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Arizona Supreme Court says State Farm can't use lowball and delay tactics.

The Arizona Supreme Court in March reinstated a woman's bad faith claim against State Farm, holding that the insurance company "should not force an insured to go through needless adversarial hoops" in order to enforce his or her rights under a policy. (Zilisch v. State Farm Mutual Automobile Insurance Co., 995 P.2d 276 (Ariz. 2000).)

The plaintiff, Kimberly Zilisch, alleged that State Farm had dragged out its evaluation of her auto insurance claim for months, and then the company offered only half of her request for the full underinsured motorist policy limit. The company argued that it had not acted unreasonably because the value of Zilisch's claim was "fairly debatable."

A state appeals court agreed with State Farm and threw out a jury verdict in favor of Zilisch, holding that evidence of improper claims practices by the company did not matter. The court, citing another Arizona case, said bad faith claims only arise when an insurance company intentionally denies or fails to process or pay a claim without reasonable basis for such action. (Zilisch v. State Farm Mutual Automobile Insurance Co., 977 P.2d 134 (Ariz. Ct. App. 1998).)

But the Arizona Supreme Court said that although fair debatability is a necessary condition to avoid a claim of bad faith, it is not a sufficient reason to dismiss such a claim. The question is whether there is sufficient evidence from which reasonable jurors could conclude that State Farm acted unreasonably and knew that its conduct was unreasonable, said Justice Frederick Martone in the unanimous en banc decision.

"Coming up with an amount that is within the range of possibility is not an absolute defense to a bad faith case. The carrier has an obligation to immediately conduct an adequate investigation, act reasonably in evaluating the claim, and act promptly in paying a legitimate claim.... It cannot lowball claims or delay claims hoping that the insured will settle for less.... The court of appeals therefore erred in concluding that fair debatability is both the beginning and the end of the analysis," Martone wrote.

Lowball offer

Zilisch suffered a permanent eye injury while riding in her fiance's car, which was struck by a drag racer. Although she received a liability insurance payment from the at-fault driver, it did not cover her damages, so she demanded the full underinsured motorist (UIM) policy limit from State Farm.

A company representative evaluated Zilisch's claim and made her an offer that was worth half her UIM policy limit. She rejected the offer, and State Farm never offered her more.

After an arbitrator decided that Zilisch was entitled to an award of almost four times the policy limit, State Farm paid the policy limit.

Zilisch then filed the bad faith claim and, during trial, produced evidence that State Farm had set arbitrary goals to reduce pay-outs and had offered its claims representatives salary increases and bonuses based on the amount of paid claims. The jury awarded Zilisch compensatory and punitive damages, but the trial judge set aside the punitive award. Zilisch appealed the decision to the appellate court.

Her attorney, Cal Thur of Scottsdale, said the high court opinion strengthens first-party bad faith law because the court of appeals decision was being used by trial courts as the basis for granting summary judgments in similar cases.

"We've been arguing in motions against insurers' lowballing and making insureds jump through hoops to obtain policy benefits for the past 15 years. This is the first time an appellate court actually talks about such tactics," Thur said.
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Author:Gelhaus, Lisa
Geographic Code:1U8AZ
Date:Jun 1, 2000
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