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Torts: Insurance Agent Malpractice in Procuring UM/UIM/Fraud & Consumer Fraud/Negligent Infliction of Emotional Distress

Posted by Ted A. Schmidt | Feb 08, 2016 | 0 Comments

Murray v. Farmers Ins. Co., 730 Ariz. Adv. Rep. 9 (App. Div.II, January 19, 2016) (J. Espinosa)

INSURANCE AGENT MAY BE LIABLE FOR MISLEADING INSUREDS INTO PURCHASING INSUFFICIENT UM/UIM COVERAGE EVEN WHERE DOI FORMS SIGNED/NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS ALLOWED FOR HARM TO PEACE OF MIND THAT FAMILY IS PROPERLY INSURED

Plaintiffs had a long time relationship with the defendant insurance agent. They testified that the agent told them they did not need much uninsured [UM] or underinsured [UIM] coverage because they had health insurance. The agent denied making this statement and defended upon the fact the plaintiff had executed Selection Forms accepting the UM and UIM coverage limits of  $30,000/$60,000 on an auto policy and $25,000/$50,000 on an off-road vehicle policy in face of $250,000/$500,000 liability limits on each and a $1 million umbrella policy.

Seventeen year old plaintiff Jessyka was involved in a serious auto accident with uninsured and underinsured motorists which resulted in catastrophic brain injury. Plaintiffs sued the agent and applicable carriers for negligently failing to recommend and secure UM and UIM coverage in the amount of her family's liability coverages.  The jury awarded plaintiffs $180,000. This award bore no semblance to the $1,890,000 in limits the parties had agreed were in play.  Plaintiffs asked for Additur and moved for a new trial on damages only. The trial court denied the Addidtur and over plaintiffs' objection granted a new trial on liability and damages. Plaintiffs appeal and defendants cross-appeal.  The Arizona Court of Appeals affirmed in part and reversed in part.

Under Rule 49 Arizona Rules of Civil Procedure a court may reinstruct a jury that its verdict is “not responsive to the issue put before it” so as to attempt to cure a problem in a verdict and avoid a new trial.  However here, the  trial court properly concluded that there would be no instruction it could give this jury that would not constitute a comment on the evidence; focusing the jury on the fact they are being asked to decide if plaintiffs should have had  $1,890,000 in UM/UIM coverage which would be the amount of their damages. Where, as here, the juror's error is a factual one and not one of law, instructing the jury under rule 49 would be an improper comment on the evidence.

Because as the trial court  determined, the jurors' verdict here was likely a “compromise” verdict (jurors finding defendant's liability weak but plaintiffs' case very sympathetic) granting a new trial  on both liability and damages was the right course of action. Ordering a new trial just on damages is seldom appropriate. 

The court of appeals, however, reversed the trial court's granting of summary judgment for the defendants on plaintiffs' negligent infliction of emotional distress claim. The trial court found the plaintiffs' claims to be strictly pecuniary/property damages—the policy limits they should have had, and therefore not permitted under the current state of the law in Arizona.  The court of appeals held:

                From the evidence provided and reasonable inferences therefrom, a factfinder could conclude the Murrays suffered direct emotional distress from Jones's negligence that was non-economic, that is, the loss of their reasonable expectations and peace of mind that they and their children were insured against economic catastrophe. We therefore conclude this is the appropriate case for the "evolution" of the law contemplated by the trial court.

The court of appeals also reversed the trial court's granting of summary judgment on plaintiffs theories under Arizona's Consumer Fraud Act (CFA), A.R.S. §44-1522, and the insurance fraud statutes, A.R.S. §§20-443 and 443.01. Finding the language of the statutes broadly written so as to protect any consumer bearing some relationship to the transaction in question, the court held that 17 year old Jessyka was a third party beneficiary of the insurance contracts thus providing her standing to bring the statutory fraud claims.

Next the court held that the umbrella policy language rendering its UM and UIM a combined single limit of $1 million, was enforceable primarily because A.R.S. §20-259.01(L) expressly exempts umbrella policies from the requirement that UM and UIM coverage be offered in any amount.

Finally, on the defendants' cross-appeal the court found that the signing of a Department of Insurance Selection Form did not erase the question of fact for the jury as to whether or not the defendant misled the plaintiffs' into believing they did not need more insurance and should sign it. 

About the Author

Ted A. Schmidt

Ted's early career as a trial attorney began on the other side of the fence, in the offices of a major insurance defense firm. It was there that Ted acquired the experience, the skills and the special insight into defense strategy that have served him so well in the field of personal injury law. Notable among his successful verdicts was the landmark Sparks vs. Republic National Life Insurance Company case, a $4.5 million award to Ted's client. To this day, it is the defining case for insurance bad faith, and yet it is only one of several other multi-million dollar jury judgments won by Ted during his career. He is certified by the State Bar of Arizona as a specialist in "wrongful death and bodily injury litigation".

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