Centeno v. American Liberty Insurance Company
(Trend in Arizona Bad Faith Litigation of Plaintiffs Suing Insurance Company and Third Party Administrators)
(April 2019) - A trend in Arizona bad faith litigation is for plaintiffs to file suit against not only the insurance company allegedly acting in bad faith, but also against third party administrators (“TPAs”) and/or claims adjusters. These cases, or at least the claims against TPAs and claims adjusters, are typically inappropriate and an effort should be made to get the TPA/claim adjuster defendant dismissed. While not a published decision, Lewis Brisbois obtained a dismissal of the TPA in Centeno v. Am. Liberty Ins. Co., see Opinion and Order No. CV-18-01059-PHX-SMB, 2019 U.S. Dist. LEXIS 22611 (D. Ariz. Feb. 12, 2019).
In Centeno, a worker allegedly injured herself while providing services at a patient’s house in the course of her employment. The ensuing worker’s compensation claim was initially accepted by the employer’s worker’s compensation insurer, but the acceptance was later rescinded and the claim was denied because the insurer believed that the injury-causing event did not occur on-the-job. (Id. at 2.) The worker then initiated litigation before the Industrial Commission of Arizona (“ICA”), which ruled in the worker’s favor awarding medical and financial benefits.
Subsequently, the worker initiated another action, this time in Arizona District Court, alleging claims of bad faith and aiding and abetting against the worker’s compensation insurer, the TPA and the claims adjuster assigned to the file (“the defendants”). In this action the worker claimed in part that the wrongful conduct of the defendants included failing to conduct a reasonable investigation, failing to timely recognize a compensable injury, failing to accept undisputed medical evidence, denying the existence and/or extent of injury without input of competent individuals, creating pretextual reasons to deny and/or delay payment, ignoring and refusing to consider information favorable to the worker, and failing to ensure that the industry’s best practices were applied consistently. (Id. at 2-3.) Shortly thereafter, the TPA moved to dismiss the bad faith claims against it, and the TPA and claims adjuster moved to dismiss the aiding and abetting claims against them. (Id. at 3.)
In granting the TPA’s Motion to Dismiss the bad faith claim, the Arizona District Court reasoned that a bad faith claim “requires a contractual relationship,” and, “[w]ithout a contract, there can be no duty of good faith and fair dealing.” (Id. at 4-5, citing Walter v. F.J. Simmons & Others, 169 Ariz. 229, 237, 818 P.2d 214, 222 (Ariz. App. 1991).) The Court then concluded that because there was no contract or contractual relationship between the worker and the TPA, there was no duty owed by the TPA to the worker, and thus the bad faith claim against the TPA must fail as a matter of law. (Id. at 5.)
In granting the TPA and claims adjuster’s Motion to Dismiss the aiding and abetting claims, the Court first noted that several Arizona District Courts have held that an agent can be liable for aiding and abetting a principal’s breach of the duty of good faith and fair dealing. (Id. at 6.) However, the Court made clear that was not the situation in Centeno. Rather, the Court observed that in Centeno, the Complaint did not allege any bad faith acts by either the TPA or the claims adjuster “separate and apart from” the alleged bad faith acts of the insurer. (Id. at 7-8.) As such, the Court dismissed the aiding and abetting claims against the TPA and the claims adjuster, leaving the claim of bad faith against the insurer. (Id. at 8.)
Andrew Bell, Associate
Jill M. Collins, Partner