Legal Memorandum: Disability Insurance Bad Faith Claims

Issue: What are the elements of an Arizona action for bad faith with regard to disability insurance?

Insurance bad faith arising in the claims settlement process can take many forms.  The cause of action arises from a relationship of trust that has fiduciary characteristics, and thus cannot be reduced to a fixed set of elements.  Rawlings v. Apodaca, 151 Ariz. at 155, 726 P.2d at 571 (1986).  Rather, the action for bad faith is akin to an action in equity, and necessarily involves a complex weighing of facts, circumstances, and credibility of the witnesses.

There is ample authority that supports an award of damages for the tort of bad faith where the insurer engages in conscious deception, where the insurer exploits the vulnerable position of the insured, and where the insurer fails to communicate in good faith the position it is taking or the basis of its action.

Conscious deceptions and insurer trickery will support a claim of bad faith.  See generally Stephen S. Ashley, Bad Faith Actions § 5:1; Walter v. Simmons, 169 Ariz. 229, 239 n.5, 818 P.2d 214, 224 n.5 (Ct. App. 1991) (insurer hid insured property to prevent insured from recovering the full value). 

Insurance companies that exploit the vulnerable positions of their insureds for commercial advantage invite claims of bad faith and such claims have frequently been sustained.  As the leading commentator has noted,

Often, the insured has lost his means of earning a living and must have his insurance benefits to survive.  Claims adjusters have sometimes yielded to the temptation to […]

margin-left:1.0in;margin-bottom:.0001pt;text-align:justify’>