5.2.5 Assignment of Bad Faith Claim

• Jurisdiction: Arizona

Of greater significance is the court's decision in Clearwater not to grant review of the court of appeals decision respecting the assignment of a third-party bad faith claim, which leaves intact the court of appeals decision on that issue. The court of appeals^[183] rejected State Farm's argument that the insured's claim for bad faith is a personal tort and, thus, is not assignable under Arizona law. The court found that the cause of action for bad faith failure to settle is founded upon a breach of contract and tort and, therefore, Arizona case law prohibiting the assignment of causes of action for purely personal torts are inapplicable. The third-party assignee cannot recover damages personally suffered by the insured such as pain and suffering, embarrassment, mental anguish, and humiliation. The assignee can only recover the insured's pecuniary losses. The pecuniary damage would be the excess judgment and any potential punitive damages arising from the carrier's wrongful conduct.

By its very nature, a third-party's bad faith claims do not give the third-party plaintiff claims that are independent from those of the insured.^[184] Rather, the third party's rights or claims are derived from and are entirely dependent on the rights and claims of the...