Arizona Court of Appeals Division Two holds that an insured can pursue a claim of emotional distress against an insurer and that third-party beneficiaries can bring Consumer Fraud Act claims.

Through her parents, an incapacitated car accident victim sued an insurance agent for malpractice.  They alleged that the agent negligently advised that the family did not need to purchase higher Uninsured/Underinsured Motorist (UM/UIM) coverage.  Before trial, the court granted partial summary judgment in favor of the agent on the claims of emotional distress and statutory consumer fraud claims. 

At trial, the jury awarded the family $180,000 in damages.  That amount did not reconcile with any possible coverage amount the family might have elected.  The Court denied the family’s Rule 49(c) motion that the nonresponsive verdict be resubmitted to the jury but it granted a new trial on all issues including liability.  Both parties appealed.

The Court of Appeals affirmed the post-trial rulings but reversed the pre-trial summary judgment rulings.  Arizona generally does not allow a claim of emotional distress unless there is non-pecuniary harm.  That requirement has been evolving.  Arizona has previously recognized that the relationship between an insurer and an insured is not strictly a financial one but also involves a sense of security and peace of mind.  In light of that special relationship, the Court of Appeals held that the emotional distress claim should survive summary judgment and go to trial because a factfinder might find direct, non-economic emotional distress.  The Court of Appeals also reversed the summary judgment on fraud.  The Court held that the Consumer Fraud Act did not limit claims to direct purchasers of insurance and that the broad language and remedial purpose of the Act allow known third-party beneficiaries to bring claims.

Finally, the Court of Appeals addressed the application of Arizona’s UM/UIM Act, A.R.S. § 20-259.01.  It held that the Act does not apply to umbrella policies and that compliance with the statutory safe harbor of “offering” UM/UIM pursuant to an approved form did not bar a claim of negligent advisement about whether the family should accept the offered coverage.  

Judge Espinosa authored the opinion; Presiding Judge Miller and Chief Judge Eckerstrom concurred.