Webb v. Farm Bureau ( 2017 )

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UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL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
LUANNA WEBB,
Plaintiff/Appellee-Cross Appellant,
v.
FARM BUREAU PROPERTY AND CASUALTY
INSURANCE COMPANY, et al.,
Defendants/Appellants-Cross Appellees.
No. 1 CA-CV 16-0299
FILED 12-12-2017
Appeal from the Superior Court in Maricopa County
No. CV2013-015761
The Honorable Arthur T. Anderson, Judge
AFFIRMED
COUNSEL
Treon & Shook, PLLC, Phoenix
By Daniel B. Treon
Counsel for Plaintiff/Appellee-Cross Appellant
Gordon & Rees, LLP, Phoenix
By John L. Condrey, Molly C. Machold
Counsel for Defendants/Appellants-Cross Appellees
WEBB v. FARM BUREAU, et al.
Decision of the Court
MEMORANDUM DECISION
Judge Maria Elena Cruz delivered the decision of the Court, in which
Presiding Judge Lawrence F. Winthrop and Judge Diane M. Johnsen joined.
C R U Z, Judge:
¶1 Luanna Webb sued Farm Bureau Property and Casualty
Insurance Company (“Farm Bureau”), alleging breach of the duty of good
faith and fair dealing and breach of contract arising out of Farm Bureau’s
refusal to pay Ms. Webb’s insurance claim after her son was killed in a
motor vehicle accident. The other driver was at fault and underinsured.
Farm Bureau denied Ms. Webb’s claim for underinsured motorist benefits
because it concluded Ms. Webb’s son was not a resident of her household
under the policy. A jury found in favor of Farm Bureau as to the breach of
contract claim, but awarded Ms. Webb $25,000 in damages on her bad faith
claim. Farm Bureau appeals, claiming that it was entitled to judgment as a
matter of law (“JMOL”). Ms. Webb cross-appeals, arguing the verdict on
the breach of contract claim should be overturned. For the following
reasons, we affirm.
FACTUAL AND PROCEDURAL HISTORY
¶2 Ms. Webb was insured under an automobile insurance policy
issued by Farm Bureau, effective June 30, 2011 through June 30, 2012. Ms.
Webb’s home address at all relevant times was on Cheery Lynn Road in
Phoenix, Arizona (“Cheery Lynn”). An earlier Farm Bureau policy listed
Ms. Webb as well as her son, Nicholas Webb, as named insureds; the policy
in place at the time of the accident named only Ms. Webb.
¶3 On August 29, 2011, Ms. Webb’s other son, Justin Webb, was
killed when he was struck by a car while riding his motorcycle. On
September 13, 2011, Ms. Webb filed a claim for underinsured motorist
benefits, asserting Justin was a resident of her household at the time of his
death.
¶4 The claim was assigned to Farm Bureau adjuster Tim Cratch,
who was assisted by an investigator, Paul Cully. Cratch and Cully
reviewed Ms. Webb’s policy and saw Justin was not listed as a named
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insured or identified as a member of Ms. Webb’s household at the time of
her application.
¶5 Beyond named insureds, Farm Bureau’s policy also provides
coverage for other “household members.” The policy defines household
members as:
A. A resident of your household who:
1. Is related to you by blood, marriage, guardianship,
adoption; or
2. Is a minor in your custody or in the custody of any
“person” related to you by blood, marriage,
guardianship or adoption.
B. A “household member” includes such “persons”
temporarily living elsewhere if they:
1. Are unmarried; and
2. Usually make their home in your family unit.
¶6 Investigating whether Justin was a resident of Ms. Webb’s
household, Cully began by reviewing records maintained by the Insurance
Services Organization (“ISO”). The ISO report revealed a USAA insurance
policy in Justin’s name listing an address on 39th Street in Phoenix. The
USAA insurance policy lapsed in 2008. The ISO report also revealed several
police reports showing the same 39th Street address, as well as state motor
vehicle records indicating Justin lived on 39th Street. Cully also contacted
police officers familiar with Justin’s history, who recalled his address as
39th Street. The 39th Street address belongs to Ms. Webb’s parents—
Justin’s grandparents—Samuel and Nelloise Garcia.
¶7 Cully visited the 39th Street address and interviewed Mrs.
Garcia, recording the conversation. Mrs. Garcia stated that Justin lived at
her home from the time he graduated high school until he enlisted in the
Marine Corps in 2008, and lived there since his return from deployment in
September 2008 until his death. At the home on 39th Street, Cully
documented a few personal items of Justin’s as well as mail addressed to
him at that location. Cully did not interview Mr. Garcia, who was asleep
when he visited.
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¶8 Cully then interviewed Ms. Webb at her Cheery Lynn home.
Ms. Webb claimed that Justin had always lived with her, though he
sometimes spent nights at his grandparents’ home on 39th Street. Ms.
Webb showed Cully Justin’s room, which contained Justin’s clothes,
although Cully thought the room “too clean” to have been lived in recently.
Ms. Webb also played Cully voice messages left for Justin on the home
telephone regarding Justin’s truck and a court fee recovery. While Cully
was interviewing Ms. Webb, Mrs. Garcia called. Ms. Webb invited her to
speak to Cully, and after she handed the phone to him, Mrs. Garcia told
Cully she had no recollection of speaking with him and further stated Justin
lived at Ms. Webb’s Cheery Lynn home. Cully believed the call was set up
by Ms. Webb, and relied more heavily on what Mrs. Garcia had said to him
when he interviewed her at her home. Cully did not disclose to Ms. Webb
that he found mail addressed to Justin at the 39th Street address.
¶9 Cully considered further investigation based on the
conflicting information, including whether to follow up with Justin’s
grandfather, contact other family members such as Nicholas, locate and
review the USAA policy, or write to Ms. Webb for further documents, but
Farm Bureau advised Cully further investigation was unnecessary. In
addition to the results of the interviews it conducted, Farm Bureau’s
research had revealed a history of accident reports, police reports, other
insurance policies, and other documentation indicating Justin did not live
with Ms. Webb, but resided at the 39th Street home.
¶10 In November 2011, Farm Bureau determined Justin did not
live at Ms. Webb’s home, was not a “household member,” and denied her
claim for coverage. In its letter denying her claim, Farm Bureau stated it
based its denial on a “review of the information and documents received to
date . . .” and denied her claim because it did not meet “the Policy’s terms,
definitions, conditions or limitations . . . .” Farm Bureau’s letter did not set
out the policy definition of “household member” or explain to Ms. Webb
what it understood “household member” to mean, although it did state that
household member was defined in her policy. The denial stated Farm
Bureau would gladly review any further information should Ms. Webb
submit it, suggesting Farm Bureau could revisit its claim denial.
¶11 Based on Farm Bureau’s belief that Ms. Webb had lied about
where Justin lived, Cully submitted a fraud referral to the State of Arizona
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Decision of the Court
Department of Insurance (“DOI”) in December 2011.1 DOI did not pursue
the fraud claim. Neither Farm Bureau nor DOI informed Ms. Webb about
the fraud referral; she first learned of it during the subsequent litigation.
¶12 On October 9, 2013, Ms. Webb faxed Cratch asking for “each
and every reason for Farm Bureau’s conclusion that [Justin] was not a
resident of my house.” She also asked him to send her any recorded
statements the company took and a copy of her policy. When her letter
went unanswered, Ms. Webb mailed another letter to Cratch repeating her
requests, stating she was “very upset by all of this and think it’s only fair
that Farm Bureau answers my questions.” Cratch responded via letter
dated November 7, telling Ms. Webb that prior losses, police reports, police
officers, mail, and insurance policies evidenced that Justin did not reside at
her house. Cratch provided a copy of Ms. Webb’s policy with his
November 7 letter. On November 13, Ms. Webb faxed Cratch asking for the
records Farm Bureau relied upon in reaching its conclusion. Ms. Webb also
asked for the dates of the documents relied upon and the date of Cully’s
interview with her mother, as well as a copy of that interview. Ms. Webb
stated that she received no response. Cratch’s claim file documents that he
received Ms. Webb’s October and November letters.
¶13 On November 22, 2013, Ms. Webb filed a pro se complaint in
superior court claiming breach of contract and bad faith. In a letter dated
November 26, Ms. Webb notified Cratch that she had filed the complaint
and again repeated her request for documents and the recorded statements.
Over the next several months, Ms. Webb repeatedly sought documents
from Farm Bureau. Ms. Webb continued to email Cratch asking for the
records, stating her desire to avoid litigation. Cratch’s file notes reflect he
received repeated email requests from Ms. Webb for documents and that
he responded to those requests. Beyond the November 7 letter, however,
Farm Bureau did not offer in evidence copies of any letters or emails
responding to Ms. Webb’s queries. According to Cratch’s file notes, he
sometimes responded to Ms. Webb by sending her additional copies of
documents he had sent to her before. He sent some documents to Ms. Webb
by certified mail on March 20, 2014. Having received some of the records,
on March 21, Ms. Webb wrote to Cratch again to ask for a copy of Mrs.
Garcia’s interview; in her letter, she provided reasons why certain records
might indicate Justin lived at 39th Street even though she claimed he
1 Section 20-466(G) provides: “An insurer that believes a fraudulent
claim has been or is being made shall send to the director, on a form
prescribed by the director, information relative to the claim . . . and any
other information the fraud unit may require.” A.R.S. § 20-466(G).
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resided at Cheery Lynn, and also provided some additional
documentation—a statement from White Pages—indicating Justin lived
with her. Ms. Webb also offered to provide a statement from Nicholas. Ms.
Webb advised Cratch that she had served the lawsuit, but asked Farm
Bureau to reconsider its position to avoid litigation and give her meaningful
time to review the documents prior to Farm Bureau filing its answer. Ms.
Webb and Farm Bureau proceeded with litigation.
¶14 Eventually represented by counsel, as the litigation
proceeded, Ms. Webb made multiple settlement offers, first offering to
settle for the policy limits of $25,000. On January 5, 2015, Ms. Webb made
an offer of judgment pursuant to Arizona Rule of Civil Procedure (“Rule”)2
68 for $37,500, inclusive of costs, interest, and legal fees. Farm Bureau did
not accept the offer of judgment, later submitted a counteroffer of $20,000,
then withdrew the counteroffer.
¶15 At trial, Ms. Webb argued Justin lived at her house and that
Farm Bureau’s investigation was inadequate. Ms. Webb called several
relatives who testified Justin lived with Ms. Webb on Cheery Lynn. The
relatives testified that in the last eight months of his life, Justin’s
grandparents had banned him from their home on 39th Street for drug use.
Nicholas Webb testified Justin primarily lived at Cheery Lynn and kept his
clothes and day-to-day personal items such as toiletries there. Nicholas
testified Justin had only a few items of old clothing at 39th Street, and that
while Justin sometimes stayed at his girlfriend’s house, he never lived there.
¶16 Ms. Webb testified that Farm Bureau never advised her who
qualified as a “household member”—either at the time of her application
for insurance or after she made her claim—nor explained to her what
information she could provide to help prove that Justin lived with her.
According to Ms. Webb, neither Cody Smith, the Farm Bureau agent who
sold Ms. Webb her insurance policy, Cratch, nor Cully explained to Ms.
Webb what “household member” meant, although agent Smith testified
that he believed he would have asked her who lived with her while filling
out her insurance application.
¶17 Ms. Webb’s insurance expert, David Frangiamore, testified to
insurance practices and industry customs and the duties Farm Bureau
owed Ms. Webb in its investigation. On his review of the record he opined
2 The Rules underwent significant revisions effective January 1, 2017.
Ariz. R. Civ. P., prefatory cmt. to the 2017 amendments. Unless otherwise
noted, we cite the Rules in effect at the time of this dispute.
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Decision of the Court
that Farm Bureau’s investigation was inadequate and deficient. He testified
Farm Bureau failed to review relevant case law defining “household
member”; gathered only limited information, some of it refuted and
outdated; failed to fully consider all factors relevant to determining if Justin
was a “household member”; and failed to properly apprise Ms. Webb of its
investigation. Frangiamore testified that Farm Bureau had an obligation to
disclose to Ms. Webb any relevant materials, and to respond to her
questions regarding the denial of her claim.3
¶18 Frangiamore further opined that Farm Bureau was wrong to
submit the fraud referral to DOI, and testified the referral could negatively
impact Ms. Webb in the future. Cratch testified that although a fraud
referral was submitted, he never concluded there was fraud by Ms. Webb,
and at the time the claim was referred to Cratch, and subsequently Cully,
no fraud was suspected. Cully testified that information provided by Ms.
Webb in her claim differed from information she provided when she
originally took out the policy and that said discrepancy raised questions
warranting referral to DOI. Ms. Webb and Nicholas testified to the
emotional toll the investigation inflicted on Ms. Webb and how it prevented
her from fully moving past Justin’s death.
¶19 At the close of Ms. Webb’s case, Farm Bureau moved for
JMOL, arguing Ms. Webb had failed to offer evidence sufficient to support
a bad faith claim. The court denied the motion.
¶20 In its defense, Farm Bureau argued its investigation was
adequate and that it gave equal consideration to information Ms. Webb
submitted, including her own statements, as it gave to the other evidence it
obtained, but found Ms. Webb’s information and statements unreliable.
Cratch testified he gave fair consideration to Ms. Webb’s claim; he stated
his job was simply to evaluate the claim and stated he did not slant his
evaluation towards denial. Cratch testified that, at the time Farm Bureau
denied the claim, he telephoned Ms. Webb and advised her of the
documents it relied upon in making its determination. In addition to the
evidence it relied upon in deciding to decline the claim, Farm Bureau
presented testimony from Ms. Webb’s first-born son, Sam Phillips, who
testified Justin did not live at Cheery Lynn, but lived at 39th Street and his
girlfriend’s house.
3 On cross-examination, Cratch agreed the insurer had an obligation
to respond to an insured’s questions concerning a claim.
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Decision of the Court
¶21 Farm Bureau’s expert witness, Rodney Ball, opined that Farm
Bureau made an adequate and timely investigation and gave Ms. Webb
equal consideration in determining whether the policy covered Justin. Ball
testified Farm Bureau conducted its investigation in accordance with
industry practices, and disagreed with any suggestion that Farm Bureau’s
responsibility was to “leave no stone unturned.” At the close of Farm
Bureau’s case, Ms. Webb moved for JMOL on both claims, which was
denied.
¶22 Before closing arguments, and over Farm Bureau’s objection,
the court gave the jury an instruction regarding the definition of “resident
of the household” as used in insurance policies (“the Mendota instruction”).
The instruction cited factors taken from Mendota Insurance Company v.
Gallegos, 232 Ariz. 126, 131, ¶ 23 (App. 2013), to help guide the jury in
determining whether Justin was a resident of Ms. Webb’s household.
¶23 During closing, Ms. Webb’s counsel specifically highlighted
the jury instruction in urging the jury to find Farm Bureau breached its duty
of good faith, stating a factor it should consider in determining bad faith
was the company’s lack of investigation into the relationship between Ms.
Webb and Justin. Ms. Webb’s counsel argued that Farm Bureau’s failure to
consider that factor “[f]lies right in the face of the instruction of law the
court is going to give—or the court has already given. That is patent bad
faith . . . .” Ms. Webb’s counsel further argued that Farm Bureau acted in
bad faith because it hid its investigation from Ms. Webb, withheld
documents, and did not treat her equally, but instead worked against her.
¶24 The jury found in favor of Farm Bureau on the breach of
contract claim, but found in favor of Ms. Webb on the bad faith claim, and
awarded Ms. Webb $25,000 in damages. Farm Bureau moved for JMOL on
the bad faith claim, arguing the jury’s finding that it did not breach the
contract “foreclose[d] the possibility that the bad faith claim could be
premised on the wrongful denial of the claim for benefits, because benefits
were not owed under the policy.” Ms. Webb moved for JMOL on the breach
of contract claim. The court denied both parties’ motions, finding the jury
heard adequate evidence to support its verdicts.
¶25 Both parties moved for attorneys’ fees as the successful party
under Arizona Revised Statutes (“A.R.S.”) section 12-341.01(A). The court
ruled Ms. Webb was the prevailing party and awarded her $181,232.00 in
attorneys’ fees and $8,640.60 in costs. The court also awarded Ms. Webb
$41,960.74 as sanctions under Rule 68.
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Decision of the Court
¶26 Farm Bureau timely appealed, and Ms. Webb timely cross-
appealed.4 We have jurisdiction pursuant to A.R.S. § 12-2101(A)(1).
DISCUSSION
I. Denial of Farm Bureau’s Motions for JMOL
¶27 Farm Bureau argues the superior court erred by denying its
motions for JMOL because: (1) Ms. Webb offered no evidence that Farm
Bureau discounted undisputed evidence that Justin lived at her home or
that a more thorough investigation by Farm Bureau would have produced
relevant information; and (2) there could be no bad faith damages where
there was no coverage owed.
¶28 We review de novo the grant or denial of a motion for JMOL.
Glazer v. State, 237 Ariz. 160, 167, ¶ 29 (2015). The superior court should
grant JMOL when there is no issue of fact and the movant is entitled to
judgment as a matter of law. Id. We review the evidence in the light most
favorable to Ms. Webb as the non-moving party. Id. If reasonable people
could differ about the conclusions drawn from the evidence, the court
should deny the motion. Id. at ¶ 28.
¶29 An insurance carrier has the obligation to conduct an
adequate investigation, act reasonably in evaluating a claim, and act
promptly in paying a legitimate claim. Zilisch v. State Farm Mut. Auto. Ins.
Co., 196 Ariz. 234, 238, ¶ 21 (2000). When an insured alleges an insurer is
liable for bad faith based on its investigation of a claim, the insurer cannot
be held liable if it acted reasonably in performing the investigation, if it had
a reasonable basis for denying the claim, and if further reasonable
4 Ms. Webb points out that Farm Bureau’s opening brief failed to
include a Statement of the Issues, as required by Arizona Rules of Civil
Appellate Procedure (“ARCAP”) 13(a)(6). A non-conforming brief may
preclude relief. See In re Aubuchon, 233 Ariz. 62, 64-65, ¶ 6 (2013). However,
in our discretion, we consider these arguments because Farm Bureau’s
opening brief adequately addressed the relevant issues and stated its
arguments clearly, causing Ms. Webb no prejudice. See Varco, Inc. v. UNS
Elec., Inc., 242 Ariz. 166, 170 n.5, ¶ 12 (App. 2017) (stating waiver for failure
to comply with ARCAP 13(a) is discretionary); see also Ritchie v. Krasner, 221
Ariz. 288, 305, ¶ 62 (App. 2009) (requiring that opening briefs present and
address significant arguments, supported by authority, setting forth the
parties’ position on issues in question).
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investigation would not have revealed any additional relevant facts. Aetna
Cas. & Sur. Co. v. Superior Court (Gordinier), 161 Ariz. 437, 440 (App. 1989).
¶30 The jury ultimately found for Farm Bureau on the breach of
contract claim, implicitly finding the insurer’s denial of coverage was
objectively reasonable. An award of bad faith damages based upon an
alleged inadequate or unreasonable investigation is foreclosed when there
is no coverage for the claim, see id., however, an insured need not prevail
on a coverage claim for breach of contract in order to recover for bad faith
premised on other evidence. Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz.
504, 509 (1992). An insurer still may be liable for bad faith if the jury finds
it acted unreasonably in the manner in which it processed a claim or if it
concludes the insurer breached another duty to the insured. See Zilisch, 196
Ariz. at 237, ¶ 20. In investigating and processing claims, insurers have
duties of a fiduciary nature, including equal consideration, fairness, and
honesty. Id. Insurers may not frustrate the insured’s right to honest and
fair treatment, and may do nothing that jeopardizes the insured’s security
under the policy. Id. at 237-38, ¶¶ 20-21.
¶31 The jury heard and considered evidence that Farm Bureau
withheld relevant documents from Ms. Webb, failed to respond to Ms.
Webb’s letters and emails, and failed to give her reasonable opportunity to
present additional evidence tending to indicate that Justin lived with her.
The jury also was given evidence that Farm Bureau failed to advise Ms.
Webb of the terms of her policy and their meanings, frustrating her ability
to support her claim for coverage.
¶32 Frangiamore testified that, as a principle in an insurance
claim, Ms. Webb was entitled to know what benefits were potentially
available to her under the policy, was entitled to know whether Farm
Bureau had doubts as to coverage for her claim, and was entitled to updates
regarding the investigatory process. Frangiamore testified that Farm
Bureau’s failure to update Ms. Webb regarding the claim process deprived
Ms. Webb a fair opportunity to present information. He further opined that
Farm Bureau’s failure to disclose relevant documents to Ms. Webb when it
denied her claim violated industry customs and practices. Ms. Webb and
Nicholas testified to the emotional strain Ms. Webb suffered as a result of
the investigation and litigation.
¶33 The jury also heard expert testimony that the DOI fraud
referral by Farm Bureau was made in bad faith and could cause Ms. Webb
harm in the future. Although insurance companies have a statutory duty
to refer claims they believe to be fraudulent, see A.R.S. § 20-466(G), the jury
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in this case heard Farm Bureau claims representatives testify that they never
formally came to that “belief” nor advised Ms. Webb that they believed she
had submitted a fraudulent claim. Regardless of whether the fraud referral
was reasonable or placed in bad faith, there was sufficient independent
evidence in the record to support the jury’s finding of bad faith based on
Farm Bureau’s failure to act in a fair and honest manner, and to give its
insured’s interests equal consideration.
¶34 The jury was instructed that, “[i]n all aspects of investigating
. . . a claim, Farm Bureau [was] required to give as much consideration to
[Ms.] Webb’s interests as it does to its own interests.” During closing, Ms.
Webb’s counsel argued Farm Bureau acted in bad faith, not only as to the
adequacy of its investigation, but also in the manner Farm Bureau
interacted with Ms. Webb during and following its investigation. The jury
could very well have based its bad faith verdict on a failure by Farm Bureau
to give equal consideration to Ms. Webb’s interests, to treat her fairly, or to
act honestly in its dealings with Ms. Webb.5 We hold the court did not err
in denying Farm Bureau’s JMOL motions at the close of Ms. Webb’s case or
after the jury returned the defense verdict on coverage.
II. Cross-Appeal of the Denial of Ms. Webb’s Motion for JMOL
¶35 Ms. Webb argues the court erred by denying her JMOL on the
breach of contract claim. Ms. Webb argues that unrebutted evidence
presented at trial established Justin was a member of Ms. Webb’s household
and Farm Bureau therefore breached the contract by denying her claim for
underinsured coverage for his death. She does not argue the jury was
improperly instructed, only that its verdict was against the weight of the
evidence.
¶36 In contrast to the evidence Ms. Webb presented in support of
her contention that Justin lived with her, Farm Bureau presented evidence
showing Justin did not. Although the USAA policy was outdated, it
5 Farm Bureau argues the jury must have based its bad faith verdict
solely on Ms. Webb’s contention that the insurer performed an inadequate
investigation of her claim; however, Farm Bureau did not ask for a special
interrogatory as to that point. See Rule 49(g); Powell v. Langford, 58 Ariz.
281, 287 (1941) (stating special interrogatories may be submitted to the jury
along with a general verdict). Accordingly, we will uphold a jury verdict
“[i]f any substantial evidence could lead reasonable persons to find the
ultimate facts to support a verdict.” Goodman v. Physical Res. Eng’g, Inc., 229
Ariz. 25, 28, ¶ 6 (App. 2011).
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showed Justin’s address as 39th Street. Mrs. Garcia’s initial statement to
investigator Cully was that Justin lived with her, and Cully found personal
items and clothing at the 39th Street address. The ISO report that Farm
Bureau obtained revealed several more contemporaneous documents and
police reports indicating Justin resided at 39th Street. Both Ms. Webb and
Nicholas conceded that Justin did in fact stay at the 39th Street address at
times, sometimes for up to a couple of weeks, undercutting Ms. Webb’s
claim that Justin always lived with her. This evidence was sufficient for the
jury to determine that Justin did not reside at Cheery Lynn and was not a
“resident” of Ms. Webb’s household, and therefore that the underinsured
coverage did not extend to Justin and Farm Bureau did not breach its
contract with Ms. Webb. On this record, the court did not err by denying
Ms. Webb’s JMOL on the breach of contract claim.
III. “Resident” of Household Jury Instruction
¶37 Farm Bureau argues the court committed reversible error
when it gave the Mendota instruction broadly identifying factors to be
considered in determining whether someone is a “resident of your
household” under the relevant policy language. Farm Bureau argues the
Mendota instruction was improper because the contract was unambiguous
and that a general instruction on how to interpret a contract provision was
sufficient to guide the jury in its deliberations. On appeal, Farm Bureau
further argues the instruction was improper because it “gave the jury
reason to find that the claim was handled in a dilatory manner if they found
that Farm Bureau did not address each of the enumerated factors addressed
. . . .” We find this issue moot. Farm Bureau prevailed on the breach of
contract claim, precluding a finding of bad faith based on an inadequate
investigation. As discussed above, however, the record supports the bad
faith verdict against Farm Bureau based on evidence unrelated to the
reasonableness of its investigation.
IV. The Court’s Finding that Ms. Webb was the Prevailing Party
¶38 Farm Bureau challenges the superior court’s award of
attorneys’ fees to Ms. Webb, arguing she was not the “successful party”
under A.R.S. § 12-341.01(A).6 Farm Bureau argues the court misapplied the
“percentage of success” or “totality of litigation” tests. Ms. Webb contends
6 Ms. Webb filed a Motion to Strike Section VI of Appellant/Cross-
Appellee’s Reply Brief and Answering Brief on Cross-Appeal. Because we
find Section VI contained no new argument on appeal, we deny that
motion.
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the court correctly determined that she was the successful party because the
judgment exceeded the amount she had offered to accept in settlement
under A.R.S. § 12-341.01(A).
¶39 The superior court has broad discretion in determining the
successful party under A.R.S. § 12-341.01, and its determination “will not
be disturbed on appeal if any reasonable basis exists for it.” Vortex Corp. v.
Denkewicz, 235 Ariz. 551, 562, ¶ 39 (App. 2014) (internal quotations omitted).
This court will not disturb an award of attorneys’ fees absent an abuse of
discretion. Id.
¶40 Section 12-341.01(A) states that the court may award fees to
“the successful party” in an “action arising out of a contract,” and further
provides:
If a written settlement offer is rejected and the judgment
finally obtained is equal to or more favorable to the offeror than
an offer made in writing to settle any contested action arising
out of a contract, the offeror is deemed to be the successful party
from the date of the offer and the court may award the
successful party reasonable attorney[s’] fees.
A.R.S. § 12-341.01(A) (emphasis added).
¶41 The purposes of § 12-341.01(A) include mitigating the burden
of the expense of litigation and encouraging more careful analysis in
litigation. Hall v. Read Dev., Inc., 229 Ariz. 277, 282, ¶ 18 (App. 2012). Parties
assess exposure to liability for attorneys’ fees and costs as part of this careful
analysis, and attorneys’ fees and costs are included in the final judgment
when comparing a judgment to a prior settlement offer. See id. at ¶¶ 16-18.
¶42 Ms. Webb made multiple offers of settlement, including an
offer of judgment on January 5, 2015 for $37,500, inclusive of damages, costs
and attorneys’ fees, Farm Bureau did not respond, but counteroffered on
January 15 for $20,000, and then withdrew its counteroffer. Ms. Webb was
awarded a judgment of $256,833.34, which included the $25,000 jury
verdict, $181,232 in attorneys’ fees, and $8,640.60 in costs. The judgment
also included Rule 68 sanctions totaling $41,960.74. Because the judgment
was more favorable than each of Ms. Webb’s prior settlement offers, the
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court did not abuse its discretion in deeming Ms. Webb to be the successful
party and awarding her costs and reasonable attorneys’ fees.7
V. Attorneys’ Fees on Appeal
¶43 Both parties request costs and attorneys’ fees on appeal
pursuant to ARCAP 21(a) and A.R.S. §§ 12-341.01, 12-342, and 12-349.
Because Ms. Webb is the successful party on appeal under § 12-341.01(A),
we award her costs and reasonable attorneys’ fees.
CONCLUSION
¶44 For the foregoing reasons, we affirm.
AMY M. WOOD • Clerk of the Court
FILED: AA
7 Ms. Webb sought $221,391 in fees; the court awarded her $181,232
based on its consideration of the factors discussed in Associated Indemnity
Corporation v. Warner, 143 Ariz. 567, 570 (1985), and Wistuber v. Paradise
Valley Unified School District, 141 Ariz. 346, 351 (1984). The court found “it
. . . difficult to isolate [the] fees incurred to prosecute bad faith from those
necessitated by the underlying contract claim[,]” that the bad faith claim
posed no novel legal issue, imposing a fee award upon Farm Bureau would
not unduly burden the company, and that while both sides initially showed
a willingness to settle, increasing fees put settlement out of reach.
14