Gatecliff v. Great Republic Life Ins. Co.

• Decision Date: 03 December 1991
• Docket Number: No. CV-90-0223-PR,CV-90-0223-PR
• Citation: 821 P.2d 725,170 Ariz. 34
• Parties: Kristin GATECLIFF, a married woman, and Kevin Gatecliff, her husband, Plaintiffs-Appellants, v. GREAT REPUBLIC LIFE INSURANCE COMPANY, a Washington corporation, Defendant-Appellee.
• Court: Arizona Supreme Court

Page 725

821 P.2d 725

170 Ariz. 34

Kristin GATECLIFF, a married woman, and Kevin Gatecliff, her husband, Plaintiffs-Appellants, v. GREAT REPUBLIC LIFE INSURANCE COMPANY, a Washington corporation, Defendant-Appellee.

No. CV-90-0223-PR.

Supreme Court of Arizona,

In Banc.

Dec. 3, 1991.

[170 Ariz. 35] Kunz & Waugh, Ltd. by Donald R. Kunz, Phoenix, for plaintiffs-appellants.

Stockton & Hing by Robert Ong Hing, Joyce N. Van Cott, Jeffrey M. Koontz and Thomas F. Ames, Scottsdale, for defendant-appellee.

OPINION

CAMERON, Justice.

I. JURISDICTION

Kristin and Kevin Gatecliff (plaintiffs) petition for review of the court of appeals' memorandum decision affirming the trial court's order of summary judgment for Great Republic Life Insurance Co. (Great Republic). Great Republic is a Washington corporation. We granted review under rule 23, Ariz.R.Civ.App.P., 17A A.R.S. We have jurisdiction under Ariz. const. art. 6, § 5(3) and A.R.S. § 12-120.24.

II. ISSUE PRESENTED

Plaintiffs present three issues for review. Our resolution of the first issue, however, makes it unnecessary for us to reach the remaining two. The issue we resolve is:

Did the plaintiffs introduce evidence sufficient to create a genuine issue of material fact regarding Great Republic's liability under the alter ego, instrumentality or direct liability theories?

III. FACTS

Kristin Gatecliff, a California resident, was insured for health care under Great Republic's Allcare group policy through her employer. While the policy was in effect, Kristin was diagnosed with rheumatoid arthritis. She submitted claims to Great Republic for medical benefits provided under the policy, and Great Republic paid them. Thereafter, Great Republic cancelled Kristin's insurance and denied all other claims for benefits. Plaintiffs protested the cancellation of the insurance, asserting bad faith breach of contract on the ground that Kristin's right to payments from Great Republic for future medical expenses vested, notwithstanding cancellation of the policy, when treatment for the arthritis became necessary.

Plaintiffs, when faced with Great Republic's denial of their claims, sought conversion coverage under an alternative policy available to former Allcare policyholders. In response, plaintiffs received a letter on Great Republic Life Insurance Company letterhead with an address in Toluca Lake, California. The letter stated that Great Republic had terminated the Allcare Master Plan contract, thereby cancelling insurance for all groups or individuals enrolled in the plan. Regarding conversion coverage, the letter directed plaintiffs to complete an enclosed application and submit it "directly to Great Republic Life Insurance Company in ... Seattle, Washington." The letter further explained that an agent in Washington would "explain the benefits, quote premium[s] and determine eligibility." Thereafter, plaintiffs corresponded only with Great Republic in Washington (GRW).

Correspondence from GRW directed plaintiffs to send premiums and any claims plaintiffs might incur to the Seattle office. The letter further related the effective date of plaintiffs' conversion coverage and established that premiums would be due on the first of each month. A later letter explained that Kristin was eligible for conversion coverage, but emphasized that "the benefits under the Conversion Plan are less than those of the Allcare Plan." This letter from GRW, signed by James D. O'Hanlon (O'Hanlon) as vice-president of "Great Republic Life Insurance Company," stated, "We have the right to cancel the Allcare plan and we have done so effective October 31, 1984." (Emphasis added).

Plaintiffs submitted into evidence eight letters they received from Great Republic. Although some letterheads indicated a California or Washington address for Great Republic, none of the letterheads indicated that the company was Great Republic of California or Great Republic of Washington. Furthermore, all letterheads displayed the same corporate logo in the upper left-hand corner of the stationary regardless of the address given.

IV. PROCEDURAL HISTORY

After determining from the Arizona Department of Insurance that GRW was authorized to do business in Arizona, plaintiffs filed a complaint naming GRW as defendant. Plaintiffs alleged that GRW was a Washington corporation with its principal place of business in California and authorized to do business in Arizona as a foreign insurer. The complaint further alleged breach of contract and bad faith, and sought compensatory and punitive damages. Attached to the complaint were memoranda, letters, a certificate of coverage and a master group policy, all of which reflected California addresses for the "Great Republic Life Insurance Company."

GRW filed a Motion to Dismiss/Motion for Summary Judgment, on the grounds that the complaint failed to state a claim upon which relief could be granted, that the court lacked subject matter jurisdiction and because of forum non conveniens. Attached to the motion was O'Hanlon's affidavit stating that he was the vice-president and general counsel of "Great Republic Life Insurance Company, a Washington insurer," formed under the laws of Washington with its principal place of business and home offices in Seattle, Washington. He asserted further that GRW's California subsidiary, also called Great Republic Life Insurance Company (GRC), issued plaintiffs' insurance policy, and that GRC operates separate and apart from GRW. O'Hanlon also said that GRC was not authorized to transact insurance in Arizona and maintained no offices, agents, employees or property in Arizona.

The trial court granted GRW's motion to dismiss and plaintiffs appealed. The court of appeals reversed and remanded to the trial court, holding that discovery of the interrelationship between the two corporations "might yield theories of the Washington parent's liability based on an alter ego theory or under the law of agency...." Gatecliff v. Great Republic Life Ins. Co., 154 Ariz. 502, 509, 744 P.2d 29, 36 (App.1987). The court, however, expressed no opinion about the ultimate viability of these theories. On remand, the trial court granted GRW's motion for summary judgment and plaintiff again appealed to the court of appeals.

In affirming the trial court's order of summary judgment, the court of appeals concluded that plaintiffs failed to establish disputed issues of material fact as to an essential element of their action, unity of control. Therefore, the "plain language of rule 56(c) mandate[d] the entry of summary judgment." Memo.Dec. at 5 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265, 272 (1986)). We accepted review because we believe that the evidence was sufficiently disputed to make a grant of summary judgment inappropriate.

V. DISCUSSION

We have held that a motion for summary judgment should not be granted if there is evidence creating a genuine issue of material fact. Orme School v. Reeves, 166 Ariz. 301, 305, 802 P.2d 1000, 1004 (1990). Moreover, when a motion for summary judgment is presented, "[t]he trial court is required to consider those portions of the ... [record] which are brought to the court's attention by the parties." Choisser v. State ex rel. Herman, 12 Ariz.App. 259, 261, 469 P.2d 493, 495 (1970) (citing Pitzen's Wig Villa v. Pruitt, 11 Ariz.App. 332, 464 P.2d 652 (1970)). On appeal from a grant of summary judgment, this court views the facts "in the light most favorable to the party against whom judgment was taken." Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 387, 682 P.2d 388, 392 (1984) (citing Gulf Ins. Co. v. Grisham, 126 Ariz. 123, 124, 613 P.2d 283, 284 (1980)).

We hold that the trial court erred in failing to find a question of fact regarding unity of control under either an alter ego or an instrumentality theory. Furthermore, we believe the plaintiffs have produced evidence sufficient to withstand summary judgment under a direct liability theory.

A. GRW's Liability under Alter Ego Theory

GRW argues that under an alter ego theory, which allows a parent corporation to be held liable for the acts of its subsidiary when the individuality or separateness of the subsidiary corporation has ceased, 18 Am.Jur.2d Corporations § 56, at 862 (1985), plaintiffs must prove both (1) unity of control and (2) that observance of the corporate form would sanction a fraud or promote injustice. Dietel v. Day, 16 Ariz.App. 206, 208, 492 P.2d 455, 457 (1972) (citing Employer's Liability Assurance Corp. v. Lunt, 82 Ariz. 320, 323, 313 P.2d 393, 395 (1957)). The court of appeals agreed and concluded that plaintiffs had failed to establish a material issue of fact as to unity of control. It therefore never reached the second portion of the alter ego test. We disagree with this analysis.

The record suggests GRW exercised "substantially total control over the management and activities of" GRC. 18 Am.Jur.2d Corporations § 59, at 870 (1985). Substantially total control may be proved by showing, among other things: stock ownership by the parent; common officers or directors; financing of subsidiary by the parent; payment of salaries and other expenses of subsidiary by the parent; failure of subsidiary to maintain formalities of separate corporate existence; similarity of logo; and plaintiff's lack of knowledge of subsidiary's separate corporate existence. Id. We note that in this case, at least five of the enumerated seven factors are present.

O'Hanlon stated that GRW corresponded with plaintiffs pursuant to an "arms length" administrative services agreement (Agreement) between GRW and GRC. O'Hanlon's affidavit, however, establishes that he was vice-president of both GRW and GRC, and that he signed four amendments to the Agreement for both companies. Furthermore, examination of Great Republic documents demonstrates an escalation in services performed by GRW for GRC under the agreement. In 1979,...