What Is The Time for Responding to a Defense Tender?
Insurers must acknowledge a notice of claim within 10 working days upon receipt. Ariz. Admin. Code § R20-6-801.
Insurers must affirm or deny coverage in writing within 15 days from receipt of proof of loss. Ariz. Admin. Code § R20-6-801.
Does Reserving Rights Create a Conflict of Interest?
When the insurer defends under a reservation of rights, it and insured have valid “conflicting interests.” Parking Concepts, Inc. v. Tenney, 83 P.3d 19, 22 (2004).
Does a Reservation of Rights Create Additional Duties?
When an insurer reserves it rights, the insured is entitled to enter into a nonwaiver agreement with the tort claimant, which allows for a stipulated judgment in the underlying case. In exchange for a non-execute covenant against the insured, the tort claimant receives an assignment of rights against the insurer. United Services Automobile Ass’n v. Morris, 741 P.2d 246, 251 (Ariz. 1987) (en banc).
What Must Be Done If A Conflict of Interest Exists?
An insurer must advise the insured of insured’s right to retain independent counsel in cases where a conflict exists. Failure to do so may result in the insurer being estopped from disputing coverage. Farmers Ins. Co. v. Vagnozzi, 675 P.2d 703 (1983).
Who Is Responsible for Fees of Independent Counsel?
The insurer. Joseph v. Markovitz 551 P.2d 571 (Ariz. 1976).
What Are Independent Counsel’s Obligations?
When an insurer performs its contractual obligation to defend, the insured must cooperate with the defense and may not settle with the third-party claimant without breaching the cooperation clause unless the insurer first breaches one of its contractual duties. United Services Automobile Ass’n v. Morris, 741 P.2d 246, 250 (Ariz. 1987) (en banc).
What Settlement Duties Exist?
An insurer has a good faith obligation to settle a claim within policy limits and may be held liable in bad faith for giving greater consideration to its own interests than that of its policyholder. Farmers Insurance Exchange v. Henderson, 313 P.2d 404 (Ariz. 1957).
An insurer may be liable for failing to solicit an offer within limits, where warranted, even if the plaintiff never actually made such an offer. Fulton v. Woodford, 545 P.2d 979, 984 (Ariz. 1976).
What Actions May Result in a Claim for Bad Faith?
An insurer could be sued for bad faith if it denied a claim without a reasonable basis and knew or recklessly disregarded the absence of a reasonable basis for disputing coverage. Noble v. Nat. Life Ins. Co., 624 P.2d 866 (Ariz. 1981).
A tort action for bad faith may arise when an insurer intentionally denies or fails to process or pay a claim without a reasonable basis for such action. Lasma Corp. v. Monarch Ins. Co., 726 P.2d 565 (Ariz. 1988).
An insurer may be liable for a breach of the implied covenant of good faith and fair dealing through its improper claims handling even if it is ultimately established that the claims are not covered. Deese v. St. Farm Mutual Automobile Ins. Co., 838 P.2d 1265 (Ariz. 1992).
Are Attorney’s Fees Recoverable in Insurer-Insured Dispute?
Attorney’s fees are recoverable in bad faith actions. Filasky v. Preferred Risk Mutual Ins. Co., 734 P.2d 76 (Ariz. 1987).
Are Punitive Damages Recoverable in Insurer-Insured Dispute?
Yes. “[T]to obtain punitive damages, plaintiff must prove that defendant’s evil hand was guided by an evil mind.” An evil mind is present (1)”where defendant intended to injure the plaintiff.” And (2) “where, although not intending to cause injury, defendant consciously pursued a course of conduct knowing that it created a substantial risk of significant harm to others.” Rawlings v. Apodaca, 726 P.2d 565, 567 (Ariz. 1986).
This must be proven by clear and convincing evidence. Bradshaw v. State Farm Mut. Auto. Ins. Co., 758 P.2d 1313, 1315 (Ariz. 1988).
Alternative Coverage Options
An insurer may file a declaratory action to determine its rights and duties under the insurance contract and may do so before or after trial of the underlying claim. Farmers Ins. Co. v. Vagnozzi, 675 P.2d 703 (1983). However, only those coverage issues not dependant on liability made be litigated after a nonwaiver agreement. Associated Aviation Underwriters v. Wood., 98 P.2d 574 (2004).
An insurer loses its right to intervene if the insurer has breached its contract by refusing to provide a defense to its insured. Purvis v. Hartford Accident and Indem. Co., 877 P.2d 827 (1994).
Declaratory Judgment – Ariz. Rev. Stat. § 12-1831.
“Courts of record within their respective jurisdictions shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed. No action or proceeding shall be open to objection on the ground that a declaratory judgment is requested. The declaration may be either affirmative or negative in form and effect; and such declarations shall have the force and effect of a final judgment or decree.”
Unfair Claims Practices Act – Ariz. Rev. Stat. § 20-46
Unfair claims handling by insurers is regulated under Ariz. Rev. Stat. § 20-461. This statute does not create a private cause of action for insureds. Ariz. Rev. Stat. § 20-461(d).