Lozier v. Auto Owners Ins. Co.
| Decision Date | 24 January 1992 |
| Docket Number | No. 90-16597,90-16597 |
| Citation | 951 F.2d 251 |
| Parties | Rosemary LOZIER, Plaintiff-Appellee, v. AUTO OWNERS INSURANCE CO., a Michigan Corporation, Defendant-counter-claimant-Appellant; Wilbur McDonald; Mary Lou McDonald, Counter-defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Paul G. Ulrich, William A. Downey, Rake, Copple, Downey & Black, Phoenix, Ariz., for defendant-counter-claimant-appellant.
Michael R. Murphy, Toci, Murphy, Lutey & Beck, Prescott, Ariz., John J. Bouma, Snell & Wilmer, Phoenix, Ariz., for plaintiff-appellee.
Appeal from the United States District Court for the District of Arizona.
Before CHAMBERS, TANG and TROTT, Circuit Judges.
Rosemary Lozier and Wilbur McDonald were involved in a car accident, and Lozier was severely injured. McDonald's insurer, Auto Owners Insurance Company ("Auto Owners"), mishandled the claim. Pursuant to Arizona law, McDonald assigned to Lozier his bad-faith and contract claims against Auto Owners. Lozier sued Auto Owners on those claims. Sitting without a jury, the district court entered judgment of $3.5 million for Lozier. Auto Owners appeals. We have jurisdiction under 28 U.S.C. § 1291 (1988), and we affirm.
McDonald and Lozier had what Lozier described as a "seven months commonlaw" [sic] marriage, with a history of violence. On January 19, 1986, McDonald and Lozier had an argument, and Lozier moved out of their home. That night, they saw each other in the parking lot of a restaurant, and had a noisy dispute. Each had been drinking. They drove away in separate cars.
Later that evening, they were involved in a two-car accident, McDonald driving one car and Lozier the other. As a result of the accident, Lozier suffered a broken back and a severed spinal column. She is now a quadriplegic. McDonald was not seriously hurt. His blood-alcohol level was later tested at .18%.
At the time of the accident, McDonald was insured by Auto Owners, with a policy limit of $100,000 per person injured. The policy was valid and the premiums were paid up. The policy contained the following provision:
McDonald told the police that Lozier had caused the accident by ramming his car from behind. In contrast, Lozier told the police that McDonald had rammed her. There were no other witnesses to the accident.
Auto Owners hired Ken Fisher to investigate the accident, 1 and he soon learned of Lozier's injuries. On February 13, 1986, McDonald told Fisher that Lozier had caused the accident. Although Lozier offered herself for an interview, Auto Owners never accepted the offer, and did not depose her until more than a year after the accident. Fisher knew Arizona was a comparative negligence state, in which a third party's negligence would not preclude recovery against Auto Owners' insured. See generally Ariz.Rev.Stat.Ann. § 12-2505 (Supp.1991). On February 19, 1986, Fisher sent McDonald a reservation-of-rights letter based on the intentional-acts exclusion in McDonald's policy.
The initial police report of January 19, 1986, offered the tentative explanation that Lozier had hit McDonald from behind. On March 12, 1986, Auto Owners received a copy of that report. A supplement to the first police report, written six days later, included an interview with Lozier in which she accused McDonald of having hit her from behind.
The final police report was written on March 26, 1986, by Deputy Graham of the Yavapai County (Arizona) Sheriff's Department. Deputy Graham, who was not an accident reconstructionist, stated: Auto Owners did not hire an accident reconstructionist to investigate On February 19, 1986, Lozier asked Auto Owners to tell her McDonald's policy limits, and informed Auto Owners that she would sue if they refused to disclose the limits. The policy limits were discoverable information under the Arizona Rules of Civil Procedure. See Ariz.R.Civ.P. 26(b)(2). Without consulting McDonald, Auto Owners refused to disclose the limits. Lozier sued McDonald in Arizona state court on March 19, 1986. Auto Owners hired an experienced attorney, Daniel Stoops, to represent McDonald. On April 10, Auto Owners informed Stoops it was reserving its rights under McDonald's insurance policy.
the accident until the bad-faith trial with Lozier.
On July 17, 1986, Lozier offered to settle the case against McDonald if Auto Owners would pay $100,000, the policy limits, within ten days. The district court found Lozier's time-limited offer reasonable under the circumstances. Auto Owners requested and obtained from Lozier a ten-day extension, but did not request any further extension. Time expired on the offer without a response from Auto Owners.
The day the settlement offer expired, Auto Owners hired outside counsel. On September 8, 1986, it filed a declaratory judgment to determine whether or not McDonald was insured based on the intentional-acts exclusion in his policy. Tom Froman, the in-house attorney responsible for the decisionmaking in the McDonald-Lozier file, stated that the declaratory judgment was brought because the "facts were confusing." Auto Owners' branch claims adjuster, Steve Castor, estimated as of August 4, 1986, that Auto Owners had a "50/50 shot" of obtaining a favorable declaratory judgment.
On March 24, 1987, Auto Owners' outside counsel wrote a letter stating that Auto Owners could lose the declaratory judgment action, and be subject to liability over the $100,000 policy limit for the tort of bad faith in handling the claim. On or about April 2, 1987, Auto Owners attempted to settle the case by offering to Lozier the policy limit of $100,000. Lozier rejected the offer.
On August 25, 1987, Lozier and McDonald entered into a Damron agreement. 2 That agreement provided for: (1) a stipulated judgment against McDonald of $3.5 million with 10 percent interest per year from the date of judgment; (2) a promise from Lozier not to execute that judgment; (3) an assignment to Lozier of McDonald's bad-faith and contract claims against Auto Owners. The Arizona Superior Court entered judgment accordingly on October 14, 1987.
On November 3, 1987, Lozier sued Auto Owners in Arizona state court on the bad-faith and contract claims. Auto Owners removed the case to federal district court. After a six-day bench trial, the district court found for Lozier. The court entered judgment against Auto Owners in the amount of $3.4 million ($100,000 credit having been given for the tendering of the policy limits), plus interest from October 10, 1987, plus $149,035 in attorney's fees. Auto Owners timely filed a notice of appeal.
Federal law, not Arizona law, controls the standard of review in this case. See Martinez v. Asarco, Inc., 918 F.2d 1467, 1470 n. 3 (9th Cir.1990). We review for clear error the district court's findings of fact. Fed.R.Civ.P. 52(a); Meusy v. Montgomery Ward Life Ins., 943 F.2d 1097, 1098 (9th Cir.1991). We view the evidence in the light most favorable to the prevailing party, Lozier. Fenton v. Freedman, 748 F.2d 1358, 1361 (9th Cir.1984). We review de novo the district court's conclusions of law. Meusy, 943 F.2d at 1098. Ordinarily, we review de novo mixed questions of law and fact. United States v. McConney, 728 F.2d 1195, 1204 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 In this diversity case, we apply Arizona state substantive law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Asarco, 918 F.2d at 1470.
S.Ct. 101, 83 L.Ed.2d 46 (1984). However, "mixed questions in which the applicable legal standard provides for a strictly factual test, such as state of mind," or reasonableness, are reviewed for clear error. Id. at 1203-04
Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, 735 P.2d 451, 459 (1987) (en banc) (citations omitted). This appeal involves the duty of equal consideration. "[W]here an insurer fails to give equal consideration to its insured's interests by placing its own interests before that of its insured, it is guilty of bad faith." Trus Joist Corp. v. Safeco Ins. Co. of Am., 735 P.2d 125, 132 (App.1986); see Clearwater v. State Farm Mut. Auto. Ins. Co., 164 Ariz. 256, 792 P.2d 719, 722 (1990) (en banc) ().
Arizona has articulated an eight-factor test for determining an insurer's bad faith:
(1) the strength of the injured claimant's case on the issues of liability and damages;
(2) attempts by the insurer to induce the insured to contribute to a settlement;
(3) failure of the insurer to properly investigate the circumstances so as to ascertain the evidence against the insured;
(4) the insurer's rejection of advice of its own attorney or agent;
(5) failure of the insurer to inform the insured of a compromise offer;
(6) the amount of financial risk to which each party is exposed in the event of a refusal to settle;
(7) the fault of the insured in inducing the insurer's rejection of the compromise offer by misleading it as to the facts; and
(8) any other factors tending to establish or negate bad faith on the part of the insurer.
Clearwater, 792 P.2d at 722 (citations omitted); cf. Brown v. Superior Court, 137 Ariz. 327, 670 P.2d 725, 734 (1983) (...
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