Since most insurance companies conduct business in multiple states, they tend to keep track of the general legal do’s and don’ts of claims handling. However, there are a few unique aspects of Arizona insurance law that companies and adjustors should keep in mind if doing business in the Grand Canyon State.
1. Duty to Defend and Investigate
As in other states, Arizona law imposes a duty to defend if the complaint alleges claims within the scope of the policy’s liability coverage. However, in reviewing the complaint, the carrier is required to look beyond the specific legal theories asserted and also analyze whether the facts alleged could support a claim which, although not specifically identified, is covered under the policy.
Further, under Arizona case law, the insurer must also consider other facts known at the time (either as provided by the insured or discovered during the insurer’s investigation), even if they are not included in the complaint. Relatedly, Arizona’s version of the implied covenant of good faith and fair dealing imposes an obligation on both first-party and third-party carriers to conduct a reasonable and adequate investigation before denying coverage.
2. Reservation of Rights Procedures
An insurance company wishing to defend under a reservation of rights must promptly and clearly communicate the reservation to the insured. However, not every delay in asserting a reservation of rights constitutes a waiver of the insurer’s policy defenses. Rather, under Arizona law, the insurer waives its defenses only if its delay is unreasonable and causes prejudice to the insured. Similarly, if a carrier initially fails to issue a reservation of rights and later determines there is no coverage for the claim, it may withdraw its defense so long as the withdrawal does not prejudice the insured.
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Posted with permission. Originally published on claimsjournal.com.