Haney v. ACE American Insurance Company, 2:13-cv-02429

Background

In March 2012 Jane Haney, a Boeing employee, was injured and received workers’ compensation administered by ACE and managed by Sedgwick; claims manager Lori Hasty miscalculated her wage-replacement amount, resulting in underpayments from 2012 until corrected in March 2013.
Haney retained counsel (Fendon) in July 2012; counsel notified Hasty in February 2013 that Haney’s average monthly wage should be at the statutory maximum and requested retroactive payment; Hasty corrected ongoing benefits but did not issue retroactive payments.
The Industrial Commission of Arizona (ICA) ordered Defendants to pay retroactive benefits in July 2013; Fendon sent repeated emails in September and Defendants received another ICA order in October 2013, but payments were not made until November 2013 after supervisors intervened.
Hasty described her original miscalculation as an “honest mistake,” but her supervisor documented chronic performance problems and instances where Hasty misrepresented when she performed tasks; Hasty resigned in March 2014.
Plaintiff sued for bad faith; the court previously granted partial summary judgment finding ACE (through Hasty) breached the duty of good faith and fair dealing by failing to make retroactive payments for ten months after notice.
Defendants moved for summary judgment on punitive damages; the court denied that motion, finding disputed facts could support a punitive-damages finding.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether punitive damages are appropriate for the bad-faith claim	Hasty consciously disregarded a substantial risk of harm by ignoring miscalculation, emails, and ICA orders for ten months	Conduct was an honest mistake by an overwhelmed employee; no evil mind or intent to harm; all benefits ultimately paid	Denied — reasonable jury could find by clear and convincing evidence that Hasty consciously disregarded a substantial risk of harm, supporting punitive damages
Whether insurer liability for punitive damages requires showing principal’s evil mind	Punitive damages may be imposed on insurer for agent’s conduct taken in furtherance of insurer’s business	Defendants emphasize supervisors’ remedial efforts and lack of corporate malice	Denied — Arizona law permits punitive liability against a principal for agent’s misconduct without showing principal’s evil mind when acts are within scope of employment
Whether mere failure to investigate suffices for punitive damages	Plaintiff contends Hasty’s repeated ignoring and concealment elevates conduct beyond mere failure to investigate	Defendants rely on cases refusing punitive damages for mere groundless positions or strict policy interpretation	Denied — court distinguishes prior cases; evidence here could show deliberate ignoring and concealment amounting to aggravated/outrageous conduct
Whether defendant must have acted to serve her own interests to justify punitive damages	Plaintiff argues conscious disregard alone suffices under Arizona precedent	Defendants assert punitive award requires evidence the agent acted to serve her own interests	Court declined to address newly raised argument in reply and found law unclear; resolved on conscious-disregard and other aggravating factors favoring denial of summary judgment

Key Cases Cited

Filasky v. Preferred Risk Mut. Ins. Co., 734 P.2d 76 (Ariz. 1987) (punitive damages may be awarded in insurance bad-faith cases)
Rawlings v. Apodaca, 726 P.2d 565 (Ariz. 1986) (punitive damages require aggravated, outrageous, malicious, or fraudulent conduct or conscious disregard of substantial risk)
Linthicum v. Nationwide Life Ins. Co., 723 P.2d 675 (Ariz. 1986) (limits on punitive damages where insurer merely takes a groundless position)
Gurule v. Illinois Mut. Life & Cas. Co., 734 P.2d 85 (Ariz. 1987) (conscious and deliberate disregard of others’ rights can support punitive damages)
Hawkins v. Allstate Ins. Co., 733 P.2d 1073 (Ariz. 1987) (evil mind found where insurer intended to injure or consciously pursued conduct knowing it created substantial risk of harm)
Hyatt Regency Phoenix Hotel Co. v. Winston & Strawn, 907 P.2d 506 (Ariz. Ct. App. 1995) (five-factor test for punitive damages: reprehensibility, harm, duration, awareness, concealment)
Nardelli v. Metro. Grp. Prop. & Cas. Ins. Co., 277 P.3d 789 (Ariz. Ct. App. 2012) (punitive damages may be appropriate where insurer aggressively pursues profit-based policies knowing claims are meritorious)
Mendoza v. McDonald's Corp., 213 P.3d 288 (Ariz. Ct. App. 2009) (principal may be liable for punitive damages for agent’s acts within scope of employment)
Quintero v. Rogers, 212 P.3d 874 (Ariz. Ct. App. 2009) (summary judgment on punitive damages improper if reasonable jury could find requisite evil mind by clear and convincing evidence)
Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (movant’s burden on summary judgment to identify absence of genuine dispute)
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (evidence must be viewed in light most favorable to nonmoving party and court must consider evidentiary burden)