In August 2013, AAA notified the Eppersons that it had begun an investigation into the fire loss claim under a reservation of rights.

On August 21, 2013, AAA requested that Jim Norwood of Arizona Investigations and Professional Consultants, PLLC, investigate the fire loss claim and verify the Eppersons' information. Mr. Norwood prepared a report dated September 5, 2013 in which he summarized statements by Sergeant Jeff Soderquist of the county sherriff's office, Jason Kirk, the assistant fire chief, and Kay McDaniels, the Eppersons' neighbor. Both Sergeant Soderquist and Assistant Fire Chief Kirk had been at the fire scene and they told Mr. Norwood that they thought the fire was suspicious, noting that all of the Eppersons' belongings had been removed from the house prior to the fire.

Mr. Epperson and his friend, who was staying there at the time, apparently gave conflicting accounts of the event.

Furthermore, the neighbor told an investigator that Mr. Epperson had told her he intended to build a house on the property, “burn it down, and use the insurance money to buy another property.”

Mr. Norwood noted that Jim Borrego, fire chief for the Vernon Fire Department, was in charge of the scene of the fire and said that he intended to obtain a copy of any report the Vernon Fire Department prepared.

In September and November 2013, AAA requested that the Eppersons provide additional information and documentation to complete its investigation. AAA also asked the Eppersons to submit to examinations under oath.

In November 2013, the Eppersons sued AAA, alleging that it had acted in bad faith by unreasonably delaying its investigation of the fire loss claim and by refusing to extend coverage for the loss.

The trial court stayed the lawsuit pending AAA's completion of its claim adjustment process.

The Eppersons did not provide the information and documents AAA had requested in November 2013 and did not agree until January 2014 to allow AAA to examine them under oath.

After it completed Mr. Epperson's examination in February 2014, AAA asked Mr. Norwood to conduct an additional investigation to follow-up on Mr. Epperson's statement.

Mr. Norwood prepared a report dated April 7, 2014 in which he summarized his follow-up conversation with Jason Kirk (who had since become the local fire chief), and identified the additional public records he had obtained from the sheriff's office and fire department.

Chief Kirk explained that he believed the fire had burned too quickly considering there were no contents in the home and Mr. Epperson had given an inconsistent account of the incident on the night of the fire. Mr. Norwood also described his unsuccessful attempts to locate Ron Atkinson, a neighboring property owner, Gale Eneboe, the man who was in the house with Mr. Epperson on the night of the fire, and James Borrego, the fire chief at the scene of the fire who had since left the fire department.

On April 10, 2014, the Eppersons provided AAA contact information for Mr. Eneboe and Chief Borrego. In addition, Mr. Epperson submitted a signed statement describing his confusion over the claims process and asserting that he had experienced memory issues for several years.

Mr. Norwood conducted an interview with Mr. Eneboe on July 14, 2014, which he summarized in a July 27, 2014 report. AAA examined Ms. Epperson under oath on August 12, 2014. Thereafter, the Eppersons sent AAA a letter in which Mr. Epperson's doctor opined that his medical conditions and medications could explain his “memory lapses, periods of confusion, and cognitive dysfunction.”

On November 7, 2014, AAA paid the Eppersons for the fire loss claim. After the lawsuit resumed, AAA moved for summary judgment on the Eppersons' bad faith claim, arguing that no reasonable jury could find that it had handled the fire loss claim unreasonably.

The Eppersons did not controvert any of AAA's factual statements, but maintained that a jury should determine whether AAA had acted in bad faith by failing to contact witnesses and develop information that might support the Eppersons' claim.

In addition, they contended that the affidavit of their insurance expert, Frederick C. Berry, Jr., who opined that AAA had breached the applicable standard of care, precluded summary judgment.

The trial court granted AAA summary judgment, ruling that “no reasonable juror could determine that [AAA] acted in bad faith given the numerous red flags related to [the Eppersons'] claim history and delays caused by the [Eppersons] during [AAA's] attempts to process the claim.” The trial court also noted that AAA had presented significant evidence to support its claim-handling process and that the Eppersons had not refuted that evidence, but instead had offered only “conclusory legal statements, accusations and expert opinions” that did not create a material question of fact for a jury.

The Eppersons appealed.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court explained that, in moving for summary judgment, AAA had presented “undisputed evidence” that it had promptly interviewed relevant witnesses, performed an investigation of the fire scene, and sought relevant public documents.

The appellate court added that, when those initial inquiries indicated that the fire was suspicious in origin, AAA had requested that the Eppersons provide documents and statements under oath to allow AAA to complete its investigation – but that the Eppersons had not immediately cooperated with AAA's investigation, “failing for several months to provide the requested information and submit to sworn examination.”

The appellate court also observed that, after Mr. Epperson's testimony, AAA had conducted follow-up interviews, obtained additional records, and attempted to contact the witnesses he had identified.

AAA, the appellate court found, had “immediately attempted to contact the witnesses the Eppersons believed relevant to the investigation once the Eppersons identified them.” It also decided that the Eppersons had “set forth no evidence” that the witnesses they said AAA had delayed in contacting, or had failed to contact, were “significant to the claim investigation or would have altered its course or outcome in any way.”

The appellate court also rejected the Eppersons' argument that the trial court had improperly disregarded the affidavit of their insurance expert, who had opined that AAA had failed to promptly, fairly, and fully investigate the fire loss claim because it had not paid the claim within 30 days. The Epperson's expert, the appellate court noted, had admitted in his affidavit that the standard of care did not require an insurer to pay a fire claim within 30 days after it was reported if there was “a really good reason to suspect arson.” The appellate court ruled that the “undisputed evidence in this case” indicated that AAA “had good reason to suspect arson.”

Accordingly, the appellate court concluded, the trial court had not erred by ruling, as a matter of law, that no material question of fact existed regarding whether AAA's investigation of the fire loss claim had been reasonable.

The case is Epperson v. AAA Fire & Cas. Ins. Co., No. 1 CA-CV 15-0846 (Ariz. Ct.App. Jan. 31, 2017). Attorneys involved include: Joseph W. Watkins PC, Tucson, By Joseph W. Watkins, Counsel for Plaintiffs/Appellants. Hill, Hall & DeCiancio, PLC, Phoenix, By Christopher Robbins, Counsel for Defendant/Appellee.