Notice of Claim Must Specify Set Alleged Wrongs by Public Entity--Alleging One Set of Acts and Pursuing Claim For Another Improper


The plaintiff, while driving from San Diego home to Phoenix, stopped to walk his dog at a rest stop. He encountered seven men whom he then detained at gunpoint alleging to believing them to be undocumented immigrants. He called 911, sheriff deputies arrived and then arrested the plaintiff on multiple counts of aggravated assault. The plaintiff was incarcerated, ultimately released, and charges against him were dropped.

While in jail the plaintiff held a press conference and stated the reason he apprehended the strangers at the rest stop was his military training had "kicked in" that he had served a tour of duty in Iraq and was taking medication for emotional issues arising out of "combat stress".

Plaintiffs attorney filed a notice of claim which alleged factually what had occurred at the rest stop, the arrest, and incarceration, the basis for the claim. He demanded one million dollars.

Allegedly, unbeknownst to the plaintiff, after charges were dropped against him, the sheriff's office obtained "sensitive medical and mental health information" from the army, concerning plaintiff and then disclosed it to a reporter at the Arizona Republic who published a front page article entitled, "Files Refute Reservist's Iraq story." Among other things, the article stated that his records demonstrated he had never served in Iraq and was on the verge of being removed from the military because he was "paranoid, threatened to kill himself, and pulled a knife in an altercation with fellow soldiers".

The notice of claim was ignored by the county and a law suit was filed alleging several theories related to the arrest and incarceration, but nothing related to the alleged wrongful obtaining and public dissemination of his medical and mental health records.

Pursuant to motion for summary judgment all of plaintiff's claims were dismissed. An issue on this appeal was the dismissal of the claims regarding the obtaining and disbursement to the public of the plaintiff's health records. The court found that because these alleged wrongful acts were not included in the notice of claim and the plaintiff did not properly file a new or amended notice of claim, they must be dismissed.

The Arizona Court of Appeals sustained the trial court's ruling finding that Arizona Revised Statute §12-821.01 requires a party amend the notice of claim or file a new one when acts allegedly occur subsequent to the filing of the first one, which obviously are not discussed in the first one. The purpose of the notice of claim is to put the public entity on notice sufficiently to allow it to investigate the claimed wrong doing and determine whether or not the claim can be resolved. This purpose is totally defeated if a party is permitted to seek relief for claims regarding acts occurring subsequent to the first notice of claim to which the government was never put on notice. The court distinguished Graber v. City of Peoria, 156 Ariz. 553, 753, P.2d 1209

(App. 1988). In Graber a group of homeowners sued the city allegedly for allowing sewage to back up into their homes, and the government claimed they could not introduce evidence of this occurring after the first notice of claim was filed. This case was found to be inopposite because here the government's actions were not part of a "continuing nuisance or condition" described in the notice of claim. Nor was the plaintiff attempting to simply allege additional theories of liability based upon the same facts set forth in the notice of claim.

Timeliness of Reservation of Rights

Penn-America Insurance Company v. Sanchez, 532 Ariz. Adv. Rep. 3 (Ct. App., Div. 1, June 17, 2008) (Justice Gemmill). STANDARD FOR DETERMING WHEN A RESERVATION OF RIGHTS WILL BE CONSIDERED TIMELY.

The insured, Inside Arizona Delivery Leasing, Inc. operates warehouses and serves as a transportation intermediary. One of its drivers on a return to trip to Phoenix was involved in a traffic accident resulting in the deaths of three people on June 30, 2000. A wrongful death action followed. Inside Arizona notified its insurance agent of the claim on December 18, 2001, and the agent tendered the defense to Penn-America, Inside Arizona's commercial liability carrier. The policy in question had an exclusion for bodily injury or property damage arising out of the "ownership, maintenance, use or entrustment to others" of an automobile.

Penn-America's adjuster determined in his investigation, that Inside Arizona had automobile insurance with National American Insurance Company of California. However based on what he saw as alleged independent acts of Inside Arizona, he retained Jones, Skelton & Hochuli to defend the insured without reserving rights. He did not think Inside Arizona could legally be responsible for the acts of the driver whom he thought was an independent contractor ten months later, after additional facts were revealed during discovery and contrary to the advice of counsel,  Penn-America issued a reservation of rights letter to Inside Arizona based upon the allegation that the Federal ICC regulations created a vicarious relationship between Inside Arizona and the driver and Inside could be vicariously liable for negligent driving and Penn America excluded coverage for operation of an automobile.

A demand was made by the plaintiffs within policy limits which was not paid timely by Penn America. Ultimately the plaintiffs entered into a Morris agreement with the defendant and accepted a lesser amount in settlement with the automobile insurance company. The  Morris agreement was for 4.3 million dollars. A declaratory judgment followed and summary judgment sought by both parties was denied. The trial court found that  Penn-America's policy excluded automobile coverage and provided only excess coverage for losses arising out of the use of an automobile. Additional discovery followed, the case was reassigned to a different trial judge and  Penn-America renewed its motion for summary judgment which was then granted. The essential argument of the plaintiffs was that although there was no coverage,  Penn-America waived the right to assert the coverage defense by waiting ten months to serve a reservation of rights. The trial court found there was no "clear and satisfactory proof that Inside Arizona suffered actual and substantial damages" related to the delay, and that therefore there was no waiver.

The court of appeals noted that insureds are entitled to know "early in the litigation processing" whether or not the insured intends to honor its duty to defend or is asserting coverage defenses. Factors to consider in determining whether or not a reservation of rights has been timely, is whether not the delay caused prejudice to the insured and whether or not the delay was reasonable. In judging reasonableness, the court announced that "ordinary negligence principals" should be applied.

Conversely, unreasonable delay without prejudice to the insured will not cause loss of the insured's coverage defenses. Accordingly, the Court of Appeals found that there were genuine issues of material fact regarding reasonableness and whether or not the insured suffered prejudice due to the delay. Here the original complaint alleged that the driver was a legal agent or employee of Inside Arizona, and that Inside Arizona was vicariously liable for his acts. Dispite this, no reservation of rights followed. It wasn't until ten months later that Penn-America received additional information indicating that the accident was in fact the driver's fault and that the facts were being developed by the plaintiffs that Inside Arizona was the lessee of the driver's truck, and therefore the driver was its statutory employer. Whether or not it was reasonable to wait the ten months and ultimately issue the reservation rights is a question of fact for the jury.

Additionally, a jury could reasonably conclude that Inside Arizona had relied on Penn-America's unconditional acceptance of coverage and failed to pursue other potentially applicable coverages. A jury could find that Inside Arizona failed to notify the automobile liability carrier of the case because of this reliance.

Finally the court held that the question of prejudice to the insured caused by a delayed reservation of rights must be measured after the issues of the reservation of rights, but prior to any Morris agreement. An insurer is not relieved of the consequences, if any, of its untimely reservation of rights by virtue of the insured's good fortune in obtaining financial protection as a result of a  Morris agreement.

Civil Procedure - Costs Under Arizona Revised Statutes §12-684 (A).

Heatec, Inc. v. R.W. Beckett Corp., 533 Ariz. Adv. Rep. 5 (Ct. App. Div. 1, June 24, 2008) (Justice Brown) FUNDS PAID TO SETTLE PRODUCTS LIABILITY ACTION ARE NOT REIMBURSEABLE COSTS UNDER ARIZONA REVISED STATUTES §12-684(A).

A fire occurred in an asphalt plant owned by Vulcan. The fire originated in a booster heater which included an oil burner manufactured by Beckett and sold to Vulcan by Heatec. Vulcan sued Heatec for strict liability negligence and breach of warranty. Heatec filed a notice of non-party at fault alleging Beckett was responsible for improper design of the oil burner as well as insufficient warnings.

Beckett rejected a tender of defense from Heatec. Later Heatec informed Beckett that Vulcan would settle for $275,000.00 and that it intended to pursue an indemnification claim against Beckett unless Beckett paid half the settlement amount. Beckett refused. The case settled for $200,000.00 and Heatec then filed suit against Beckett claiming a right to common law indemnity as well as reimbursement of attorney's fees and costs incurred in defending the underlying action. A jury found in favor of Heatec.

Arizona Advices Statutes §12-684 provides that "The manufacturer shall indemnify the seller for any judgment rendered against the seller and shall also reimburse the seller for reasonable attorney's fees and costs incurred by the seller in defending such action."

The Arizona Court of Appeals found that based on Beckett's refusal to defend, Heatec was entitled to sue Beckett for reimbursement of the attorney's fees and costs incurred in defending the case.

The Court of Appeals then addressed the question of whether or not the actual settlement payment constituted a "cost" under the statute. The court first noted that "costs" were not defined by the statute. Turning to statues governing civil procedures, and Ariz. Rev. Statutes §§12-331-333, the court found "costs" to be limited to "taxable costs" which the Supreme Court has held is a "a term of art having limited meaning" specifically costs are "limited to necessary expenses" and therefore do not include "everything that a party spends to achieve victory." Settlement costs are not specifically delineated as taxable costs under Arizona Revised Statutes §12-332. Therefore, the Court of Appeal concluded that the legislature did not intend to include such payments as reimbursable costs under Arizona Revised Statutes §12-684.

Civil Procedure - Notice of Claim-Adequacy of Notice.

Backus v. State of Arizona, ____AZ. Adv. Rep. __ (1CA-CV07-0640/1CA-CVO7-0671) (Ct. App. Div. 1, July 17, 2008) (Justice Winthrop).

These are two consolidated cases. In the Backus case the plaintiff's decedent suffered a sustained infection and died while incarcerated by the Arizona Department of Corrections. Subsequently, the decedent's survivor and daughter filed a notice of claim pursuant to Arizona Revised Statutes §12-821.01 setting forth a factual summary and asserting that ADOC was negligent in its provision of medical care to the father.

On the issue of damages, she set forth her father's date of birth, age, life expectancy, and asked for $21,500.00 per year for that life expectancy. At a 23.6 year expectancy she explained she was claiming $507,400.00. However, later in the letter she made a demand to settle for $500,000.00.

The State did not respond within the required sixty days, but did ultimately respond asking the plaintiff forego suing beyond the statute of limitations so they could further investigate the claim. It did not ask for any additional information concerning the issue of liability other than to request a signed release authorizing the State to examine her father's medical records. Further, the State did not request any specific or additional factual information on the issue of damages. The only thing the State asked for was proof that the claimant had "standing" to bring the claim under Arizona Revised Statutes §12-612, the wrongful death statute. The record on appeal showed no response from the claimant or her attorney. Subsequently, a lawsuit was filed and a motion to dismiss pursued by the State on the basis that the notice of claim did not comply with Arizona Revised Statutes §12-821.01(A) because there allegedly were no stated "facts to support the specific amount for which she was willing to settle her claim." The trial court granted the motion.

In the Johnson case, The plaintiff's decedent likewise died while incarcerated by ADOC. Following her death, the decedent's mother filed a notice of claim on her own behalf as well as six biological children of the decedent. The notice of claim stated that the decedent had become ill while incarcerated and asked to be seen by medical staff. It further stated there was substantial delay in providing medical care, that the decedent's condition deteriorated dramatically, she became seriously ill, was taken to the hospital where, due to lack of oxygen, she suffered brain damage going into a vegetative state.

The notice of claim further stated that the cause of the death was "bilaterial pulmonary edema and congestion with bronchopneumonia." Finally, the notice of claim stated that the plaintiff had the authority of the statutory beneficiaries to resolve the matter for two million dollars.

The lawsuit followed when the State did not respond to the notice of claim. The answer to the complaint denied liability, but did not raise any specific defect in the notice of claim. Nonetheless, after the DeerValley Unified School District No. 97 v. Houser, 224 Ariz. 293, 152 P.3d 490 (2007) was published, the State moved to dismiss the lawsuit on the basis that there were insufficient facts to support the specific amount demanded in the notice of claim letter. The trial court granted the State's motion.

A Court of Appeals in analyzing the statute first noted that the statute specifically required "sufficient" facts for the government to "understand the basis upon which liability is claimed", but does not use the word "sufficient" when it requires a "specific amount for which the claim can be settled and the facts supporting that amount." The court noted that the government was basically asking the court to "graft the word "sufficient" from the second sentence of A.R.S. §12-821.01(A)" concerning liability onto the "the third sentence of the statute regarding facts supporting the proposed settlement amount". The court then held "We further observe that, where the legislature has specifically used a term in certain places within a statute and excluded it in another place, courts will not read that term into the section from which it was excluded." ArizonaBoard of Regents ex rel. Univ. of Ariz. v. State of Ariz. Pub. Safety Ret. Fund Manager, 160 Ariz. 150, 157, 771 P.2d 880, 887(App. 1989).

In the alternative, the State advocated for a "judicially created standard against which these claim letters can be measured." In response, the Court found that even if it were to attempt to articulate such a standard, it could not identify appropriate parameters because "each claim is different". Accordingly, a "one size fits all" approach to compliance with the statute may be problematic." The Court then went on to point out that general damages in particular are not as quantifiable as special damages. In fact, general damages "cannot be objectively measured with certainty." General damages are subjective and personal to the individual.

Finally, the court pointed out that if the government needs additional information to evaluate a demand, it can certainly ask for it, just as it asked for more information on Backus' standing to bring the claim. In this regard the Court pointed out that there was a "fiction inherent" in the government's argument that it was somehow unsophisticated in gathering information and evaluating claims. To the contrary, the court pointed out it is usually the claimant that lacks the sophistication necessary and who is at a distinct disadvantage in attempting to comply with the statute.

In conclusion, the Court found that the notice of claim statute is not in violation of Article 4, Part 2, §18 of the Arizona Constitution.

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