Sobieski v. American Standard Insurance Co.
240 Ariz. 531
| Ariz. Ct. App. | 2016Background
- Scot Sobieski, a motorcyclist, collided with and severely injured his leg after a car abruptly stopped; the car driver was uninsured. The Sobieskis had $100,000 uninsured motorist (UM) coverage with American Standard.
- Initial adjuster Biddlecome concluded Sobieski was 100% at fault after limited contacts (spoke to the motorist and insured), did not obtain the police report or interview multiple available witnesses.
- After counsel sent witness statements undermining the motorist’s account, American Standard re‑opened the file; adjuster Holmes reviewed prior work but performed no new witness interviews and reaffirmed denial with supervisor approval.
- An arbitrator later found Scot 60% at fault and the motorist 40% at fault; American Standard paid the $100,000 policy limit. The Sobieskis then sued for breach of the covenant of good faith and fair dealing (bad faith).
- A jury awarded $500,000 compensatory and $1,000,000 punitive damages for bad faith; the trial court denied JMOL/new trial motions. On appeal, the court affirms compensatory damages for bad faith, reverses punitive damages for lack of clear and convincing evidence of an "evil mind," and vacates attorney’s fees for reconsideration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer breached duty of good faith by unreasonably investigating/denying UM claim | American Standard failed a reasonable investigation (did not interview available witnesses or review police report) despite likely damages exceeding policy limits and Arizona comparative‑fault law | Denial was reasonable based on available information that indicated insured was at fault | Affirmed: Evidence supported jury finding insurer acted unreasonably and with knowledge or reckless disregard of unreasonableness (bad faith) |
| Whether punitive damages were warranted | Insurer’s business plans, incentive programs, personnel materials and training created profit pressure like in Nardelli, showing conscious disregard and motivating denial | No evidence of company‑wide directives or compensation tying adjuster pay to lower payouts; documents focused on customer service and lawful severity control | Reversed: No clear and convincing evidence of required "evil mind" or profit‑driven directives to support punitive damages |
| Whether business/corporate evidence (plans, bonuses, evaluations) supports punitive damages | Isolated phrases and generalized incentive plans show pressure to control severity and prioritize profits | Business plans and incentives did not direct adjusters to shortchange insureds; compensation not tied to local severity as in Nardelli; evidence speculative | Reversed: Corporate evidence insufficiently specific or direct to permit punitive award under clear‑and‑convincing standard |
| Rule 68 offer and attorney’s fees consequences | Offer of $70,000 was rejected; plaintiffs obtained higher compensatory verdict—entitled to Rule 68 sanctions and attorney fees | American Standard challenged the fees award if punitive damages reversed | Affirmed Rule 68 sanctions; vacated and remanded attorney’s fees award for reconsideration in light of reversal of punitive damages |
Key Cases Cited
- Rawlings v. Apodaca, 151 Ariz. 149 (1986) (establishes insurer's implied covenant of good faith and when breach supports tort claim)
- Noble v. Nat'l Am. Life Ins. Co., 128 Ariz. 188 (1981) (recognizes insurer's duty of good faith)
- Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 504 (1992) (bad faith requires unreasonable conduct plus knowledge or reckless disregard)
- Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326 (1986) (punitive damages require proof by clear and convincing evidence)
- Gurule v. Ill. Mut. Life & Cas. Co., 152 Ariz. 600 (1987) (insurer self‑interest alone is not evidence of an "evil mind" for punitive damages)
- Bradshaw v. State Farm Mut. Auto. Ins., 157 Ariz. 411 (1988) (motive determinative for punitive damages; requires proof of conscious disregard or malice)
- Nardelli v. Metropolitan Group Prop. & Cas. Ins., 230 Ariz. 592 (2012) (example where corporate profit directives and severity‑tied compensation supported punitive damages)
- Hawkins v. Allstate Ins. Co., 152 Ariz. 490 (1987) (punitive awards cannot rest on speculation; requires concrete proof of aggravating conduct)
- SWC Baseline & Crismon Inv'rs v. Augusta Ranch Ltd. P'ship, 228 Ariz. 271 (App. 2011) (punitive damages require reprehensible conduct and evil mind)