Filasky v. Preferred Risk Mut. Ins. Co., CV-86-0237-T

• Citation: 734 P.2d 76,152 Ariz. 591
• Decision Date: 02 March 1987
• Docket Number: No. CV-86-0237-T,CV-86-0237-T
• Parties: Linda Ellen FILASKY, Plaintiff-Appellee, v. PREFERRED RISK MUTUAL INSURANCE COMPANY, an Iowa corporation, Defendant- Appellant.
• Court: Supreme Court of Arizona

Page 76

734 P.2d 76

152 Ariz. 591

Linda Ellen FILASKY, Plaintiff-Appellee, v. PREFERRED RISK MUTUAL INSURANCE COMPANY, an Iowa corporation, Defendant- Appellant.

No. CV-86-0237-T.

Supreme Court of Arizona.

March 2, 1987.

Reconsideration Denied April 15, 1987.

Patten, Montague & Arnett by Sharon G. Slifko, W. Dea Montague, Tempe, for plaintiff-appellee.

Gust, Rosenfeld, Divelbess & Henderson by Richard A. Segal, Phoenix, for defendant-appellant.

GORDON, Chief Justice.

Plaintiff, Linda Ellen Filasky ("Filasky"), was insured by defendant, Preferred Risk Mutual Insurance Company ("Preferred Risk"), under an automobile insurance policy and homeowner's insurance policy. This case arises from events surrounding settlement of three claims under the two policies. All three claims were handled by Preferred Risk's Tempe office. Throughout the handling of Filasky's three claims, Robert Novak ("Novak") was the claims manager, and Mike Gordon ("Gordon") was the claims adjuster.

Filasky was injured in an automobile accident while working on June 17, 1982. She was hospitalized for approximately two weeks. Preferred Risk paid Filasky's claim for lost-income benefits under her automobile policy by drafts dated May 16, 1983, for $1200, and November 21, 1983, for $7800. Filasky's house was burglarized on approximately June 26, 1982, while she was hospitalized. By draft dated January 25, 1984, Preferred Risk paid Filasky $3900.08 for her theft loss under her homeowner's policy. On July 7, 1982, a rainstorm damaged Filasky's roof and family room. Preferred Risk paid Filasky's water-damage claim by draft dated February 18, 1983, for $650. Both parties agree that all benefits due Filasky under her insurance policies have been paid.

In May 1983, Filasky filed an action against Preferred Risk for breach of duty of good faith, declaratory relief, consumer fraud, intentional infliction of emotional distress, unfair or deceptive insurance practices, and racketeering. A jury returned a verdict in favor of Filasky for $100,000 in The trial court denied Preferred Risk's motions for new trial and judgment notwithstanding the verdict. Preferred Risk filed a notice of appeal, and we granted its motion to transfer pursuant to Rule 19, Ariz.R.Civ.App.P. We affirm the jury's finding of bad faith and its compensatory damage award but reverse its award of punitive damages.

[152 Ariz. 593] compensatory damages and $1,000,000 in punitive damages.

FACTS

A. Loss-of-Earnings Claim

On June 17, 1982, Filasky was injured in an automobile accident while working and while a passenger in her own automobile driven by her friend, Charles Buff. She was hospitalized for approximately two weeks during which time she was absent from work. Filasky filed a loss-of-earnings claim under the following provisions of her automobile insurance policy:

Loss of Income Benefits

To pay eighty-five (85) percent of loss of income resulting from bodily injury, sickness or disease, caused by accident, for the period of continuous total disability beginning the fifteenth day after the accident and terminating one year and fourteen days from the date of the accident, or at death, whichever occurs first, not in excess of $750.00 per month.

* * *

* * *

Other insurance

Insurance afforded under Part II [which includes "Loss of Income Benefits"] shall be excess insurance over any benefits the injured person has the right to receive under any Workmen's Compensation Law.

On July 19, 1982, Gordon visited Filasky and had her sign two release forms. One form authorized Filasky's employer to release information; the other form authorized medical personnel to release information. Preferred Risk never exercised its authority provided by these forms until after Filasky initiated legal action in May 1983. Preferred Risk also never requested Filasky to directly furnish it with her doctors' records.

At some time after July 19, 1982, Gordon learned that Filasky was receiving workers' compensation. He then requested medical information from the State Compensation Department because "[i]t's usually a good source of getting the entire medical picture" and faster than getting information from physicians, who, Novak testified, "are notorious for being dilatory in submitting reports."

At Preferred Risk's request, Filasky permitted Dr. Sidney Stovall to conduct an independent medical exam on September 17, 1982. Stovall concluded that Filasky's physical complaints were "subjective in nature" and was "unable to demonstrate any objective evidence of any injuries being present.... I feel that the patient is physically able to return back to her normal occupation at anytime, and would not anticipate any permanent impairment resulting from the injury of 6/17/82." Preferred Risk received Stovall's report on September 27, 1982.

During Novak's deposition, he said that he believed on September 27, 1982, that Filasky was entitled to some lost-income benefits. When asked why benefits had not yet been paid, he responded: "Because there was the question of how much." He also admitted that he knew Filasky had not worked since the accident and was receiving workers' compensation.

In a letter to Filasky dated October 1, 1982, Novak wrote:

I have just been informed by our Home Office that your policy had been changed to a Standard form two days before this accident. With the change of policy form, there would be no loss of earnings benefit. If you feel there was some error made in making this change, please immediately contact both the agent and myself.

The letter also summarized Stovall's conclusions which, per Novak, precluded recovery of lost income regardless of the type of policy. The letter did inform Filasky that another independent medical exam could be Novak attached a copy of Stovall's report to a letter to the State Compensation Department dated October 1, 1982, in which he requested "whatever medical records and reports that you may have so that we can have our medical consultant review them." Gordon's earlier request for medical records had gone unanswered.

[152 Ariz. 594] conducted at her request if she disagreed with Stovall's findings.

Filasky's attorney contacted Novak in October and informed Novak that he believed his client's policy covered lost earnings. Novak then checked with his superiors who subsequently confirmed in November or December that Filasky's policy did provide loss-of-income benefits. He informed Filasky's attorney of the mistake and said he would continue attempting to obtain medical reports from the State Compensation Department.

During the summer and fall of 1982, Filasky's physician was Dr. Frederick Snyder. It was Snyder's opinion that Filasky should not return to work until October 18, 1982, and then only for five or six hours each day. She returned to work in October and worked three to five hours daily for approximately five weeks. Because she could not handle the stress load and work load, her employer terminated her when it reduced its work force.

Novak made a second request for medical information from the State Compensation Department in a letter dated March 21, 1983, and a third request during a telephone conversation on May 6, 1983. He discovered during the telephone conversation that Filasky was still receiving workers' compensation. On May 16, 1983, Preferred Risk issued a check for $1200 to Filasky for lost wages from the fifteenth day following her accident through the date of Stovall's exam.

Filasky commenced legal action on May 18, 1983. Only after litigation ensued did Preferred Risk seek medical records directly from Filasky's physicians--even though Preferred Risk knew as early as October 1, 1982, who her physicians were. Preferred Risk requested the medical information in July 1983 and received it during the following three months. Based on its review of the medical records, Preferred Risk issued a check for $7800 to Filasky on November 21, 1983, for the remainder of lost-income benefits due her.

B. Theft Claim

Filasky and her husband, Jeff, were separated but not divorced at the time events gave rise to the three claims. Jeff discovered that a burglary had occurred at his wife's home when he went to the home to remove some personal effects on June 26, 1982. Filasky returned home from the hospital on June 28 and reported the theft on July 7 to her agent, Jack Seibert.

Gordon visited the home between July 7 and July 12. Filasky gave Gordon a copy of a handwritten list of stolen items that had been attached to a police report. Gordon testified that he told Filasky that he needed additional information, such as dates of purchase, age of item, model, etc. Filasky testified that Gordon said the handwritten report was "all that he needed to take care of the report that I was filling out for him." Gordon then mailed or personally delivered a proof-of-loss form, inventory sheets, and an instruction letter to Filasky. The instruction letter requested an item description, quantity, owner, date and place of purchase, and replacement cost of each stolen item. Filasky testified that "it was requested that I transfer the [hand]written form onto the Preferred Risk form."

On July 19, 1982, Gordon discussed certain items on the handwritten list with Jeff during an authorized taped telephone conversation. When asked about the ownership of certain camera equipment, Jeff responded: "Uh, to my knowledge, they must have belonged to Linda's boyfriend, Chuck. Because we didn't have any of that equipment to my knowledge." When Gordon asked about a Sony TV, Jeff responded: "I don't know anything about that." When Gordon asked if Jeff knew anything about a Sony stereo, Jeff responded: "No the only stereo that I know about I don't even know what the name of it was...."

In a file memo dated July 23, 1982, Gordon wrote: "Husband told agent [Seibert] wife wanted to claim things that he has at his apartment as stolen; said the insurance company wouldn't know." At...