Ariz. Rev. Stat. § 20-461 (A), indicates that “[a] person shall not commit or perform with such frequency to indicate as a general business practice any of the following: . . . (6) [n]ot attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. . . . (8) [c]ompelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds. . .. (12) [m]aking known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration. . .. (14) [f]ailing to promptly settle claims if liability has become reasonably clear under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage… “ Furthermore, under § 20-461 (D), “[n]othing contained in this section is intended to provide any private right or cause of action to or on behalf of any insured or uninsured resident or nonresident of this state. It is, however, the specific intent of this section to provide solely an administrative remedy to the director for any violation of this section or rule related to this section.”
The Supreme Court of Arizona has found that there is an implied legal duty in an insurance contract that the insurance company must act in good faith in dealing with its insured on a claim, and that a violation of said duty of good faith is a tort. Noble v. National Am. Life Ins. Co., 128 Ariz. 188 (1981). To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. Id. (citing to Anderson v. Continental Ins. Co., 85 Wis. 2d 675 (1978)).
Based on the covenant of good faith and fair dealing, the insurance company owes its insured a duty of good faith in deciding whether to accept or reject settlement offers. Hartford Acc. & Indem. Co. v. Aetna Cas. & Sur. Co., 164 Ariz. 286 (1990) (citing to Arizona Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129 (1987); Glendale v. Farmers Ins. Exch., 126 Ariz. 118 (1980); Farmers Ins. Exch. v. Henderson, 82 Ariz. 335 (1957)). If an insurance company fails to settle, and does so in bad faith, it is liable to the insured for the full amount of the judgment. Id. (citing to Henderson, 82 Ariz. at 341, 313 P.2d at 408). Furthermore, in the third-party context, the duty of good faith requires an insurer to give equal consideration to the protection of the insured’s as well as its own interests. Id. (citing to Henderson, 82 Ariz. at 338, 313 P.2d at 406). To that end, the Arizona courts have set out several factors to be considered by the trier of fact in a third-party bad faith claim:
(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 v. State Farm Mut. Auto. Ins. Co., 164 Ariz. 256 (1990) (citing to General Acc. Fire & Life Assur. Corp. v. Little, 103 Ariz. 435 (1968)).
Arizona courts have indicated that in the absence of a demand or request to settle within policy limits or within the limits of the insured’s financial ability, plus policy limits, that a conflict of interest would give rise to a duty on behalf of the insurer to give equal consideration to the interest of its insured where there is a high potential of claimant recovery and a high probability that such recovery will exceed policy limits. Fulton v. Woodford, 26 Ariz. App. 17 (1976).
Lastly, it should be noted that this duty of good faith also expands to an excess insurance company in that when a primary insurance carrier acts in bad faith in refusing to settle, an excess insurance carrier will not have to pay for the primary carrier’s unwillingness to take responsibility. Id. at 294. As such, an excess carrier has the right to sue a primary carrier for bad faith failure to settle within policy limits. Id.
Chartwell Law represents the interests of insurers and employers, as such, we continue to continue to monitor the legal landscape. If you have any questions about issues associated with right of action for bad faith claims, our attorneys are available to help. Please contact your Chartwell Law attorney.