Bell & 63rd v. Auto-Owners

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

BELL & 63RD INVESTMENTS LLC, et al., Plaintiffs/Appellants/Cross-
Appellees,

v.

AUTO-OWNERS INSURANCE COMPANY, Defendant/Appellee/Cross-
Appellant.

No. 1 CA-CV 17-0180
FILED 8-21-2018

Appeal from the Superior Court in Maricopa County
No. CV2013-053377
The Honorable John R. Hannah, Jr., Judge

AFFIRMED

COUNSEL

Keller Rohrback LLP, Phoenix
By Gary A. Gotto, Alison E. Chase, Ron Kilgard
Counsel for Plaintiffs/Appellants/Cross-Appellees

Graif, Barrett & Matura, PC, Scottsdale
By Jay R. Graif, Kevin C. Barrett, Melissa J. England
Counsel for Defendant/Appellee/Cross-Appellant
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Decision of the Court

MEMORANDUM DECISION

Presiding Judge Randall M. Howe delivered the decision of the Court, in
which Judge Kenton D. Jones and Judge James B. Morse Jr. joined.

H O W E, Judge:

¶1 Bell & 63rd Investments LLC (“Bell”) and George Bien-
Willner (collectively “Appellants”) challenge the entry of summary
judgment on their breach of contract and insurance bad faith claims against
Auto-Owners Insurance Company (“Auto-Owners”) and the sanctions
award under Arizona Rule of Civil Procedure (“Rule”) 68. Both sides also
challenge the trial court’s attorneys’ fees award to Auto-Owners. For the
following reasons, we affirm.

FACTS AND PROCEDURAL HISTORY

¶2 Auto-Owners issued a commercial property and general
liability coverage policy (the “Policy”) for a rental property Bell owned (the
“Property”). Bien-Willner, Bell’s managing member, was the only named
insured on the Policy. Appellants made two claims on the Policy, one in
April 2011 and the other in May 2012.

¶3 The April 2011 claim involved a request for loss of rents and
the theft of a stove, microwave oven, and refrigerator as well as interior
damage to the Property. Two days after receiving the claim, Auto-Owners
inspected the Property and obtained a third-party estimate shortly after.
Although Auto-Owners denied that the Policy covered the stove and
microwave oven, it agreed to pay for those items after Bien-Willner
explained they were built into the cabinets. Auto-Owners declined to cover
the refrigerator, however, because Bien-Willner had not purchased
personal property coverage. Auto-Owners also denied Appellants’ loss of
rents claim because it determined that the Property was not “unfit to live
in.”

¶4 Auto-Owners offered to advance $727, the estimated cost for
the stove and microwave oven minus a $1,000 deductible. Bien-Willner
refused the advance as inadequate. Auto-Owners authorized a $17,018.55
payment in May 2011. Bien-Willner picked up the check but did not sign
the provided proof of loss form.

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¶5 Auto-Owners then retained attorney Kevin Barrett to
represent its interests. Bien-Willner refused to communicate with Barrett
and instead wrote to multiple Auto-Owners executives and board members
in October 2011, contending that Auto-Owners wrongfully refused to pay
his refrigerator and loss of rents claims and wrongfully applied
depreciation to the payment he had accepted. Bien-Willner also contended
that Auto-Owners never reissued the $727 advance he had refused. Auto-
Owners subsequently sent Bien-Willner a second payment of $1,727 and
reaffirmed its denials of coverage for loss of rents and the refrigerator.

¶6 The May 2012 claim involved the theft of an air conditioning
condenser unit. Auto-Owners and Barrett went to inspect the Property that
month. Bien-Willner refused to allow Barrett to enter the Property,
however, and submitted a $9,000 replacement estimate for the unit. Auto-
Owners retained a third party to review the estimate and inspect the
Property alongside Barrett. That inspection did not occur because Bien-
Willner continued to object to Barrett’s presence on the Property. Auto-
Owners denied coverage for the May 2012 claim, citing Bien-Willner’s
refusal to allow an inspection. It also contended that the Property had been
vacant for more than 30 days before the loss occurred.

¶7 Bell sued Auto-Owners in October 2013, alleging breach of
contract and bad faith. Bell later amended its complaint to add Bien-Willner
as a plaintiff. The trial court proceedings were long and contentious; for
example, the parties filed and litigated six motions to compel during
discovery. In separate motions, Auto-Owners moved for summary
judgment against Bell and Bien-Willner. Approximately one month before
trial, Appellants cross-moved for summary judgment, sought sanctions
against Auto-Owners for its alleged failure to produce employee training
documents, and moved to preclude Barrett from serving as Auto-Owners’
trial counsel.

¶8 The trial court granted summary judgment to Auto-Owners
and specifically rejected Appellants’ loss of rents, refrigerator, and air
conditioning unit claims. Appellants moved to reconsider, contending that
the ruling did not foreclose their arguments that Auto-Owners acted in bad
faith by (1) concealing an earlier draft of the estimate on the first claim,
(2) holding back salvage and depreciation on the first claim, (3) forcing
them to communicate with Barrett, and (4) failing to properly communicate
with them. Auto-Owners contended that Appellants had already raised
these issues and the court denied the motion without explanation.

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¶9 Auto-Owners then sought to recover $504,132 in attorneys’
fees. It also requested expert fees and double taxable costs based on two
offers of judgment it made in early 2015. See Ariz. R. Civ. P. 68(g). The court
awarded Auto-Owners $80,000 in attorneys’ fees but criticized its litigation
tactics. The court observed that Auto-Owners had “conducted the
litigation . . . to teach Mr. Bien-Willner a lesson, and to deter others like
him[,]” and that its “‘take no prisoners’ approach” was “the primary cause
for the excessive litigation in this case.” The court also awarded $61,074.22
in expert witness fees and $15,377.79 in taxable costs against Bien-Willner
under Rule 68.

¶10 Appellants timely appealed the judgment, Rule 68 sanctions,
and attorneys’ fees award. Auto-Owners timely cross-appealed,
challenging the attorneys’ fees award amount.

DISCUSSION

¶11 In reviewing the court’s rulings on the parties’ cross-motions
for summary judgment, we review questions of law de novo but review the
facts in a light most favorable to the parties against whom summary
judgment was granted. Nelson v. Phx. Resort Corp., 181 Ariz. 188, 191 (App.
1994). “Summary judgment is appropriate only if no genuine issues of
material fact exist and the moving party is entitled to judgment as a matter
of law.” McCleary v. Tripodi, 243 Ariz. 197, 201 ¶ 21 (App. 2017). Summary
judgment would be inappropriate if the facts, even if undisputed, would
allow reasonable minds to differ. Nelson, 181 Ariz. at 191.

1. Denial of Claims

¶12 Appellants argue that the trial court erred in granting
summary judgment on the denial of their claims. They contend that they
were entitled to loss of rents under Coverage D of the Policy. We construe
this provision and all other Policy provisions according to their plain and
ordinary meaning. See Cal. Cas. Ins. Co. v. Am. Family Mut. Ins. Co., 208 Ariz.
416, 418 ¶ 5 (App. 2004). If a provision is susceptible to different
constructions, we discern its meaning by examining its purpose, the public
policy considerations involved, and the transaction as a whole. Id.

¶13 Coverage D limits Auto-Owners’ liability to losses “resulting
from” a covered loss “for the shortest time needed to make the rented part
fit to live in.” The parties do not dispute that no tenant was living at the
Property when the loss occurred. As such, the Property had no “rented
part,” and Appellants suffered no actual loss of rents. See Auto-Owners Ins.
Co. v. Neisler, 779 S.E.2d 55, 61 (Ga. Ct. App. 2015) (interpreting identical

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policy language to “unambiguously require[] that the property actually
have a tenant at the time of loss” and citing authorities).

¶14 Appellants argue that Neisler is distinguishable because “the
more natural interpretation of ‘rented part’ would be to address a situation
where a part of the property is occupied by the insured and a part is rented
out to others.” They do not explain, however, how a part of the Property
could be “rented out to others” without a current renter or lease. Appellants
also contend that the trial court improperly granted summary judgment on
this issue because Auto-Owners raised it for the first time in its reply brief.
Under Rule 7.1(a)(3), reply memoranda “may address only those matters
raised in the responsive memorandum.” But the brief in question also
served as Auto-Owners’ response to Bien-Willner’s cross-motion for
summary judgment. Bien-Willner could have replied in support of his
motion but did not do so. In any event, the timing of Auto-Owners’
argument does not preclude this Court from interpreting the Policy’s
language. See Liristis v. Am. Family Mut. Ins. Co., 204 Ariz. 140, 143 ¶ 13
(App. 2002) (appellate court interprets insurance policy “independent of
the trial court’s conclusions”).

¶15 Appellants next contend that Auto-Owners should have
covered the loss of the refrigerator because it was a fixture to the Property.
But the Policy coverage Bien-Willner purchased—Coverage A—does not
refer to fixtures; it instead covers “the dwelling located at the described
premises, including structures attached to that dwelling.” Appellants do not
contend that the refrigerator was a “structure.”

¶16 Meanwhile, Coverage C—which Bien-Willner did not
purchase—provides coverage for “personal property owned or used by any
insured when the property is at the described premises[,]” including
“appliances and household furnishings in that part of the described
premises regularly rented or held out for rental to others by an insured.”
Appellants concede that the refrigerator could be both personal property
and a fixture. As such, even assuming the refrigerator was a fixture, it fell
within Coverage C and not the coverage Bien-Willner purchased.

¶17 Appellants also cite Auto-Owners’ decision to cover the stove
and microwave oven as evidence that “appliances” could be covered under
both Coverage A and Coverage C. Auto-Owners clearly stated, however,
that it did not concede that these items fell within Coverage A. Thus,
Appellant’s argument is without merit.

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2. Breach of Contract and Bad Faith

¶18 Appellants next argue that the trial court improperly granted
summary judgment on several aspects of their breach of contract and bad
faith claims; Auto-Owners’ (1) concealment of earlier estimates of the April
2011 claim, (2) failure to pay over $3,700 in salvage and depreciation, and
(3) forcing them to deal with Barrett in the adjustment process and
repeatedly “asserting, through counsel, that all amounts due . . . had been
paid[.]” To establish bad faith, Appellants had to show Auto-Owners acted
unreasonably and either knew its conduct was unreasonable or acted with
such reckless disregard that knowledge of unreasonableness may be
imputed to it. Sobieski v. Am. Standard Ins. Co. of Wis., 240 Ariz. 531, 534 ¶ 11
(App. 2016). Appellants cite their motion for reconsideration as support for
these allegations and also mentioned each of these issues in their earlier
motions as well. As explained below, however, they did not demonstrate
genuine issues of material fact as to any of these issues.

2a. Concealment of Estimate

¶19 Appellants’ contend that Auto-Owners concealed earlier
versions of the estimate of the April 2011 loss. The record does not reveal
any concealment because Auto-Owners told Bien-Willner that it was
revising the initial estimate to exclude non-covered items. Auto-Owners
also presented undisputed expert testimony that it was not obligated to
share all estimate versions with Bien-Willner. As such, Appellants’
argument fails.

2b. Salvage and Depreciation

¶20 Appellants next argue that Auto-Owners inappropriately
held back $3,792.96 in salvage and depreciation amounts on the May 2011
payment. Appellants contend that they specifically requested payment for
salvage and depreciation and invited “Auto-Owners to inspect the Property
to finish the adjustment with respect to these items” and that Auto-Owners
ignored the request. But the Policy obligated Auto-Owners to pay only
“actual cash value” for damaged property, which was defined as “the cost
to replace damaged property with new property of similar quality and
features reduced by the amount of depreciation applicable to the damaged
property immediately prior to the loss.” Appellants have not challenged the
actual depreciation calculation and Bien-Willner testified that he had
disposed of the salvaged flooring material, thereby foreclosing Auto-
Owners’ ability to collect and pay out for the salvaged items.

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¶21 Appellants cite to their motion for reconsideration as
evidence that they invited Auto-Owners to inspect the Property to finish
the adjustment regarding the items at issue and that Auto-Owners ignored
the invitation. But no such invitation existed. The motion merely cited an
email from Bien-Willner to his agent in which he complained that Auto-
Owners had “stopped adjusting the claim [and] . . . attempted to force [him]
to deal with an outside lawyer” and that he had been “shorted
several . . . thousand dollars.” It said nothing about inviting Auto-Owners
to inspect the Property. Appellants’ argument that Auto-Owners ignored
their request to pay salvage or deprecation amounts or to inspect the
Property to finish the adjustment is thus without merit.

2c. Outside Counsel Involvement

¶22 Appellants also contend that Auto-Owners either breached
the contract or acted in bad faith by retaining Barrett before litigation
commenced. Appellants cite no authority to support this contention. They
also fail to show any specific breaches or bad faith acts that Barrett took;
instead, they broadly contend that he “repeatedly . . . assert[ed] . . . that all
amounts due to the insured had been paid[.]” But communicating Auto-
Owners’ coverage positions, even if they were erroneous, is not a breach of
contract or bad faith.1

3. Punitive Damages

¶23 Appellants argue that summary judgment was improper on
their punitive damages claim, citing the “concealment” issue discussed
above and the delay in paying the $727 for the stove and microwave.2 An
award of punitive damages in an insurance bad faith case requires
something more than the conduct necessary to show bad faith. Nardelli v.
Metro. Grp. Prop. & Cas. Ins. Co., 230 Ariz. 592, 604 ¶ 60 (App. 2012). As

1 Auto-Owners contends that Appellants’ claims were time-barred
under the Policy’s one-year limitations period. We need not reach that
issue.

2 Appellants also contend that “Auto-Owners failed to comply with
the Arizona law regarding the fair handling of claims,” repeating many of
the same issues raised within their bad faith claim. They do not, however,
demonstrate how Auto-Owners’ alleged acts violated any laws governing
fair claims handling practices.

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discussed above, Appellants did not establish any genuine issues of
material fact on their bad faith claim and therefore cannot recover punitive
damages.

4. Attorneys’ Fees

¶24 Appellants contend that the trial court erred by awarding
Auto-Owners attorneys’ fees because it did not comply with then-Rule
54(g)(3). Under the Rule as written at the time, fee applications “may be
supported by affidavit, and exhibits or, at the discretion of the court, by
testimony.”3 Ariz. R. Civ. P. 54(g)(3) (2016). Appellants argue that the
declaration of counsel submitted with Auto-Owners’ application was
incompetent because it did not include a statement that it was submitted
under penalty of perjury.

¶25 Auto-Owners submitted an amended declaration after
Appellants raised this issue adding the sentence “[i]f called as a witness, I
could and would testify competently thereto” to the first paragraph and
Rule 80(c) language to the last page. Appellants contend that these changes
meant that Auto-Owners offered “new argument and evidence on reply.”
But Appellants fully addressed the merits of Auto-Owners’ application
before receiving the amended declaration. The court thus did not err in
considering it. See, e.g., Rodriquez v. Williams, 104 Ariz. 280, 283 (1969) (“[W]e
prefer to determine cases on their merits rather than on points of
procedure.”).

5. Rule 68 Sanctions

¶26 Appellants also challenge the $61,074.22 expert witness fee
award under Rule 68(g), which authorizes a sanction of “reasonable expert
witness fees” incurred after the date of a rejected offer of judgment. We
review the imposition of such sanctions for an abuse of discretion. Berry v.
352 E. Va., L.L.C., 228 Ariz. 9, 15 ¶ 31 (App. 2011). Appellants contend that
the sanction was unreasonable because it more than doubled the $29,500
offer of judgment that they served on Auto-Owners. They do not explain
why their offer of judgment, representing the amount they were willing to
accept to resolve their claims at that time, constitutes a benchmark for
expert witness fees Auto-Owners would later incur. Cf. Lohmeier v. Hammer,
214 Ariz. 57, 63 ¶ 20 (App. 2006) (concluding the trial court did not err in
refusing to use the fees charged by an opposing expert witness as a

3 The Rule has since been amended to require that fee applications be
“supported by affidavit” and comply with Rule 7.1. Ariz. R. Civ. P. 54(g)(4).

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benchmark for assessing reasonable expert witness fees for purposes of
Rule 68(g)). They also have not identified any specific expert services they
believe were excessive or unreasonable. Thus, the trial court did not abuse
its discretion in awarding the expert witness fee.

6. Auto-Owners’ Cross-Appeal

¶27 In its cross-appeal, Auto-Owners challenges the court’s
decision to award only $80,000 of its $504,132 attorneys’ fees request. The
amount of a fee award under A.R.S. § 12–341.01(A) is reviewed for an abuse
of discretion. Ramsey Air Meds, L.L.C. v. Cutter Aviation, Inc., 198 Ariz. 10, 13
¶ 12 (App. 2000). We review the record in the light most favorable to
upholding the award. In re Indenture of Tr. Dated Jan. 13, 1964, 235 Ariz. 40,
51 ¶ 41 (App. 2014).

¶28 Auto-Owners contends that the trial court improperly
considered Appellants’ offer of judgment and the amount Appellants’
counsel allegedly incurred in prosecuting the case when it determined a
reasonable fee award. The record does not support that assertion.

¶29 The court evaluated Auto-Owners’ fees claim using three
methods: (1) “what Auto-Owners actually had to do to prevail in their
defense”; (2) what fees Auto-Owners incurred before Appellants made
their $29,500 offer of judgment; and (3) the billing rates and hours claimed,
as required by Schweiger v. China Doll Rest., Inc., 138 Ariz. 183 (App. 1983).
It reached essentially the same conclusion under all three methods, not all
of which considered the offer of judgment or Appellants’ alleged fees. The
court also gave significant weight to “the detailed assessment by
[Appellants’] counsel of the time entries, which identified many instances
of excessive billing, duplicative and inefficient staffing, billing for litigation
of discovery and scheduling issues that should have been resolved by the
parties, and inconsistent or unclear task descriptions.” It had ample
discretion to do so. See Charles I. Friedman, P.C. v. Microsoft Corp., 213 Ariz.
344, 350 ¶ 17 (App. 2006) (“To find an abuse of discretion, there must either
be no evidence to support the superior court’s conclusion or the reasons
given by the court must be clearly untenable, legally incorrect, or amount
to a denial of justice.”). We therefore affirm the fees award. See Rudinsky v.
Harris, 231 Ariz. 95, 101 ¶ 27 (App. 2012) (“We will not disturb the trial
court’s discretionary award of fees if there is any reasonable basis for it.”).

7. Attorneys’ Fees on Appeal

¶30 Both sides request their attorneys’ fees incurred on appeal
under A.R.S. § 12–341.01(A), which permits a discretionary award to the

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successful party in an action arising out of a contract. In our discretion, we
decline to award fees to either side. Auto-Owners is the successful party on
balance and may recover its taxable costs upon compliance with Arizona
Rule of Civil Appellate Procedure 21.

CONCLUSION

¶31 For the foregoing reasons, we affirm.

AMY M. WOOD • Clerk of the Court
FILED: AA

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