Manterola v. Farmers Ins. Exchange

• Decision Date: 28 August 2001
• Docket Number: No. 2 CA-CV 00-0108.,2 CA-CV 00-0108.
• Citation: Manterola v. Farmers Ins. Exchange, 200 Ariz. 572, 30 P.3d 639 (Ariz. App. 2001)
• Parties: Annette MANTEROLA, Plaintiff/Appellant, v. FARMERS INSURANCE EXCHANGE, a California interinsurance exchange, Defendant/Appellee.
• Court: Arizona Court of Appeals

30 P.3d 639

200 Ariz. 572

Annette MANTEROLA, Plaintiff/Appellant, v. FARMERS INSURANCE EXCHANGE, a California interinsurance exchange, Defendant/Appellee.

No. -0108.

Court of Appeals of Arizona, Division 2, Department A.

August 28, 2001.

Law Offices of A. Thomas Cole, By A. Thomas Cole, Casa Grande, for Plaintiff/Appellant.

Broening, Oberg, Woods, Wilson & Cass, P.C., By James R. Broening, Michael J. Ryan, and Kate Wagstaffe, Phoenix, for Defendant/Appellee.

OPINION

PELANDER, J.

¶ 1 The trial court dismissed this third-party bad faith action, finding it barred by the statute of limitations. We are asked to decide whether the "final judgment accrual rule," adopted in Taylor v. State Farm Mutual Automobile Insurance Co., 185 Ariz. 174, 179, 913 P.2d 1092, 1097 (1996), applies in a situation, unlike Taylor, in which an insurance carrier defends an insured under a reservation of rights and then contests coverage in a separate declaratory relief action (DRA), and in which the plaintiff, meanwhile, obtains a stipulated judgment against the insured pursuant to a Morris¹ agreement. The issue squarely presented here is when, in that scenario, does a bad faith claim against an insurer accrue, for statute of limitations purposes: when a judgment in the underlying personal injury action against the insured becomes final, or when a final determination of coverage is later made in the DRA?

¶ 2 The trial court concluded that the limitations period commenced on the earlier event and, therefore, granted defendant/appellee Farmers Insurance Exchange's motion to dismiss plaintiff/appellant AnNette Manterola's complaint pursuant to Rule 12(b)(6), Ariz. R. Civ. P., 16 A.R.S., Pt. 1. Because we agree with that ruling, we affirm.

BACKGROUND

¶ 3 Although the pertinent facts are essentially undisputed, "[i]n reviewing a trial court's dismissal of a claim ..., we accept the allegations in the complaint as true and resolve all inferences in favor of the plaintiff." Southwestern Paint & Varnish Co. v. Arizona Dep't of Envtl. Quality, 191 Ariz. 40, 41, 951 P.2d 1232, 1233 (App.1997), approved in relevant part, 194 Ariz. 22, 976 P.2d 872 (1999). This case involves three related lawsuits, the first two filed in Maricopa County Superior Court and the third, this action, filed in Pinal County Superior Court. First, in August 1995, Manterola filed a personal injury action against her treating psychologist, Dr. Dennis Charles Elias, and his wife (collectively, the Eliases), alleging in various counts that Elias had instigated inappropriate sexual relations with her when she had been his patient and that his wife had failed to take any action despite knowing or having reason to know of the impropriety (the PI action).

¶ 4 During the relevant time frame, the Eliases were insured under several policies issued by Farmers. Farmers defended the Eliases in the PI action, but only pursuant to a reservation of rights. In January 1996, Manterola and the Eliases entered into a Morris agreement, whereby the Eliases stipulated to a judgment against them in the amount of $2,000,000 and assigned to Manterola all their rights under the policies, including any cause of action they may have had against Farmers for bad faith. Pursuant to that agreement, Manterola agreed that she would not execute on the judgment against the Eliases personally but would only proceed against Farmers. The Maricopa County Superior Court entered the stipulated judgment in the PI action on April 9, 1996. Because neither side appealed, that judgment became final thirty days later.

¶ 5 Second, after Manterola had filed her PI action against the Eliases, but before those parties had executed the Morris agreement and the stipulated judgment, Farmers filed a DRA in December 1995. In that action, apparently brought against Manterola and the Eliases, Farmers sought a determination of its rights and obligations under the insurance policies.² Thereafter, Farmers moved for summary judgment in that action, contending the policies provided no coverage for Manterola's claims against the Eliases. A Maricopa County Superior Court judge granted Farmers' motion, but on appeal Division One of this court reversed, concluding that Farmers was obligated to provide coverage for Manterola's claims against Elias's wife. Farmers Ins. Co. v. Manterola, No. 1 CA-CV 97-0382 (memorandum decision filed March 10, 1998). Our supreme court ultimately denied review of that decision. Thereafter, in May 1999, a judgment adverse to Farmers apparently was filed in the DRA pursuant to the court of appeals' mandate.

¶ 6 Third, in September 1999, Manterola, as the Eliases' assignee, filed this bad faith action against Farmers, alleging in pertinent part:

[Farmers] mistreated its insureds in bad faith for numerous reasons, including, but not limited to the following: Farmers did not have a reasonable basis for denying the claim and, indeed, disregarded express and bolded language in its own policy, disregarded over 30 years of Arizona precedent and disregarded [Elias's wife] altogether and demeaningly treated her as invisible; failed to conduct a reasonable investigation and failed to interview its insureds, failed to give equal consideration to its insureds, but rather exaggerated its own financial interest while virtually disregarding the financial interest of its insureds, improperly "investigating" the matter with an eye toward denying coverage and without consideration to the exposure of the insureds.

Farmers moved to dismiss the complaint, contending it was time-barred under A.R.S. § 12-542, the two-year statute of limitations.

¶ 7 In granting that motion, the trial court ruled that Manterola had "caused the [bad faith] action to accrue and the clock to tick" by "choosing to enter into the [Morris ] covenant after the [DRA] was filed by [Farmers] and entering a judgment." Thus, the trial court essentially concluded that Manterola's bad faith claim had accrued when the judgment in the PI action had become final in May 1996, the limitations period expired two years later in May 1998, and the DRA did not toll the limitations period. This appeal followed the trial court's denial of Manterola's motion for reconsideration.

DISCUSSION

¶ 8 "We will uphold a dismissal only if it is certain that the plaintiff cannot prove any set of facts that would entitle [her] to relief." Southwestern Paint, 191 Ariz. at 41, 951 P.2d at 1233. We review de novo "any questions of law relating to the statute of limitations defense," Logerquist v. Danforth, 188 Ariz. 16,18, 932 P.2d 281, 283 (App.1996), mindful that the defense "is not favored." Id. at 22, 932 P.2d at 287. See also CDT, Inc. v. Addison, Roberts & Ludwig, C.P.A., P.C., 198 Ariz. 173, ¶ 5, 7 P.3d 979, ¶ 5 (App.2000).

¶ 9 As we recently stated:

"In Arizona, insurance contracts include an implied covenant of `good faith and fair dealing,' whereby each party is `bound to refrain from any action which would impair the benefits which the other had the right to expect from the contract or the contractual relationship.'" Voland v. Farmers Ins. Co., 189 Ariz. 448, 451, 943 P.2d 808, 811 (App.1997),quoting Rawlings v. Apodaca, 151 Ariz. 149, 154, 726 P.2d 565, 570 (1986). "The core of the duty of good faith and fair dealing is that the insurer act reasonably towards its insured," Deese v. State Farm Mutual Automobile Insurance Co., 172 Ariz. 504, 508, 838 P.2d 1265, 1269 (1992), "`giving equal consideration in all matters to the insured's interest." ' Id. at 507, 838 P.2d at 1268,quoting Tank v. State Farm Fire & Cas. Co., 105 Wash.2d 381, 715 P.2d 1133, 1136 (1986).

... "[B]ad faith tort actions are based in the underlying contract." Lloyd v. State Farm Mut. Auto. Ins. Co., 189 Ariz. 369, 377 n. 4, 943 P.2d 729, 737 n. 4 (App.1996).... An insurer, however, "can be held liable for bad faith even when it does not violate any express provision of the insurance contract." Lloyd, 189 Ariz. at 377,943 P.2d at 737....

Rowland v. Great States Ins. Co., 199 Ariz. 577, ¶ ¶ 8-9, 20 P.3d 1158, ¶ ¶ 8-9 (App.2001). See also Rawlings, 151 Ariz. at 160, 726 P.2d at 576 (Bad faith arises from "an intentional act by which the insurer fails to provide the insured with the security and protection from calamity which is the object of the relationship.").

¶ 10 It is undisputed that § 12-542, which requires that certain actions be "commenced and prosecuted within two years after the cause of action accrues, and not afterward," applies to third-party bad faith claims. Taylor, 185 Ariz. at 177, 913 P.2d at 1095. The limitations period under § 12-542 "begins to run upon accrual," Doe v. Roe, 191 Ariz. 313, ¶ 40, 955 P.2d 951, ¶ 40 (1998), which requires not only an alleged "wrong" but also injury. Id. at ¶ 32, 955 P.2d at ¶ 32. See also Myers v. Wood, 174 Ariz. 434, 435, 850 P.2d 672, 673 (App.1992). "In other words, `the limitations period does not commence until [an] actionable [wrong] exists, that is, [a tort] that results in appreciable, non-speculative harm to the [plaintiff].'" CDT, 198 Ariz. 173, ¶7, 7 P.3d 979, ¶7, quoting Commercial Union Ins. Co. v. Lewis and Roca, 183 Ariz. 250, 254, 902 P.2d 1354, 1358 (App.1995). In addition, under the common law "discovery rule," "a cause of action does not accrue until the plaintiff knows or with reasonable diligence should know the facts underlying the cause." Doe, 191 Ariz. 313,¶ 29, 955 P.2d 951, ¶ 29. See also Taylor, 185 Ariz. at 177, 913 P.2d at 1095 (tort claim accrues when plaintiff has actual or constructive knowledge of "defendant's wrongful conduct").

¶ 11 In Taylor, our supreme court held that "a third-party bad faith failure-to-settle claim accrues at the time the underlying action [against the insured] becomes final and non-appealable." 185 Ariz. at 179, 913 P.2d at 1097. The trial court relied on that proposition in dismissing Manterola's complaint. As Manterola points out, however, Taylor did not involve a carrier's denial of...