Cawley v. American Financial Security Life Insurance Company

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 Gary C awley, et al., ) No. CV-22-00823-PHX-SPL ) 9 ) 10 Plaintiffs, ) ORDER vs. ) ) 11 ) American Financial Security Life ) 12 Insurance Company, et al., ) 13 ) ) 14 Defendants. ) 15 Before the Court is Defendant American Financial Security Life Insurance 16 Company’s (“American Financial’s”) Motion for Summary Judgment (Doc. 123), as well 17 as Defendant International Benefits Administrators’ (“IBA’s”) Motion for Summary 18 Judgment (Doc. 121).1 The Court now rules as follows. 19 I. BACKGROUND 20 This case arises out of an insurance coverage dispute between Plaintiffs, Mr. Gary 21 Cawley and Mrs. Pamela Cawley (“Plaintiffs” or “the Cawleys”), and their former insurer, 22 American Financial. (Doc. 1-4 at 2–3). In 2018, Mrs. Cawley researched health insurance 23 policies for herself and her husband because COBRA coverage through Mr. Cawley’s 24 former employer was cost prohibitive. (Id. at 3; Doc. 124 ¶ 6). They were seeking health 25 insurance primarily to cover any traumatic events or catastrophes because their family, 26 27 1 Because it would not assist in resolution of the instant issues, the Court finds the pending motion is suitable for decision without oral argument. See LRCiv. 7.2(f); Fed. R. 28 Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 1 including their son, were all healthy with no significant pre-existing conditions. (Doc. 124 2 ¶ 7; Doc. 141 ¶ 7). On November 28, 2018, Mrs. Cawley spoke to an insurance agent named 3 Sharisa Vaval (“Vaval”), an employee of non-party GoHealth, LLC (“GoHealth”), who 4 opened the call by stating, “Thank you for calling GoHealth. My name is Sharisa. I’m a 5 licensed agent.” (Doc. 124 ¶ 8; Doc. 142-4 at 3). After speaking with Vaval, Mrs. Cawley 6 ended up purchasing a short-term medical policy (“STMP”) from American Financial with 7 a renewable six-month term. (Doc. 124 ¶ 16; Doc. 141 ¶ 16–17). 8 In describing the plan to Mrs. Cawley, Vaval stated, in pertinent part, 9 So with this plan, it’s called AdventHealth2 through LifeShield. It’s is [sic] short-term plan. And how this plan 10 works, for your doctor visits, it’s a $25 copay. Your coverage maximum per person is $1 million. Your max out-of-pocket is 11 2000. This is an 80/20 plan. The deductible is 10,000 . . . . Also, let me just describe some of the benefits. So the benefits of this 12 plan, you’ll get your preventative and your wellness care. You’ll get your inpatient prescription drugs, physical, 13 occupational and speech therapists, emergency transportation, inpatient room and board, home health care, extended care. 14 This plan will be for six months. You have up to a 36-month renewal with a preexisting condition waiver. 15 16 (Id. ¶ 13; Doc. 124-1 at 34). Later on, Vaval noted that if the Cawley’ STMP application 17 was denied, the Cawleys would have to purchase a “major medical plan,” which Vaval 18 described as “cover[ing] all your preexisting conditions and mental health, and it’s for the 19 whole year.” (Doc. 124-1 at 47). Vaval remarked that “these major medical plans are so 20 expensive. Like, the lowest plan I’m looking at in your area is, like, $1,500,” to which Mrs. 21 Cawley replied, “Right. Yeah, we’ve looked into those already and we’re trying to find 22 something different.” (Id.). By contrast, Vaval told Mrs. Cawley that the initial payment 23 for the AdvantHealth STMP would be $345.47, with subsequent monthly payments of 24 $324.37. (Doc. 140 at 5). Mrs. Cawley believed that the premium was much lower because 25 of “the high deductible and the short term aspect.” (Id.). At no point did Vaval explain that 26 27 2 The parties use two different spellings, “AdventHealth” and “AdvantHealth,” in their briefings. For consistency, this Court will refer to the relevant plan as 28 “AdvantHealth,” as it appears in various exhibits (see, e.g., Doc. 142-6). 1 the AdvantHealth policy had per-day and per-event caps on coverage that severely limited 2 benefits compared to a more comprehensive, traditional “major medical plan.” (Id. at 5– 3 6). In fact, when Mrs. Cawley specifically asked whether the plan “covers doctors’ visits 4 and hospitalization and all that stuff?” Vaval simply answered, “Yes.” (Doc. 142-4 at 9). 5 Mrs. Cawley did not think she was getting an ACA-compliant, “full coverage” policy that 6 would include maternity care, preventative care, and dental or vision; nor did she expect 7 coverage for any pre-existing conditions, which her family did not have at the time; rather, 8 it was her expectation that the STMP would provide “up to a million dollars of coverage 9 for catastrophic illness or accident.” (Doc. 142-3 ¶¶ 30–31). 10 Mrs. Cawley completed an enrollment application while still on the phone with 11 Vaval. (Doc. 140 at 6). According to American Financial, after an agent (like Vaval) finds 12 a plan for a consumer, the consumer is typically “transferred to another representative who 13 will go over the plan documents . . . to ensure that the consumer understands the plan and 14 wants to purchase it.” (Doc. 141 ¶ 73). However, no such transfer occurred in this case. 15 (Id.). Based on the recording of the conversation, it took Mrs. Cawley only 52 seconds to 16 sign 17 documents. (Doc. 142-3 ¶ 42). As part of the enrollment application, Mrs. Cawley 17 signed and attested that she read, agreed to, and accepted numerous statements regarding 18 the policy; however, by her own admission, she did not read through every page of the 19 application as she was signing and probably only ever “scanned” the document afterward. 20 (Doc. 124 ¶ 17; Doc. 142-2 at 18). Among the signed attestations, she agreed that she 21 understood that “short term medical insurance is not considered ‘minimum essential 22 coverage’ under the affordable care act,” and that it is merely “intended for temporary gaps 23 in health insurance.” (Doc. 124 ¶ 17; Doc. 124-1 at 17). Mrs. Cawley also agreed that the 24 Declaration and Understanding contained in the insurance application, as well as the first 25 page of each Certificate of Insurance, featured a disclaimer in large, bold font that stated, 26 This coverage is not required to comply with certain federal market requirements for health insurance, principally those 27 contained in the Affordable Care Act. Be sure to check your Policy/Certificate carefully to make sure you are aware of any 28 exclusions or limitations regarding coverage of preexisting conditions or health benefits (such as hospitalization, 1 emergency services, maternity care, preventive care, prescription drugs, and mental health and substance use 2 disorder services). Your Policy/Certificate might also have lifetime and/or annual dollar limits on health benefits. 3 4 (Doc. 124 ¶¶ 18–19; Doc. 124-1 at 16, 24; Doc. 124-4 at 34). Plaintiffs’ purchasing of the 5 plan also included a 10-day “free look” period, meaning that they “had 10 days to take a 6 ‘free look’ at the plan and would receive a full refund if [they] decided to cancel.” (Doc. 7 124 ¶ 12). 8 In January 2020, the Cawleys reinstated their insurance coverage after a brief lapse. 9 (Id. ¶ 22). Mrs. Cawley spoke with another agent of GoHealth, Richard Bowen (“Bowen”), 10 during the reinstatement process. (Id.; Doc. 124-1 at 55). Bowen reiterated that the 11 coverage was “not required to comply with certain federal market requirements for health 12 insurance, principally those contained in the Affordable Care Act, which means it doesn’t 13 meet the minimum essential requirements . . . because we do have exclusions and 14 limitations regarding preexisting conditions.” (Doc. 124 ¶ 24; Doc. 124-1 at 57). Mrs. 15 Cawley responded, “Right. We were aware of that from the last round.” (Doc. 124-1 at 57). 16 In February 2020, Mr. Cawley was diagnosed with Stage 4 prostate cancer. (Doc. 17 124 ¶ 25). He underwent a series of hospitalizations and provider visits throughout 2020. 18 (Id. ¶¶ 25–48). While American Financial contends that it paid the full amount of benefits 19 owed to the Cawleys, the Cawleys maintain that American Financial still owes $148,522.69 20 on these medical bills, which amounts to “80% of the total amounts billed by all providers 21 and subtracting what American Financial already paid.” (Id. ¶ 49). American Financial 22 used a third-party administrator, International Benefits Administrators, LLC (“IBA”) to 23 perform claims handling on its behalf. (Id. ¶ 53). IBA processes claims according to the 24 terms of the plan certificate. (Id. ¶ 54). 25 On February 16, 2021, the Cawleys submitted a letter to the Arizona Department of 26 Insurance & Financial Institutions (“DOI”) complaining that bills from his hospital stays 27 had not been paid. (Id. ¶ 50; Doc. 124-1 at 62). However, on October 27, 2021, a DOI 28 supervisor informed Mr. Cawley that, upon review, it appeared that the maximum coverage 1 amounts had been paid. (Doc. 124 ¶ 51; Doc. 124-1 at 105–08). The Cawleys initiated this 2 action in Maricopa County Superior Court on January 12, 2022, naming as defendants 3 American Financial, IBA, and Vaval and her husband. (Doc. 1 at 1–2). They asserted six 4 counts under Arizona law: (1) breach of contract against American Financial, (2) breach of 5 the implied covenant of good faith and fair dealing (“bad faith”) against American 6 Financial, (3) aiding and abetting against IBA, (4) intentional interference with contract 7 against IBA,3 (5) consumer fraud against American Financial and Vaval, and (6) “agent 8 negligence” against American Financial and Vaval. (Id. at 2; Doc. 1-4 at 5–9). On May 12, 9 2022, American Financial removed the action to this Court. (Doc. 1 at 1). Vaval’s husband, 10 “J. Doe Vaval,” was voluntarily dismissed by the Cawleys on June 15, 2022. (Doc. 15). 11 Because Vaval herself never appeared in the action, default was entered against her on 12 August 1, 2022. (Doc. 21). After an extended discovery period (see Docs. 36, 72, 102 (all 13 granting motions to extend)), on September 4, 2024, American Financial and IBA each 14 filed their Motions for Summary Judgment (Docs. 121, 123), which are now fully briefed 15 and ripe for ruling. 16 II. LEGAL STANDARD 17 This case was removed to federal court on the basis of diversity jurisdiction, so the 18 Court must apply the substantive law of Arizona. E.g., Am. Triticale, Inc. v. Nytco Servs., 19 Inc., 664 F.2d 1136, 1141 (9th Cir. 1981) (“It is well settled that a federal court exercising 20 diversity jurisdiction must apply substantive state law.”). However, federal law will govern 21 procedural questions, including the summary judgment standard. See Martinez v. Asarco 22 Inc., 918 F.2d 1467, 1470 n.3 (9th Cir. 1990). 23 Summary judgment is appropriate if “the movant shows that there is no genuine 24 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” 25 Fed. R. Civ. P. 56(a). A party seeking summary judgment always bears the initial burden 26 of establishing the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 27 3 The parties stipulated to dismissal of this count on September 27, 2024. (Docs. 28 129, 130). 1 477 U.S. 317, 323 (1986). The moving party can satisfy its burden by demonstrating that 2 the nonmoving party failed to make a showing sufficient to establish an element essential 3 to that party’s case on which that party will bear the burden of proof at trial. See id. at 322– 4 23. When considering a motion for summary judgment, a court must view the factual 5 record and draw all reasonable inferences in a light most favorably to the nonmoving party. 6 Leisek v. Brightwood Corp., 278 F.3d 895, 898 (9th Cir. 2002). 7 III. DISCUSSION 8 A. American Financial’s Motion for Summary Judgment 9 There are four counts brought by Plaintiffs against American Financial, and 10 American Financial seeks summary judgment as to each claim: (1) breach of contract, (2) 11 breach of the covenant of good faith and fair dealing (“bad faith”), (3) consumer fraud in 12 violation of A.R.S. § 44-1521 et seq., and (4) “agent negligence.” The Court will now 13 address each of these counts in turn. 14 a. Breach of Contract Claim 15 In their Complaint, Plaintiffs contend that American Financial “breached the 16 [insurance policy issued to Plaintiffs] by failing to pay the benefits to which Plaintiffs were 17 entitled under the Policy, or that the Cawleys reasonably expected to be paid under the 18 Policy.” (Doc. 1-4 at 5). American Financial argues that there was no breach because (1) 19 American Financial has fully paid all benefits owed to the Cawleys (Doc. 123 at 7–10), 20 and (2) “[t]o the extent the Cawleys argue that they expected to receive greater benefits . . 21 . there is no rational basis for such expectations . . . .” (Id. at 10). Plaintiffs do not dispute 22 that all benefits under the policy as written were paid out to them; however, they argue that 23 activity reasonably attributable to American Financial induced them to believe they had 24 greater coverage than the plain language of the policy would suggest. (Doc. 140 at 8). 25 Under the doctrine of reasonable expectations, “Arizona courts will not enforce 26 even unambiguous boilerplate terms in standardized insurance contracts in a limited variety 27 of situations”; namely, (1) “[w]here the contract terms, although not ambiguous to the 28 court, cannot be understood by the reasonably intelligent consumer who might check on 1 his or her rights,” (2) “[w]here the insured did not receive full and adequate notice of the 2 term in question, and the provision is either unusual or unexpected,” (3) “[w]here some 3 activity which can be reasonably attributed to the insurer would create an objective 4 impression of coverage in the mind of a reasonable insured,” or (4) “[w]here some activity 5 reasonably attributable to the insurer has induced a particular insured reasonably to believe 6 that he has coverage, although such coverage is expressly and unambiguously denied by 7 the policy.” Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 266, 272–73 (1987). Plaintiffs 8 argue that in the instant case, a reasonable jury could find that the third and fourth 9 Gordinier scenarios apply. (Doc. 140 at 9). While the reasonable expectations doctrine 10 cannot be invoked “to add language to a policy to grant coverage not otherwise provided 11 for,” it can be used to “negate definitions, conditions, and exclusions that take away 12 coverage from a policy that otherwise provides such coverage.” Gregorio v. GEICO Gen. 13 Ins. Co., 815 F. Supp. 2d 1097, 1105–06 (D. Ariz. 2011), aff’d, 535 F. App’x 545 (9th Cir. 14 2013). However, for a Court to strike an exclusionary term, “the insurance company must 15 have had reason to believe that the insured would not have agreed to the policy if he or she 16 knew of the term.” Date St. Cap., LLC v. Progressive Preferred Ins. Co., 2024 WL 81503, 17 at *4 (Ariz. Ct. App. Jan. 8, 2024). 18 It is clear that the Cawleys would not have purchased this insurance policy had they 19 fully understood its terms and limitations. (Doc. 142-3 ¶ 39); see also Haisch v. Allstate 20 Ins. Co., 5 P.3d 940, 945 (Ariz. Ct. App. 2000) (“Consumers do not purchase insurance 21 coverage for commercial advantage. They do so to obtain protection from calamity.”). But 22 it is less clear whether the Cawleys’ expectations regarding the policy were reasonable and 23 whether American Financial can be held liable for those expectations. Because Mrs. 24 Cawley did not read the policy, her expectations were based on (1) Vaval’s affirmative 25 statements that the “coverage maximum per person is $1 million” with a $10,000 26 deductible, and that the benefits of the plan included preventative and wellness care, 27 “inpatient prescription drugs, physical, occupational and speech therapists, emergency 28 transportation, inpatient room and board, home health care, extended care,” as well as (2) 1 Vaval’s omission of any mention of the per-day and per-event caps on said coverage. (Doc. 2 124-1 at 34; Doc. 140 at 5–7).4 Based on these statements, she believed the STMP would 3 provide “up to a million dollars of coverage for catastrophic illness or accident.” (Doc. 4 142-3 ¶ 31). 5 1. Reasonable Belief of the Insured 6 The first question is whether it was reasonable for Plaintiffs to believe their policy 7 would provide up to a million dollars of coverage under the circumstances. American 8 Financial argues that Mrs. Cawley’s awareness of the significant price difference between 9 short-term medical coverage and major medical coverage, especially given Mrs. Cawley’s 10 relative sophistication and prior employment as a paralegal, shows that it was not 11 reasonable for Plaintiffs to believe the policy would provide a million dollars of coverage 12 in case of catastrophic illness or accident. (Doc. 159 at 6; Doc. 124 ¶¶ 1–2). This Court is 13 inclined to agree with American Financial that it was likely unreasonable for Plaintiffs to 14 have believed their policy offered full coverage, even if limited to coverage for 15 “catastrophic illness or accident.” (Doc. 142-3 ¶ 31; Doc. 159 at 6); see Diaz v. Health Plan 16 Intermediaries Holdings LLC, 2021 WL 4844321, at *8 (D. Ariz. June 7, 2021). However, 17 Mrs. Cawley explained that her expectations were influenced by the policy’s high 18 deductible, as well as her understanding that she would not receive any coverage for 19 maternity care, preventative care, dental or vision, and any pre-existing conditions. (Doc. 20 142-3 ¶¶ 30–31). Ultimately, whether the average, reasonably informed policyholder 21 would expect up to a million dollars of coverage for catastrophic illness or accident under 22 these circumstances is a debatable question, and it is therefore a question for the finder of 23 fact to determine at trial. See Averett v. Farmers Ins. Co. of Arizona, 869 P.2d 505, 508 24 (Ariz. 1994); Servs. Holding Co. v. Transamerica Occidental Life Ins. Co., 883 P.2d 435, 25 26 4 American Financial argues that Vaval’s statements are irrelevant to the policy at issue, which was signed in January 2020. (Doc. 159 at 4; Doc. 124 ¶ 22). However, Vaval’s 27 statements, if reasonably attributable to AFS, informed Plaintiffs’ expectations of the policy they were receiving in 2020, since they asked for the same policy they initially 28 purchased in 2018. (Doc. 141 ¶ 80; Doc. 142-3 ¶ 51). 1 441 (Ariz. Ct. App. 1994) (“At best, the insureds’ previous experience and its effect on 2 their expectations are factual questions.”). 3 2. Activity Reasonably Attributable to the Insurer 4 Next, the Court must determine whether Vaval’s statements (and/or omissions) can 5 be reasonably attributable to American Financial, which requires analysis of the agency 6 relationship between Vaval and American Financial. The question of whether an agency 7 relationship existed is one of fact, but “when the material facts from which the agency 8 relationship could be inferred are not in dispute, the question of whether an agency 9 relationship exists is a question of law for the court.” Sparks v. Republic Nat. Life Ins. Co., 10 647 P.2d 1127, 1140 (Ariz. 1982). 11 “Insurance agents differ from independent agents or brokers. The former are 12 authorized representatives of the insurer; the latter are middlemen representing the insured. 13 For this reason, the acts of the insurance agent, but not those of the independent agent or 14 broker, are imputable to the insurer.” Curran v. Indus. Comm’n, 752 P.2d 523, 525 (Ariz. 15 Ct. App. 1988). The distinction between an insurance agent and an independent agent 16 depends on “the particular facts of the case.” Id. at 526. “Where the insurer’s actions create 17 actual or apparent authority for a broker to act on its behalf, the broker becomes the agent 18 of the insurer.” Id. 19 There are two types of agency, express and apparent. Id. “If there is evidence that 20 the principal has delegated authority by oral or written words which authorize him to do a 21 certain act or series of acts, then the authority of the agent is express. If there is no such 22 express authority, or if intent to create such authority cannot be implied from the actions 23 of the principal and agent, then the next question is whether there is apparent agency.” Gulf 24 Ins. Co. v. Grisham, 613 P.2d 283, 286 (Ariz. 1980). “Apparent agency exists when ‘the 25 principal has intentionally or inadvertently induced third persons to believe that such a 26 person was its agent although no actual or express authority was conferred on him as 27 agent.’” Premium Cigars Int’l, Ltd. v. Farmer-Butler-Leavitt Ins. Agency, 96 P.3d 555, 565 28 (Ariz. Ct. App. 2004) (citations omitted). 1 American Financial asserts, as a legal conclusion, that “[n]either GoHealth, Ms. 2 Vaval, nor Mr. Bowen was an agent of or had the power to bind American Financial.” 3 (Doc. 124 ¶ 11). In a declaration from American Financial’s Director of Compliance, Jacob 4 A. Armpriester (“Armpriester”), he states that American Financial “has no relationship, 5 contractual or otherwise,” with GoHealth, Vaval, or Bowen, “other than appointing them 6 to sell American Financial insurance products.” (Doc. 124-2 ¶ 14). However, Plaintiffs 7 point out that “Vaval signed the Application stating she was American Financial’s agent,” 8 and that Mrs. Cawley “understood [Vaval] to be speaking on behalf of the insurance 9 company whose policy she was selling.” (Doc. 141 ¶ 11). Indeed, the November 28, 2018 10 insurance application signed by Mrs. Cawley lists “Sharisa Vaval” as “American Financial 11 Life Insurance Company Agent.” (Doc. 124-3 at 6). Beyond Plaintiffs’ assertions that 12 Vaval and Bowen were both “appointed and authorized by [American Financial] to sell its 13 products,” the exact nature of the relationship between American Financial and GoHealth 14 is murky. (Doc. 140 at 10). No contracts describing the scope of the relationship between 15 American Financial and GoHealth were disclosed,5 so it is unclear how they were 16 “appointed” to sell American Financial products. (Doc. 124-2 ¶ 14). Plaintiffs argue that 17 American Financial “bestowed authority on Vaval” to sell its products and held her out as 18 their agent by drafting the insurance application, and that therefore, “whether Vaval was 19 [American Financial’s] agent is a matter of disputed fact.” (Doc. 140 at 10). 20 During his Rule 30(b)(6) deposition, Armpriester testified that American Financial 21 had either written or verbal agreements with numerous “selling platforms” consisting of 22 multiple licensed agents, and that American Financial “expect[ed] the agent[s] to provide 23 accurate description[s] of the policy and the terms and the conditions and the limitations 24 therein.” (Doc. 142-1 at 30–32). Armpriester stated that American Financial “does not 25 provide training to specific agents,” but rather “for the selling platforms, and the 26 27 5 In fact, in response to a subpoena sent by Plaintiffs, General Counsel for GoHealth stated that they “were unable to identify relevant contracts with American Financial . . . .” 28 (Doc. 124-1 at 48). 1 contractual relationships require the selling platforms to accurately represent the product 2 to it [sic] sales staff for sale to the public.” (Id. at 37). However, the nature of that 3 “contractual relationship” is unclear given Armpriester’s contrary assertion that American 4 Financial “has no relationship, contractual or otherwise,” with GoHealth, Vaval, or Bowen. 5 (Doc. 124-2 ¶ 14). 6 A broker does not become an agent of the insurer “simply because the insurer 7 contemplates receiving insurance business from brokers.” Curran, 752 P.2d at 527. There 8 must be additional facts to support the creation of an agency relationship. Here, 9 Armpriester provided little information about the nature of any training, supervision, or 10 continuing education American Financial may or may not have provided to these selling 11 platforms or agents. See id. at 526. It does not appear that American Financial expressly 12 delegated any authority to Vaval beyond the authority to sell their insurance policies and 13 to “accurately represent” those policies to prospective buyers. (Doc. 142-1 at 30).6 14 However, there are outstanding factual questions regarding whether American Financial 15 may have “inadvertently induced third persons to believe that such a person was its agent 16 although no actual or express authority was conferred on him as agent.” Premium Cigars, 17 96 P.3d at 565 (citations omitted). This is especially true given Vaval’s signature as “agent” 18 on the insurance application,7 and because Vaval has not appeared in this litigation, further 19 6 In fact, a single sentence within the insurance application specifically required 20 Mrs. Cawley to acknowledge that “[n]o representation by an agent or any other person shall be binding on . . . the insurance carrier.” (Doc. 124-3 at 25). However, as Plaintiffs note, 21 that single condition buried within the documents does not preclude application of the reasonable expectations doctrine. (Doc. 140 at 12). 22 7 American Financial argues that “[t]here are not facts suggesting that Mrs. Cawley 23 saw this signature block before making the decision to purchase the STMP, nor is there any indication that Mrs. Cawley relied upon this signature block in making that decision.” 24 (Doc. 159 at 10). However, as American Financial is quick to emphasize (see id. at 4 (“Even assuming statements made by Ms. Vaval . . . are somhow relevant to the STMP 25 purchased in 2020 (they are not), Plaintiffs do not claim that she misrepresented the STMP or misled Mrs. Cawley as to its terms.”)), the relevant policy at issue is the one Plaintiffs 26 purchased in January 2020, after Vaval signed the initial 2018 policy as American Financial’s “agent.” It is therefore plausible that the Cawleys could have continuously 27 relied on Vaval’s statements and omissions regarding the 2018 and could have believed her to be American Financial’s agent when they made the decision to renew the policy in 28 2020. 1 facts regarding the nature of the relationship between American Financial, GoHealth, and 2 GoHealth agents need to be elicited before this Court can declare, as a matter of law, that 3 an agency relationship existed. 4 Accordingly, there is a sufficient dispute of material fact regarding whether activity 5 reasonably attributable to American Financial led to Plaintiffs’ beliefs about the insurance. 6 3. Reason to Believe the Insured Would Not Have Agreed 7 Finally, to invoke the reasonable expectations doctrine under these circumstances, 8 the Court must find that American Financial had reason to believe the Cawleys would not 9 have agreed to the policy if they knew of the per-day and per-event caps on coverage. State 10 Farm Fire & Cas. In. Co. v. Grabowski, 150 P.3d 275, 280 (Ariz. Ct. App. 2007), as 11 amended (Jan. 29, 2007). An insurer’s reason to believe the insured would not have agreed 12 to the policy “may be (1) shown by the parties’ prior negotiations, (2) inferred from the 13 circumstances of the transaction, (3) inferred from the fact that the term is bizarre or 14 oppressive, (4) inferred from the fact that the term eviscerates the non-standard terms to 15 which the parties explicitly agreed, or (5) inferred if the term eliminates the dominant 16 purpose of the transaction.” Id. “An inference that the drafter knew the signing party would 17 not have agreed to the term may be reinforced if the signing party never had an opportunity 18 to read the term or if it is illegible or otherwise hidden from view.” Id. 19 American Financial argues that Plaintiffs “cannot show that American Financial 20 ‘had reason to believe that [the Cawleys] would not have accepted the agreement if [they] 21 had known that the agreement contained the particular term,” (Doc. 123 at 13), and that 22 “the Cawleys have no evidence that American Financial had knowledge of any 23 expectations beyond the plain terms of the STMP.” (Id. at 14). However, American 24 Financial’s focus on the Cawleys’ purported lack of evidence ignores the plain language 25 of the State Farm case, which specifically contemplates that the insurer’s reason to believe 26 the insured would not have agreed can be inferred from the circumstances of the transaction 27 or terms of the policy. Here, Plaintiffs have clearly argued that the per-day, per-event caps 28 on coverage were “oppressive.” For example, they argue that “[i]t’s common sense that 1 consumers purchase health insurance to avoid financial ruin if diagnosed with a serious 2 illness or seriously injured. Mrs. Cawley specifically asked if the Policy covered 3 hospitalization.” (Doc. 140 at 9). To that end, a reasonable jury could find that the per-day 4 caps on hospital coverage were an “oppressive” term hidden within the policy, and a 5 reasonable jury could also find that the per-day caps eliminate the dominate purpose of the 6 transaction, given that many consumers purchase health insurance to guard against 7 financial ruin in case of catastrophe. See Diaz, 2021 WL 4844321, at *7 (“[A] reasonable 8 jury could find from the nature of the warnings on both the enrollment forms and policy 9 documents that [the insurer] had reason to believe that others would not assent to the 10 limitations in the policy if they knew the limitations were there. [The insurer] would have 11 no reason to warn applicants so purposefully of the limited nature of the policy if such 12 limitations were standard for health-insurance policies.”) (citation omitted). 13 Ultimately, drawing all reasonable inferences in a light most favorable to Plaintiffs, 14 there are disputed issues of material fact regarding whether Plaintiffs may invoke the 15 doctrine of reasonable expectations. Because a reasonable jury could find that the 16 prerequisites to invoking the doctrine have been met, American Financial is not entitled to 17 summary judgment as to Plaintiffs’ breach of contract claim. 18 b. Bad Faith Claim 19 “[A]n insurance contract provides more than just security from financial loss to the 20 insured.” Zilisch v. State Farm Mut. Auto. Ins. Co., 995 P.2d 276, 280 (Ariz. 2000). “[T]he 21 insured also is entitled to receive the additional security of knowing that she will be dealt 22 with fairly and in good faith. That security comes not from the express contractual terms, 23 but from the implied covenant of good faith and fair dealing.” Deese v. State Farm Mut. 24 Auto. Ins. Co., 838 P.2d 1265, 1269 (Ariz. 1992). 25 Under Arizona law, the tort of bad faith arises when an insurer “intentionally denies, 26 fails to process or [fails to] pay a claim without a reasonable basis for such action.” Noble 27 v. Nat’l Am. Life Ins. Co., 624 P.2d 866, 868 (Ariz. 1981). “To show bad faith by the 28 insurer, the insured must show (1) that the insurer acted unreasonably toward the insured, 1 and (2) that the insurer ‘acted knowing that it was acting unreasonably or acted with such 2 reckless disregard that such knowledge may be imputed to it.’” Alvarez v. CSAA Gen. Ins. 3 Co., 2025 WL 389140, at *7 (D. Ariz. Feb. 4, 2025) (quoting Trus Joist Corp. v. Safeco 4 Ins., 735 P.2d 125, 134 (Ariz. Ct. App. 1986)). The first prong is an objective inquiry into 5 the reasonableness of the insurer’s actions under the circumstances of the case. See Sparks, 6 647 P.2d at 1136. “Whether the action amounts to bad faith depends upon whether the 7 insurer failed to honor a claim without a reasonable basis for doing so.” Id.; see also Harvey 8 Prop. Mgmt. Co., Inc. v. Travelers Indem. Co., 2016 WL 8200625, at *3 (D. Ariz. May 12, 9 2016) (“An insurer may challenge a claim it believes is ‘fairly debatable’ without acting in 10 bad faith, but only if the insurer acts reasonably in investigating, evaluating, and processing 11 the claim.”). Under the second, subjective prong, “the Court asks whether the insurer acted 12 knowingly or with reckless disregard as to the reasonableness of its actions.” Christie’s 13 Cabaret of Glendale LLC v. United Nat’l Ins. Co., 562 F. Supp. 3d 106, 121 (D. Ariz. 14 2021). 15 “It has consistently been held that an insurer can be held liable for bad faith even 16 when it does not violate any express provision of the insurance contract.” Lloyd v. State 17 Farm Mut. Auto. Ins. Co., 943 P.2d 729, 737 (Ariz. Ct. App. 1996). “The implied covenant 18 [of good faith and fair dealing] is breached, whether the carrier pays the claim or not, when 19 its conduct damages the very protection or security which the insured sought to gain by 20 buying insurance.” Rawlings v. Apodaca, 151 Ariz. 149, 157 (1986). “An insurer is not 21 required to prevent all harm to the insured, but must act honestly, on adequate information, 22 and not place paramount importance on its own interests,” and the insurer “violates the 23 implied covenant when it does ‘anything to prevent other parties to the contract from 24 receiving the benefits and entitlements of the agreement.’” Tavilla v. Blue Cross & Blue 25 Shield of Arizona, Inc., 2014 WL 4473638, at *5 (Ariz. Ct. App. Sept. 11, 2014) (quoting 26 Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension 27 Trust Fund, 38 P.3d 12, 28 (2002)). 28 Here, although American Financial does not dispute that it would be vicariously 1 liable for IBA acting in bad faith (see Doc. 123 at 14–15; Doc. 159 at 11), it argues that 2 Plaintiffs’ bad faith claim must fail as a matter of law because it “paid all benefits in 3 accordance with the terms of the Policy, and, therefore, did not breach the terms of the 4 STMP . . . .” (Doc. 123 at 14). Furthermore, it notes that it “even paid benefits despite Mr. 5 Cawley’s cancer diagnosis occurring within the 30-day waiting period.” (Id. at 15).8 By 6 contrast, Plaintiffs argue that American Financial is vicariously liable for IBA’s bad faith 7 actions, including its delay in paying claims “using pretext of not having medical records . 8 . ., denying or reducing benefits for alleged preexisting condition and failure to 9 preauthorize services but then subsequently paying, no- and slow responses, mixed and 10 misleading responses, being put on hold for horrendous amounts of time, hang ups of 11 telephone calls, ignored calls, and failing to advocate for coverage that the Cawleys thought 12 they were getting, and inconsistent statements about how their deductible worked.” (Doc. 13 140 at 13). Furthermore, it argues that American Financial’s bad faith is demonstrated by 14 “how it insulated itself entirely from the conduct of its claims processor, cutting itself off 15 from query by an insured.” (Id. at 15). 16 Plaintiffs have set forth evidence that IBA acted unreasonably by delaying claims 17 processing based on the pretext that they had not received medical records that had already 18 been sent several times (Doc. 142-2 at 31); denying claims on the basis that Mr. Cawley’s 19 cancer diagnosis was “preexisting” when it was ultimately determined not to be a 20 preexisting condition (Id. at 35); not answering calls, being placed on hold and ultimately 21 hung up on, and not being able to speak to supervisors (Id. at 41); and being falsely assured 22 that if they paid the remaining $7,700 out of their $10,000 deductible amount, American 23 Financial would pay 80% of the remaining bill (Id.). American Financial argues that 24 Plaintiffs cannot show that IBA’s delay in payment was objectively unreasonable because 25 “[t]he uncontroverted evidence shows that IBA’s delay was caused by the COVID 26 8 American Financial contends that it “could have denied the [February 2020 27 hospital] claim altogether under the ‘Waiting Period for Illness’ provision” of the policy, which only provides coverage for cancer that begins more than 30 days following the date 28 of the policy’s inception. (Doc. 124 ¶ 29). 1 pandemic.” (Doc. 159 at 12). However, Plaintiffs note that “[s]ome claims were paid by 2 June of 2020[,] which was during the time that IBA said things were delayed due to the 3 Pandemic, and yet other claims were not fully paid until September of 2021, long after IBA 4 allegedly got fully back up to speed . . . .” (Doc. 140 at 14). It is therefore a disputed issue 5 of material fact whether IBA’s delays were reasonable because they may have been caused 6 by the COVID pandemic. 7 One-off oversights or slight delays would not constitute bad faith. See, e.g., Tang v. 8 Shell Chem. Co., 317 F. App’x 660, 661 (9th Cir. 2009) (noting that “the failure to return 9 a single voicemail message does not constitute objectively unreasonable behavior 10 sufficient to establish bad faith.”). However, Mrs. Cawley’s testimony suggests a consistent 11 pattern of such behavior, which creates a disputed issue of material fact as to whether IBA 12 did “anything to prevent [Plaintiffs] from receiving the benefits and entitlements of the 13 agreement.” Tavilla, 2014 WL 4473638, at *5. Accordingly, the Court will deny summary 14 judgment as to the bad faith claim. 15 c. Consumer Fraud Claim 16 Plaintiffs assert a consumer fraud claim under Arizona Revised Statute § 44-1521 17 et seq. against American Financial for vicarious liability for Vaval’s representations 18 regarding the insurance policy at issue. (Doc. 1-1 ¶¶ 42–47). The statute forbids the “act, 19 use or employment by any person of any deception, deceptive or unfair act or practice, 20 fraud, false pretense, false promise, misrepresentation, or concealment, suppression or 21 omission of any material fact with intent that others rely on such concealment, suppression 22 or omission, in connection with the sale or advertisement of any merchandise whether or 23 not any person has in fact been misled, deceived or damaged thereby . . . .” Ariz. Rev. Stat. 24 Ann. § 44-1522 (2013). 25 1. Statute of Limitations 26 A consumer fraud claim under A.R.S. § 44-1522 “will begin accruing at the moment 27 a plaintiff discovers—or should be able to discover—the underlying fraud.” Garner v. 28 Medicis Pharm. Corp., 2023 U.S. Dist. LEXIS 172528, at *8 (D. Ariz. Sep. 27, 2023). 1 “’Ordinarily, when the cause of action accrues is a question for the finder of fact,’ with 2 summary judgment appropriate where only one reasonable inference can be drawn.” Id. 3 (quoting Alaface v. Nat’l Inv. Co., 892 P.2d 1375, 1380 (Ariz. Ct. App. 1994)). 4 American Financial argues that Plaintiffs’ consumer fraud action accrued “by no 5 later than July 22, 2020, when American Financial . . . notified Mr. Cawley that $45,504.91 6 of his bills were not covered by the Policy.” (Doc. 159 at 10; Doc. 124-5 at 12). They argue 7 that this put Plaintiffs on notice that “they were personally liable for uncovered medical 8 expenses that exceeded what they allegedly expected the STMP to pay.” (Id.). However, 9 Plaintiffs contend that “[a] reasonable jury could find that the Cawleys’ consumer fraud 10 claim arose no earlier than January 12, 2021, because prior to January 12, 2021, there had 11 been no final determination by Defendants as to the payment of the Cawleys’ medical bills 12 and therefore, the Cawleys had not yet been damaged.” (Doc. 140 at 15). They argue that 13 the “lack of response (and follow up) to the Cawley’s [sic] innumerable calls to IBA left 14 the Cawleys ignorant about how much would be paid.” (Id.). 15 The Court agrees with Plaintiffs that when the consumer fraud cause of action 16 accrued in this case would be a question for the finder of fact. It is reasonable to infer that 17 the Cawleys would be confused and uncertain as to the extent of their ultimate liability 18 until a final determination on their claims was made, particularly where, as they have 19 alleged, they received competing information while on the phone with IBA agents, and 20 otherwise had their calls ignored, delayed, or hung up on in the months following their first 21 major bill notification. Thus, the one-year statute of limitations does not bar Plaintiffs’ 22 consumer fraud claim. 23 2. Agent Liability 24 Next, American Financial argues that Plaintiffs have no evidence of an agency 25 relationship between American Financial and Vaval, and that American Financial “also did 26 not consent for Ms. Vaval to do anything other than sell its products.” (Doc. 123 at 15). 27 However, this Court has already discussed that there are disputed issues of material fact 28 regarding whether Vaval was acting with apparent authority as American Financial’s agent, 1 even if she lacked express authority to make the representations she did. Additionally, 2 American Financial’s argument that Vaval “made no false or misleading representations to 3 the Cawleys” ignores that A.R.S. § 44-1522 specifically contemplates consumer fraud 4 liability based on a party’s omissions, not just affirmative statements. (Doc. 123 at 17). 5 However, American Financial’s further argument is availing, as they point out that 6 Ms. Vaval “was not involved in the sale of the January 2020 STMP at issue in this lawsuit.” 7 (Id.). While that argument was not relevant to Plaintiffs’ claim for breach of contract, it is 8 relevant here.9 “To establish a claim under Arizona’s consumer fraud statute, A.R.S. § 44- 9 1522, the plaintiff ‘must show a false promise or misrepresentation made in connection 10 with the sale or advertisement of merchandise and consequent and proximate injury 11 resulting from the promise.’” Diaz, 2021 WL 4844321, at *5 (quoting Kuehn v. Stanley, 12 91 P.3d 346, 351 (Ariz. Ct. App. 2004)). Here, Plaintiffs’ alleged injuries were caused by 13 the denial of their medical claims under the 2020 policy, not any denial of claims under the 14 (functionally identical) 2018 policy. Any statements, misrepresentations, or omissions may 15 have Vaval made regarding the 2018 policy are, as a matter of law, irrelevant to the 2020 16 policy. Accordingly, summary judgment is granted in American Financial’s favor as to the 17 consumer fraud claim. 18 d. Agent Negligence Claim 19 For the same reason summary judgment must be granted as to the consumer fraud 20 claim against American Financial, it must also be granted as to the agent negligence claim. 21 Plaintiffs have failed to establish, as a matter of law, how Vaval’s alleged negligence in 22 2018 relates to the injuries that occurred as a result of the later 2020 policy. Plaintiffs have 23 not pointed to any case law that would suggest anything like a doctrine of reasonable 24 expectations that can connect Plaintiffs’ understanding of the 2018 policy to the 2020 25 26 9 This Court has already noted that Vaval’s statements, if reasonably attributable to AFS through an apparent agency relationship, may have informed Plaintiffs’ expectations 27 of the policy they were receiving in January 2020, since they asked for the same policy as the one that they had initially purchased in 2018. However, the reasonable expectations 28 doctrine is irrelevant to Plaintiffs’ consumer fraud claims. 1 policy, and they therefore have not proximately connected the injuries caused by the 2020 2 policy to Vaval’s alleged negligence in 2018. 3 B. IBA’s Motion for Summary Judgment 4 Because one of Plaintiffs’ two claims against Defendant International Benefit 5 Administrators was already dismissed by the parties’ stipulation (Docs. 129, 130), the only 6 claim on which IBA now moves for summary judgment is Count III of the Complaint for 7 aiding and abetting tortious conduct. (Doc. 1-4 ¶¶ 32–36). 8 a. Aiding and Abetting Claim 9 In conjunction with their bad faith claim against American Financial, Plaintiffs also 10 assert that IBA “substantially assisted American Financial’s bad faith by, inter alia, 11 delaying and preventing communications with the Cawleys regarding questions and issues 12 in their claims and improperly denying claims and providing false and/or conflicting 13 reasons for the nonpayment of Gary Cawley’s claims.” (Doc. 1-4 ¶ 35). In their Motion for 14 Summary Judgment (Doc. 121), IBA contends that (1) the Cawleys’ bad faith claim against 15 American Financial, the primary tortfeasor, must fail, so the claim against IBA must also 16 fail; and (2) even if the Cawleys could prove that American Financial acted in bad faith, 17 because Plaintiffs’ aiding and abetting claim against IBA is based on the same conduct as 18 the bad faith claim against American Financial, the aiding and abetting claim must fail. 19 (Doc. 121 at 6). 20 Under Arizona law, an aiding and abetting claim requires proof of three elements: 21 “(1) the primary tortfeasor must commit a tort that causes injury to the plaintiff; (2) the 22 defendant must know that the primary tortfeasor’s conduct constitutes a breach of duty; 23 and (3) the defendant must substantially assist or encourage the primary tortfeasor in the 24 achievement of the breach.” Wells Fargo Bank v. Arizona Laborers, Teamsters & Cement 25 Masons Loc. No. 395 Pension Tr. Fund, 38 P.3d 12, 23 (2002), as corrected (Apr. 9, 2002) 26 (citations omitted). However, “in the insurance bad-faith context, federal courts in this 27 district add another legal principle that does not appear in the state-court caselaw,” a so- 28 called “fourth element.” Kubli v. AmTrust Ins. Co. of Kansas, 2019 WL 13196105, at *2 1 (D. Ariz. Oct. 30, 2019). “To state a claim against an adjuster for aiding and abetting the 2 insurer’s bad faith, the plaintiff ‘must allege some action taken by [the adjuster] separate 3 and apart from the facts giving rise to the [bad-faith] claim against’ the insurer.” Id. 4 (quoting Centeno v. Am. Liberty Ins. Co., 2019 WL 568926, at *3 (D. Ariz. Feb. 12, 2019)). 5 The Court recognizes that courts in this District have disagreed as to the necessity 6 of this “fourth element,” sometimes called the “separate action” rule. See Aguado v. XL 7 Ins. Am., 721 F. Supp. 3d 811, 815–16 (D. Ariz. 2024) (“Although courts in this District 8 often have held that Arizona law would permit a claim against an adjuster or a third-party 9 administrator for aiding and abetting the insurer’s bad faith conduct, no conclusive case 10 law exists. Thus, whether Arizona law would recognize such a tort remains unclear.”) 11 (collecting cases); see also Watkins v. Praetorian Ins. Co., 2021 WL 12300188, at *5 (S.D. 12 Tex. Feb. 9, 2021) (“Arizona law is ambiguous on the question of whether a claim can be 13 brought against an individual adjuster for aiding and abetting an insurer’s breach of the 14 duty of good faith.”). However, this Court is persuaded by the reasoning in Kubli, which 15 explains how the “separate action” rule is “consistent with the Restatement (Second) of 16 Torts, on which Arizona models its claim of aiding and abetting.” Kubli, 2019 WL 17 13196105, at *3. 18 Here, because the aiding and abetting claim against IBA is predicated on the same 19 conduct giving rise to Plaintiffs’ bad faith claim against American Financial, it must fail as 20 a matter of law. See Aguado, 721 F. Supp. 3d at 817. Summary judgment is therefore 21 appropriately granted in favor of Defendant IBA. 22 IV. CONCLUSION 23 In sum, the Court finds that there are disputed issues of material fact as to Plaintiffs’ 24 claims for breach of contract (Count I) and bad faith (Count III) against Defendant 25 American Financial. Accordingly, only those two claims survive summary judgment, with 26 the remaining counts against American Financial and the single count against IBA to be 27 dismissed. 28 /// 1 IT IS THEREFORE ORDERED that Defendant American Financial Security 2| Life Insurance Company’s Motion for Summary Judgment (Doc. 123) is granted in part 3] and denied in part. The Motion is denied with respect to Plaintiffs’ claims for breach of contract (Count I) and bad faith (Count II) against Defendant American Financial. The 5 | Motion is granted with respect to Plaintiffs’ claims for consumer fraud (Count V) and 6| agent negligence (Count VI). 7 IT IS FURTHER ORDERED that Defendant International Benefit 8 | Administrators’ Motion for Summary Judgment (Doc. 121) is granted, and that Defendant International Benefit Administrators is dismissed as a party. 10 Dated this 26th day of February, 2025. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21