Altschuler v. Chubb National Insurance Company

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 Douglas Altschuler, et al., No. CV-21-00119-TUC-DCB 10 Plaintiffs, ORDER 11 v. 12 Defendant National Insurance Company, 13 Defendant. [14] 15 The Court denies the Plaintiff’s Motion for Partial Summary Judgment, denies in 16 part and grants in part the Defendant’s Motion for Summary Judgment, and dismisses the 17 bad faith and punitive damage claims. 18 Summary Judgment: Standard of Review 19 Summary Judgment is appropriate only where there is no genuine issue as to any 20 material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. 21 P.56(c). It is not for the judge to determine the truth of a matter asserted, weigh the 22 evidence, or determine credibility, but only to determine whether there is a genuine issue 23 for trial. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). The movant carries the 24 burden of showing that there is no genuine issue of material fact, Celotex Corp. v. Catrett, [25] 477 U.S. 317, 323 (1986); all reasonable doubt as to the existence of a genuine issue of fact 26 should be resolved against the moving party, Hector v. Wiens, 533 F.2d 429, 432 (9th Cir. 27 1976). Where different inferences can be drawn, summary judgment is inappropriate. 28 Sankovich v. Life Ins. Co. of North Am., 638 F.2d 136, 140 (9th Cir. 1981). 1 Plaintiff seeks summary judgment in part for Defendant’s refusal to cover the theft 2 of artwork, an Andy Warhol and Keith Haring “Andy Mouse” silkscreen print. Defendant 3 asks the Court to find that Plaintiff’s insurance claims fail because he cannot establish an 4 entitlement to coverage under the Masterpiece (Chubb) Policy, effective date August 2, 5 2019, (the Policy) for the allegedly stolen artwork or alleged loss of a Rolex watch, and 6 even if he establishes coverage for the artwork and watch, he made fraudulent 7 misrepresentations and concealments warranting denial of the claims. The dispositive 8 motions hinge on whether Plaintiff owned the Andy Mouse artwork covered by the Policy 9 and whether the loss of the Rolex watch occurred within the coverage period of the Policy. 10 Plaintiff alleges he is an avid art collector, with an extensive art collection, and he 11 also acquired a watch collection. Plaintiff alleges that both covered items, the Andy Mouse 12 artwork, which is a set of four silkscreens, and the Rolex watch, were stored at his mother’s 13 home in Tucson, Arizona. The Andy Mouse artwork was allegedly discovered stolen in 14 December of 2019. The Rolex watch was discovered missing in February 2020. Defendant 15 denied coverage for both claims. 16 1. The Andy Mouse artwork 17 According to the Plaintiff in 1987, he purchased for $5,000 a set of four silkscreen 18 prints entitled “Andy Mouse” from the B1 Gallery in Santa Monica, with his then 19 girlfriend, Lisa McCollum. He has no receipt, but McCollum attests to this purchase, and 20 the B1 Gallery owner remembers it. A couple years later, Plaintiff asserts that for $10,000 21 he bought the same Andy Mouse artwork as an “artists proofs” (AP) screen print from the 22 artist, Keith Haring. There is no independent proof of this purchase. In 2002, he traded 23 one set to the James Corcoran Gallery for another piece of art. He kept both at his mother’s 24 home and insured them there. 25 In 2008, he insured the Andy Mouse artwork for the first time with AIG for 26 $250,000, with a property schedule declaration of “Andy Warhol ‘Andy Mouse’ 4 PCS.” 27 (P MPSJ, SOF, Ex. 20: Declarations (Doc. 171-2) at 414, 415.) To support this coverage, 28 the Plaintiff obtained a sight unseen 2008 valuation based on an Artnet review of recent 1 sales of various prior sales of numbered editions, including different pieces of the 2 numbered edition (NE) 3 of 30 (3/30) Andy Mouse print. Id., Ex. 21: Appraisal (Doc. 1713 2) at 425, 427, 430.) In 2014, Defendant issued coverage based on an appraisal performed 4 sight unseen for the artwork declared in the policy property schedule as “ARTS $250,000 5 ANDY WARHOL AND KEITH HARING ANDY MOUSE, 1986 COLOR 6 SILKSCREENS EDITION OF 30 38x38 INCHES.” (D MSJ, SOF, Ex. 5 (Doc. 169-1) at 7 64.) This property schedule description reflected the appraisal description of the property. 8 Id. at 70. In 2018, Plaintiff submitted an updated appraisal for the Andy Mouse artwork, 9 which identified the work being appraised as NE “3 of 30 (3/30),” and Defendant issued 10 coverage for $ 1.5 million, declared in the property schedule as “Andy Mouse, 1986 Color 11 Silkscreens Edition of 30 38x38 inches.” (D MSJ, SOF, Ex. 12: the Policy (Doc. 169-2) at 12 15.) Like all the previous appraisals, the 2018 appraisal was given without seeing the 13 artwork. Plaintiff attests that in 2018 he told the appraiser that he thought it could be the 14 3/30 NE Andy Mouse but was not certain about this. On January 17, 2020, the Plaintiff 15 filed a Property Loss Notice for theft of “Andy Mouse 1986.” (D MSJ, SOF, Ex. 17: Notice 16 (Doc. 169-2) at 52, 55.) He submitted a sworn Proof of Loss on May 28, 2020, indicating 17 the loss of “Andy Warhol and Keith Haring Andy Mouse, 1986 Color Silkscreens Edition 18 of 30 38 x 38 inches.” Id. at Ex. 16 (Doc. 169-2) at 32.) 19 Defendant denied the claim because Plaintiff could not show he owned the Andy 20 Mouse artwork NE 3 of 30. During the claim investigation it became apparent that this 21 print could not have been owned by the Plaintiff because “three of the four pieces” from 22 the NE 3/30 Andy Mouse artwork were actually auctioned piecemeal by various galleries 23 between 1996 and 2014. (D MSJ (Doc. 173) at 9.) In short, the 3/30 Andy Mouse artwork 24 (set of four silkscreens) had been broken up long before Plaintiff ever secured insurance 25 for this artwork or any time thereafter when he changed insurers from AIG to Defendant 26 in 2014 and increased coverage in 2018. As noted above, this fact was reported in the 2008 27 appraisal. [28] 1 On October 6, 2020, Defendant conducted an Examination Under Oath (EUO) of 2 the Plaintiff, who attested that the stolen Andy Mouse screen print was the artwork acquired 3 from the B1 Gallery, which only sold NE prints, and he believed that the artwork traded to 4 the James Corcoran Gallery was the AP Andy Mouse screen print. 5 On December 15, 2020, Defendant denied the claim based on fraud by 6 misrepresentation because Plaintiff could not have owned Andy Mouse NE 3/30. 7 Defendant relied then, as it does now, on the fact that the 2018 appraisal identified the 8 property as “NE set 3 of 30” instead of the property schedule which in 2018 more broadly 9 described Andy Mouse “Edition of 30.” 10 Plaintiff argues the claim should have been paid based on proof of ownership of the 11 Andy Mouse “Screen Print” regardless of the edition number because he obtained the 12 appraisal in 2018 to increase coverage from $250,000 to $1.5 million after describing the 13 artwork as an Andy Mouse “Screen Print” and telling the appraiser “that he was uncertain 14 about whether it was an AP or a numbered edition, . . . [and] “guessed at “3/30.” (P Resp. 15 (Doc. 193) at 7.) Plaintiff ignores that evidence he told the Defendant he did not know what 16 screen print he owned creates a material issue of fact precluding summary judgment 17 because an insurer may challenge claims which are fairly debatable. Trus Joist Corp. v. 18 Safeco Ins. Co. of Am., 735 P.2d 125, 134 (Ariz. App. 1986), and its belief in fair 19 debatability ‘is a question of fact to be determined by the jury,’” Zilisch v. State Farm Mut. 20 Auto. Ins. Co., 995 P.2d 276, 279 (2000) (quoting Sparks v. Republic Nat'l Life Ins. Co., [21] 647 P.2d 1127, 1137 (Ariz. 1982)). 22 During discovery in this case, it became evident that an email was sent from the 23 James Corcoran Gallery to the Plaintiff on October 4, 2021, telling him that its records 24 reflected that in 2002, he traded $7,500 plus Haring/Warhol/Andy Mouse, Edition #5/30 25 to JCG for Ruscha/A large Dog from JCG.” (D MSJ, DOF, Ex. 6: Email (Doc. 169-1) at 26 73-74.) In his responses to non-uniform Interrogatories on April 25, 2022, Plaintiff 27 corrected the record to reflect its status today: he purchased NE 5 of 30 Andy Mouse from 28 the B1 Gallery and traded it to the James Corcoran Gallery in 2002. Accordingly, he would 1 have been left owning only the AP Andy Mouse artwork that he allegedly bought from 2 Keith Haring in 1989. Plaintiff argues it does not matter whether the artwork was the AP 3 print or a NE of 30 print, or a specific NE like 3/30 or 5/30. Plaintiff submits expert 4 testimony that valuation is not affected by an item’s numerical placement within an edition 5 group or if it is a NE or AP screen print. (P Resp. (Doc. 193) at 6 (relying on Defendant’s 6 investigator, John Chvostal opinion of value). 7 Defendant asserts that it is now clearer than ever that Plaintiff cannot prove he 8 owned the property covered by the Policy, either the NE 3/30 or NE of 30 Andy Mouse 9 screen print. Defendant argues that the Plaintiff cannot even establish ownership of the AP 10 screen print. Plaintiff has no evidence, except for his say so, that he ever purchased the AP 11 Andy Mouse artwork. His story that he bought it directly from Keith Haring in Phoenix, 12 Arizona, sometime around 1989 was not been confirmed by the Haring Foundation; it has 13 no record of any such sale. Keith Haring died in 1990. 14 Defendant explains that printmaking is an artistic method in which an image is 15 transferred from a template (commonly wood, metal, or glass) onto another surface such 16 as paper, fabric, or in this case to a silkscreen though application of controlled pressure to 17 create a mirror image of the template design. In 1986, the artist Keith Haring produced a 18 set of four silkscreen prints depicting his close friend, Andy Warhol, as a cartoon mouse, 19 collectively known as “Andy Mouse.” Haring printed thirty (30) Numbered Edition (NE) 20 sets for public sale, each set being identified by a unique number found on the bottom right 21 corner indicating the edition number to which the print belongs, such as 3/30 or 5/30. (D 22 MSJ (Doc. 173) at 4.) 23 In addition to the NE of 30 Andy Mouse silkscreen prints, there were 10 AP Andy 24 Mouse sets issued, which are not necessarily intended for commercial sale. AP prints refer 25 to impressions of a print taken throughout the printmaking process which enable the artist 26 to observe the current state of template and print image while they are working on it. There 27 were also five Printers Proof (PP) sets, and five Hors d’Commerce (HC) sets. Like the NE 28 prints, these other prints are also identified by unique custom numbering found on the 1 bottom of each piece indicating its precise edition number followed by “AP,” “PP,” or 2 “HC,” such as 3/30 AP or 5/30 AP. 3 Defendant notes without objection, the Plaintiff’s art appraisal expert, R. Rivlin’s 4 opinion that AP screen prints, generally, have a higher value than the larger NE sets due to 5 their rarity, limited quantity, and unique provenance. But according to the Defendant, 6 “[t]he most important thing to remember for purposes of navigating Plaintiff’s labyrinth 7 insurance claim is that Artist Proofs are separate and distinct from Numbered Editioned 8 Sets.” (MSJ (Doc. 173) at 4, SOF ¶9 (citing Ex. 4: Rivlin Report; Ex. 22: Vazquez Depo. 9 28-29, and Ex. 36 Berman Trans. 68-69). 10 The parties’ crossmotions for summary judgment are not so much disputed facts 11 and more differing arguments as to what the facts show. For example, the record arguably 12 reflects, and Plaintiff argues, that from the inception of the claimed loss, the Plaintiff told 13 the Defendant that he was not sure whether the Andy Mouse artwork was the print he 14 purchased from the B1 Gallery in 1986 and didn’t know for certain its specific edition 15 number, or it may have been the AP Andy Mouse screen print he bought from Keith 16 Haring in 1989. It is not true as Defendant asserts that Plaintiff is now representing in his 17 Motion for Partial Summary Judgment that that he insured and seeks coverage for the 18 Andy Mouse artwork purchased from the B1 Gallery—a set he admittedly traded away 19 seventeen years prior to the alleged loss.) DSOF 41.” (D Resp. (Doc. 192) at 8 and n. 8 20 (citing P MPSJ (Doc. 170) at 3-4)); D Reply (Doc. 203) at 6 and n.1 (citing P Resp. (Doc. 21 193) at 5-6)) (emphasis in original). The Plaintiff’s position asserted in his dispositive 22 motion is that he “does not recall if either of the Screen Prints he purchased were an 23 ‘edition of 30’ (one of 30 sets) or an AP (the AP sets were kept by the artist for his 24 personal use or sale).” (P MSPJ (Doc. 170) (citations to the record reflecting this position 25 from the inception of the claim); (P Resp. (Doc. 193) at 5-6 (same). 26 The Plaintiff argues this record shows that he was forthcoming in informing 27 Defendant regarding the confusion to rebut Defendant’s assertions of misrepresentation 28 and concealment. Defendant makes a credible argument that the Plaintiff’s flip-flopping 1 misrepresentations reflect fraudulent attempts to fit his claim to the evidence as it 2 unfolded during the claim investigation and discovery in this case. 3 Both parties are making arguments that should be presented to a jury, not to a 4 court on summary judgment. This Court cannot assess credibility or weigh the evidence, 5 and must construe all facts and inferences in favor of the nonmoving party. When both 6 parties file dispositive motions, the Court considers each motion on its own merits to 7 determine for each party whether judgment may be entered in accordance with Rule 56. 8 Fair Housing Council of Riverside County, Inc. v. Riverside Two, 249 F.3d 1132 , 1136 9 (9th Cir.2001). 10 To resolve the parties’ dispositive motions, the Court must also consider whether 11 coverage exists for any Andy Mouse “Screen Print,” and it doesn’t matter whether it was 12 a NE of 30 print, doesn’t matter what number it was in the NE, 3/30 or 5/30, or if it was 13 an AP screen print. 14 First, the Court must consider the Plaintiff’s assertion that the Defendant should be 15 precluded from challenging coverage based on any argument other than fraudulent 16 misrepresentation or concealment. The Denial Letter issued December 15, 2021, stated 17 Defendant denied the silkscreen claim on the following grounds: Plaintiff had 18 “intentionally concealed or misrepresented material facts with respect to the claim in that, 19 without limitation, [he] represented that [he] owned and had possession of the insured 20 silkscreens at the time of the alleged loss; . . . [he] misrepresented that [he] owned and had 21 possession of the insured silkscreens at the time the policy was issued/renewed.” (D MSJ, 22 SOF, Ex. 26: Denial Letter (Doc. 169-4) at 5.) The Denial Letter referenced the Policy, 23 General Conditions, Exclusions: Concealment or Fraud: “We do not provide coverage if 24 you or any covered person has intentionally concealed or misrepresented any material fact 25 relating to this policy before or after a loss.” Id. at 4; (P MPSJ, SOF, Ex. 14: 2019 Policy, 26 General Conditions, Exclusions: Concealment or Fraud (Doc. 171-2) at 111). Plaintiff 27 argues that Defendant is limited now to proving fraud, an affirmative defense, American 28 Pepper Supply, 93 P.3d at 511, under the referenced condition of exclusion. 1 To the extent the Plaintiff is asking the Court to find the Defendant waived and 2 should be estopped from challenging Plaintiff’s proof of coverage as compared to asserting 3 an affirmative defense of fraud, the Court denies him relief. First, while the Denial Letter 4 referenced the fraud exclusion for intentional concealment or misrepresentation of material 5 facts, it also included a blanket reservation of rights, as follows: “This disclaimer is without 6 prejudice to, or waiver of, any other defenses to coverage which may exist, including, 7 without limitation, any defenses based upon facts and grounds known or not known, stated 8 or not stated herein. . . . [and] including all rights under applicable law.” (D. Resp. (Doc. 9 192) at 24); P MPSJ, SOF, Ex. 1: Denial Letter (Doc. 171-1) at 7.) Defendant did not 10 voluntarily relinquishe its right to adopt alternative grounds for denying Plaintiff’s claim. 11 There is no basis for estoppel, which arises “where one with knowledge of the 12 facts has acted in a particular manner so that he ought not to be allowed to assert a 13 position inconsistent with his former acts to the prejudice of others who have relied 14 thereon.” See (P MPSJ (Doc. 170) at 16-17 (quoting City of Tucson v. Koerber, 82 Ariz. 15 347, 356 , 313 P.2d 411, 418 (1957)). Defendant’s assertion of fraud has always been that 16 the Plaintiff did not own the Andy Mouse artwork covered by the Policy, specifically the 17 NE 3 /30 Andy Mouse silkscreen. This remains Defendant’s theory of the case. In light of 18 the new evidence, however, the distinction between 3/30, 5/30 or NE of 30 is no longer 19 dispositive because evidence discovered after the claim denial shows that he could only 20 have owned the AP Andy Mouse artwork. 21 It is not an alternative ground for denial to add new evidence discovered since the 22 Denial Letter to support the assertion of fraud, such as the email sent from the James 23 Corcoran Gallery on October 4, 2021, informing the Plaintiff that he had traded the Andy 24 Mouse NE 5/30 away in 2002, leading to the only logical conclusion that he could only 25 have owned the AP Andy Mouse artwork. In combination with the record evidence the 26 Plaintiff argues shows he disclosed to Defendant he did not know which screen print he 27 owned, there is a material question of fact precluding partial summary judgement for [28] 1 Plaintiff unless he can show that the covered property under the Policy was the Andy 2 Mouse AP Screen Print, and he owned it. 3 The Defendant argues that under Arizona law the Plaintiff cannot show he owned 4 the Andy Mouse artwork covered by the Policy, and if he can—it can show the Plaintiff 5 concealed and misrepresented his ownership or lack thereof for the covered property. First, 6 Defendant challenges the Plaintiff’s ability to make a prima facie breach of contract case 7 because he cannot establish that he owns the covered property. Associated Aviation 8 Underwriters v. Wood, 98 P.3d 572, 595 (Ariz. App. 2004). Only then does the burden 9 shift to the insurer to establish any condition or exception to coverage, American Pepper 10 Supply Co. v. Federal Ins. Co., 93 P.3d 507, 509, 511 (Ariz. 2004) (en banc). An insurer 11 may deny a claim based on an insured’s misrepresentation or concealment of facts 12 surrounding a claimed loss, Ariz. Prop. & Cas Ins Guar. Fund v. Helme, 735 P.2d 451 , 13 458-459 (1987), and meets this burden by showing the insured has materially 14 misrepresented or concealed information of evidence that would permit a fair resolution of 15 the claim. American Pepper Supply, 93 P.3d at 511 . See also CenTrust Mortg. Corp. v. 16 PMI Mortg Ins, 800 P.3d 37 (42 (App. 1990). The standard of review for both Plaintiff and 17 Defendant is by a preponderance of the evidence. Id., A.R.S. § 13-413. 18 While the law differs for the Plaintiff’s prima facie case of insurance coverage 19 compared to Defendant’s showing of materiality for the affirmative defense of concealment 20 or misrepresentation to void coverage, both require the parties to address whether the 21 Plaintiff owned the covered property. Plaintiff submits he owned the property covered 22 under the Policy: the Andy Mouse “Screen Print.” Defendant asserts he did not own the 23 covered property: the Andy Mouse NE 3/30, and he cannot even establish he owned a NE 24 of 30 or AP Andy Mouse screen print. To be clear, the affirmative defense, only comes 25 into play if Plaintiff can make a prima facie case of coverage. 26 2. The Rolex watch 27 In 2008, Plaintiff purchased a collection of high-end watches, including the Rolex 28 watch which cost $50,000. Subsequently, he and his parents agreed he would leave the 1 watch with them in Tucson for safekeeping. He did not see the watch again until his mother 2 brought it to him to wear at his wedding in Los Angeles on May 22, 2010. (D MSJ, SOF, 3 Ex. 11: Altschuler EUO (Doc. 169-2) at 158), but see id., Ex. 32: Altschuler Recorded 4 Statement (RS) (Doc. 169-4) at 43 (reflecting wedding in 2012)). Afterwards, she took the 5 watch back to Tucson, where he “assumed” she continued to keep it either in a lockbox or 6 safety deposit box. Id. After his mother’s death, attorneys informed him that the watch 7 could not be located during the settlement of her estate. (D MSJ, SOF, Ex. 11: Altschuler 8 EUO (Doc. 169-2) at 161.) He reported the watch missing in February 2020. Id. 9 The coverage period for the watch ran from August 1, 2019, through August 1, 2020. 10 Defendant argues that the Plaintiff cannot establish when the loss occurred, let alone that 11 it occurred during the coverage period. Defendant challenges the Plaintiff’s ability to make 12 a prima facie case of a covered loss under the Policy. (D MSJ (Doc. 173) at 24.) And, if 13 the Court denies summary judgment, then Defendant makes the affirmative defense of 14 fraud based on the claim investigation discovery that after filing the claim in February 15 2020, the Plaintiff acted like he still owned the Rolex watch by trying to return it for a 16 refund and then selling it. 17 DISCUSSION 18 Interpretation of an insurance contract is a question of law to be determined by this 19 Court. Keggi v. Northbrook Prop. & Cas. Ins. Co., 13 P.3d 785, 788 (Ariz. App. 2000); 20 Sparks, 647 P.2d at 1132 . The Court construes the provisions of an insurance contract 21 according to the plain and ordinary meaning of its terms and conditions and construes any 22 ambiguity against the insurer. Id. This rule of construction, however, only applies to 23 provisions that are “‘actually ambiguous.’” Id. (quoting Thomas v. Liberty Mut. Ins. Co., [24] 842 P.2d 1335, 1338 (Ariz. App. 1992). If a clause may be susceptible to different 25 constructions, it is ambiguous. Id. Then, to discern the intent of the parties, the Court looks 26 for meaning by examining the purpose of the contract provision in question, the public 27 policy considerations involved, and the transaction as a whole. Id. (citing Ohio Cas. Ins. 28 Co. v. Henderson, 939 P.2d 1337, 1339 (Ariz. 1997)). 1 “When recovery is sought under an insurance contract, the insured has the burden 2 of proving that his loss was due to an insured risk.” Pac. Indem. Co. v. Kohlhase, 455 P.2d 3 277 , 279–80 (Ariz. 1969) (citations omitted). To establish a prima facie case, Plaintiff must 4 prove the insurance policy, the happening of the insured event, and the giving of notice as 5 provided in the policy. Id. This is why Plaintiff’s objection that Defendant may not now 6 add an alternative defense to coverage fails to the extent the Defendant is urging nothing 7 more than what the law requires of the Plaintiff. He must show a loss covered by the Policy, 8 then the burden will shift to Defendant, the insurer, to show the loss was within a policy 9 exclusion, here, fraudulent misrepresentation or concealment of ownership. Id. 10 “Where the evidence is conflicting, the question of whether the loss is within the 11 risks of the policy or excepted therefrom is ordinarily for the trier of fact.” Id. If, however, 12 it is undisputed that no coverage exists because it was a risk not covered by the policy, 13 “then the court has a duty to direct a verdict for the insurer.” Id. Defendant argues that the 14 Policy only covered the risk from theft of the Andy Mouse NE 3/30 and loss of the Rolex 15 watch during the coverage period. In other words, Plaintiff’s prima facie case fails for both 16 claims. Additionally, Defendant supports its denial of coverage of both claims based on 17 the Policy fraud exclusion: “We do not provide coverage if you or any covered person has 18 intentionally concealed or misrepresented any material fact relating to this policy before or 19 after a loss.” 20 1. Whether Plaintiff owned the covered Andy Mouse artwork? 21 To consider the risk assumed by the Defendant under the express terms of the 22 Policy, the Court examines the policy language in a way to give meaning to the parties’ 23 intent, State Farm Mut. Auto. Ins. Co. v. O’Brien, 535 P.2d 46, 48 (1975), and where there 24 is no ambiguity, the Court construes the provisions in the policy “according to their plain 25 and ordinary meaning,” Keggi v. Northbrook Prop. & Cas. Ins. Co., 13 P.3d 785, 788 (Ct. 26 App. 2000 ). “It is not the prerogative of the court to rewrite an insurance policy in an 27 attempt to avoid possible harsh results.” O’Brien, 24 Ariz. App. at 20 , 535 P.2d at 48 . 28 Under the law, the “[a]ttached schedules are as much a part of the policy as the insuring 1 clauses and the definitions. Harbor Ins. Co. v. United Services Auto. Ass'n, 559 P.2d 178 , 2 181 (Ariz. App. 1976). 3 In Arizona, coverage risk is limited to the property scheduled for coverage in the 4 policy. Harbor Ins. Co. v. United Services Auto. Ass'n, 559 P.2d 178, 181 (Ariz. App. 5 1976); Home Indem. Co. v. Wilson, 489 P.2d 244, 247 (1971). In Harbor Insurance, a 6 tractor was not covered under an insurance policy because “it [wa]s not one of the vehicles 7 listed on the schedule.” Harbor Ins. Co., 559 P.2d at 181 . Finding the intention of the 8 parties controls, the court looked to the expression of intended coverage in the scheduled 9 property in the policy. The court held the “insurer should be required to pay damages only 10 on property intended to be insured and to answer only for risks intended to be 11 assumed….The scheduling of automobiles is not merely for the convenience of assessing 12 premiums but is itself a declaration of the limitations of the hazards assumed. Id. (internal 13 citations omitted). See also Home Indem. Co. v. Wilson, 489 P.2d 244, 247 (Ariz. 1971) 14 (holding an unscheduled 1956 Pontiac was not covered; “To hold otherwise would be a 15 perversion of the plain and ordinary meaning of the language used in the insurance 16 contract.”) 17 Defendant applies these cases dealing with automobiles, which hold that the 18 description of the property to be insured identifies the subject matter of the insurance 19 contract. Defendant argues that “the Policy’s Itemized Articles section identifies the 20 Silkscreens as coming from a Numbered Editioned Set of 30.” (D Resp. P MSJ (Doc. 192) 21 at 18), see (D Resp. SOF, Ex. 12: the Policy (Doc. 184-2) at 29). To support the denial 22 based on Plaintiff’s failure to show he owned Andy Mouse NE 3/30, the Defendant relies 23 on the attendant 2018 appraisal description and submits that the “Confirmation of 24 Insurance” issued to the Plaintiff in 2018 likewise reflected the increase in coverage was 25 for Andy Mouse “Silkscreen Edition of 3/30.” Id., Ex. 12: the Policy (Doc. 184-2) at 22. 26 The Court finds the plain meaning of the property schedule reflects a difference 27 between “NE of 30” in the 2019 Policy when compared to the prior property schedule in 28 the AIG 2008 policy, which was “Andy Warhol ‘Andy Mouse’ 4 PCS. (P MPSJ, SOF, Ex. 1 20: 2008 AIG policy (Doc. 171-2) at 414.) The purpose of a property schedule is to limit 2 the insurer’s risk to only the property intended to be insured, i.e., the property owned by 3 the insured for which the coverage was intended, not any other property. The claim 4 investigation in this case is a good example of this limitation to risk. The Chvostal 5 Provenance Opinion reflects that for the Andy Mouse NE of 30 prints, 19 were owned by 6 persons other than the Plaintiff, leaving only 11 NE of 30 prints as potentially covered 7 artwork under the Policy. (D MSJ, SOF, Ex. 2: Chvostal Art Advisory, Provenance 8 Opinions- Four Screen Prints Andy Mouse Series, 1986 (Doc. 169-1) at 29-30.) If the 9 property schedule specified Andy Mouse NE 3/30, the plain terms of the Policy limited 10 Defendant’s risk further to one potentially covered item. 11 Plaintiff maintains he did not, and does not, know what screen print he owned, and 12 argues it doesn’t matter.1 The Court must look to the intent of the parties as expressed under 13 the plain terms of the policy, Itemized Articles, specifically the expressly designated 14 scheduled property: “. . . Andy Mouse, 1986 Color Silkscreens Edition of 30 38x38 15 inches.” (D MSJ, SOF, Ex. 12: the Policy (Doc. 169-2) at 15.) Here, the Plaintiff argues 16 that NE of 30 has no meaningful distinction because whether the Andy Mouse was a NE 17 of 30 or AP screen print did not affect the value of the artwork. If anything, AP screen 18 prints, generally, have a higher value because they are more limited in number than a NE 19 print. The Plaintiff has posited evidence to show that the distinction did not increase the 20 risk for the coverage amount of the loss as between the two. Establishing there is no fraud 21 based on valuation does not, however, show two uniquely different items of property are 22 the same item intended by the parties to be covered by the Policy. While the valuation 23 evidence is enough to rebut Defendant’s assertions of materiality needed to establish the 24 affirmative defense of fraud, it is not enough to create a material question of fact as to the 25 parties’ intent regarding risk when they expressly and in plain terms agreed that the covered 26 property would be Andy Mouse “NE of 30.” [27] 1 If Plaintiff had presented evidence, even his own attestation, that he in fact owned Andy 28 Mouse NE of 30, this would create a disputed material question of fact, and Defendant’s Motion for Summary Judgment would fail. 1 It is undisputed that the NE of 30 and AP of 10 designations would have been clearly 2 visible on the face of each silkscreen print, representing the precise uniqueness of each 3 Andy Mouse screen print. Plaintiff, an experienced art collector, would have known the 4 significance of limited-edition designations, including the property scheduled description 5 “NE of 30.” Even in combination, the evidence showing the same valuations for Andy 6 Mouse NE or AP screen prints and the Plaintiff’s confusion as to his ownership between 7 the two, the Plaintiff fails to create a disputed question of fact regarding the plain meaning 8 of the coverage limitation “NE of 30” in the property schedule. The Court finds this was 9 the property the parties intended to cover under the Policy, and Plaintiff fails to show he 10 owned Andy Mouse NE of 30. Instead, the Defendant presents evidence that is not disputed 11 by the Plaintiff that he did not own an Andy Mouse NE of 30, including NE 3/30, SCREEN 12 print because he could only have owned the AP Andy Mouse artwork. This artwork was 13 not covered under the plain meaning of the property schedule, Andy Mouse “NE of 30.” 14 Plaintiff cannot show that he owned the property covered by the Policy and, therefore, fails 15 to make a prima facie case for breach of contract. The Court grants summary judgment for 16 Defendant in part as to the Andy Mouse artwork breach of insurance contract claim. 17 3. Whether loss of the Rolex watch occurred within the coverage period? 18 In 2008, Plaintiff purchased a collection of six watches from Bruno Derval, the 19 International Collection, LLC., including the Rolex 6265 Vintage Stainless Steel Daytona 20 Chronograph Watch (Rolex watch), for $50,000. Unlike the Andy Mouse Screen Prints, 21 Plaintiff has evidence of this purchase. Here, Defendant argues the Plaintiff’s prima facie 22 case fails because he cannot establish coverage because he cannot show the loss occurred 23 within the coverage period. 24 The coverage period for the Rolex watch ran from August 1, 2019, through August 25 1, 2020, and Plaintiff reported the loss in February 2020.2 In Arizona, the controlling 26 inquiry of whether a loss falls within the coverage period is the time of the actual damage [27] 2 Plaintiff obtained coverage from Defendant for the watch March 3, 2014, and an updated 28 appraisal made sight unseen in 2018 for $120,000 increased coverage for the relevant 20192020 time period. 1 to the complaining party, not the time of the wrongful act. State v. Glens Falls Ins. Co., [2] 609 P.2d 598, 600 (Ariz. App. 1980), Outdoor World v. Continental Cas. Co., 594 P.2d 3 546, 549 (Ariz. App. 1979). Speculation of an injury based on facts that did not occur only 4 refers to a potential, not actual, injury. Glens Falls Ins. Co., 609 P.2d at 601 . 5 The Court understands the Plaintiff last saw the Rolex watch at his wedding in 2010. 6 Thereafter, he believed his mother kept the watch in Tucson in her safety deposit or lock 7 box. After she passed away during settlement of her estate, he was informed in February 8 2020 that the watch could not be located. Defendant is correct that the Plaintiff will be 9 precluded from introducing hearsay evidence of what his mother said about keeping the 10 watch for him to prove the truth of that matter. Fed. R. Evid. R.801(c). He may, however, 11 without offering hearsay evidence, testify that “he asked her to put it in the safety deposit 12 box.” (D MSJ, SOF, Ex.:11: Altshuler EUO (Doc. 169-2) at 8.) He may testify to his belief, 13 and why he believed, that his mother had the Rolex watch secured at the time of her death 14 and why he believed the watch disappeared during the coverage period. It is for a jury to 15 assess the persuasiveness, including Plaintiff’s credibility, of the evidence he presents to 16 establish as a matter of fact that the loss occurred during the policy coverage period. There 17 is, therefore, a material question of fact that precludes summary judgment for the 18 Defendant on the issue of coverage necessary to make a prima facie case of breach of 19 contract. 20 Defendant argues that even if Plaintiff makes this prima facie showing, the Court 21 should grant summary judgment based on its denial of the claim due to misrepresentations 22 and concealments regarding his ownership of the Rolex watch at the time of loss. 23 According to Defendant, its claim investigation discovered that after Plaintiff filed the 24 claim in February 2020, his conduct suggested he did not suffer any loss because he 25 continued to possess the watch. Defendant relies on the record which reflects that at the 26 end of March 2020, Plaintiff sent a letter to Bruno Derval, International Dream Collection, 27 demanding he accept “the return of the watches” and “refund the monies Mr. Altschuler 28 spent on each of the watches,” (D MSJ, SOF, Ex. 33: Letter 3/31/2020 (Doc. 169-4) at 47). 1 After failing to secure a refund for the watches from Mr. Derval, the Plaintiff sent his watch 2 collection to a third party, Mr. Wind, for resale, and the punch papers inventorying the 3 watches to be sold, which were sold, included the Rolex watch as a sale item. Plaintiff 4 asserted that the “post-loss references to the Rolex watch were the product of 5 ‘inadvertence’ and ‘oversight’ and that no attempts were made to refund or resell the Watch 6 after he reported it missing.” (D MSJ (Doc. 173) at 18.) The Court finds material questions 7 of fact exist which preclude summary judgment for Defendant relevant to the affirmative 8 defense of fraud based on alleged misrepresentations and concealments by Plaintiff that he 9 continued to own the Rolex watch after the reported date of loss. 10 The Defendant’s Motion for Summary Judgment is denied in part for the breach of 11 contract claim based on its denial of coverage for the loss of the Rolex watch. 12 4. Whether Plaintiff’s bad faith and punitive damage claims must be dismissed? 13 “Arizona law implies a covenant of good faith and fair dealing in every contract.” 14 Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension 15 Tr. Fund, 38 P.3d 12 , 28 (Ariz. 2002). The implied covenant of good faith and fair dealing 16 prohibits each party from doing anything to prevent the other from receiving the benefits 17 and entitlements of the agreement. Id. The implied covenant of good faith and fair dealing 18 can also be breached by a party if it “exercises discretion retained or unforeclosed under a 19 contract in such a way as to deny the other a reasonably expected benefit of the bargain.” 20 Beaudry v. Ins. Co. of the W., 50 P.3d 836, 841 (Ariz. App. 2002) (citation omitted). Again, 21 the burden is on the Plaintiff to come forward with some evidence from which a reasonable 22 juror could conclude that Defendant did not act in good faith. Schwartz v. Farmers Ins. Co. 23 of Ariz., 800 P.2d 20, 23 (Ariz. App. 1990) (noting that a plaintiff must prove breach of 24 duty of good faith and fair dealing by a preponderance of the evidence). The Plaintiff does 25 not necessarily have to show a breach of the contract to demonstrate bad faith. See Wells 26 Fargo Bank, 38 P.3d at 29 (explaining because a party may be injured when the other party 27 to a contract manipulates bargaining power to its own advantage, a party may breach its 28 duty of good faith without actually breaching an express covenant in the contract). 1 “To show a claim for bad faith, a plaintiff must show the absence of a reasonable 2 basis for denying benefits of the policy and the defendant's knowledge or reckless 3 disregard of the lack of a reasonable basis for denying the claim. It is apparent, then, that 4 the tort of bad faith is an intentional one. Noble v. Nat'l Am. Life Ins. Co., 624 P.2d 866 , 5 868 (Ariz. 1981) (citation omitted) (emphasis added). 6 “The tort of bad faith can be alleged only if the facts pleaded would, on the basis of 7 an objective standard, show the absence of a reasonable basis for denying the claim, i.e., 8 would a reasonable insurer under the circumstances have denied or delayed payment of the 9 claim under the facts and circumstances.” Id. This threshold test requires a showing of 10 negligence, i.e., did the insurance company act reasonably. Where an insurer acts 11 reasonably, there is no negligence and no bad faith. Trus Joist Corp., 735 P.2d at 134 . 12 However, an insurer is not guilty of bad faith merely because it acts unreasonably. 13 Negligent conduct which results solely from an honest mistake, oversight, or carelessness 14 does not necessarily create bad faith liability even though it may be objectively 15 unreasonable. Id. (citing Apodaca, 151 Ariz. at 161, 726 P.2d at 577). To find bad faith 16 there must be evidence of “[s]ome form of consciously unreasonable conduct.” Id. This 17 requirement of consciously unreasonable conduct is fulfilled either by the insurer's 18 knowledge that it is acting improperly or by reckless conduct which permits such 19 knowledge to be imputed to it. It is this subjective element of knowledge that elevates bad 20 faith to a quasi-intentional tort. Id. 21 The Court treads cautiously to grant summary judgment on Plaintiff’s bad faith 22 claim because “[w]hile an insurer may challenge claims which are fairly debatable, id., its 23 belief in fair debatability ‘is a question of fact to be determined by the jury.’” Supra at 4: 24 Summary Judgment, 1. Andy Mouse artwork (quoting Zilisch, 995 P.2d at 279 (quoting 25 Sparks, 647 P.2d at 1137 )). The insurer has “duties of a fiduciary nature,” including 26 “[e]qual consideration, fairness and honesty,” id. (quoting Rawlings v. Apodaca, 726 P.2d 27 565, 571(Ariz. 1986)), making it liable if “‘it seeks to gain unfair financial advantage of its 28 insured through conduct that invades the insured's right to honest and fair treatment,” and 1 because of that, “the insurer's eventual performance of the express covenant—by paying 2 the claim—does not release it from liability for ‘bad faith.’” Id. at 279-280 (quoting 3 Rawlings, 726 P.2d at 572.) In short, “[a]n insurer may challenge a claim it believes is 4 ‘fairly debatable,’ but only if the insurer acts reasonably in investigating, evaluating, and 5 processing the claim.” Zilisch, 995 P.2d at 280 . This means that if an insurer acts 6 unreasonably in the manner in which it processes a claim, it will be held liable for bad faith 7 “without regard to its ultimate merits.” Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 8 504, 507 , 838 P.2d 1265, 1270 (1992). 9 Here, the Court grants summary judgment for Defendant on the bad faith claims. 10 First, the Court has found the Plaintiff fails to make a prima facie breach of contract case 11 for the denial of coverage for the Andy Mouse artwork. As for the bad faith claim related 12 to Defendant’s denial of coverage for the loss of the Rolex watch, the Court finds that at 13 trial a directed verdict would be warranted. Here, the evidence provided by the Plaintiff to 14 Defendant shows he had not seen the Rolex watch for over ten years, he could offer no 15 definitive evidence showing the time of the loss but explained why he believed that the 16 Rolex watch remained at his mother’s home at the time of her death, and Plaintiff’s post17 claim conduct arguably reflected fraud. While the Court cannot say that no reasonable mind 18 might conclude the Plaintiff can establish the loss occurred within the coverage period, it 19 finds reasonable minds could only conclude that the question of coverage based on the loss 20 occurring within the coverage period was fairly debatable. Zilisch, 977 P.2d at 138. In 21 combination with evidence that arguably supports a conclusion of fraud, the Court finds 22 that no reasonable jurors could conclude that in the investigation, evaluation, and 23 processing of the claim, the insurer acted unreasonably and either knew or was conscious 24 of the fact that its conduct in denying the claim for the loss of the Rolex watch was 25 unreasonable. Noble, 624 P.2d at 868 . 26 Under Arizona law, “[t]here is no such thing as a cause of action simply for punitive 27 damages. Rather, the right to an award of punitive damages must be grounded upon a cause 28 of action for actual damages.” Quiroga v. Allstate Ins. Co., 726 P.2d 224, 226 (Ariz. App. 1 1986), see also Edmond v. Fairfield Sunrise Vill., Inc., 644 P.2d 296, 298 (Ariz. App. 1982) 2 (“A lawsuit for punitive damages only may not proceed once the cause of action for actual 3 damages has been extinguished, actual damages being necessary to support punitive 4 damages.”) Because the Court grants summary judgment for Defendant on the Andy 5 Mouse screen art, the related punitive claim fails as well. 6 In Arizona, we restrict the availability of punitive damages to cases where a 7 defendant's wrongful conduct was guided by evil motives. Rawlings, 726 P.2d at 578 . In 8 other words, Plaintiff must prove that Defendant's evil hand was guided by an evil mind. 9 Having found no evil hand, i.e., no bad faith related to Defendant’s denial of coverage for 10 the loss of the Rolex watch, the Plaintiff’s related punitive damage claim fails. 11 CONCLUSION 12 Here, a thorough examination of Defendants' Motion for Summary Judgment and 13 Plaintiff's Motion for Partial Summary Judgment, the corresponding responsive 14 memoranda, documents, and declarations, reveal material, factual, contentions which 15 require a taking of evidence, a weighing of evidence and a resolution of dispute by trial 16 only in part for the claim that Defendant breached the insurance contact by denying the 17 loss claim for the Rolex watch. 18 Accordingly, 19 IT IS ORDERED that Defendants' Motion for Summary Judgment (Doc. 173) is 20 DENIED IN PART AND GRANTED IN PART as follows: denied except for Plaintiff’s 21 claim that Defendant breached the insurance contract by denying coverage for the loss of 22 the Rolex watch. 23 IT IS FURTHER ORDERED that Plaintiff's Motion for Partial Summary 24 Judgment (Doc. 170) is DENIED. 25 IT IS FURTHER ORDERED that Plaintiff’s claims of bad faith and for punitive 26 damages fail. 27 ///// 28 ///// 1 IT IS FURTHER ORDERED that the parties are referred to a Magistrate Judge, || the Honorable Jacqueline M. Rateau, to hold a settlement conference within the next 60 || days, unless the Magistrate Judge extends this time due to her calendar availability. 4 IT IS FURTHER ORDERED that within 20 days of a failure to settle this case, a 5 || Proposed Pretrial Order shall be filed with this Court. 6 Dated this 28th day of February, 2024. [7] SS SY Honorabje David C. But United States District Judge [28] - 20 -