Chalabi v. Hobbs

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE JOE CHALABI and EVA CHALABI, husband and wife, Plaintiffs/Appellants, v. RICHARD JAMES HOBBS; RICK HOBBS INSURANCE AGENCY, INC.; STATE FARM INSURANCE COMPANIES, dba STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendants/Appellees. ) ) ) ) ) ) ) ) ) ) ) ) ) ) DIVISION ONE FILED: 10/28/10 RUTH WILLINGHAM, ACTING CLERK BY: DLL 1 CA-CV 10-0070 DEPARTMENT A MEMORANDUM DECISION Not for Publication (Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause No. CV2008-007895 The Honorable John A. Buttrick, Judge AFFIRMED TIDMORE LAW OFFICES, L.L.P. By Ilya E. Lerma Steve M. Tidmore Attorneys for Plaintiffs/Appellants EHMANN DECIANCIO, PLLC By Joel DeCiancio Christopher Robbins Attorneys for Defendants/Appellees B A R K E R, Judge Phoenix Tempe ¶1 Although distinct in time and circumstances, this is essentially a companion case to an earlier decision from a panel of Division Two in Ballesteros v. American Standard Insurance Co. of Wisconsin, 223 Ariz. 269, 222 P.3d 292 (App. 2009). case is presently under review by the Arizona Supreme Court. Ballesteros, the court construed Arizona Revised That In Statutes ( A.R.S. ) section 20-259.01, dealing with the statutory mandate to offer uninsured/underinsured ( UM/UIM ) coverage. This court held that when the statutorily required form was provided in a language that the insured could not understand, the insurer must take additional steps to satisfy the statute. 222 P.3d at 300. Id. at 277, ¶ 25, Because of the procedural posture, we do not know whether Ballesteros will remain valid law or not. Even if Ballesteros remains in place, however, the rule it put into effect would not apply here. Thus, without determining whether to accept or reject Ballesteros, on the record before us neither the insurer nor its agent in this case was required to take additional steps to satisfy the statutory mandate or qualify for its protection. Accordingly, we affirm. I. ¶2 Joe and Eva Chalabi ( Plaintiffs ) appeal from the superior court s order dismissing their contract and negligence claims against Richard Hobbs ( Hobbs ), Rick Hobbs Insurance Agency, and State Farm Insurance 2 Company ( State Farm ). Plaintiffs allege that Hobbs and Rick Hobbs Insurance Agency breached their duty of care by failing to advise Plaintiffs to obtain UM/UIM coverage on their automobile insurance policy and by failing to Plaintiffs. explain the principles of UM/UIM coverage to In early 2002, Plaintiffs sought to purchase a State Farm automobile insurance policy through Hobbs and Rick Hobbs Insurance meeting with Agency. Hobbs, he At Plaintiff requested Joe full Chalabi s coverage, initial and Hobbs prepared an application for $100,000 per person/$300,000 per accident in liability coverage, comprehensive, collision, car rental, and travel expenses. of Insurance-approved Selection or Hobbs also provided a Department UM/UIM Rejection form availability of UM/UIM coverage. page. At the top of the Acknowledgment informing of Chalabi Coverage of the The document consists of one page with bold printing and capitalization as indicated, is the following: WARNING!! THIS IS AN IMPORTANT INSURANCE DOCUMENT PLEASE READ CAREFULLY BEFORE SIGNING The document contains an explanation of what UM/UIM coverage provides. The document also states that I have read and I understand the above explanation and offer of Uninsured Motor Vehicle coverage and Underinsured Motor Vehicle Coverage. Plaintiff, however, signed the form declining coverage without reading it. Although English is not Chalabi s first language, 3 he was able Plaintiffs do to not read the allege selection form at deposition. Chalabi lacked the ability that to understand the form. ¶3 The form indicates that I also understand that I have the opportunity to ask for an additional explanation from my agent. Chalabi separately separate did advised Hobbs do so. Plaintiff analysis coverage. not as to also to the does Likewise, read the benefits not forms of recall Hobbs nor obtaining if, in neither gave a UM/UIM addition to conveying the form, he explained UM/UIM coverage principles to Chalabi. When State Farm did not receive the original UM/UIM Acknowledgment form, Chalabi was later asked to re-sign it and did so without Hobbs initiating a discussion of UM/UIM coverage with Chalabi or Chalabi requesting such a conversation pursuant to the form. ¶4 In April of 2006, Chalabi was injured in an automobile accident with an impaired motorist. Chalabi s injuries exceeded the meaning driver s coverage limits, the driver was Defendants for underinsured. ¶5 Plaintiffs brought claims against breach of contract and insurance agent malpractice. to Plaintiffs Chalabi by expert, failing to Hobbs breached advise him about recommend that he obtain that coverage. 4 his duty UM/UIM of According care coverage to and Defendants filed a motion for granted. summary judgment Plaintiffs malpractice claim. on claims, appealed timely all the which the dismissal court of the We have jurisdiction under A.R.S. § 12- 2101(B) (2003). II. ¶6 A trial court may grant summary judgment when there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law. Civ. P. 56(c)(1). Ariz. R. In reviewing a motion for summary judgment, an appellate court determines de novo whether any genuine issues of material fact exist and whether the trial court properly applied the law. Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App. 2000). ¶7 In Arizona, insurance companies, such as State Farm, are required to: [B]y written notice offer the insured and at the request of the insured shall include within the policy underinsured motorist coverage . . . in limits of not less than the liability limits for bodily injury or death contained within the policy. The selection of limits or rejection of coverage by a named insured or applicant on a form approved by the director shall be valid for all insureds under the policy. A.R.S. § 20-259.01(B) (2002). Here, State Farm, through its agent, Hobbs, provided Chalabi with a Department-approved UM/UIM selection form. Plaintiffs correctly 5 concede that this constituted a valid offer of UM/UIM insurance under § 20- 259.01(B). The statute does not require explanation or advice as to UM/UIM coverage beyond what is contained on the approved form. or a It further provides that either a selection of limits rejection ¶8 coverage Plaintiffs valid. of on argue, an approved form shall be Id. notwithstanding, that Hobbs the and Rick statutory Hobbs language Insurance Agency (and State Farm under a vicarious liability theory) may still be held liable in negligence due to Hobbs failure to explain UM/UIM coverage beyond what is on the form or to advise Mr. Chalabi to obtain it. 1 Plaintiffs also claim that the statute refers only to insurance companies, such as State Farm, and does not set the standard of care for insurance agents, such as Hobbs. They argue the standard of care for insurance agents is a question of fact to be decided by the jury and the issue is therefore inappropriate for dismissal on summary judgment. We reject Plaintiffs arguments for the reasons that follow. 1 Plaintiffs also argue that Defendants failed to raise the argument that § 20-259.01 precluded Plaintiffs claim in the trial court and that the argument is therefore waived. Defendants sufficiently raised the statutory argument in their motion for summary judgment by arguing that § 20-259.01 did not require an insurance agent to explain UM/UIM coverage and that the standard of care did not require them to do more than what was required by the statute. Further, in Plaintiffs Opening Brief, they refer to Defendants safe harbor argument. Accordingly, Defendants did not waive this issue. 6 A. ¶9 First, Plaintiffs intended as a arguments, to do. frame we of must Scottsdale reference determine for what Healthcare, each the Inc. of statute v. Ariz. Healthcare Cost Containment Sys. Admin., 206 Ariz. 1, 5, ¶ 10, 75 P.3d 91, 95 (2003) ( In interpreting a statute we first look to the language of the statute itself. Our chief goal is to ascertain and give effect to the legislative intent. ). language in A.R.S. § 20-259.01(B) provides, a As the selection or rejection of coverage on a pre-approved form is statutorily mandated to be valid. provision in The court discussed the scope of that Ballesteros, and specifically, whether it provides a safe harbor for insurers, insulating them from litigation. ¶10 223 Ariz. at 273, ¶ 7, 222 P.3d at 296. In Ballesteros, the issue was whether an insurer was immune from liability when it provided the Department-approved form in English to a prospective insured that was known to speak only Spanish, and the insurer took no further steps to explain the contents of the form. 223 Ariz. at 277-78, ¶ 26, 222 P.3d at 300-01. The court determined that even assuming, without safe conclude deciding, it is a not harbor absolute and generally does not exists, we would apply under the circumstances presented here. Id. at 273, ¶ 9, 222 P.3d at 296. The court reasoned: 7 [W]hen the insurer knew or should have known that merely providing the offer form would be insufficient to convey the offer of coverage to the potential insured because the insured could not read it, the insurer must take additional steps reasonably calculated to ensure the offer is communicated effectively to the insured. Id. at 277, ¶ 25, 222 P.3d at 300. ¶11 We need Ballesteros. neither endorse nor reject the rule from Under Ballesteros, if an insurer knew or should have known that the manner in which it provided the form was inadequate to communicate what was intended by the statute, the statutory protection would not apply. Id. In Ballesteros, the knowledge that the insured only spoke Spanish provided such a circumstance. Id. at 277-78, ¶ 26, 222 P.3d at 300-01. however, there is no such circumstance. read the form at understanding it. it. the deposition and Chalabi was able to had no difficulty He simply chose not to read it before signing Nor is there any evidence Hobbs knew or should have known that Chalabi would not have understood the form. in Here, Ballesteros providing is that not invoked selection of and the limits Thus, the rule statutory or language rejections of coverage . . . shall be valid must be given effect. ¶12 We also need not decide whether § 20-259.01(B) abolishes all possible negligence claims for agent malpractice 8 in the area of UM/UIM coverage. 2 But when the only assertion supported by the evidence is that the agent should have done something summary more, yet judgment appropriate. in the statute favor of has the been insurer complied and with, agent is The language of the statute must be given effect. E.g., Scottsdale Healthcare, 206 Ariz. at 5, ¶ 10, 75 P.3d at 95. Under these circumstances, to hold that an insurer that complied with the statute providing a rejection of coverage shall be valid and then expose that insurer and its agent to liability for negligence based on failure to advise would in effect impose the same burdens on the insurer and agent that the statute attempts to relieve and circumvent one of the statute s stated purposes. B. ¶13 Plaintiffs assert, however, that a defendant s duty of care may exceed what is mandated by statute. Such could be the case when a statute, for example, sets forth minimal precautions or safety standards. Restatement (Second) of Torts § 288C cmt. a (noting that compliance with a statutory speed limit will not preclude finding that driver should 2 have driven more slowly For instance, assume an insured initially completed the form and rejected coverage but the next day requested in writing the agent change his coverage to include UM/UIM insurance. If the agent knew of the request and negligently failed to amend the insured s policy to add coverage, the facts would be materially different than those presented to us. 9 given traffic conditions); Peterson v. Salt River Project Agric. Improvement & Power Dist., 96 Ariz. 1, 7, 391 P.2d 567, 571 (1964) ( The jury may find that under certain circumstances the standard minimum of due care standards requires of a more than statute. ). circumstance before us. compliance But that with the not the is The statutory mandate is that either selection or rejection shall be valid. A.R.S. § 20-259.01(B) ( The selection of limits or rejection of coverage by a named insured or applicant on a form approved by the director shall be valid for all insureds under the policy. ) (emphasis added). This statutory provision is not similar to a statutory provision that provides a minimum standard to be met. Section 20- 259.01(B) provides some certainty to insurers when they comply. The prior versions of the statute bear this out. ¶14 In 1992, the Arizona legislature amended § 20-259.01 to validate all offers made on an approved selection form. Ariz. Sess. Laws ch. 147. 1992 Those amendments are reflected in our current version of the statute. Older versions of the statute had required the insurer to offer UM/UIM coverage, but they did not contain limits or a a provision rejection approved form is used. stating of that coverage either shall be a selection valid if of an See, e.g., A.R.S. § 20-259.01(C) (1986) (requiring insurer to make available . . . and . . . by written notice offer underinsured motorist 10 coverage to new policy holders). We presume that an amendment to a statute was intended to change (or clarify) the law, and we have a duty to give effect to those amendments. Finch v. State Dep t of Pub. Welfare, 80 Ariz. 226, 229, 295 P.2d 846, 848 (1956). Thus, by its very language, the amendments by which we are bound provide that selections of coverage and rejections of UM/UIM coverage made on approved forms shall be valid. to ignore the legislature s language. We are not at liberty Williams v. Thude, 188 Ariz. 257, 259, 934 P.2d 1349, 1351 (1997) ( Each word, phrase, clause and sentence [of a statute] must be given meaning so that no part will be void, inert, redundant, or trivial. ). conclusion is also consistent with prior case law Our that anticipated the amendments. ¶15 In Tallent v. National General Insurance. Co., the Arizona Supreme Court considered whether insurers offering UIM coverage under the former law must also provide an explanation of the nature of such coverage. 665, 665 (1996). 185 Ariz. 266, 266, 915 P.2d The court held that the statute does not require the offer to contain an explanation of the nature of UIM insurance. Id. at 267, 915 P.2d at 666. Referring to the law now in place that was enacted but not effective at the time Tallent was decided, the court went on to note: Perhaps questions of this type will not arise in the future because the law now provides that [t]he selection of limits or 11 the rejection of coverage by a named insured or an applicant on a form approved by the director [of insurance for the state of Arizona] shall be valid for all insureds . . . . A.R.S. § 20 259.01(B) (Supp. 1995). Id. at 267 n.2, 915 P.2d at 666 n.2. position, the Arizona Supreme Contrary to Plaintiffs Court also held that the imposition of a requirement for an explanation of coverage is, we believe, both unwarranted by the statute and unwise. 268, 915 P.2d at 667. Id. at The court noted that the form in question certainly seems sufficient to cause any insured or potential insured who has questions about the coverage to ask for an explanation. meaning Id. of UM or UIM Indeed, the approved form under which we operate on the facts of this case expressly makes that consultation available. Our supreme court also noted, but declined to follow, cases in other states that have construed their statute to require additional explanations of UIM coverage. ¶16 Id. Plaintiffs also contend that Giley v. Liberty Mutual Fire Insurance Co., 168 Ariz. 306, 812 P.2d 1124 (App. 1991), supports their position that the insurance agent is required to do more to avoid liability than simply provide the UM/UIM form. Like Ballesteros, Giley coverage was valid. describe underinsured In decided Giley, coverage, 12 whether an an insurance but handed offer of agent [the UM/UIM did not insured] a form and asked her to sign it if she wanted coverage. 306, 812 P.2d at 1124. not, as a matter of Id. at The court held that this conduct did law, meet available underinsured coverage. the Id. requirement to make Whether one agrees or disagrees with the reasoning in Giley (a decision we need not reach), that case was decided under the previous statute. As noted above, that statute did not contain the central provision before us that the selection of limits or coverage on an approved form shall be valid. rejection of Giley is of no support to Plaintiffs. ¶17 Accordingly, we decline to read the statute to permit the negligence claim asserted here. C. ¶18 Plaintiffs also assert that the statute insulates only the insurer and not the insurance agent. Notably, this court has held that insurance agents may be held liable for failure to comply with § 20-259.01 s UM/UIM offer requirement even though the statute imposes the offer requirement only on the insurer. Millers Nat l Ins. Co. v. Taylor Freeman Ins. Agency, 161 Ariz. 490, 493-94, 779 P.2d 365, 368-69 (App. 1989). Because the statute imposes liability on insurance agents, the agents should receive the corresponding protections that insurers receive. ¶19 Additionally, it would hardly be practical in this scenario to differentiate between the insurer and the agent by 13 imposing distinct sets of duties on each. Insurers are typically not people; they are most often legal entities that perform their work through agents and employees. § 20-104 ( Insurer includes every person See A.R.S. engaged in the business of making contracts of insurance. ); -105 ( Person includes an individual, company, insurer, association, organization, society, reciprocal or inter-insurance exchange, partnership, entity. ). syndicate, business trust, corporation, and When insurers can be held liable for certain actions of their agents through vicarious liability, it follows that the duties and statutory protection flowing to the insurer for that conduct will generally apply to the agent and/or employee of the insurer who engaged in the conduct unless circumstances warrant otherwise. ¶20 Here no such other circumstances are present. Finally, the plain language of § 20-259.01(B) states that rejections on approved forms shall be valid ; it does not differentiate between forms offered by the insurer and those offered by agents. Thus, we reject the request to construe the statute to protect insurers but not their agents or employees. D. ¶21 Plaintiffs also refer to Arizona cases holding that the finder of fact should determine whether failure to advise an insurance customer as to the recommended coverage was a breach of the agent s duty of care. For example, in Southwest Auto 14 Painting & Body Repair, Inc. v. Binsfeld, this court held that a question of fact for the jury existed when the plaintiff presented expert testimony that the standard of care required an insurance agent to recommend fidelity coverage, and the defendant insurance agent did not recommend such coverage. 183 Ariz. 444, 448, 904 P.2d 1268, 1272 (App. 1995). Likewise, Darner Motor Sales, Inc. v. Universal Underwriters Insurance Co. held that [a]n insurance agent owes a duty to the insured to exercise reasonable care, skill and diligence in carrying out the agent's duties in procuring insurance. 140 Ariz. 383, 397, 682 P.2d 388, 402 (1984) (quoting Quality Furniture v. Hay, 595 P.2d 1066, 1068 (Haw. 1979)). These cases, however, did not implicate express statutory language providing protection to the insurer when the statute has been complied with and no other circumstances exist, see supra n.2, ¶ 12, that cast into doubt that statutory protection. Thus, they do not provide a basis for relief here. 15 III. ¶22 For the foregoing reasons, the decision of the trial court is affirmed. Both parties request fees pursuant to A.R.S. § 12-341.01(A), as this matter arises out of a contract of insurance. We deny Plaintiffs request for fees and award costs and fees to Defendants in an amount to be determined after compliance with Arizona Rule of Civil Appellate Procedure 21. /s/ _______________________________ DANIEL A. BARKER, Judge CONCURRING: /s/ _____________________________ DONN KESSLER, Presiding Judge /s/ _____________________________ JON W. THOMPSON, Judge 16

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