138 Ariz. 31, 32, 672 P.2d 983, 984 (App.1983)) (“An insurance policy is a contract between the insurer and its insured.”). We agree with Assyia that “[t]he tort committed by the adverse driver was simply the trigger for [State Farm's] contractual duty.” But for the insurance contract, State Farm would have no duty to compensate Assyia for damages caused by the uninsured driver. See Ramsey, 198 Ariz. at 16, ¶ 27, 6 P.3d at 321 (“The test is whether the defendant would have a duty of care under the circumstances even in the absence of a contract.”); cf. Transnational Ins. Co. v. Simmons, 19 Ariz.App. 354, 356, 507 P.2d 693, 695 (1973) (citing Hartford Accident & Indem. Co. v. Mason, 210 So.2d 474 (Fla.Dist.Ct.App.1968)) (six-year statute of limitations for written contract actions governs uninsured motorist claims because “[w]ithout the policy ... there would be no claim against the company”); Ariz. Dep't of Admin. v. Cox, 222 Ariz. 270, 278 n. 6, ¶ 35, 213 P.3d 707, 715 n. 6 (App.2009) (“Underinsured motorist coverage arises from contractual liability.”).

¶ 14 We also disagree with State Farm's assertion that Assyia's action is tort-based because the insurer could contest damages “[l]ike the uninsured motorist” in a negligence action. Indeed, State Farm's reliance on policy language in advancing this claim further bolsters the notion that Assyia's claim is based on and arises under the insurance contract.

B. Breach of Contract

¶ 15 State Farm advances various reasons why it committed no breach of contract. It contends, for example, that the parties “strictly complied with the terms of the contract.” It also posits that no breach occurred because Assyia “never obtained an arbitration award or judgment and State Farm has paid the policy limit.”

¶ 16 These arguments, though, are immaterial to the issue before us. The relevant question is whether the underlying lawsuit is a “contested action arising out of a contract,” A.R.S. § 12–341.01(A), not whether State Farm in fact breached the insurance contract.

C. Contested Action

¶ 17 State Farm argues the fee award was improper because the action was not contested once Assyia “made full disclosure of her claim and damages.” We reject such a restrictive view of the proceedings.

¶ 18 “[A] contested action is one in which the defendant has appeared and generally defends against the claims and demands made by the plaintiff.” Morrison v. Shanwick Int'l Corp., 167 Ariz. 39, 46, 804 P.2d 768, 775 (App.1990); see also Black's Law Dictionary 361 (9th ed. 2009) (defining “contest” to mean an action taken to “deny an adverse claim or assert a defense to it in a court proceeding”). State Farm contested Assyia's claim. It appeared in the lawsuit by filing an answer that denied liability. Even after the UM balance was paid, the action remained contested. The parties agreed Assyia could seek an award of fees and costs. Her ensuing request was vigorously opposed. We have no difficulty concluding that this litigation was a contested matter from its inception through the entry of judgment in the superior court.

D. Effect of Policy Limits

¶ 19 State Farm also argues the fee award was improper because “the parties agreed in the insurance contract that State Farm's maximum payment under the UM provisions would be limited to the $50,000 policy limit.” State Farm relies on the following policy language:

Regardless of the amount of any award, including any judgment or default judgment, we are not obligated to pay any amount in excess of the...