Arizona Court of Appeals Division One Holds That Arizona Does Not Recognize a Tort of Forgery and That Life Insurance Application Is Inadmissible in Dispute Regarding Oral Contract

The beneficiary of a life insurance policy sued the insurer for forgery, arguing that the insurer forged her initials in order to reduce the policy coverage amount.  A jury found in favor of the beneficiary on a claim based on the tort of forgery.  The insurance company appealed, arguing that Arizona does not recognize the tort.  The Court of Appeals reversed.  No Arizona case or statute had addressed the tort of forgery, but the Restatement (Second) of Torts does not recognize the tort.  The Court of Appeals followed the Restatement and held that Arizona does not recognize the tort of forgery.

A jury also found in favor of the beneficiary on a variety of other contract and tort claims she brought against the insurer.  On appeal, the insurer argued that the insurance applications at issue contained lies and errors and that the trial court improperly excluded the insurance applications.  Under Arizona law, an insurance application is inadmissible unless the application was attached to the policy and delivered to the insured.  See A.R.S. § 20-1108.  The insurer argued that this rule does not apply because the alleged insurance contract was oral and an application cannot be attached to an oral contract.  The Court of Appeals affirmed the exclusion of the application and held that A.R.S. § 20-1108 applies to oral contracts.  It explained that if the insurer never delivers the application to the insured, then the insured never has an opportunity to correct any mistakes.  As a result, any errors in the application may not be used against the insured or beneficiary unless the application was delivered to the insured, whether the insurance contract is in writing or not.

In addition, the Court of Appeals made two other important holdings.  First, it reduced an award of punitive damages from $1.1 million to $328,000.  It reduced the ratio of punitive damages to compensatory damages from 13:1 to 4:1, based largely on past approvals of a 4:1 ratio in Arizona courts.  Second, it held that prejudgment interest must be awarded even for unliquidated bad faith damages if the plaintiff recovers more than the amount of a Rule 68 offer of judgment the defendant rejected.

Judge Orozco authored the opinion; Judges Winthrop and Jones concurred.