nguyen/ta v. Am Commerce

NOTICE: NOT FOR PUBLICATION.
UNDER ARIZ. R. SUP. CT. 111(c), THIS DECISION DOES NOT CREATE LEGAL PRECEDENT
AND MAY NOT BE CITED EXCEPT AS AUTHORIZED.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

JACKSON NGUYEN and TRINH TA, Plaintiffs/Appellants,

v.

AMERICAN COMMERCE INSURANCE COMPANY, Defendant/Appellee.

No. 1 CA-CV 12-0862
FILED 4-8-2014

Appeal from the Superior Court in Maricopa County
No. CV2009-033330
The Honorable Eileen S. Willett, Judge

AFFIRMED

COUNSEL

Richard Langerman, Phoenix
Counsel for Plaintiffs/Appellants

Carnahan Perry Hanlon & Hudson, PLC, Phoenix
By Michael R. Perry
Counsel for Defendant/Appellee

MEMORANDUM DECISION

Presiding Judge Samuel A. Thumma delivered the decision of the Court,
in which Judge John C. Gemmill and Judge Randall M. Howe joined.
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Decision of the Court

T H U M M A, Judge:

¶1 Plaintiffs Jackson Nguyen (Nguyen) and Trinh Ta (Ta) sued
American Commerce Insurance Company (ACIC) for breach of contract
and bad faith arising out of ACIC’s denial of their insurance claim for loss
or theft of an $80,000 diamond ring. Plaintiffs appeal a jury verdict for
defendant ACIC. Finding no reversible error, the verdict is affirmed.

FACTS 1 AND PROCEDURAL HISTORY

¶2 In July 2006, Nguyen called ACIC to obtain a homeowner’s
insurance policy in Ta’s name and spoke on the telephone with ACIC
customer service representative Michelle Canter. Plaintiffs and ACIC
dispute whether Nguyen was ever asked about prior insurance policies or
losses during this call. Nguyen maintains that he was not asked about
those issues and trial testimony indicated the transcript of the phone call
did not indicate those questions were asked. An ACIC computer printout
of Nguyen’s telephone application, however, indicates he answered “no”
to both having a prior policy cancellation and having a prior loss. Canter
could not recall the specific conversation with Nguyen, but stated she
would have had to go through the process with him to write the policy
and that the common business practice was to “input the information
[from the insureds] to the questions [in the computer database] before
binding the policy.” It was ACIC’s business practice to obtain a signed
paper application subsequent to any phone application. ACIC offered
evidence that it mailed an application to plaintiffs but never received a
signed application. Nguyen maintained he never received a written
application from ACIC, speculating it had been mailed to a prior address.
ACIC presented evidence that not receiving a signed paper application is
common in the insurance industry.

¶3 At the time of his telephone application with ACIC, Nguyen
asked about adding his wife’s diamond ring to the policy. In response,
Canter told Nguyen he needed an appraisal before the ring could be
added to the policy.

1 This court views the evidence in the light most favorable to upholding
the verdict. Powers v. Taser Int’l Inc., 217 Ariz. 398, 399 n.1, ¶ 4, 174 P.3d
777, 778 n.1 (App. 2007).

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¶4 In August 2008, Nguyen sent an appraisal valuing the ring at
$80,000 to ACIC along with a letter asking that ACIC add the ring to Ta’s
policy. ACIC then added the ring to the policy.

¶5 In February 2009, plaintiffs visited a shopping mall. Ta, who
was several months pregnant at the time, felt sick and went into a
restroom and passed out. Ta was taken to the hospital where she noticed
the ring was missing. Although plaintiffs did not file a police report, they
submitted a claim for the value of the ring and ACIC began an
investigation.

¶6 ACIC initially obtained estimates for the replacement cost of
the ring, spoke with the merchant who appraised the ring in August 2008,
obtained credit reports for plaintiffs, researched plaintiffs’ house value
and other financial information in an attempt to determine credit-to-debt
ratios, checked a loss database and completed a claims file analysis. ACIC
then decided to obtain further financial documentation and conduct
examinations under oath (EUO) of plaintiffs. ACIC also continued
investigation into possible prior losses claimed by plaintiffs.

¶7 In March 2009, ACIC retained attorney Michael Perry to
conduct the EUOs. Perry conducted EUOs for both Nguyen and Ta.
Although Perry also requested financial and other records, plaintiffs
refused to provide financial information. As a result, in April 2009, ACIC
sent plaintiffs a letter stating that it would not proceed with the
investigation and would not pay the claim because they had failed to
provide information regarding their financial condition and records
relating to the purchase of the ring. At that point, plaintiffs had provided
ACIC with sworn testimony regarding their purchase and ownership of
the ring, an appraisal, some witnesses who indicated that they had seen
Ta wear the ring and photographs they claimed showed Ta wearing the
ring.

¶8 In June 2009, ACIC discussed the claim a few times with
Perry and several senior claims personnel and discussed any other
avenues it could explore to consider to plaintiffs’ claim. Ultimately, the
group decided to draft a denial letter. ACIC also unsuccessfully attempted
to obtain security tapes from the mall where Ta passed out. ACIC
investigated another prior loss database, plaintiffs’ neighborhood and
further reviewed its own records on plaintiffs’ application and policy.

¶9 In early July 2009, ACIC denied plaintiffs’ claim, citing three
reasons: (1) a failure to show ownership of the ring; (2) misrepresentation

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or fraud in the insurance application and (3) misrepresentation or fraud in
the submission of the claim. Plaintiffs then sued ACIC, claiming breach of
contract and bad faith. ACIC also cancelled the policy, effective August
2009.

¶10 During discovery, a dispute arose as to whether the
attorney-client privilege protected ACIC’s claim investigation file from
discovery. Plaintiffs moved to compel, and after briefing and oral
argument, the superior court originally granted the motion because ACIC
“failed to articulate a legal issue for which legal advice was given and . . .
attorney client privilege should attach to the claims and investigative file.”

¶11 ACIC moved to reconsider, arguing Perry was retained to
“assist in [ACIC’s] investigation and to provide a coverage
determination,” which necessarily included legal advice. After full
briefing and oral argument, the superior court found that the attorney-
client privilege applied and had not been waived. The court noted that,
although “defense counsel did conduct some investigation into Plaintiff’s
claim, such investigation does not then render all communication between
[ACIC] and its counsel automatically discoverable. . . . Its defense is not
based upon advice of counsel, but rather on the basis that its actions were
objectively reasonable.” The court added, however, that “[b]ecause
defense counsel did conduct an investigation which can be considered
similar to the work of a claims adjuster and therefore discoverable,” an in-
camera inspection was warranted. The court then appointed a special
master, who reviewed the documents at issue and determined what
documents were fully discoverable, what documents were privileged and
non-discoverable and what documents were discoverable with redaction.

¶12 At trial, the jury received evidence about inconsistencies in
plaintiffs’ insurance claim. Plaintiffs provided little information or
documentation regarding the purchase of the ring or the seller. Nguyen
claimed he ran into the seller, an old friend from school identified by the
first name “Ha,” while in California for a celebration. Nguyen testified
that Ha was selling the ring for $75,000. Nguyen testified that all he knew
about the seller was his first name, and yet Nguyen gave him $20,000 cash
that day as a down payment on the ring and Ha allowed Nguyen to take
the ring to ensure his wife would like it. Nguyen did not get an appraisal
before this transaction, and did not obtain any documentation regarding
the transaction.

¶13 Nguyen testified that he then made several trips to
California, each time paying Ha additional cash installments totaling

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$55,000 (the balance owed). Although saying he had Ha’s phone number
during the sale, Nguyen added that Ha’s phone was then disconnected
and Nguyen later lost Ha’s phone number, so he could not provide that
number to ACIC. Nguyen testified he used a calling card to call Ha and
paid cash for everything during his trips to California. At trial, ACIC
offered evidence that it attempted to call some of the “hundreds” of
California phone numbers reflected in plaintiffs’ phone records, it could
not locate Ha and had no evidence, other than plaintiffs’ testimony, that
Nguyen had traveled to California.

¶14 ACIC’s investigation revealed that Nguyen had prior
insurance policy claims and cancellations. Nguyen’s testimony at trial
revealed that he had filed several insurance claims for personal injury and
hit and run accidents between 1999 and 2004. In March 2004, Nguyen’s
homeowner’s policy with Prudential Insurance was cancelled after
Nguyen claimed and was paid an $18,674 replacement cost for lost or
stolen jewelry, asserting the jewelry went missing after being left in a
drawer that was handled by movers he hired off the street. In May 2004,
Nguyen applied for and obtained an ACIC homeowner’s policy for a
home plaintiffs later sold. The phone application for that policy indicates
Nguyen denied any prior losses or cancellations within the previous three
years. In June 2004, however, ACIC cancelled Nguyen’s policy based on
Prudential’s March 2004 cancellation. In July 2006, the new ACIC policy
was placed only in Ta’s name, and ACIC did not discover Nguyen’s prior
losses and cancellations at that time.

¶15 ACIC also discovered that plaintiffs’ financial condition at
the time of their claim was unstable. Trial evidence indicated that
plaintiffs’ “monthly expenses far exceeded their income.” Nguyen
testified that he had lost his job two days before submitting the claim. In
addition, the investigation, EUOs and trial testimony had several
inconsistencies regarding the source of the cash for the ring, a fact ACIC
was not able to resolve. Nguyen failed to disclose a certificate of deposit
account in his EUO. In her EUO, Ta initially denied that any of her funds
were used to pay for the ring, but at trial agreed that some of the money
used to purchase the ring came from her tips at work, which she does not
report as taxable income and amounted to about $300 per week. While Ta
testified that she did not deposit her tips in a bank account, ACIC’s
forensic financial expert testified the balance in plaintiffs’ bank account
was consistent with Ta’s salary, including her tips, being deposited in the
account.

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¶16 After an eight-day trial, the jury unanimously found for
ACIC in a general verdict. Plaintiffs moved for a new trial, arguing that
the superior court erred in admitting into evidence Exhibit 35 (an ACIC
computer printout of plaintiffs’ insurance application) and in refusing to
give plaintiffs’ requested jury instructions. After the superior court denied
that motion and entered judgment for ACIC, plaintiffs timely appealed.
This court has jurisdiction pursuant to Article 6, Section 9 of the Arizona
Constitution and the Arizona Revised Statutes (A.R.S.) sections 12-
2101(A)(1), (5)(a) (2014). 2

DISCUSSION

¶17 Plaintiffs argue the superior court (1) erred in denying their
discovery request for an unredacted copy of ACIC’s claim file; (2) erred in
denying their motion for partial summary judgment on ACIC’s
misrepresentation defense; (3) abused its discretion in admitting into
evidence Exhibit 35; and (4) abused its discretion in declining to give two
jury instructions plaintiffs requested. The court addresses these claims in
turn.

I. Discovery Of ACIC’s Unredacted Claim File.

¶18 Plaintiffs sought production of ACIC’s claim file in
discovery. ACIC asserted, and the superior court found, various
documents in the claim file were privileged in whole or in part. After an
in-camera review by a special master, plaintiffs obtained discovery of
unredacted as well as partially redacted documents from the claim file
and other documents were not produced given the privilege finding. On
appeal, plaintiffs argue that the failure to require production of all claim
file documents in unredacted form constitutes reversible error.
Specifically, plaintiffs argue the superior court erred in refusing to order
discovery of ACIC’s unredacted claim file because (1) Perry was acting as
a claims investigator for ACIC, not as an attorney and (2) ACIC waived
any applicable attorney-client privilege. This court reviews discovery
matters and rulings on assertions of attorney-client privilege for an abuse
of discretion. State Farm Mut. Auto. Ins. Co. v. Lee, 199 Ariz. 52, 57, ¶ 12, 13
P.3d 1169, 1174 (2000). The superior court has broad discretion in
discovery matters, which “includes the right to decide controverted
factual issues, to draw inferences where conflicting inferences are possible

2 Absent material revisions after the relevant dates, statutes cited refer to
the current version unless otherwise indicated.

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and to weigh competing interests.” Id. at 57, ¶ 12, 123 P.3d at 1174.
(emphasis omitted).

¶19 Arizona’s attorney-client privilege states:

B. [A]ny communication is privileged between
an attorney for a corporation . . . or an
employer and any employee, agent or member
of the entity or employer regarding acts or
omissions of or information obtained from the
employee, agent or member if the
communication is either:

1. For the purpose of providing legal advice . . .
[or]

2. For the purpose of obtaining information in
order to provide legal advice . . . .

A.R.S. § 12-2234(B). To constitute a privileged communication: (1) there
must be an attorney-client relationship; (2) the communication must be
made to or by the lawyer for the purpose of securing or giving legal
advice and (3) the communication must be made in confidence and
treated as confidential. See Samaritan Found. v. Goodfarb, 176 Ariz. 497, 501,
862 P.2d 870, 874 (1993), superseded by statute on other grounds, 1994 Ariz.
Sess. Laws, ch. 334, § 1 (2d Reg. Sess.). Even if the privilege applies, it does
not relieve the employee “of a duty to disclose the facts.” A.R.S. § 12-
2234(C). In other words, the underlying facts of the communication are
discoverable, but the communication itself is not.

1. The Superior Court Did Not Err In Finding The
Attorney-Client Privilege Applied.

¶20 Plaintiffs argue that Perry acted in the role of claim
investigator -- not attorney -- meaning the communications were not “for
the purpose of securing or giving legal advice.” For the attorney-client
privilege to apply, the attorney must be acting in the role of legal counsel.
Goodfarb, 176 Ariz. at 501, 862 P.2d at 874. After reviewing sample
documents in- camera, the superior court ultimately found that Perry was
acting in the role of legal counsel. The superior court stated, “[t]hough
defense counsel did conduct some investigation into Plaintiff’s claim, such
investigation does not then render all communication between Defendant
and its counsel automatically discoverable.” This statement was made
after two rounds of briefing and two oral arguments on the subject (and

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after having reviewed the sample documents). The superior court found
Perry both involved himself in the claim investigation and provided legal
advice in confidence. Ultimately, only portions of the communications
within the claim file were redacted or found completely privileged by the
special master; the remaining portions of the claim file were disclosed to
plaintiffs. This record indicates the superior court correctly applied
Arizona’s attorney-client privilege to the facts of this case. 3

2. The Superior Court Did Not Err In Determining
ACIC Did Not Waive The Attorney-Client Privilege.

¶21 Plaintiffs argue that, even if the attorney-client privilege
applied to the redacted communications, ACIC waived the privilege by
putting its representatives’ mental state at issue. “Whether a party has
waived the attorney-client privilege is a mixed question of law and fact
which [this court] review[s] de novo.” Twin City Fire Ins. Co. v. Burke, 204
Ariz. 251, 254, ¶ 10, 63 P.3d 282, 285 (2003).

¶22 ACIC did not expressly waive the attorney-client privilege.
As applied, the attorney-client privilege may be waived impliedly when
an insurance company (1) relies on an “advice-of-counsel” defense or (2)
argues that claim denial and investigation were reasonable because of the
company’s subjective evaluation of the law provided by its counsel. See
Lee, 199 Ariz. at 58, ¶ 17, 13 P.3d at 1175. As to this second type of implied
waiver, a “litigant claiming the [attorney-client] privilege relies on and
advances as a claim or defense a subjective and allegedly reasonable
evaluation of the law—but an evaluation that necessarily incorporates
what the litigant learned from its lawyer—the communication is
discoverable and admissible.” Id. at 58, ¶ 15, 13 P.3d at 1175 (emphasis
both added and removed). If a party, however, relies solely on objective
reasonableness and merely consults an attorney to evaluate the

3 Along with citing cases applying privilege law from other jurisdictions,
plaintiffs rely on Mission Nat’l Ins. Co. v. Lilly, 112 F.R.D. 160 (D. Minn.
1986) in arguing the superior court erred. Lilly, however, (1) did not apply
Arizona’s statutory attorney-client privilege and (2) is distinguishable
factually. In Lilly, the firm representing the insurance company was hired
immediately after submission of the claim and doubled as the sole
investigator of the claim. Id. at 162-63. By contrast, while Perry
participated in a portion of the investigation, he was hired only after
ACIC’s initial investigation, was not the sole claim investigator and
provided legal services to ACIC.

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reasonableness of its position, there is no implied waiver. See id. at 60, 65,
¶¶ 22, 35, 13 P.3d at 1177, 1182. As applied, the dividing line rests on
whether ACIC ever put the advice it received from counsel at issue or
whether it ever took a position on whether its subjective view of the law
was reasonable (and, if so, whether that subjective view necessarily
incorporated advice from its counsel). See Mendoza v. McDonald’s Corp.,
222 Ariz. 139, 152, ¶ 40, 213 P.3d 288, 301 (App. 2009).

¶23 Starting with advice of counsel, ACIC argues it “never . . .
relied on the ‘advice of counsel’ defense.” The superior court similarly
found that ACIC’s defense was not based on advice of counsel. Moreover,
the trial evidence focused on whether ACIC’s investigation was
reasonable and performed in good faith. Plaintiffs note that trial testimony
indicated that ACIC’s “decision [to deny plaintiffs’ claim] was based on
Mr. Perry’s investigation and legal advice.” This argument, however, fails
to show that ACIC ever expressly relied on the advice of counsel defense.

¶24 Turning to implied waiver based on a subjective evaluation
of the law, Arizona “reject[s] the idea that . . . the denial of bad faith, or the
affirmative claim of good faith may be found to constitute an implied
waiver.” Lee, 199 Ariz. at 62, ¶ 28, 13 P.3d at 1179. Nor does “relying on a
defense of objective reasonableness” constitute an implied waiver. Id. at
65, ¶ 35, 13 P.3d at 1182. Instead, for implied waiver, a party must claim
its actions “were the result of its reasonable and good-faith belief that its
conduct was permitted by law and its subjective belief based on its claims
agents’ investigation into and evaluation of the law.” Id. at 66, ¶ 38, 13
P.3d at 1183. This inquiry requires an analysis of ACIC’s defense and
actions.

¶25 ACIC’s defense was that its denial of the claim was
“objectively reasonable.” In arguing ACIC relied on a subjective belief,
plaintiffs cite to trial testimony discussing ACIC’s reliance on Perry’s (1)
“financial analysis” of plaintiffs’ financial records and (2) advice in
asserting plaintiffs did not have an ownership interest in the ring as a
basis for denial of the claim.

¶26 ACIC retained Perry to conduct plaintiffs’ EUOs after
conducting its initial investigation and determining testimony under oath
was warranted. After the EUOs—in which plaintiffs refused to provide
certain financial information—a note from an ACIC employee stated “I
am going to work with [defense counsel] in putting together a list of
documents we are going to request the insured to provide.” The next day,
Perry requested in writing plaintiffs’ financial documents and phone

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records. When plaintiffs failed to produce the requested documents, an
ACIC claims supervisor noted the lack of documentation of the ring
purchase and other fraud indicators, and suggested plaintiffs’ “continued
failure to [supply the requested records] may constitute an independent
reason for denial. I suggest counsel pursue the following language” and
provided draft language for a letter. David Tonkin, ACIC’s national claims
examiner, asked Jay Studebaker, the general adjuster for the claim, to draft
a letter to plaintiffs informing them that no further consideration would
be given to their claim unless they produced the requested financial
information. Studebaker then noted that he would prepare a letter, with
assistance from Perry, and then mailed a letter to plaintiffs incorporating
suggested language. While Perry was involved in obtaining plaintiffs’
financial records, ACIC was heavily involved in the decision-making and
factual analysis. Nothing suggests ACIC put its subjective reasonableness
at issue in procuring plaintiffs’ financial records.

¶27 Plaintiffs then provided some financial records to ACIC.
Notes in the claim file indicate ACIC had Perry review the financial
records to obtain legal advice on how the records might affect plaintiffs’
claim. Perry ultimately provided ACIC summaries of plaintiffs’ financial
records, which include information ACIC relied upon in denying
plaintiffs’ claim. Those summaries, which were based on information
plaintiffs themselves provided, were produced to plaintiffs in discovery
and were admitted into evidence at trial. ACIC’s reliance on objective data
that counsel summarized (and produced to plaintiffs) does not itself put
ACIC’s subjective intent at issue.

¶28 Plaintiffs also argue waiver because ACIC purportedly
relied on Perry’s analysis “regarding the ownership requirement of A.R.S.
§ 20-1105.” Plaintiffs, however, have not shown how reliance on the
express terms of a statute constitutes a subjective belief resulting in an
implied waiver of the privilege. Lee, 199 Ariz. at 66, ¶ 38, 13 P.3d at 1183.
Moreover, unlike in Lee, ACIC told plaintiffs why ACIC determined
ownership of the ring had not been established based on objective
information. Specifically, lack of a pre-purchase appraisal, inability to
provide information or details regarding the seller, lack of a receipt, sales
contract or any records surrounding the purchase of the ring were all facts
ACIC cited. These are also facts plaintiffs have been aware of based on
ACIC’s numerous letters unsuccessfully requesting such information. Lee
makes clear that evaluating an insurance company’s reasonableness
“under the statutes, the case law, and the policy language” does not “put
counsel’s advice to the claims managers at issue.” Id. at 60, ¶ 22, 13 P.3d at
1177.

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¶29 ACIC did not base its decision to deny the claim on the
advice of counsel or a subjective interpretation of the law. Investigation
continued for several months after ACIC determined that lack of
ownership was a defense, and ultimately the decision to deny the claim
culminated after several meetings where ACIC managers reviewed the
facts available. Finally, ACIC’s trial defense was that its decision to deny
plaintiffs’ claim was objectively reasonable under all of the facts it had
before it. As the Lee court made clear:

We assume client and counsel will confer in
every case, trading information for advice. This
does not waive the privilege. We assume most
if not all actions taken will be based on
counsel’s advice. This does not waive the
privilege. Based on counsel’s advice, the client
will always have subjective evaluations of its
claims and defenses. This does not waive the
privilege.

Lee, 199 Ariz. at 66, ¶ 38, 13 P.3d at 1183. Thus, the record fairly reflects
that ACIC asserted an objective reasonableness defense, not a “subjective
belief based on its claims agents’ investigation into and evaluation of the
law.” Id. Because that required “one more factor” was not present, id., the
superior court did not err in finding ACIC had not waived the attorney-
client privilege to the entire ACIC claim file. 4

II. The Superior Court Did Not Err In Admitting Exhibit 35 Into
Evidence.

¶30 Plaintiffs argue that the superior court erred in admitting
into evidence Exhibit 35, identified as a computer screen printout from the
oral application for insurance in July 2006 that an ACIC representative
obtained from Nguyen. Plaintiffs claim Exhibit 35 lacked a proper
foundation and was not admissible under Arizona Rule of Evidence
803(6). This court reviews a ruling on the admissibility of evidence for an
abuse of discretion. State v. McCurdy, 216 Ariz. 567, 571, ¶ 6, 169 P.3d 931,
935 (App. 2007).

4 In their reply brief on appeal, plaintiffs withdrew their argument that the
superior court erred in denying their motion for partial summary
judgment on ACIC’s misrepresentation defense, meaning that issue is no
longer part of this appeal.

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¶31 Arizona Rule of Evidence 803(6) provides:

Records of a Regularly Conducted Activity. A
record of an act [or] event [is an exception to
the rule against hearsay] . . . if:

(A) the record was made at or near the time
by—or from information transmitted by—
someone with knowledge;

(B) the record was kept in the course of a
regularly conducted activity of a business . . . ;

(C) making the record was a regular practice of
that activity;

(D) all these conditions are shown by the
testimony of the custodian or another qualified
witness . . . ; and

(E) neither the source of information nor the
method or circumstances of preparation
indicate a lack of trustworthiness.

The “at or near the time” requirement is “necessarily flexible rather than
arbitrary and depend[s] upon the nature of the material recorded and
other factors involved in the particular case.” Kemp v. Pinal Cnty., 8 Ariz.
App. 41, 44, 442 P.2d 864, 867 (1968).

¶32 ACIC sought to introduce Exhibit 35 during direct
examination of James Bartlett, an ACIC senior underwriting analyst.
Plaintiffs objected and, during voir dire outside of the jury’s presence,
Bartlett testified that he did not have direct personal knowledge of the
conversation reflected in Exhibit 35; that Exhibit 35 did not state who
inputted the answers and that Exhibit 35 did not state that the record was
made at or near the time the information was given. However, Bartlett
testified to his knowledge of the ACIC computer system, adding that
information would not be present in the system unless an ACIC customer
service representative placed it there. Bartlett added that the information
must have been entered “at or near the time that it’s taken from the
applicant,” noting ACIC customer service representatives “have to ask
those questions and they have to complete that part of the questionnaire,
so that it can be uploaded to get a policy issued.”

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¶33 After receiving this testimony, hearing argument and
receiving ACIC’s assurance that portions of customer service
representative Michelle Canter’s testimony would complete the required
showing for admissibility, the superior court conditionally overruled
plaintiffs’ objections to Exhibit 35. In the jury’s presence, Bartlett then
provided testimony showing a foundation for the notes in Exhibit 35.
Bartlett testified that underwriting had to follow up with Canter, who in
turn contacted plaintiffs, to correct a question about whether they owned
a trampoline. Bartlett also noted that Exhibit 35 listed Canter as requesting
a follow up report on plaintiffs.

¶34 Canter then testified that she had worked for ACIC as a
customer service representative for at least four years before taking
plaintiffs’ application. While Canter could not remember the specific
phone conversation with Nguyen, she stated the standard practice was to
“bind” or “write” the policy, including identifying Exhibit 35 as “the
upfront underwriting questions,” that she “would have had to” complete
to write the policy, and Exhibit 35 indicates she prepared the document
for plaintiffs. Although Canter did not specifically recall completing
Exhibit 35, she testified that she “would have had to, had [she] wrote [sic]
the policy.” Canter stated she understood Exhibit 35 to be the
electronically recorded answers that she typed into the ACIC computer
during a conversation she had with one of the plaintiffs. Canter also
confirmed that she contacted plaintiffs regarding her error on whether
they owned a trampoline.

¶35 This testimony is at least minimally adequate to provide a
foundation for the admission of Exhibit 35 and to show the document is
admissible under Arizona Rule of Evidence 803(6). See State v. Morales, 170
Ariz. 360, 364, 824 P.2d 756, 760 (App. 1991) (testimony by custodian and
nurse on regular business activity of linking trauma code name to a
patient’s identity was sufficient foundation under Rule 803(6), even
though source of identity is not noted in records); see also 1 Joseph M.
Livermore, Robert Bartels & Anne Holt Hameroff, Arizona Practice Law of
Evidence § 803.6 at 361-63 (4th ed. 2000) (citing cases). Accordingly, the
superior court did not abuse its discretion in receiving into evidence
Exhibit 35 over plaintiffs’ foundation and Arizona Rule of Evidence 803(6)
objections.

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III. The Superior Court Did Not Err By Refusing To Give Plaintiffs’
Requested Jury Instructions.

¶36 This court reviews a superior court’s refusal to give a
requested jury instruction for an abuse of discretion. Brethauer v. Gen.
Motors Corp., 221 Ariz. 192, 199, 211 P.3d 1176, 1183 (App. 2009). A
superior court has substantial discretion in determining how to instruct a
jury but must instruct the jury if: (1) the evidence supports the instruction;
(2) the instruction is a correct statement of the law and (3) the issue is not
otherwise covered. Id. at 199, 211 P.3d at 1183; Smyser v. City of Peoria, 215
Ariz. 428, 439, ¶ 33, 160 P.3d 1186, 1197 (App. 2007).

A. Plaintiffs’ Proposed Jury Instruction No. 4.

¶37 Plaintiffs argue that the superior court erred in refusing their
proposed jury instruction number 4, which read: “An insurance company
which knows of facts that preclude recovery under an insurance policy
and fails to return the premiums paid by the insured is precluded from
avoiding its obligation under the policy.” This instruction sought to
address ACIC’s misrepresentation or fraud in the insurance application
defense, one of three reasons cited by ACIC for denying the claim. The
superior court refused the proposed instruction, which is not a Revised
Arizona Jury Instruction (RAJI), because it was duplicative of an
instruction not challenged on appeal.

¶38 As authority for the instruction, plaintiffs cited Great
American Reserve Ins. Co. of Dallas v. Strain, 377 P.2d 583 (Okla. 1962) and
Security Insurance Co. of Hartford v. Andersen, 158 Ariz. 431, 436-37, 763 P.2d
251, 256-57 (App. 1986), vacated in part on other grounds, 158 Ariz. 426
(1988), neither of which mandate giving the instruction in this case. Unlike
this case, Strain applied Oklahoma law to decide whether an insurer
waived a claim that an employee who had been “continuously confined as
a bed patient” for ten days prior to his death was “not actually at work”
when he died. 377 P.2d at 586. Strain has never been cited with approval
in Arizona and Anderson found Strain “distinguishable.” Anderson, 158
Ariz. at 436, 763 P.2d at 256. Anderson, in turn, addressed whether an
insurer may be estopped from denying coverage after accepting and then
retaining premiums. 158 Ariz. at 433, 763 P.2d at 253. On the facts of that
case, Anderson concluded estoppel was not appropriate because, inter alia,
the policy insured against types of loss other than the accident that was
the subject of the litigation. Id. at 436, 763 P.2d at 256. As applied, the
record indicates that ACIC paid plaintiffs for another loss under the

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policy. Accordingly, the instruction does not appear to be a correct
statement of the law as applied to the facts of this case.

¶39 ACIC did not rescind the policy but, rather, cancelled the
policy effective on the policy’s anniversary date. Such cancellation was
expressly allowed under the policy terms. Plaintiffs are correct that ACIC
argued rescission to the jury and the superior court gave a general
rescission instruction to the jury “as part of the fraud in the application”
defense. Plaintiffs, however, did not object to the general verdict form
used, which did not require the jury to specify whether plaintiffs failed to
meet their burden of proof or whether ACIC met its burden on a defense
(and, if so, which one). Plaintiffs concede that there is no way to determine
the basis of the verdict. This court will uphold a general verdict if
evidence on any one issue or theory sustains the verdict. Mullin v. Brown, 210 Ariz. 545, 552, ¶ 24, 115 P.3d 139, 145 (App. 2005); Murcott v. Best W.
Int’l, Inc., 198 Ariz. 349, 361, ¶ 64, 9 P.3d 1088, 1100 (App. 2000). For this
additional reason, plaintiffs have not shown that the superior court erred
in failing to give plaintiffs’ proposed jury instruction number 4.

B. Plaintiffs’ Proposed RAJI (Civil) 4th Contract 26.

¶40 Plaintiffs assert that “a customer service representative from
ACIC told Mr. Nguyen that ownership of jewelry could be established,
and coverage purchased, based on an appraisal,” a position plaintiffs
claim was different than ACIC’s post-claim position “that an insured must
have a receipt or other proof of purchase to establish ownership of
jewelry” to prove a loss. Plaintiffs claim these positions, coupled with
policy language covering “personal property owned by or in the care of
an insured,” implicated the doctrine of reasonable expectations.
Accordingly, plaintiffs requested the jury be given RAJI (Civil) 4th
Contract 26, which states:

In deciding what a contract provision means,
you should attempt to determine what the
parties intended at the time that the contract
was formed. You may consider the
surrounding facts and circumstances as you
find them to have been at the time that the
contract was formed. It is for you to determine
what those surrounding facts and
circumstances were.

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To determine what the parties intended the
terms of a contract to mean, you may consider
the language of the written agreement; the acts
and statements of the parties themselves before
any dispute arose; the parties’ negotiations;
any prior dealings between the parties; any
reasonable expectations the parties may have
had as the result of the promises or conduct of
the other party; and any other evidence that
sheds light on the parties’ intent.

¶41 The superior court rejected this requested instruction,
instead giving RAJI (Civil) 4th Contract 25, which the court found
adequately covered the issues in dispute. The instruction as given reads as
follows:

When someone signs an agreement and has
reason to know that what he/she is signing is a
standardized, form agreement which is
regularly used in that kind of transaction,
he/she is bound by its terms regardless of
whether he/she actually read or understood
those terms.

There is an exception to the rule I just stated. If
you find that [ACIC] had reason to believe that
Plaintiffs would not have signed the
standardized agreement if Plaintiffs had
known that a particular term was there, and if
you find that Plaintiffs were in fact unaware
that the particular term was there, that term is
not part of the agreement and Plaintiffs are not
bound by it.

On appeal, plaintiffs claim the superior court erred in failing to also
include RAJI (Civil) 4th Contract 26 in the final jury instructions.

¶42 In claiming error, plaintiffs, rely in large part on the
Restatement (Second) of Contracts § 211 (1981) expressly adopted in
Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 387,
682 P.2d 388, 392 (1984). Section 211 reads as follows:

(1) Except as stated in Subsection (3), where a
party to an agreement signs or otherwise

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Decision of the Court

manifests assent to a writing and has reason to
believe that like writings are regularly used to
embody terms of agreements of the same type,
he adopts the writing as an integrated
agreement with respect to the terms included
in the writing.

(2) Such a writing is interpreted wherever
reasonable as treating alike all those similarly
situated, without regard to their knowledge or
understanding of the standard terms of the
writing.

(3) Where the other party has reason to believe
that the party manifesting such assent would
not do so if he knew that the writing contained
a particular term, the term is not part of the
agreement.

Restatement (Second) of Contracts § 211, quoted in Darner, 140 Ariz. at 396,
682 P.2d at 391. Section 211(2) does not appear to apply in this case and
Sections 211(1) and (3) are closely paraphrased in, and covered by, RAJI
(Civil) 4th Contract 25, quoted above and given to the jury. Accordingly,
plaintiffs have not shown the superior court failed to instruct the jury on
the standards contained in Restatement (Second) of Contracts § 211. See
also First Am. Title Ins. Co. v. Action Acquisitions, LLC, 218 Ariz. 394, 400, ¶
31, 187 P.3d 1107, 1113 (2008) (Arizona’s reasonable expectations doctrine
provides that “a contract term is not enforced if one party has reason to
believe that the other would not have assented to the contract if it had
known of that term”).

¶43 Noting the ACIC “insurance policy provides: ‘We cover
personal property owned by or in the care of an insured,’” plaintiffs argue
the superior court was required to give RAJI (Civil) 4th Contract 26 to
provide the jury guidance about how to construe this contractual
language. This contract language, however, is a standardized contract
term and, as such, is governed by RAJI (Civil) 4th Contract 25. Indeed, the
Use Note for RAJI (Civil) 4th Contract 26 states that “[t]his instruction
should not be given where the dispute concerns the meaning of a
standardized contract term; in such a situation, the intent of the
immediate parties to the contract is not controlling. See Restatement
(Second) of Contracts § 211 comment e (1981).”

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¶44 Apart from the fact that the jury was instructed on the
Section 211 standard, and the Use Note in RAJI (Civil) 4th Contract 26,
plaintiffs’ argument in requesting RAJI (Civil) 4th Contract 26 was based
on ACIC’s purported representations about what was required to obtain
coverage for personal property, not what was required to prove a loss and
collect insurance proceeds. As ACIC notes, “[t]here is a large difference
between adding an item of jewelry to a policy and demonstrating
compliance with all of the policy’s conditions[] in order to obtain payment
for a jewelry loss.” For these reasons, plaintiffs have not shown that the
superior court erred in failing to give RAJI (Civil) 4th Contract 26.

CONCLUSION

¶45 Finding no error, the jury verdict in favor of ACIC is
affirmed. Both plaintiffs and ACIC request attorneys’ fees on appeal
pursuant to A.R.S. § 12-341.01 and Arizona Rule of Civil Appellate
Procedure 21. Plaintiffs have not shown an entitlement to attorneys’ fees
on appeal. As the prevailing party, ACIC is awarded its reasonable
attorneys’ fees on appeal, and its costs on appeal, upon compliance with
Arizona Rule of Civil Appellate Procedure 21.

:MJT

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