Haney v. ACE Am. Ins. Co., No. CV-13-02429-PHX-DGC, 2015 WL 58670 (D. Ariz. Jan. 5, 2015).

District of Arizona: Court grants partial summary judgment on bad faith claim for failure of insurer to make retroactive payments, but question of fact remained with respect to insurer’s initial miscalculation of benefits.

Plaintiff Jane Haney fell on a cement surface and injured her head and knee; as a result, she was out of work for two years.  Haney’s worker’s compensation coverage was administered by ACE American Insurance Company and Sedgwick Claims Management Services.  After a ten-month delay in receiving her correct benefit amount, Haney sued ACE, Sedgwick, and Sedgwick employee Lori Hasty for bad faith.

Sedgwick assigned Defendant Hasty to manage Haney’s workers compensation claims.  Hasty made two errors in calculating Haney’s claims; first, Hasty based the benefits on Haney’s annual salary, as opposed to her monthly salary, and second, Hasty miscalculated Haney’s annual salary as the amount she earned in just the first few months of the year.  These errors resulted in Haney receiving $1,247 monthly, as opposed to the $4,966 for which she qualified.  This amounted to a $20,000 deficiency before the mistake was corrected.

The District of Arizona found that this miscalculation did not amount to bad faith.  Under Arizona’s bad faith law, which is analyzed as a breach of the duty of good faith and fair dealing, a plaintiff must prove that the defendant’s actions were “objectively unreasonable and intentional.”  The Court held that under the facts, a genuine dispute existed as to whether the miscalculations amounted to a conscious failure to investigate, or were mere negligence.  As such, the miscalculation itself was not bad faith as a matter of law.

However, Haney also argued a second basis for bad faith: that Sedgwick’s employee Hasty failed to make retroactive payments to Haney that would compensate her for the initial miscalculation, even though Hasty was repeatedly notified of this issue over a period of ten months.  The undisputed evidence shows that Hasty and Defendants failed to respond for the entire ten-month period.  When deposed, Hasty acknowledged she received emails from Haney and her representatives, but when asked why she didn’t respond, Hasty stated that “the only [reason] would be the workload.”

The Court found that Hasty’s behavior was objectively unreasonable, as there was no dispute that Haney was owed the benefits.  Moreover, Hasty’s conduct was intentional; the requisite “intent” need not be “intent to harm,” but rather that the party “either knows that its position is groundless or . . . fails to undertake an investigation adequate to determine whether its position is tenable.”  The Court further found that Hasty’s supervisor’s attempts to correct the situation were not a defense for ACE; the duty of good faith is non-delegable for the insurer, and thus if an employee or delegate of ACE handled the claim in bad faith, ACE would be liable.