This case holds that a claim for breach of an insurance contract sounds in contract for purposes of a fee award.

Assyia, hurt in a car accident, made an underinsured-motorist claim against her carrier, State Farm. She wanted her limits, $50,000. State Farm thought the claim worth only $2,000 and paid that, whereupon Assyia sued. During discovery it turned out that some big, contested charges were related to the accident after all. So State Farm paid the remaining $48,000. The court then found Assyia the prevailing party in a contested action arising out of contract and awarded $19,000 in costs ($400 an hour, in case you’re curious) under 12-341.01. State Farm appealed the award.

It argued primarily that the claim sounded in tort, not contract. The purpose of UIM coverage is to put the insurer in the tortfeasor’s place, so claiming the coverage is functionally the same as suing the tortfeasor, right? But the contract, not the accident, was the cause of State Farm’s liability; it otherwise had no duty to Assyia.

State Farm argued that the action wasn’t “contested” after the facts about the contested charges came out. But its Answer had denied liability and it also contested the fee award.

The company pointed out that the policy states that “Regardless of the amount of any award  . . . we are not obligated to pay any amount in excess of the available limits under this coverage . . .” But 12-341.01 is also part of the contract as a matter of law.

State Farm also disagreed with some details about the size of the fees and made one or two other, minor arguments that aren’t really worth your time.

Its not as if State Farm doesn’t have an argument here. But as carriers have abandoned the requirement to arbitrate UIM claims (they originally thought that arbitration would save them money; at the moment they mostly don’t; eventually they’ll change their minds and policies back again; that’s the way these things work) careful defense counsel have for some time been pointing out to them their probable exposure under 12-341.01. In any event, State Farm has never been shy about litigating questionable causes; its various counsel over the years may have lost more appeals than any other single set of civil lawyers in Arizona.

(link to opinion)