## Facts

- Kenneth and Dorene Callies bought a homeowners insurance policy for their Oregon home from United Heritage Property & Casualty Insurance Company.
- United was incorporated and had its principal place of business in Idaho and did business in several states, including Oregon and Arizona.
- The policy covered the Callieses’ personal property “anywhere in the world.”
- In June 2011, the Callieses rented a moving truck to relocate from Oregon to Arizona with their household goods.
- While they were staying at an Arizona motel, the truck containing their belongings was stolen from the motel parking lot in Arizona.
- The Callieses promptly reported the theft and submitted a claim to United.
- United initially indicated that the loss was covered; relying on that, the Callieses purchased a home in Arizona.
- United later initiated a fraud investigation concerning the claim and sought information from the Callieses as part of that investigation.
- Kenneth allegedly developed emotional and behavioral problems during the investigation, and his mental health deteriorated until he was committed to a mental-health facility in Oregon.
- The Callieses sued United in Arizona state court, asserting a tort claim for first-party insurance bad faith based on United’s claim handling.
- United moved to dismiss, arguing Oregon law controlled and Oregon did not recognize a tort claim for first-party insurance bad faith; the trial court dismissed.
- The Callieses appealed.

## Issues

1. Under Arizona choice-of-law rules for tort claims, did Arizona or Oregon substantive law govern the Callieses’ first-party insurance bad-faith claim?
2. If Arizona law applied, did the complaint state a legally recognized claim for first-party insurance bad faith sufficient to survive a motion to dismiss?

## Decision

- The Arizona Court of Appeals reversed the dismissal and remanded.
- Applying the Restatement (Second) “most significant relationship” analysis for torts, the court held Arizona law governed the bad-faith claim.
- Because Arizona recognizes a tort claim for first-party insurance bad faith, dismissal based on Oregon’s lack of such a tort remedy was improper.

## Legal Principles

- Arizona treats first-party insurance bad faith as a tort claim based on the insurer’s duty of good faith and fair dealing in handling a claim, even though the relationship arises from a contract.
- For tort choice-of-law questions, Arizona applies the Restatement (Second) of Conflict of Laws “most significant relationship” test, considering Restatement §§ 145 and 6.
- The Restatement § 145 contacts include: (1) where the injury occurred, (2) where the conduct causing the injury occurred, (3) the domiciles, residences, and places of business of the parties, and (4) where the parties’ relationship is centered.
- In weighing those contacts, a state may have a strong interest in applying its law to insurer conduct tied to a loss in that state and to claim handling affecting insureds there, particularly when the policy provides worldwide personal property coverage and the insurer does business in the forum state.
- On a motion to dismiss for failure to state a claim, the court assumes the truth of well-pleaded factual allegations and asks whether the plaintiff has stated a claim under the governing substantive law.

## Conclusion

The Court of Appeals held that Arizona had the most significant relationship to the alleged bad-faith claim handling tied to an Arizona theft loss under a policy covering personal property worldwide, so Arizona law applied; because Arizona recognizes a first-party insurance bad-faith tort, the trial court’s dismissal on Oregon-law grounds was reversed and the case was remanded.


Callies v. United Heritage Prop. & Cas. Ins. Co., 2014 WL 1048846