Recent Arizona Appellate Court Opinion Reduces Ratio Of Bad Faith Punitive Damages Award To A 1:1 Ratio To Compensatory Damages

In its recent decision, the Arizona Appellate Court, Division One, affirmed a bad faith verdict in the amount of $155,000 and held that the $55 million punitive damages award against the insurer was "unconstitutionally excessive." Although the $55 million award was subsequently reduced by the trial court to $620,000, a ratio of 4:1, the Court of Appeals held that the record did not justify an award at a ratio greater than 1:1. Nardelli v. Metropolitan Group Property and Casualty Ins. Co., 277 P.3d 789, 809 (Ariz. Ct. App. 2012). The court reasoned that the reprehensibility of Metropolitan Group Property and Casualty Ins. Co.'s (MetLife) misconduct was low to, at most, moderate and did not warrant a multimillion dollar punitive damages award.

Nardelli arose out of an auto theft claim submitted by the insureds, Kenneth and Tammy Nardelli (the Nardellis), when their 2002 Ford Explorer was stolen less than one year after purchasing it new from the dealership. Approximately two weeks later, the vehicle was found abandoned in Mexico with significant damage, including slit seats, cut wires and a torn interior. The vehicle identification number had also been removed. The vehicle was towed to an Arizona border town where an independent appraiser retained by MetLife appraised it. The appraiser estimated the cost to repair it to be $815; however, the tow yard informed the Nardellis that the appraiser failed to look under the hood. The Nardellis had the vehicle towed to the original dealership's body shop, where it was re-inspected by the MetLife field appraiser, Jerry Proctor (Proctor).

Proctor initially estimated the damage to be $7,000 to $8,000. After the dealership and the Nardellis discovered additional damage, Proctor ultimately supplemented his estimate to $11,009, informing the Nardellis that he would not "total" the vehicle. The Nardellis disagreed with Proctor's opinion because they continued to discover additional damage. They also did not believe Proctor's estimate would restore the vehicle to its pre-loss condition, as the policy required. Despite the Nardellis' disagreement with the estimate and numerous discussions with managers within MetLife's claims department, MetLife issued a check for $10,759.13 (estimate less the deductible) to the Nardellis and their lender. The Nardellis tendered the check and the vehicle to their lender.

The Nardellis brought an action for breach of the implied covenant of good faith and fair dealing against...