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An Arizona state court judge ruled in a 48-page minute entry last month that State Farm Mutual Automobile Insurance Co. has acted in bad faith in failing to comply with discovery requests for information on punitive damage payouts within the last 10 years and other cases against it with allegations of forgery ( Danny Martin v. State Farm Mutual Automobile Insurance Co., No. C-335545, Ariz. Super., Pima Co.). Danny and Esther Martin sued State Farm for bad faith in the handling of their uninsured motorist claim. The carrier initially denied coverage, producing a signed authorization form waiving underinsured/uninsured (UIM) motorist coverage when the policy was transferred from New Mexico to Arizona. The form contained Esther Martin’s signature, which she alleged was a forgery. State Farm eventually agreed that the signatures were not “the same.” The Martins allege that State Farm knew that the signature was forged and intended them to rely on its validity. The complaint alleges that “the forgery by Defendants was part and parcel of a national corporate scheme and artifice by Defendant State Farm to deprive its policyholders of contractual benefits to which they are entitled. Defendants have furthered this scheme and artifice by, inter alia, suppressing and destroying evidence, forging signatures, committing perjury and intentionally misleading their policyholders.” DISCOVERY DISPUTE A discovery dispute ensued in August 1999, when the Martins served nonuniform interrogatories on State Farm asking the insurer to identify every jury verdict for punitive damages entered against it since 1990 and asking that it identify every claim alleging forged signatures. The plaintiffs later stipulated the time-period for the interrogatories as the past 10 years. State Farm objected to the interrogatory requests, contending that they were overbroad and burdensome. The court granted the Martins’ motion to compel, awarding them $1,000 in attorneys’ fees. State Farm moved for reconsideration, contending that it was unable to identify cases with allegations of forgery and does not maintain records to identify such claims or lawsuits. State Farm produced information on three cases with punitive damage awards and again complained of the request as overburdensome and irrelevant. In January 2000, the Martins moved for sanctions against State Farm, contending that it failed to comply with their interrogatory requests. State Farm filed a petition for special action with the appeals court, which ordered that a hearing be held before the trial court to determine if the interrogatory requests are overly broad and burdensome. DEPOSITIONS The trial court granted the Martins’ request to compel depositions of State Farm employees who were most knowledgeable at State Farm regarding computer systems that would provide information concerning the alleged bad faith claims. At an Aug. 28, 2000, hearing, the court ordered State Farm to produce all relevant information readily attainable through due diligence pertaining to punitive damage payments in the last 10 years. The Martins moved for an order holding State Farm in contempt for failing to produce the most knowledgeable deponents. The court allowed the plaintiffs to depose those people they felt were more knowledgeable than the ones selected by State Farm. The deposition of Mitch Hill revealed that State Farm had a reporting requirement that punitive damage payments be listed on a form and sent to the accounting department. After Hill’s deposition, State Farm produced 1,255 pages of punitive damage payments nationwide. The deposition of Carla Van Dongen revealed that State Farm also kept quarterly closing reports, a database that she believed would contain information about payment of punitive damages in bad faith cases. Hill also stated in his deposition that information concerning alleged agent forgeries should be kept in a document called a claim committee report and that these reports are dictated electronically. Van Dongen stated that she believed information concerning allegations in claims and lawsuits is also kept in the company’s CaseTrack software program. Van Dongen also said the insurer uses a suit notification form that the attorney completes within 48 hours of a new lawsuit that lists the major allegations. ‘READILY RETRIEVABLE’ Pima County Superior Court Judge Charles S. Sabalos said the “evidence adduced through the discovery and submitted at hearing clearly demonstrates that State Farm can easily and readily obtain data pertaining to both punitive damages verdicts in the last 10 years and data pertaining to agent forgeries. This data is readily retrievable through several different databases (such as CaseTrack, Lawsuit Production, or Lawsuit Notification and Text databases) or by examining the hard copy closing reports contained with the EC Unit’s litigation files, which are kept for ‘at least 10 years,’ or by examining the Suit Notification forms.” State Farm has “knowingly” made “false statements and misrepresentations” regarding its ability to produce information about punitive damage verdicts and agent forgeries, the judge held. The judge also found that State Farm selected individuals for deposition who knew “very little about State Farm’s computer systems and databases.” DISCOVERY RELEVANT The judge ruled that the discovery requested by the Martins is “clearly relevant” on the issue of bad faith and punitive damages, citing Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 733 P.2d 1073 (1987). “Defendants have alleged that their conduct was isolated and unintentional and they graciously extended UIM coverage to the Plaintiffs. Plaintiffs contend that Defendants’ conduct was intentional, longstanding and part of a national corporate policy of denying policyholders the benefits to which they are entitled. The requested discovery — evidence of other forgeries by State Farm employees or agents, and evidence of punitive damage payments by Defendant State Farm — are [sic] directly related to the allegations and subject matter of the complaint,” the judge held. Finding that State Farm’s conduct in the discovery process has been in bad faith, the judge ordered State Farm to reimburse the plaintiffs’ counsel for all transportation, lodging, depositions and other costs incurred in the first and second round of depositions and all attorneys’ fees incurred in the preparation of motions to compel, motions for sanctions and motions to hold State Farm in contempt. The judge said at this time he is not prepared to sanction State Farm by striking its pleadings. (c) Copyright 2001 Mealey Publications, Inc.

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