Yf Group v. Farmer

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

THE YF GROUP INC, et al., Plaintiffs/Appellants,

v.

FARMER ORTH LEAVITT INSURANCE AGENCY INC, et al.,
Defendants/Appellees.

No. 1 CA-CV 18-0464
FILED 5-9-2019

Appeal from the Superior Court in Maricopa County
No. CV2016-013374
The Honorable Teresa A. Sanders, Judge

AFFIRMED

COUNSEL

Gallagher & Kennedy, PA, Phoenix
By Jennifer A. Cranston
Counsel for Appellants

The Cavanagh Law Firm, Phoenix
By Frank M. Fox, Loren A. Suddes
Counsel for Appellee
 YF GROUP, et al. v. FARMER, et al.
Decision of the Court

MEMORANDUM DECISION

Presiding Judge David D. Weinzweig delivered the decision of the Court,
in which Judge Kent E. Cattani and Judge James P. Beene joined.

W E I N Z W E I G, Judge:

¶1 The YF Group, Inc. (“YF”) appeals the superior court’s grant
of summary judgment in favor of Westfield Insurance Company
(“Westfield”). We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 YF hired Ashworth Construction, Inc. (“Ashworth”) as
general contractor for a construction project. Ashworth agreed to maintain
various insurance policies and have them “endorsed to provide [YF] with
thirty (30) days advance written notice of cancellation (ten (10) days in the
event of cancellation for non-payment of premium).” Ashworth already
had an existing commercial insurance policy (the “Policy”) in place from
Westfield, effective May 15, 2015 through May 15, 2016.

¶3 The Policy included an endorsement governing the
procedures for cancellation and nonrenewal, which identified different
notice requirements for cancellation “based on non-payment of premiums”
and cancellation “for any of the other [listed] reasons.” The Policy directed
Westfield to mail “written notice of cancellation” to the “first Named
Insured” and its insurance agent at least:

a. 10 days before the effective date of cancellation if we
cancel for non-payment of premium; or

b. 45 days before the effective date of cancellation if we
cancel for any of the other [listed] reasons.

Ashworth was the only “Named Insured” under the Policy.

¶4 YF’s insurance agent emailed Ashworth’s insurance agent in
early July 2015 to confirm that YF would be “specifically named by
endorsement” as an “additional insured” under the Policy “with 30 days
notice of cancellation.” Ashworth’s agent confirmed “[t]he endorsement
giving [YF] 30 days [notice of cancellation] has been requested and

2
 YF GROUP, et al. v. FARMER, et al.
Decision of the Court

approved; the form will be attached to the policy.” Westfield then issued
“Earlier Notice of Cancellation Provided By Us” endorsements to the YF
entities (the “YF Endorsements”), providing that YF would receive 30 days’
notice of cancellation “[f]or any statutorily permitted reason other than
nonpayment of premium.”

¶5 Ashworth did not pay the January 2016 insurance premium
on the Policy. On February 8, Westfield mailed the required written
“Notice of Cancellation” to Ashworth and its insurance agent, indicating
the Policy would be cancelled if Westfield did not receive a $3,886.58
payment by 12:01 a.m. on February 24. Westfield did not notify YF, but
Ashworth informed YF about the notice of cancellation on February 21.
Ashworth did not pay the unpaid premiums before the deadline and
Westfield cancelled the Policy.

¶6 YF sued Westfield in September 2016 for not providing
written notice of cancellation to YF.1 YF requested a declaration against
Westfield “that there is coverage under the policies . . . during the period of
lapsed coverage due to Westfield’s failure to provide the contracted-for
[notice of cancellation].” 2 YF has never alleged it suffered a loss that would
have been covered under the Policy.

¶7 On cross-motions for summary judgment, the court ruled that
the insurance contract (the Policy and YF Endorsements) included “no
provision” requiring Westfield to provide notice of cancellation for
nonpayment of premium to YF as “additional insureds,” and awarded
Westfield its attorneys’ fees in the amount of $52,300. YF moved for a new
trial on the merits and for reconsideration of the fee award. Both motions
were denied. YF timely appealed. We have jurisdiction pursuant to A.R.S.
§ 12-2101(A)(1).

1 YF also filed a professional malpractice claim against Ashworth’s
insurance agent, Alena Avnukov and Farmer Orth Leavitt Insurance
Agency, Inc. This claim was settled.

2 Although not argued by the parties and not reached here, we
question how the alleged breach would be material. YF received at least
some advance notice and did not pay or attempt to pay the unpaid
premium.

3
 YF GROUP, et al. v. FARMER, et al.
Decision of the Court

DISCUSSION

¶8 Summary judgment is proper “if the moving party shows that
there is no genuine dispute as to any material fact and the moving party is
entitled to judgment as a matter of law.” Ariz. R. Civ. P. 56(a). We review
the superior court’s grant of summary judgment de novo, and consider the
evidence and all reasonable inferences in the light most favorable to the
non-moving party. Lennar Corp. v. Transamerica Ins. Co., 227 Ariz. 238, 242,
¶ 7 (App. 2011). We likewise “review de novo the interpretation of
insurance contracts.” First Am. Title Ins. Co. v. Action Acquisitions, LLC, 218
Ariz. 394, 397, ¶ 8 (2008). We will affirm if the summary judgment is correct
for any reason. City of Tempe v. Outdoor Sys., Inc., 201 Ariz. 106, 111, ¶ 14
(App. 2001).

A. The Policy Is Unambiguous

¶9 We affirm the entry of summary judgment in Westfield’s
favor based on the plain and unambiguous notice requirements in the
Policy and YF Endorsements. “We accord words used in policies their plain
and ordinary meaning, examining the policy from the viewpoint of an
individual untrained in law or business.” Teufel v. Am. Family Mut. Ins. Co.,
244 Ariz. 383, 385, ¶ 10 (2018) (quotation omitted). A policy is ambiguous,
however, if subject to “conflicting reasonable interpretations,” and we
interpret ambiguous policies “by examining . . . the transaction as a whole.”
Id. (quotation omitted).

¶10 The Policy’s cancellation endorsement only required
Westfield to provide “written notice of cancellation” to Ashworth as the
“first Named Insured” and its insurance agent. The YF Endorsements only
required Westfield to provide 30-day notice of cancellation to YF “[f]or any
statutorily permitted reason other than nonpayment of premium.” Ashworth
failed to pay the January 2016 insurance premium. Westfield mailed
written notice of cancellation for nonpayment of premiums to Ashworth
and its insurance agent in February 2016, and then cancelled the Policy for
“nonpayment of premium.”

¶11 YF argues the court should have interpreted the Policy and
YF Endorsements based on external evidence and public policy. YF also
asserts that “someone untrained in the law of insurance” could conclude
the YF Endorsements extended to cancellations for nonpayment because
they “do[] not . . . say that ‘no notice’ will be provided for cancellation due
to nonpayment.” We disagree. The superior court properly interpreted the
Policy and YF Endorsements based on their plain terms because the terms

4
 YF GROUP, et al. v. FARMER, et al.
Decision of the Court

are not susceptible to “conflicting reasonable interpretations.” Teufel, 244
Ariz. at 385, ¶ 10; Doneson v. Farmers Ins. Exch., 245 Ariz. 484, 487, ¶¶ 7-8
(App. 2018). Absent evidence of mutual mistake, we conclude the Policy
and YF Endorsements were not reasonably susceptible to YF’s alternative
interpretation.

¶12 YF offers three Arizona statutes for its argument, A.R.S. § 20-
1632(A), § 20-1632.01(B) and § 20-1674(B), but the statutes only require
notice of cancellation to the “policyholder” or “named insured,” meaning
to Ashworth. YF further contends it should have received notice based on
the contract between YF and Ashworth, which required Ashworth to
procure an insurance policy that “provide[d] [YF] with . . . ten (10) days’
notice of cancellation for non-payment of premium.” We are not
persuaded. Westfield was not bound by that contract. Nor did YF offer
evidence that Westfield knew or had reason to know about the contract
term.

B. The Reasonable Expectations Doctrine Does Not Apply

¶13 YF also contends the court’s interpretation violated its
reasonable expectations. Courts will generally not enforce unambiguous
boilerplate terms in a standardized insurance contract if they violate the
reasonable expectations of the insured. See Beaver v. Am. Family Mut. Ins.
Co., 234 Ariz. 584, 588, ¶ 16 (App. 2014).

¶14 YF asserted its reasonable expectations arguments for the first
time in its motion for new trial. Issues first raised to the superior court on
a motion for new trial are typically waived on appeal. See Conant v. Whitney, 190 Ariz. 290, 293 (App. 1997). Even if properly raised, however, the
argument is not persuasive here for several reasons. First, the notice
provision is clear and unambiguous. Am. Family Mut Ins. Co. v. White, 204
Ariz. 500, 507, ¶ 19 (App. 2003) (rejecting a “reasonable expectations”
revision to an insurance policy where “policy language is clear,
unambiguous, and objectively reasonable; the exclusion is not lengthy,
confusing, complex, or buried in the policy”).

¶15 Second, the YF Endorsements were negotiated rather than
boilerplate and buried in a contract of adhesion; the relevant terms were
extracted from the email dialogue between YF’s and Ashworth’s insurance
agents. See Philadelphia Indem. Ins. Co. v. Barerra, 200 Ariz. 9, 14, ¶ 12 (2001)
(“[T]he doctrine of reasonable expectations relieves a party from certain
clauses of an agreement which he did not negotiate, probably did not read,
and probably would not have understood had he read them.”) (quotation

5
 YF GROUP, et al. v. FARMER, et al.
Decision of the Court

omitted); Averett v. Farmers Ins. Co., 177 Ariz. 531, 532 (1994) (“It is well
established that a contracting party’s reasonable expectations may affect the
enforceability of non-negotiated terms in a standardized agreement.”)
(emphasis added).

¶16 Moreover, additional insureds are generally not entitled to
notice of cancellation for nonpayment of premiums unless specifically
designated under the policy. Steven Plitt et al., Couch on Insurance § 31.21
(3d ed. Supp. 2018). YF was not specifically designated to receive such
notice under the Policy or YF Endorsements. Nor did YF offer evidence
that Westfield induced it to believe and it reasonably believed the policy
and endorsement had any such designation. The record instead indicates
YF’s agent requested YF “be specifically named by endorsement with 30
days notice of cancellation,” which the YF Endorsements provided.

¶17 At most, YF argues Ashworth’s agent may have believed
Westfield was obligated to provide the contested notice. But the belief of
Ashworth’s insurance agent is irrelevant to whether the written YF
Endorsements violated YF’s reasonable expectations. See State Farm Fire &
Cas. Co. v. Powers By & Through Fleming, 163 Ariz. 213, 216 (App. 1989)
(declining to apply reasonable expectations doctrine where “[t]here was no
evidence that the insurance company had reason to believe that [the insureds]
would not have accepted the insurance policy if they had known of the
exclusion”). 3 The court thus did not err in entering summary judgment for
Westfield.

C. Attorneys’ Fees

¶18 YF contends the attorneys’ fees award to Westfield was
unjustified solely because it “sends an intimidating message to similarly-
situated insureds.” See Associated Indem. Corp. v. Warner, 143 Ariz. 567, 570
(1985) (“[T]he trial court should consider whether the award in any
particular case would discourage other parties with tenable claims or
defenses from litigating or defending legitimate contract issues for fear of
incurring liability for substantial amounts of attorney’s fees.”). We review
fee awards for an abuse of discretion and may affirm if the award is

3 Westfield also contends the reasonable expectations doctrine does
not apply because (1) it only can be asserted when coverage is denied for a
loss and (2) it does not apply to additional insureds who do not pay
premiums. We need not reach these issues.

6
 YF GROUP, et al. v. FARMER, et al.
Decision of the Court

supported by any reasonable basis in the record. Peterson v. City of Surprise,
244 Ariz. 247, 253, ¶ 25 (App. 2018).

¶19 The court did not abuse its discretion. The prevailing party
qualified for an award of attorneys’ fees and costs under A.R.S. § 12-341.01.
YF did not argue the superior court should reject or discount the award as
excessive. The statute includes no exception for insurance contracts and
YF’s general concern about larger messages to future litigants does not
alone establish error. City of Tempe v. State, 237 Ariz. 360, 368, ¶ 32, n.9 (App.
2015) (“A party opposing a fee request does not meet its burden merely by
asserting broad challenges to the [fee] application.”) (quotation omitted).
We affirm the award.

¶20 Westfield and YF seek their attorneys’ fees on appeal
pursuant to A.R.S. § 12-341.01. YF’s declaratory relief claim arises from the
Policy and the YF Endorsements. We therefore grant reasonable attorneys’
fees to Westfield as the prevailing party and deny YF’s request. Westfield
is also entitled to its costs upon compliance with ARCAP 21.

CONCLUSION

¶21 We affirm the superior court’s grant of summary judgment
and fee award, and award Westfield taxable costs and reasonable attorneys’
fees upon compliance with ARCAP 21.

AMY M. WOOD • Clerk of the Court
FILED: AA

7