Tondu v. State Farm ( 2018 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
TONYA TONDU, et al., Plaintiffs/Appellants,
v.
STATE FARM FIRE AND CASUALTY COMPANY, Defendant/Appellee.
No. 1 CA-CV 17-0444
FILED 7-17-2018
Appeal from the Superior Court in Maricopa County
No. CV2014-007940
The Honorable James T. Blomo, Judge (Retired)
AFFIRMED
COUNSEL
Riggs Ellsworth & Porter PLC, Mesa
By Robert L. Greer
Counsel for Plaintiffs/Appellants
Resnick & Louis PC, Scottsdale
By Michael R. Altaffer, Dane A. Dodd
Counsel for Defendant/Appellee
MEMORANDUM DECISION
Judge Jennifer B. Campbell delivered the decision of the Court, in which
Presiding Judge Maria Elena Cruz and Judge James P. Beene joined.
TONDU, et al. v. STATE FARM
Decision of the Court
C A M P B E L L, Judge:
¶1 Appellants Tonya Tondu and Michael Theisen sued Appellee
State Farm Fire and Casualty Company for breach of contract and bad faith
after their home suffered severe fire damage. Appellants challenge the
superior court’s ruling granting judgment as a matter of law on their bad
faith and punitive damages claims at the close of their case-in-chief at trial.
They also challenge the court’s ruling excluding a report prepared by an
appraiser retained by State Farm and its decision to not give their proposed
jury instructions regarding the additional living expenses (“ALE”)
provision of their policy. We affirm on all issues raised.
FACTUAL AND PROCEDURAL BACKGROUND
¶2 Tondu and Theisen owned a home insured under a State
Farm homeowners’ insurance policy that provided structure, personal
property, and loss of use/ALE coverage (the “Policy”). Tondu resided at
the home, but Theisen did not. The policy limits were $312,700 for the
dwelling with a $31,270 extension and $234,525 for personal property. The
Policy also contained a special $1,000 limit of liability for property “used or
intended for use in a business.” The Policy provided ALE coverage as
follows:
When a Loss Insured causes the residence premises to
become uninhabitable, we will cover the necessary increase in
cost you incur to maintain your standard of living for up to 24
months. Our payment is limited to incurred costs for the
shortest of: (a) the time required to repair or replace the
premises; (b) the time required for your household to settle
elsewhere; or (c) 24 months.
¶3 Two fires occurred at the house, one on the evening of
October 25, 2010, and the second the following evening. Appellants
planned to build a new, larger home using both the structure and personal
property proceeds with Theisen performing the work. They submitted a
claim under the Policy and retained public adjuster Loss Consultants, Inc.,
to assist with the claim.
¶4 State Farm tendered $271,307.46 for the structure in January
2011. State Farm retained Sun-Brite, a contents restoration company, to
prepare an initial personal property inventory and made advance
payments on the personal property claim in November and December of
2010 totaling approximately $40,000. In February 2011, Appellants, through
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Loss Consultants, provided a separate personal property inventory
containing more than 5,500 items, including numerous photographs and
pieces of photography equipment. The photography items were adjusted at
that time as personal property, not business property.
¶5 State Farm issued an additional $56,026.24 personal property
payment in April 2011. Appellants and Loss Consultants disputed who
should receive the payment, and Loss Consultants wrote State Farm to
demand that it “direct any and all future checks to this office and include
Loss Consultants as an additional payee” until otherwise notified. State
Farm filed an interpleader action and deposited $97,382.95 with the
superior court. Once that action was resolved, State Farm paid an additional
$15,115.21.
¶6 State Farm also agreed to provide Tondu daily ALE benefits
starting in November 2010. Tondu asked State Farm to continue providing
benefits in September 2011 because construction was not complete and 24
months had not yet passed. State Farm retained a third-party contractor
who estimated that it would have taken approximately eight months to
rebuild the house as it existed before the fire. State Farm then extended ALE
benefits through January 31, 2012, reflecting a total of 19 months of benefits.
Despite further requests from Appellants, State Farm did not extend ALE
benefits beyond January 2012.
¶7 The parties also continued to dispute the personal property
claim, leading Appellants to request an appraisal in December 2012. The
Policy’s appraisal provision states as follows:
If you and we fail to agree on the amount of loss, either one
can demand that the amount of the loss be set by appraisal. If
either makes a written demand for appraisal, each shall select
a competent, disinterested appraiser. . . . The appraisers shall
then set the amount of the loss. If the appraisers submit a
written report of an agreement to us, the amount agreed upon
shall be the amount of the loss.
Appellants identified Rae Young as their appraiser in February 2013, and
State Farm identified Tom Helms in April 2013. When Helms withdrew
from consideration, State Farm replaced him with Kirsten Smolensky.
¶8 During the appraisal process, Smolensky emailed a State
Farm adjuster, asking, “do we know whether one of the insured[s] was a
professional photographer?” The adjuster responded that she was “not
aware of this and ha[d] no notes in the file.” Smolensky then posed the same
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Decision of the Court
question to Young’s office; Young’s assistant responded that Tondu “does
have a photography business so it makes sense for the immense amount of
photos.” Smolensky then told State Farm she would “appraise all of the
photographs, negatives and expensive photography equipment at
replacement cost, but this will likely raise a coverage issue” and that she
would “note which items I believe may be relevant to this issue.” State
Farm’s counsel then notified Appellants’ counsel of the Policy’s $1,000
business property limit and requested that Appellants “go through the
contents inventory and identify exactly which items are business related
and which are not.” Appellants did not respond.
¶9 In November 2013, Young and Smolensky issued a joint
award in which they valued approximately 75 personal property items,
concluded that “both of [their] separate investigative appraisals/valuations
of the Personal Property Contents were considerably over policy limits,”
and recommended that State Farm pay $82,613.45, which was the
remainder of the personal property policy limits at that time. State Farm
instead paid $61,580.23, having deducted the value of some photography
items from the total as business property as well as an earlier ALE
overpayment.
¶10 Appellants demanded that State Farm pay the remainder of
the personal property policy limits, arguing that Tondu had not worked as
a professional photographer for more than 10 years. They then sued State
Farm in May 2014, alleging breach of contract and insurance bad faith.
¶11 The case proceeded to a jury trial, during which the parties
stipulated to judgment in State Farm’s favor on Theisen’s personal property
and ALE claims. Appellants also sought to introduce a portion of a report
Smolensky prepared for State Farm during the appraisal process. The court
sustained State Farm’s foundation objection, but noted the parties’
expectation that Smolensky’s deposition testimony would be presented
later in the case. Appellants’ counsel later requested that State Farm read
Smolensky’s deposition into evidence out of order, which State Farm
refused to do, stating that it would “wait for [Appellants] to finish their case
before we call any of our witnesses.”
¶12 Appellants renewed their request for admission of the
Smolensky report after they presented their last witness. State Farm again
objected, contending the exhibit was incomplete. State Farm also objected
to a partial reading of Smolensky’s deposition to establish foundation for
the exhibit. The court ruled as follows:
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As far as that portion dealing with Miss Smolensky and her
testimony, I guess the concern that I have is that it wasn’t one
of your witnesses . . . . I think the only way to kind of really
get around that is you wanted to read the entirety of the
transcript, which hasn’t been dealt with, and -- but it would
come out of the time that you do have, which I calculate to be
about just under two hours remaining, which I don’t know
how long it would chew up of your time to do this. So I’m
guessing probably an hour plus, which would leave you
cross-examination and closing arguments, so -- and that’s
being somewhat generous on the time. So I assume that’s not
how you want to use your time.
Appellants did not read Smolensky’s deposition into evidence.
¶13 State Farm moved for judgment as a matter of law at the close
of Appellants’ case-in-chief. The court granted State Farm’s motion as to
Appellants’ structure, bad faith, and punitive damages claims. The jury
subsequently returned a defense verdict on Tondu’s breach of contract
claim. Appellants appealed after the superior court granted their motion to
extend the notice of appeal deadline.
DISCUSSION
I. The Superior Court Did Not Err in Granting Judgment as a Matter
of Law on Appellants’ Bad Faith Claims.
¶14 An insurer owes its insureds a duty to act in good faith for
their benefit; a breach of that duty may result in a claim for bad faith.
Sobieski v. American Standard Ins. Co. of Wis., 240 Ariz. 531, 534, ¶ 10 (App.
2016). We review de novo the court’s grant of judgment as a matter of law
on Appellants’ bad faith claims. Newman v. Select Specialty Hosp.-Ariz., Inc.,
239 Ariz. 558, 562, ¶ 9 (App. 2016). Judgment as a matter of law is improper
if there was sufficient evidence from which reasonable jurors could have
concluded that State Farm acted unreasonably in the investigation,
evaluation, and processing of the claim and either knew or was conscious
of the fact that its conduct was unreasonable. Zilisch v. State Farm Mut. Auto.
Ins. Co., 196 Ariz. 234, 238, ¶ 22 (2000).
A. State Farm Did Not Act in Bad Faith in the Appraisal
Process.
¶15 Appellants first contend State Farm acted in bad faith in the
appraisal process by selecting Smolensky, who they contend was not
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“disinterested” as required by the Policy because she considered coverage
issues. Appellants cite Smolensky’s emails in which Young’s assistant told
her that Tondu had a photography business and she reported that
information to State Farm. Even assuming the identification of a coverage
issue suggests bias on Smolensky’s part, Appellants do not cite any
evidence showing that State Farm knew of this alleged bias before
appointing her.
¶16 Appellants’ reliance on Gebers v. State Farm General Ins. Co., 38
Cal. App. 4th 1648 (1995) is misplaced. There, the plaintiffs opposed
confirmation of an appraisal award with uncontested evidence that State
Farm’s appraiser “was currently retained by State Farm as an expert
witness in two pending court actions.” Id. at 1652. The California Court of
Appeals concluded these engagements constituted “a direct pecuniary
interest which casts considerable doubt on the appraiser’s ability to act
impartially.” Id. Here, however, Appellants offered no evidence to show
Smolensky served as an expert witness for State Farm in any other matters
or that she had a direct pecuniary interest in the outcome of the appraisal.
¶17 Appellants also contend Smolensky “added an exhibit to the
appraisal of items considered, knowing that photography accoutrements
were among them.” The record does not support this contention. Young
testified that both appraisers contributed to the exhibit that accompanied
their award, which included a “top 40” list of disputed items Young
prepared. Young also testified that she and Smolensky agreed to use a
smaller personal property list for the appraisal because evaluating the
entire inventory would have been impractical.
¶18 Appellants also contend the superior court erred in not
admitting Smolensky’s separate report to State Farm, arguing that it
demonstrated State Farm’s bad faith. We will reverse a ruling excluding
evidence only if Appellants informed the superior court of the evidence’s
substance by offer of proof, unless the substance was apparent from
context, and the ruling affected a substantial right. Ariz. R. Evid. 103(a); Elia
v. Pifer, 194 Ariz. 74, 79, ¶ 22 (App. 1998).
¶19 Appellants made an adequate offer of proof by describing the
relevant contents of Smolensky’s report and explaining why they believed
the report should be admitted. We thus must determine whether its
exclusion affected Appellants’ substantial rights. See, e.g., Gasiorowski v.
Hose, 182 Ariz. 376, 382 (App. 1994) (“Exclusion of evidence, though
improper, is not grounds for reversal if ‘in all probability its admission
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Decision of the Court
would not have changed the result.’”) (quoting Graham v. Vegetable Oil
Prods. Co., 1 Ariz. App. 237, 243 (1965)).
¶20 Appellants first contend Smolensky’s report “confirms that
the appraisers agreed that the disputed contents value was . . . over policy
limits.” That fact was already in the record via Young’s testimony and the
appraisal award itself, which State Farm did not contest.
¶21 Appellants also contend Smolensky’s report shows she used
“a different approach from State Farm’s valuation and depreciation
schedules,” which they say is “prima facie evidence of . . . unreasonableness
and therefore, bad faith.” Even assuming this is true, Smolensky’s use of
different schedules would not by itself establish that any schedule State
Farm may have used was unreasonable. Appellants introduced no evidence
at trial to show State Farm’s schedules were unreasonable. Appellants thus
do not show the exclusion of Smolensky’s report prejudiced them or
affected their substantial rights.
B. State Farm Did Not Act in Bad Faith by Interpleading
Personal Property Funds.
¶22 Appellants next contend State Farm acted in bad faith by
interpleading “more than the sum in controversy.” Appellants also contend
State Farm should have interpleaded only the maximum amount Loss
Consultants could have received under its agreement with Appellants
because it had a copy of their agreement. The record demonstrates that the
sum in controversy between Appellants and Loss Consultants was not clear
at the time, as Loss Consultants demanded that State Farm “direct any and
all future checks to [Loss Consultants].” Accordingly, State Farm, who had
no interest in the underlying dispute between Appellants and Loss
Consultants, interpled all future payments as they became due.
¶23 Appellants cite no authority that would obligate a party to
take any steps to resolve or clarify the scope of an underlying dispute before
filing an interpleader action. See, e.g., Ariz. Bank v. Wells Fargo Bank, N.A.,
148 Ariz. 136, 140-41 (App. 1985) (stakeholder may interplead funds if “1)
it has no interest in the fund or property in dispute; 2) multiple defendants
claim the same debt from the plaintiff; 3) the adverse rights asserted arise
from a common source; 4) the stakeholder has no independent liability to
either of the claimants; and 5) the stakeholder has no other adequate
remedy to protect itself from litigation in which it has no interest”). This
being so, State Farm was well within its rights to ask the court to hold the
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funds until the underlying dispute to which they were not a party was
resolved.
C. State Farm Did Not Adjust the Personal Property Claim in
Bad Faith.
¶24 Appellants next contend State Farm acted in bad faith by
“dragg[ing] its feet” in evaluating the personal property, arguing that “[i]t
took less than a month for Sun-Brite to examine, document, identify,
photograph, and verify the existence of the damaged personal property”
and that “[i]t then took Loss Consultants less than sixty days to identify
where property was purchased, when it was purchased, and for how
much.” Appellants overlook that the Policy obligated them to “prepare an
inventory of damaged . . . property” and “[s]how in detail the quantity,
description, age, replacement cost and amount of loss.” It was State Farm,
not Appellants, who retained Sun-Brite to prepare the initial personal
property inventory. The record also demonstrates that State Farm made
four advance payments before it even received Loss Consultants’
inventory. It then paid an additional $56,026.24 in April 2011, which led to
the dispute between Appellants and Loss Consultants. Appellants do not
suggest State Farm had any role in that dispute. Moreover, the record
suggests that Tondu asked State Farm to not issue any further payments
until the dispute was resolved.
¶25 Appellants also contend the appraisers “took four months” to
evaluate the personal property “while applying depreciation.” As
explained during trial, the appraisers did not evaluate the entire personal
property inventory item by item. Indeed, Young—the appraiser retained by
Appellants themselves—testified that engaging in such a comprehensive
evaluation could have taken up to two years. In any event, State Farm
issued the last personal property payment approximately one month after
the appraisers issued their award. The prompt payment of the outstanding
amount by State Farm and the lack of evidence provided by Appellants
illustrating this timeframe was unreasonable by industry standards
precludes any implication State Farm was acting in bad faith.
¶26 Appellants next contend State Farm acted in bad faith by
determining Tondu’s “photography-centered property” was business
property subject to the special $1,000 limit “after the appraisal, with
minimal investigation.” Appellants also cite no evidence to support their
contention that State Farm “arbitrarily select[ed] property with the highest
cost as business property while leaving as personal property other items,
more closely related to the profession of photography,” having accused
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Smolensky of doing the same earlier in their appellate brief. As noted
above, Young’s office provided the information that led to this
determination during the appraisal process. State Farm notified Appellants
of the coverage issue and asked them to “identify exactly which items are
business related and which are not.” Appellants did not respond. Had they
disputed the issues, they had a duty to dispel the assertion that items were
in fact business related. Additionally, Appellants cite no evidence to
support their contention that State Farm selected the highest priced items
to identify as business property subject to the policy limitation. Again, State
Farm’s actions do not give rise to any implication of bad faith.
D. The Superior Court Properly Granted Judgment as a Matter
of Law on Theisen’s Bad Faith Claim.
¶27 Appellants next contend the court erred in granting judgment
on Thiesen’s bad faith claim. They conceded below that Theisen had no
personal property or ALE claims. They theorize, however, that Theisen may
recover for State Farm’s delays in paying Tondu’s personal property claim
because he, like Tondu, intended to use those funds to finance the new
construction. We are aware of no authority—and Appellants cite none—
that would allow one policyholder to recover for an insurer’s bad faith in
handling another policyholder’s claim.
E. State Farm Did Not Interpret the Policy’s ALE Provision in
Bad Faith.
¶28 Finally, Appellants contend State Farm acted in bad faith by
“insert[ing] a ‘reasonable time’ requirement” into the ALE provision. We
construe the ALE provision according to its plain and ordinary meaning.
Cal. Cas. Ins. Co. v. Am. Family Mut. Ins. Co., 208 Ariz. 416, 418, ¶ 5 (App.
2004). Additionally, “an insurer’s reasonable but incorrect policy
interpretation does not, by itself, constitute bad faith.” Desert Mountain
Properties Ltd. P'ship v. Liberty Mut. Fire Ins. Co., 225 Ariz. 194, 215, ¶ 94
(App. 2010) (citing Aetna Cas. & Sur. Co. v. Superior Court, 161 Ariz. 437, 440
(App. 1989)).
¶29 The ALE provision obligated State Farm to “cover the
necessary increase in cost you incur to maintain your standard of living for
up to 24 months” limited to the shortest of “(a) the time required to repair
or replace the premises; (b) the time required for your household to settle
elsewhere; or (c) 24 months.” Should the court adopt Appellants’
interpretation of the contract language, State Farm would have been
obligated to provide 24 months of ALE in all cases where the insured
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exercises a unilateral choice to change the structure insured by the policy.
The provision, however, only covers “the necessary increase in cost you
incur to maintain your standard of living.” While Appellants’ decision to
build something larger undoubtedly increased the time needed to build
and, therefore, the cost of maintaining Tondu’s standard of living,
Appellants did not show that it was a “necessary” increase in cost. We thus
do not find State Farm’s interpretation of the Policy’s ALE provision to be
unreasonable.
¶30 On these bases, we conclude the superior court did not err in
granting judgment as a matter of law on Appellants’ bad faith claims
regarding the ALE payments. See Aetna, 161 Ariz. at 440 (“[T]here are times
when the issue of bad faith is not a question appropriate for determination
by the jury.”).
II. The Superior Court Properly Granted Judgment as a Matter of Law
on Appellants’ Punitive Damages Claims.
¶31 Appellants also challenge the court’s ruling granting
judgment as a matter of law on their punitive damages claims. To recover
punitive damages, Appellants must come forward with more than what is
needed to prove bad faith; they must prove by clear and convincing
evidence that the insurer acted with an evil mind. Tritschler v. Allstate Ins.
Co., 213 Ariz. 505, 517, ¶ 38 (App. 2006) (citation omitted). As set forth
above, and based on this record, Appellants have failed to provide any
evidence of bad faith, much less evidence that State Farm acted with “an
evil mind.” Because we affirm the entry of judgment as a matter of law on
Appellants’ bad faith claims, we do the same as to their punitive damages
claims.
III. The Superior Court Did Not Abuse Its Discretion in Declining to
Issue Appellants’ ALE Provision Jury Instructions.
¶32 Appellants also challenge the court’s refusal to give either of
their two proposed jury instructions regarding the Policy’s ALE provision.
Appellants’ first proposed instruction read as follows:
The court has interpreted the plain language and
ordinary meaning of the policy language in Coverage C, and
found that it is reasonably susceptible to either Plaintiffs’ or
State Farm’s interpretations. That is, the ‘time required to
repair or replace the premises’ could be read to mean either:
(1) that State Farm was obligated to pay ALE Benefits until
such time as Plaintiffs’ home was actually repaired or
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replaced; or (2) that State Farm was obligated to pay the
benefits only for so long a period of time as was reasonably
estimated would be required to repair or replace the home.
Because ambiguities are resolved in favor of the
insured, the court instructs you that State Farm was obligated
to pay ALE Benefits up until such time as Plaintiffs’ home was
once again fit for habitation, up to 24 months.
The second read as follows:
The court has interpreted the plain language and
ordinary meaning of the policy language in Coverage C and
instructs you that State Farm was obligated by the policy to
pay ALE benefits not for its estimate of a reasonable time, but
up until such time as Plaintiffs’ home was once again fit for
habitation, up to 24 months.
The court declined to give either instruction and directed counsel to address
the issue in closing arguments.
¶33 The court must give a requested jury instruction if “(1) the
evidence presented supports the instruction, (2) the instruction is proper
under the law, and (3) the instruction pertains to an important issue, and
the gist of the instruction is not given in any other instructions.” Brethauer
v. Gen. Motors Corp., 221 Ariz. 192, 198, ¶ 24 (App. 2009) (citation omitted).
That said, the superior court has substantial discretion in determining how
to instruct the jury. Smyser v. City of Peoria, 215 Ariz. 428, 439, ¶ 33 (App.
2007). We review the refusal to give a requested instruction for an abuse of
discretion and will not reverse absent resulting prejudice. Brethauer, 221
Ariz. at 198, ¶ 24; see also Smyser, 215 Ariz. at 439, ¶ 33 (“We will not
overturn a verdict unless we have substantial doubt about whether the jury
was properly guided.”) (citation omitted).
¶34 We find no abuse of discretion for three reasons. First, neither
of the requested instructions had anything to do with the evidence
presented at trial; they instead stated Appellants’ preferred interpretation
of the ALE provision, which Appellants argued to the jury in closing.
¶35 Second, the superior court instructed the jury on the elements
of Tondu’s breach of contract claim and that it should award “[t]he amount
of unpaid benefits of the insurance policy which . . . Tondu is entitled to
receive” if it found State Farm liable. Under these instructions, the jury
could have found that State Farm breached its ALE obligations and
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awarded Tondu additional benefits. The instructions thus provided the jury
with the proper rules for reaching its decision. See Andrews v. Fry’s Food
Stores of Ariz., 160 Ariz. 93, 95 (App. 1989) (“[T]he test is whether the whole
charge provided the jury with the proper rules for its decision making.”);
see also Smedberg v. Simons, 129 Ariz. 375, 377-78 (1981) (“It is not error for
the court to refuse to give requested instructions adequately covered
elsewhere by instructions which are given.”) (citation omitted).
¶36 Third, Appellants do not show that they suffered any
prejudice. See Brethauer, 221 Ariz. at 200, ¶ 29 (“[T]he prejudicial nature of
the error will not be presumed but must affirmatively appear from the
record.”) (citation omitted). They instead contend the superior court should
have issued their requested instruction because interpretation of a contract
is a question of law. But they cite no authority suggesting that the court
must instruct the jury regarding one party’s preferred contractual
interpretation. See Porterie v. Peters, 111 Ariz. 452, 458 (1975) (“[I]t is not
necessary for the trial judge to instruct on every refinement suggested by
counsel. Instructions are not given to aid one side or the other in jury
argument.”). Moreover, they did not seek judgment as a matter of law on
this issue before, during, or after trial. They cannot now complain that the
jury did not agree with their position.
CONCLUSION
¶37 We affirm the superior court’s rulings. State Farm is the
successful party on appeal and may recover its taxable costs upon
compliance with Arizona Rule of Civil Appellate Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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