The Arizona Court of Appeals recently overturned a trial court’s dismissal of an insured’s bad faith case stemming from a disagreement with an insurance company over coverage for a stolen baseball card collection.1 As a kid who grew up collecting baseball cards, I took particular interest in this case.

On October 29, 2012, the insured’s RV was broken into and several items were stolen. The next day, he filed a claim with his insurer, GEICO. The insured’s insurance policy provided $10,000 of property damage coverage.

After requesting the insured to provide sufficient evidence that the vehicle had been forcibly entered, GEICO’s adjuster estimated the damage to the vehicle to be $498.65, just under the insured’s $500 deductible.

Consequently, the insured repaired the vehicle himself. The insured did however subsequently obtain an estimate of $1,400 to repair the damage to the RV, but given GEICO’s prior position, he never submitted the estimate to GEICO; GEICO later acknowledged that its $498.65 estimate was insufficient.

In addition to the damage to the vehicle itself, the insured presented evidence to GEICO that items of personal property had been stolen from the vehicle. The items stolen included a plasma cutter, which the insured valued at $1,100, and multiple baseball card sets from the early 1970s, which the insured estimated to be valued at $6,000. In response to this information, GEICO first requested proof that the insured owned the plasma cutter, which he provided. GEICO, however, denied coverage for the plasma cutter, because it claimed it was not “normally used in conjunction with” an RV. The insured however explained that the plasma cutter was used to build a stove for his RV.

The insured sent multiple letters to GEICO asking it to explain the basis for its coverage decision. A GEICO supervisor, after reviewing the insured’s file, noted in an internal document that, based on the language of the policy, “we have no basis to deny or disclaim as nothing [states the] plasma cutter would not be covered.” GEICO therefore changed its coverage position and agreed to pay for the plasma cutter. GEICO agreed to pay $1,010 for the plasma cutter (even though its value was estimated at $1,100).

Regarding the baseball card collection, GEICO also initially refused to extend coverage, asserting that they had “no value unless [the insured] ha[d] a[n] appraisal for them” and otherwise had only “sentimental value.” The insured estimated the collection was worth between $5,250 and $6,375 based on a baseball card index price guide, similar items on eBay, and his estimation of their condition when stolen. The insured also sent GEICO a “Price Guide” survey with an approximate value of the cards.

GEICO’s retained experts opined that that the baseball cards were only worth $2,400. GEICO agreed to pay the insured $1,000 for the baseball card collection because there was a $1,000 policy limit for “coin collections, stamps, and collecting supplies.” GEICO then closed the claim, incorrectly informing the insured that the coverage limit on his policy was $5,000 and had been met. The insured questioned GEICO’s rationale given that the policy itself listed a $10,000 limit; not a $5,000 limit. GEICO ultimately admitted its mistake and agreed to reopen the claim, but never changed its position regarding the coverage available for the baseball card collection.

The insured ultimately sued GEICO for bad faith. During depositions, a GEICO adjuster explained that telling the insured there was a $5,000 coverage limit was an “oversight” and a “mistake” made because most RV policies carry a $5,000 limit. GEICO also admitted during depositions that the baseball cards were not “coin collections, stamps, and collecting supplies” and that its interpretation of the insurance contract had been “a mistake” and “in error.” When asked when that determination of error was made, the supervisor replied “yesterday” while he was reviewing previous depositions. The supervisor admitted that it was unfair to the insured that it took over two years and 14 months of litigation to correct the error or mistake.

After acknowledging the mistake regarding coverage for the baseball cards, the same supervisor sent a letter to the insured with a check for an additional $1,500, plus interest, for the value of the baseball cards, bringing the total amount paid for the cards to $2,500.

GEICO moved for summary judgment, arguing that a review of the totality of its investigative conduct demonstrated its claim handling was not unreasonable. The insured moved for partial summary judgment, arguing the opposite. The trial court granted GEICO’s motion and denied the insured’s. The insured appealed the decision.

The Arizona Court of Appeals overturned the trial court’s decision in an unpublished opinion. The court’s analysis and rationale explaining why the insured’s bad faith claim should not have been dismissed is insightful:

[The insured] produced sufficient evidence from which a jury could find GEICO liable for bad faith. To be sure, some of the evidence demonstrates objectively reasonable behavior, and GEICO did cover some items without objection. But GEICO’s ultimate coverage of other items resulted only after substantial delay, and efforts on the part of its insured that a jury could find were required by GEICO’s undue recalcitrance to pay clearly covered claims.

For example, there might have been a fair debate concerning coverage for loss of the plasma cutter, because such equipment might not have been “normally used in conjunction” with the RV. But that rationale was not presented until after GEICO said it would deny coverage without proof of ownership. Only after [the insured] provided proof of ownership and explained the use of the tool did GEICO accept coverage. And even then, it did not fully compensate [the insured] at first, because it wrongly limited his coverage amount to half the face value of his policy.

GEICO’s handling of [the insured’s] claim for the loss of his baseball cards also gives rise to inferences that it “lowball[ed]” the claim and forced its insured to “go through needless adversarial hoops.” Zilisch, 196 Ariz. at 238, ¶ 21. Citing Aetna Cas. & Sur. Co. v. Superior Court (Gordinier), 161 Ariz. 437, 778 P.2d 1333 (App. 1989), GEICO argues it acted reasonably regarding the baseball cards because there were questions concerning their ownership and condition, and that it made payments promptly after it “came to believe” the coins, stamps, and collecting supplies exception did not apply. GEICO’s reliance on Aetna is misplaced. In Aetna, the court rejected the plaintiff’s claim that the insurance company’s pre-denial investigation constituted bad faith because “[t]he plaintiff [had] not advised this court, specifically or otherwise, concerning what additional pertinent facts would have been determined by any further investigation.” Here, we know the result of the investigation because GEICO ultimately covered the claims and admitted that it improperly applied the policy. Its investigative steps, even if reasonable, do not preclude liability for failure to properly or timely apply the results of the investigation or the express terms of the policy. See Zilisch, 196 Ariz. at 238, ¶ 21.

GEICO’s initial position, when [the insured] submitted his claim, was that the baseball cards held only “sentimental value” and that he would not be reimbursed without a documented appraisal. Though GEICO may have acted reasonably in investigating the ownership, value, and condition of the cards after it realized its absolute denial was untenable, there is evidence that it acted improperly under the policy before and after that investigation. Once it accepted coverage, GEICO paid (at most) just over 40% of the cards’ value, contending that they were “collecting supplies” — an interpretation of the insurance policy that stretches the limits of a “fairly debatable” coverage decision and is made more dubious by GEICO’s employees’ inability to defend it when questioned in deposition. GEICO offers no explanation why its reasoning changed fourteen months into this litigation, and not two years earlier when [the insured] first questioned it. Finally, GEICO did not pay the additional $1,500 immediately upon “c[oming] to believe” it erred but rather waited four months after its second admission of error.

1 Duepner v. Government Employees Ins. Co., No. 1 CA-CV 16-0242 (Ariz. Ct. App. June 8, 2017).