CHASAN V FARMERS
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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE DOW CHASAN; CYNTHIA CHASAN, ) 1 CA-CV 07-0323 ) Plaintiffs-Appellees/ ) DEPARTMENT B Cross-Appellants, ) ) MEMORANDUM DECISION ) (Not for Publication v. ) - Rule 28, Arizona FARMERS GROUP, INC.; FARMERS INSURANCE ) Rules of Civil EXCHANGE; FIRE INSURANCE EXCHANGE; ) Appellate Procedure) FARMERS INSURANCE COMPANY OF ARIZONA, ) ) ) Defendants-Appellants/ ) Cross-Appellees. ) Appeal from the Superior Court of Maricopa County Cause No. CV 1999-04815 The Honorable Barry C. Schneider, Judge The Honorable Edward O. Burke, Judge AFFIRMED IN PART; REVERSED IN PART; REMANDED Law Office of Richard Langerman Phoenix By Richard W. Langerman Attorney for Plaintiffs-Appellees Cross-Appellants Paul G. Ulrich, P.C. Phoenix By Paul G. Ulrich Roger L. Cohen And Chow & Freisleben, LLP Newport Beach, CA By Alan Freisleben And Law Office of Todd A. Picker Orange, CA By Todd A. Picker Attorneys for Defendants/Appellants Cross-Appellees Farmers Group, Inc. and Fire Insurance Exchange Steptoe & Johnson, LLP Phoenix By Bennett Evan Cooper Elizabeth M. Townsend Douglas Janicik And Broening Oberg Woods & Wilson, PC Phoenix By Bruce M. Preston James R. Broening Attorneys for Defendants/Appellants Cross-Appellees Farmers Insurance Exchange and Farmers Insurance Company of Arizona T H O M P S O N, Judge ¶1 For a second time, we review these claims alleging breach of an insurance contract, bad faith, and breach of fiduciary duty. Farmers Insurance Exchange (FIE) and Farmers Insurance Company of Arizona (Farmers) challenge the trial court’s rulings, the jury’s tort verdicts, and the award of attorneys’ fees to Dow and Cynthia Chasan (collectively the Chasans). Meanwhile, two other Farmers entities appeal the award of attorneys’ fees and costs to the Chasans, and the Chasans cross-appeal the grant of partial summary judgment on their breach of fiduciary duty claim. For the following reasons, we affirm in part, reverse in part, and remand the case for further proceedings. 2 BACKGROUND ¶2 The Chasans acquired homeowners insurance for their Carefree condominium from Farmers in 1997 and renewed their coverage effective July 30, 2008. The Chasans’ policy no. 91-501-06-17 (the Policy) provided $117,600 in coverage for their personal property. The Policy forms the basis for the Chasans’ claims. ¶3 On August 5, 1998, Dow reported a loss following a home burglary. The burglary, according to the police report, occurred “between 7/6/98 at approx. 1500 hrs. and 7/20/98 at approx. 1500 hrs.” Dow claimed that jewelry, a computer, a monitor, a fax machine, and equipment used for the Chasans’ janitorial-services business were missing. After examining the scene, the deputy was unable “to determine that a crime had occurred” and concluded that Dow’s report was “unfounded.” An employee at the Chasans’ Farmers insurance agency considered the claim’s timing “suspicious” because the Chasans had renewed their Policy days earlier, after it had lapsed for non-payment in May, and they had also added a $35,000 jewelry floater within days of the burglary. ¶4 Dissatisfied with Farmers’s response to their claim, the Chasans sued the “Farmers Insurance Group 3 Companies” on March 17, 1999, while the investigation was pending. Their suit was based upon the insurer’s failure to pay the claim in violation of the Policy’s terms and in breach of the covenant of good faith and fair dealing. On June 24, 1999, Farmers advised the Chasans that it would not pay for the loss, and that it was rescinding the Policy based upon the Chasans’ failure to disclose prior insurance claims. It further advised the Chasans that the claim would have been denied even if the Policy were not void based upon false claims of ownership of various personal property items.1 ¶5 The trial court initially granted Farmers’s summary judgment motion, ruling that the insurance policy was void for misrepresentations made in the application for insurance. On appeal in 1 CA-CV 03-0102, this court reversed, holding “Although there is evidence here that could lead a finder of fact to conclude that Mr. Chasan was not truthful in his 1997 FICA application, the case law does not stretch sufficiently to provide for summary judgment under Wright [v. Hills, 161 Ariz. 583, 587-88, 780 P.2d 416, 420-21 (App. 1989)].” 1 Farmers was told by its outside counsel that there was a strong appearance of material representation on the insurance application due to incorrect application responses to questions regarding prior losses and instances in which other insurance companies had denied or canceled coverage. 4 ¶6 An eleven-day jury trial eventually followed. The evidence introduced to support the Chasans’ claims, including the bad faith and punitive damages claims, included (but was not limited to) that: Farmers established a monetary reserve of only $100 on the Chasans’ claim and never modified it. After the Policy’s cancelation, the Chasans were unable to obtain any insurance. In violation of Farmers’s branch claim office manual policy, which states that NICB referrals may only be made after investigation, Farmers filed a notice with the National Insurance Crime Bureau (NICB), an insurance industry-funded database, reporting that the Chasans’ claim was fictitious in August 1998, before it had obtained a copy of the sheriff’s report. Farmers did not withdraw the NICB notice during the litigation. Farmers admitted that it had erroneously accused the Chasans in a report of (1) filing a claim for jewelry that they had previously claimed was stolen from Cynthia’s parents’ home in Illinois, and (2) claiming stolen business equipment used in their business under both their commercial coverage and their homeowners coverage. Farmers conceded that it had erroneously reported that the Arizona Department of Insurance was investigating the Chasans for fraud, and that it had inaccurately reported that Dow had “falsified” the camcorder receipt. A memo prepared by an Arizona regional manager dated June 10, 1999, recommended rescission of the Policy but did not include that whether or not the Chasans told their agent about the former insurance claim at the time of application in 1997 was in dispute. The memo pointed out that the Chasans’ income fluctuated from near bankruptcy to over $100,000 per year, and that the list of jewelry items lost “appears to be the same if not identical” to the ones reported as 5 stolen to State Farm, a representation the regional manager later conceded might have been mistaken. A private investigator hired by Farmers to investigate the Chasans’ claim made statements at both a jewelry store and an audio visual store that the Chasans had filed a “fraudulent” insurance claim and had lied to Farmers. He made similar statements to the Chasans’ neighbor. A note in the Farmers investigative file instructed that an employee was to interview a witness but leave it “off the record unless really good.” The Farmers home office destroyed its file on the Chasans’ claim despite having prior notice of the request to produce all files. ¶7 During trial, Farmers unsuccessfully moved for judgment as a matter of law on the grounds that the Chasans had failed to establish: (1) a loss during the coverage period; (2) bad faith; and (3) punitive damages. The trial court also denied the Chasans’ motion for judgment as a matter of law as to whether Cynthia had committed fraud. The trial court instructed the jury in relevant part: If you find that Farmers breached the contract of insurance, then your verdict must be in favor of either or both Plaintiffs Dow Chasan and Cynthia Chasan. * * * If you find that Farmers did breach the duty of good faith and fair dealing and that the breach was a cause of the damages of either or both of the Plaintiffs Dow Chasan and Cynthia Chasan, then your verdict must be in 6 favor of either or both Plaintiffs Dow Chasan and Cynthia Chasan on the breach of the duty of good faith and fair dealing claim. * * * If you find in favor of Plaintiffs Dow Chasan and Cynthia Chasan, or either of them, on the punitive damages claim then your verdict must be in favor of Plaintiffs Dow Chasan and Cynthia Chasan, or either of them, on the claim for punitive damages. ¶8 On August 2, 2006, the jury unanimously found in favor of Cynthia on the breach of contract claim and awarded $37,000 against Farmers. It also found in favor of Dow on the breach of contract claim and awarded him $19,650. With respect to bad faith, the jury found “in favor of Plaintiffs, or either of them” by awarding $10,000 to Cynthia and $0 to Dow. The jury also awarded each plaintiff $370,000 in punitive damages. ¶9 Dow filed a motion for additur on his bad faith claim or in the alternative a motion for new trial. Farmers filed a motion for judgment as a matter of law on the bad faith and punitive damages claims, and alternatively moved for a new trial on the ground that – among other things – the trial court had abused its discretion in admitting the corporate greed evidence. As to Dow’s motion for additur, nothing in the record suggests 7 that Farmers consented to an additur. Nevertheless, the trial court granted the additur and awarded Dow $20,000 without conditioning the additur on Farmers’s consent and the denial of Dow’s new trial motion. The trial court denied Farmers’s motions and awarded the Chasans $437,810 in attorneys’ fees pursuant to A.R.S.