Hayes v. Continental Ins. Co.

Citation872 P.2d 668,178 Ariz. 264
Decision Date21 April 1994
Docket NumberNo. CV-92-0199-PR,CV-92-0199-PR
PartiesMaxine HAYES, a single person, Plaintiff-Appellant, v. CONTINENTAL INSURANCE COMPANY, a corporation, Defendant-Appellee.
CourtSupreme Court of Arizona

FELDMAN, Chief Justice.

This case turns on the interpretation of A.R.S. § 23-930, a statute regulating bad faith claims asserted against workers' compensation carriers. We granted review in this case, and in the companion cases of Doskocz v. Birmingham Fire Ins. Co., No. CV-92-0238-PR, and Ring v. State Compensation Fund, No. CV-92-0256-PR, to determine how A.R.S. § 23-930 should be applied and whether it violates our constitution. These are questions of first impression and statewide importance. See Ariz.R.Civ.App.P. 23(c)(4). We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3), and A.R.S. § 12-120.24.


The facts of this case are few and uncontroverted. In 1987, Maxine Hayes ("Plaintiff") suffered a back injury at work and subsequently filed a claim for workers' compensation benefits. Her employer's compensation carrier, Continental Insurance Co. ("Defendant"), denied her claim. At an Industrial Commission hearing, Defendant provided no justification for the denial. After Defendant refused Plaintiff's demands for payment, Plaintiff brought a tort action for damages, alleging that Defendant had acted in bad faith by intentionally withholding payment without reasonable justification. Defendant moved to dismiss for lack of subject matter jurisdiction, asserting that A.R.S. § 23-930 divests state courts of all jurisdiction over such actions.

Plaintiff opposed the motion, arguing that the statute abrogates her cause of action for bad faith and limits her recoverable damages, thus violating Ariz. Const. art. 18, § 6, and art. 2, § 31. Plaintiff also alleged that the statute violates her right to a jury trial guaranteed by art. 2, § 23. Rejecting Plaintiff's arguments, the trial court held the statute constitutional, reasoning that art. 18, § 8 permits the legislature to restrict the remedies and procedures available to workers who did not reject workers' compensation coverage. 1 The trial judge therefore granted Defendant's motion to dismiss.

The court of appeals affirmed the trial court's ruling on different grounds, holding that the cause of action arising from an insurer's bad faith did not exist at the time our constitution was adopted and was therefore unprotected by the anti-abrogation provisions of art. 18, § 6. Hays v. Continental Ins. Co., 172 Ariz. 573, 838 P.2d 1334 (1992). In reaching that conclusion, the court of appeals relied on Bryant v. Continental Conveyor & Equip. Co., 156 Ariz. 193, 751 P.2d 509 (1988), which we subsequently overruled in Hazine v. Montgomery Elevator Co., 176 Ariz. 340, 861 P.2d 625 (1993).

Plaintiff sought review of the court of appeals' opinion. In this court, the parties joined issue on a preliminary question: does § 23-930, properly interpreted, preempt the jurisdiction of our state courts to adjudicate bad faith claims against workers' compensation carriers? If not, there is no need to consider any constitutional issues. See Petolicchio v. Santa Cruz County Fair & Rodeo Ass'n, 177 Ariz. 256, 259, 866 P.2d 1342, 1345 (1994) (constitutional question avoided because unnecessary to resolve appeal); Dunn v. Industrial Comm'n, 177 Ariz. 190, 196, 866 P.2d 858, 864 (1994) (same). We therefore examine first the statute's proper interpretation.


In two opinions, one filed before A.R.S. § 23-930 was adopted and one filed shortly thereafter, the Arizona Court of Appeals held that the exclusivity doctrine 2 does not bar common-law actions for bad faith against workers' compensation carriers. Boy v. Fremont Indem. Co., 154 Ariz. 334, 742 P.2d 835 (Ct.App.1987); Franks v. United States Fidelity & Guar. Co., 149 Ariz. 291, 718 P.2d 193 (Ct.App.1985). In 1987, our legislature enacted § 23-930. 3 Defendant argues that this statute deprives the courts of jurisdiction over Plaintiff's common-law action.

A. The text of A.R.S. § 23-930

Plaintiff and amicus claim that the courts below mistakenly assumed that § 23-930 divests Arizona courts of jurisdiction in cases such as this. They argue that § 23-930 merely establishes an administrative system to resolve such complaints, leaving intact judicial jurisdiction to hear common-law bad faith actions.

If a statute's language is clear and unambiguous, we apply it without resorting to other methods of statutory interpretation. State v. Reynolds, 170 Ariz. 233, 234, 823 P.2d 681, 682 (1992). Ambiguity exists if there is uncertainty about the meaning or interpretation of a statute's terms. State v. Sweet, 143 Ariz. 266, 269, 693 P.2d 921, 924 (1985). Plaintiff argues that there is more than one reasonable interpretation of the statute's grant of "exclusive" jurisdiction to the Industrial Commission ("the Commission").

Although the trial and appellate courts assumed that the statute preempts and divests all state courts of jurisdiction over workers' compensation bad faith cases, Plaintiff correctly notes that the statute does not explicitly say this. In fact, it does not mention either common-law damage actions or divestiture of court jurisdiction. Instead, the statute states only that "[t]he commission has exclusive jurisdiction as prescribed in this section over complaints involving alleged unfair claim processing practices or bad faith" by compensation carriers. A.R.S. § 23-930(A) (emphasis added).

This sentence has at least two plausible interpretations. First, the legislature might have meant to deprive the judiciary of all power to hear damage actions sounding in bad faith, transferring exclusive jurisdiction over such common-law claims to an administrative forum: the Commission. Second, the legislature might have meant to give the Commission exclusive jurisdiction only over the administrative complaints and penalties authorized and created by the statute, leaving intact the courts' jurisdiction over common-law damage actions.

The fact that the statute grants the Commission jurisdiction over something other than common-law bad faith actions bolsters the second interpretation. The statute directs the Commission to adopt a definition of unfair claim processing practices and bad faith based, among other factors, on "recognized and approved claim processing practices within the insurance industry...." However, Arizona courts have long recognized that the scope of an insurer's duty of good faith "cannot be delineated by customs of the insurance industry." Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 539, 647 P.2d 1127, 1137, cert. denied, 459 U.S. 1070, 103 S.Ct. 490, 74 L.Ed.2d 632 (1982); see also Rawlings v. Apodaca, 151 Ariz. 149, 158, 726 P.2d 565, 574 (1986) (compliance with industry custom is not an absolute defense to a bad faith claim). Thus, by saying that the Commission has "exclusive jurisdiction as prescribed in this section," the statute seems to grant the Commission jurisdiction only over those administrative complaints meeting this special statutory definition, which differs from that of the common law. Such an interpretation, of course, would not affect the courts' jurisdiction over common-law actions. This interpretation is further supported by the scant remedy provided for victims of bad faith practices. 4

B. Interpretation of ambiguous statutes

The foregoing analysis demonstrates that the statute's text allows for more than one rational interpretation. In such cases courts may resolve doubt by resorting to statutory interpretation. Sweet, 143 Ariz. at 269, 693 P.2d at 924 (1985). If possible, of course, we try to determine and give effect to the legislature's intent. See, e.g., Devenir Assoc. v. City of Phoenix, 169 Ariz. 500, 503, 821 P.2d 161, 164 (1991); Calvert v. Farmers Ins. Co., 144 Ariz. 291, 294, 697 P.2d 684, 687 (1985). In pursuing this goal, we consider the statute's context; its language, subject matter, and historical background; its effects and consequences; and its spirit and purpose. Wyatt v. Wehmueller, 167 Ariz. 281, 284, 806 P.2d 870, 873 (1991); State v. Korzep, 165 Ariz. 490, 493, 799 P.2d 831, 834 (1990); Martin v. Martin, 156 Ariz. 452, 457, 752 P.2d 1038, 1043 (1988); see also Estate of Hernandez v. Arizona Board of Regents, 177 Ariz. 244, 866 P.2d 1330 (1994) (examining statute's history, effects, wording, and the context of the overall legislative scheme). We begin our analysis by examining the statute's history.

C. The statute's history

The timing of this statute's adoption tells little about the legislature's intent. The legislation that became § 23-930 was first introduced in February 1987, over a year after the Franks opinion was filed and several months before Boy. Thus, there is no clear indication from its timing that the legislature adopted the statute in response to either of these opinions.

We next examine the statute's journey through the legislature. Divining Congress' intent by examining legislative history has been derided by Justice Scalia as "the equivalent of entering a crowded cocktail party and looking over the heads of the guests for one's friends." Conroy v. Aniskoff, 507 U.S. 511, ----, 113 S.Ct. 1562, 1567, 123 L.Ed.2d 229 (1993) (Scalia, J.,...

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