12.3.1.4 Insurance Carriers

• Jurisdiction: Arizona

. The development of a civil bad faith action against workers’ compensation carriers in Arizona culminated in Franks v. United States Fidelity & Guaranty Co.^[188] Despite prior amendments extending exclusive remedy protection to insurance carriers, the court of appeals in Franks was persuaded that the lack of any effective statutory remedy for bad faith in claims handling practices violated the Arizona constitutional provisions guaranteeing the right to sue for full tort damages.^[189]

In assessing the plaintiff’s tort action requesting actual damages and punitive damages for mental distress caused by the carrier’s defiance of Industrial Commission rulings, the court provided two rationales for granting relief. One was that the exclusive remedy provisions do not apply if the compensation statute does not provide for bad faith damages.^[190] The absence of any Arizona statutory remedy for bad faith suggested that the workers’ compensation system was not designed to have jurisdiction over claims relating to compensation carrier conduct.^[191]

The other rationale was by way of analogy to third-party cases. Citing a famous California case involving egregious carrier misconduct,^[192] the court stated:

An insurance carrier who engages in an intentional tort against a claimant may be viewed as becoming such a third person subject to suit because the carrier has stepped outside its proper statutory role.^[193]

Although Larson found the California result commendable under the circumstances, he sharply criticized the court for stretching the dual persona doctrine to its extreme to achieve it. Under his theory, since the carrier had the same legal obligations to the claimant whether it was acting in the capacity of investigator or claims handler, it is not a dual persona situation but...