Hays v. Continental Ins. Co.

• Decision Date: 14 April 1992
• Docket Number: CA-CV,No. 1,1
• Citation: 172 Ariz. 573,838 P.2d 1334
• Parties: Maxine HAYS, a single person, Plaintiff-Appellant, v. CONTINENTAL INSURANCE COMPANY, a corporation, Defendant-Appellee. 90-600.
• Court: Arizona Court of Appeals

Page 1334

838 P.2d 1334

172 Ariz. 573

Maxine HAYS, a single person, Plaintiff-Appellant, v. CONTINENTAL INSURANCE COMPANY, a corporation, Defendant-Appellee.

No. 1 CA-CV 90-600.

Court of Appeals of Arizona Division 1, Department D.

April 14, 1992.

Review Granted Nov. 3, 1992.

[172 Ariz. 575] Arnett & Arnett by Mark W. Arnett, Wayne C. Arnett, Tempe, for plaintiff-appellant.

Robbins & Green, P.A. by David J. Gilchrist, Phoenix, and Grossman, O'Grady & McGoldrick by Michael J. O'Grady, Scottsdale, for defendant-appellee.

OPINION

VOSS, Judge.

Plaintiff/Appellant Maxine Hays challenges the constitutionality of Ariz.Rev.Stat.Ann. ("A.R.S.") § 23-930, which provides that the Arizona Industrial Commission has exclusive jurisdiction over complaints that an employer, self-insured employer, insurance carrier or claims processing representative engaged in unfair practices or bad faith in processing workers' compensation claims.

I. FACTS AND PROCEDURE BELOW

Plaintiff injured her back in a job-related accident. Continental Insurance Company (Continental), the insurance carrier, denied benefits to plaintiff. Plaintiff filed in the superior court an action in tort against Continental. Plaintiff alleged that Continental knowingly breached its duty of good faith and fair dealing owed to plaintiff by denying and delaying benefits without a reasonable basis for doing so. Plaintiff asserted that as a result of the wrongful conduct of Continental she suffered emotional distress as well as out-of-pocket expenses.

Continental filed a motion to dismiss arguing that the superior court did not have jurisdiction over plaintiff's complaint because A.R.S. § 23-930(A) gives the commission exclusive jurisdiction over bad faith claims arising in a workers' compensation setting. ¹ Plaintiff argued that the statute is unconstitutional because it violates art. 18, § 6 of the Arizona Constitution, which forbids legislative abrogation of the right to bring common law actions to recover damages for injuries. Plaintiff further contended that A.R.S. § 23-930 unconstitutionally limited her damages for bad faith and deprived her of her right to a trial by jury.

The trial court dismissed plaintiff's action, declining to find A.R.S. § 23-930 unconstitutional because art. 18, § 8 of the Arizona Constitution allows a workers' compensation scheme by which an employee may elect between receiving workers' compensation benefits or retaining the right to sue the employer or the employer's agents. The court found that because plaintiff had chosen the workers' compensation law alternative, the commission was the forum for her claims. Plaintiff timely appealed the dismissal of her complaint.

II. DISCUSSION

On appeal, plaintiff argues that A.R.S. § 23-930 is unconstitutional because it abrogates her right to bring a bad faith cause of action, limits her recovery of damages and abolishes her right to a trial by jury. Continental asserts that plaintiff is barred from attacking A.R.S. § 23-930 on constitutional grounds because a litigant may not claim affirmative relief under a legislative act and also argue that a portion of the act is unconstitutional. See Haggard v. Industrial Commission, 71 Ariz. 91, 223 P.2d 915 (1950). This general rule does not require unconditional adherence. Ruth v. Industrial Commission, 107 Ariz. 572, 574, 490 P.2d 828, 830 (1971). This court has the power to hear a challenge such as the one before us and will do so in appropriate circumstances. Id. We choose to consider plaintiff's appeal for three reasons: (1) she has not availed herself of the relief available under A.R.S. § 23-930; (2) this situation is capable of repetition yet evading review; and, (3) this issue is one of great statewide importance. Id.

IS A CAUSE OF ACTION FOR BAD FAITH AGAINST AN INDUSTRIAL COMMISSION INSURANCE CARRIER PROTECTED BY ART. 18, § 6 OF THE ARIZONA CONSTITUTION?

The Arizona Constitution, art. 18, § 6, provides:

The right of action to recover damages for injuries shall never be abrogated, and the amount recovered shall not be subject to any statutory limitation.

The plaintiff contends that this provision precludes the enactment of a statute limiting or abrogating her right to recover for the bad faith of the insurance carrier. Our courts have recognized that art. 18, § 6 protects all actions recognized at common law at the time of its adoption. Bryant v. Continental Conveyor & Equip. Co., 156 Ariz. 193, 751 P.2d 509 (1988). However, the protection does not extend to causes of action not recognized at common law. Id. (protection does not extend to strict products liability because tort of strict products liability did not exist when art. 18, § 6 was adopted).

Plaintiff cites Franks v. United States Fidelity & Guaranty Company, 149 Ariz. 291, 718 P.2d 193 (App.1985), for the proposition that the cause of action for bad faith was recognized at common law and is therefore protected by art. 18, § 6. In Franks this court held that the tort of insurance bad faith was protected by art. 18, § 6 because an obligation to act with good faith was a "well-recognized principle of the common law." Id. at 299, 718 P.2d at 201. While we agree that is so, that obligation did not create a cause of action in tort. Instead, the cause of action for bad faith was recognized in Arizona for the first time in 1981 when our supreme court held "there is a legal duty implied in an insurance contract that an insurance company must act in good faith in dealing with its insured on a claim, and a violation of that duty of good faith is a tort." Noble v. National American Life Ins. Co., 128 Ariz. 188, 190, 624 P.2d 866, 868 (1981). The court recognized the tort of bad faith only in relation to insurance contracts. Id.

The Franks court's finding that the tort of bad faith arose from long established principles of common law, and was thus protected by art. 18, § 6, is inconsistent with the supreme court's holding in Noble. Noble focused on the fact that the contract in question was an insurance contract and limited its holding establishing a cause of action for bad faith to cases involving insurance contracts. However, all contracts in Arizona contain an implied obligation of good faith and fair dealing. Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986). If that implied obligation with respect to an insurance contract is sufficient to give the insured a constitutionally protected right to sue for bad faith, would not the same obligation with respect to other types of contracts also guarantee the same right? Does every breach of contract give rise to a cause of action for bad faith? If this were so it would give a new meaning to the phrase "explosion of tort litigation" as in many cases the damages available in a bad faith action will be much more attractive than the damages available in a breach of contract action.

Plaintiff also argues that a cause of action for bad faith is an intentional tort and is therefore protected by art. 18, § 6 because intentional torts were part of the common law. Franks, 149 Ariz. 291, 718 P.2d 193. This approach has been rejected by our supreme court in Bryant, 156 Ariz. 193, 751 P.2d 509. In Bryant the court held that strict products liability did not exist at the time art. 18, § 6 was adopted and thus was not protected by the provision. Earlier the supreme court had recognized that some strict liability torts existed at common law and are entitled to protection under art. 18, § 6. Boswell v. Phoenix Newspapers, Inc., 152 Ariz. 9, 730 P.2d 186 (1986), cert. denied, 481 U.S. 1029, 107 S.Ct. 1954, 95 L.Ed.2d 527 (1987) (common law imposed strict liability on publisher of defamatory statements, thus the right to recover damages resulting from defamation is protected by art. 18, § 6.) ² The supreme court, by its decision in Bryant, indicated its rejection of a classification approach to the analysis of whether a cause of action existed at common law, in favor of an approach that focuses on the actual cause of action, rather than its label.

We find that the cause of action for insurance bad faith did not exist at common law and is therefore not protected by art. 18, § 6 of the Arizona Constitution.

Plaintiff also contends that A.R.S. § 23-930 violates art. 2, § 31 of the Arizona Constitution. Art. 2, § 31 does not apply to causes of action that did not exist when the Arizona Constitution was adopted, thus plaintiff's argument fails. Smith v. Coronado Foothills Estates Homeowners Ass'n, Inc., 117 Ariz. 184, 571 P.2d 681 (App.1977), vacated on other grounds, 117 Ariz. 171, 571 P.2d 668 (1977).

DOES A.R.S. § 23-930 VIOLATE PLAINTIFF'S CONSTITUTIONAL RIGHT TO A JURY TRIAL PURSUANT TO ART. 2, § 23 OF THE ARIZONA CONSTITUTION?

Plaintiff asserts that A.R.S. § 23-930 violates her constitutional right to a jury trial. We disagree. Art. 2, § 23 does not give a right to a jury trial, rather, it guarantees preservation of the right to a jury trial that existed at common law. Hoyle v. Superior Court In and For County of Maricopa, 161 Ariz. 224, 778 P.2d 259 (App.1989). The cause of action for insurance bad faith did not exist at common law, thus there could be no right to a jury trial. If the plaintiff has no constitutional right to a jury trial, the legislature has considerable discretion in deciding whether a jury trial will be afforded. Rothweiler v. Superior Court of Pima County, 1 Ariz.App. 334, 402 P.2d 1010 (1965), aff'd, 100 Ariz. 37, 410 P.2d 479 (1966).

Ariz.Rev.Stat.Ann. § 23-930 provides that cases involving bad faith arising out of workers' compensation claims are within the exclusive jurisdiction of the industrial commission. The legislature exercised its discretion when it enacted A.R.S. § 23-941, which provides that hearings concerning workers' compensation claims shall be before an administrative law judge. The legislature enacted the Workers' Compensation Act pursuant to art. 18, § 8 of the Arizona Constitution. The purpose...