Guide to Insurance Bad Faith Claims in Arizona

Overview of Arizona bad faith laws

In Arizona, all insurance contracts have an “implied covenant of good faith and fair dealing.” In plain English, this means that your insurance company is required to deal with you (the “insured”) honestly, fairly, and in good faith so that you can receive the benefits of the insurance contract.

If your insurance company breaches this implied covenant of good faith and fair dealing, you can sue the company for the tort of bad faith.  

Insurance bad faith statute of limitations

In Arizona, insurance bad faith claims have a 2-year statute of limitations, which begins to run the moment the insurance company commits the bad act.

This means that you must file your lawsuit within 2 years of the date the insurance company commits the bad act, otherwise you risk having your lawsuit dismissed.

Arizona Unfair Claim Settlement Practices Act

Arizona is unique in that it has the Arizona Unfair Claim Settlement Practices Act. This Act (along with the Arizona Administrative Code) lists specific standards of conduct that must be met by all insurance companies. If an insurance company fails to meet these standards, the Arizona Department of Insurance has the power to bring an action against the insurance company for unacceptable business practices.

So how does the Act help you as the insured?

Unfortunately, the Act doesn’t allow you to bring a lawsuit based solely on your insurance company’s failure to meet state standards. In legalese, this means that the Act doesn’t provide a “private right of action.”

Nevertheless, the Act can be used as a general guideline to help determine whether your insurance company acted unreasonably. To put it simply, if your insurance company failed to meet a specific standard listed in the Act, it probably acted unreasonably.

With that in mind, let’s take a closer look at the Act.

The Act can be broken down into three general categories of regulations:

Misrepresentations

The Act prohibits insurance companies in Arizona from:

• Misrepresenting relevant facts or insurance policy provisions
• Imposing requirements that aren’t in the insurance policy
• Offering lower than reasonable settlement amounts to compel the insured to litigate
• Trying to settle claims for less than should be reasonably expected based on the insurance company’s advertisements
• Settling when liability is reasonably clear

Claim responses

The Act prohibits insurance companies from:

• Failing to acknowledge and act reasonably and promptly with respect to insurance claims
• Failing to accept or deny a claim within 15 working days after receipt by the insurer of a proof of loss
• Failing to provide explanations for claim denials or settlement offers
• Denying a claim without a reasonable basis (an insurer’s failure to pay a claim is “reasonable” if the validity of the claim is “fairly debatable” after an “adequate investigation”)

Investigations

The Act prohibits insurance companies from:

• Refusing to pay a claim without conducting a reasonable investigation using all available information
• Failing to complete an investigation within 30 days after notification of the claim (unless such investigation can’t reasonably be completed within such time, at which point the reasons the investigation can’t be completed must be communicated to the insured)
• Destroying or altering documents to conceal evidence of claim handling

What damages can you recover in Arizona?

In general, the following damages are recoverable in an Arizona bad faith claim:

• Punitive damages. Punitive damages are rare and only available if the insurance company (1) intended to injure you, (2) engaged in conduct that the insurance company knew was likely to injure you, or (3) engaged in conduct so outrageous that it can be assumed the insurance company intended to injure you.
• Emotional distress. You can recover damages for any anxiety, emotional distress, or embarrassment suffered as a result of the insurance company’s bad faith.
• Consequential damages. This includes any other damages that occurred because of the insurance company’s bad faith.

• The amount due under the insurance policy up to the policy limits. For example, if your insurance company improperly denies your claim for $400,000, you can recover the full $400,000 (assuming the amount is under the policy limits). 
• Attorney fees. The court can force the insurance company to pay any attorney fees that you had to pay as a result of having to litigate the bad faith claim.