Hendrix Wholesale Supply LLC v. Accredited Surety and Casualty Company Incorporated, et al.

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8

Hendri x Wholesale Supply LLC, ) No. CV-25-03649-PHX-SPL ) 9 ) 10 Plaintiff, ) ORDER vs. ) ) 11 ) Accredited Surety and Casualty ) 12 Company Incorporated, et al., ) 13 ) ) 14 Defendants. )

15 Before the Court is Defendants Attune Insurance Services, LLC and North 16 American Risk Services, Inc.[’s] Motion to Dismiss. (Doc. 11). Plaintiff Hendrix 17 Wholesale Supply, LLC filed a Response (Doc. 20), and Defendants filed a Reply. (Doc. 18 21). For the following reasons, the Motion will be granted.1 19 I. BACKGROUND 20 Plaintiff initiated this action against Defendants Accredited Surety and Casualty 21 Company, Inc. (“Defendant Accredited”), Attune Insurance Services, LLC (“Defendant 22 Attune”), and North American Risk Services, Inc. (“Defendant NARS”) in state court. 23 (Doc. 1-1). Defendants removed the action to this Court on October 2, 2025. (Doc. 1). The 24 action arose after a fire occurred at Plaintiff’s property (the “Property”), located in 25 Glendale, Arizona. (Doc. 1-1 at 7, ¶¶ 10–11). The Property was insured by Defendant 26

27 1 Because it would not assist in resolution of the instant issues, the Court finds the pending motion is suitable for decision without oral argument. See LRCiv. 7.2(f); Fed. R. 28 Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 1 Accredited, and Plaintiff submitted a claim to Defendant Accredited for the damage to the 2 Property caused by the fire. (Id. ¶¶ 12, 14). Defendant Accredited “assigned the claim to 3 [Defendant] NARS,” which is “a third-party administrator.” (Id. at 7–8, ¶¶ 4, 15). 4 Defendant NARS sent three payments to Plaintiff. (Id. at 8–9, ¶¶ 24–25, 28). However, 5 Plaintiffs allege that Defendants’ evaluation of the loss was “unreasonable, untimely, 6 incomplete and incompetent,” and that Defendants failed to provide full coverage for the 7 loss. (Id. at 9, ¶¶ 30–31). 8 The Complaint contains two claims: (1) Breach of Insurance Contract; Breach of 9 Covenant of Good Faith and Fair Dealing against Defendant Accredited; and (2) Tortious 10 Bad Faith Claims Handling against all Defendants. (Id. at 9–12). On October 8, 2025, 11 Defendants Attune and NARS filed the instant Motion to Dismiss. (Doc. 11). On the same 12 day, Defendant Accredited Answered the Complaint. (Doc. 12). In Plaintiff’s Response to 13 the Motion to Dismiss, Plaintiff stated that it “has agreed to dismiss Attune from this 14 action” because of Defendant Attune’s “lack of involvement in the insurance claim.” (Doc. 15 20 at 1). The parties then filed a stipulation to dismiss Defendant Attune (Doc. 22), which 16 the Court granted on December 3, 2025. (Doc. 23). Because Defendant Attune has been 17 dismissed, the arguments in the Motion and briefing relate only to the dismissal of 18 Defendant NARS. 19 II. LEGAL STANDARD 20 To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain “a 21 short and plain statement of the claim showing that the pleader is entitled to relief” so that 22 the defendant is given fair notice of the claim and the grounds upon which it rests. Bell Atl. 23 Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2)). A court may 24 dismiss a complaint for failure to state a claim under Rule 12(b)(6) for two reasons: (1) 25 lack of a cognizable legal theory, or (2) insufficient facts alleged under a cognizable legal 26 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). When 27 deciding a motion to dismiss, “all allegations of material fact” in the complaint “are taken 28 as true and construed in the light most favorable to the nonmoving party.” Cousins v. 1 Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009) (citation omitted). 2 III. DISCUSISON 3 Defendant NARS argues that it should be dismissed from Count Two of the 4 Complaint for Bad Faith Claims Handling because, as a third-party benefits administrator, 5 it did not have a contractual relationship with Plaintiff. (Doc. 11 at 5–7). In response, 6 Plaintiff argues that contractual privity is not a requirement for bringing a tortious bad faith 7 claim under Arizona law. (Doc. 20 at 4). This case was removed to federal court under 8 diversity jurisdiction, so the Court must apply the substantive law of Arizona. E.g., Am. 9 Triticale, Inc. v. Nytco Servs., Inc., 664 F.2d 1136, 1141 (9th Cir. 1981) (“It is well settled 10 that a federal court exercising diversity jurisdiction must apply substantive state law.”). 11 Under Arizona law, every contract contains an implied covenant of good faith and 12 fair dealing. Rawlings. v. Apodeca, 726 P.2d 565, 569 (Ariz. 1986). The resulting duty is 13 that “neither party will act to impair the right of the other to receive the benefits which flow 14 from their agreement or contractual relationship.” Id. “An insurance company’s duty of 15 good faith [means] an insurer must deal fairly with an insured, giving equal consideration 16 in all matters to the insured’s interests.” Id. at 573 (quoting Tank v. State Farm Fire & Cas. 17 Co., 715 P.2d 1133 (Wash. 1986)). “The tort of bad faith arises when the insurer 18 ‘intentionally denies, fails to process or pay a claim without a reasonable basis.’” Zilisch 19 v. State Farm Mut. Auto Ins. Co., 995 P.2d 276, 279 ¶ 20 (Ariz. 2000) (quoting Noble v. 20 Nat’l Am. Life Ins. Co., 624 P.2d 866, 868 (Ariz. 1981)). 21 The duty of good faith and fair dealing is rooted in the contractual relationship. 22 Rawlings, 726 P.2d at 569. Therefore, a third-party administrator “cannot be directly liable 23 for breaching the covenant of good faith and fair dealing because it is not a party to the 24 insurance contract from which that covenant derives.” McGhee v. Sedgwick Claims Mgmt. 25 Servs., Inc., No. CV-19-08003-PCT-DLR, 2019 WL 1598032, at *2 (D. Ariz. Apr. 15, 26 2019) (dismissing bad faith claim against third party claim administrator because of the 27 lack of any contractual relationship with the plaintiff/insured); see also Meineke v. GAB 28 Bus. Servs., Inc., 991 P.2d 267, 271 (Ariz. Ct. App. 2000) (explaining that the actions of 1 an adjuster who mishandled a claim may be imputed to the insurer, but the adjuster does 2 not owe a separate duty to the insured); Jacobs v. Am. Fam. Mut. Ins. Co., No. CV-13- 3 01404-PHX-SRB, 2013 WL 11785112, at *1–3 (D. Ariz. Aug. 29, 2013) (dismissing 4 breach of the covenant of good faith and fair dealing claim against an independent 5 insurance adjuster because the adjuster was not a party to the insurance contract). 6 Plaintiff cites Gatecliff v. Great Republic Life Insurance Company, 821 P.2d 725 7 (Ariz. 1991) for the proposition that “privity of contract is not a requirement of an insurance 8 bad faith claim.” (Doc. 20 at 4). However, that case dealt with bad faith claims against an 9 insurance company and its subsidiary company. Gatecliff, 821 P.2d at 727. The Arizona 10 Supreme Court held that an insurance company could not avoid liability for a bad faith 11 claim just because its subsidiary company issued the insurance policy. Id. at 727–31. The 12 decision was based on the fact that the insurance company was the management company 13 of the subsidiary insurer and “hired the claims adjusters and managed the claims office that 14 processed” the insurance claims at issue. Id. at 731. Therefore, the management company 15 could be held directly liable even though it was not a party to the contract. Id. 16 That law does not apply to the facts here. The Complaint does not allege any kind 17 of management and subsidiary relationship between Defendant Accredited and Defendant 18 NARS. (See Doc. 1-1). Instead, the Complaint alleges that Defendant NARS “is a third- 19 party administrator for Defendant Accredited.” (Id. at 7, ¶ 4). Therefore, the law cited by 20 Plaintiff does not apply. Defendant NARS cannot be directly liable for bad faith as a third- 21 party administrator.2 Therefore, the claim against Defendant NARS in Count Two will be 22 dismissed. 23 Further, the Court finds that Plaintiff cannot cure this deficiency by alleging 24 additional facts. Consequently, Plaintiff will not be afforded leave to amend Count Two as

25 2 Though Plaintiff cannot bring a bad faith claim against Defendant NARS, the 26 actions of the agent or administrator will be imputed to the insurer for purposes of a bad faith claim. Walter v. F.J. Simmons and Others, 818 P.2d 214, 223 (Ariz. Ct. App. 1991) 27 (“[A]lthough an insurer may delegate the performance of its duty of good faith to a non- servant, it remains liable for the actions taken by this delegate because the duty of good 28 faith itself is non-delegable.”). 1 | to Defendant NARS. See Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (“[A] district court should grant leave to amend even if no request to amend the pleading was made, 3 | unless it determines that the pleading could not possibly be cured by the allegation of other 4| facts.”) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995)). 5 Accordingly, 6 IT IS ORDERED that Defendants’ Motion to Dismiss (Doc. 11) is granted. 7 IT IS FURTHER ORDERED that Defendant North American Risk Services, Inc. 8 | is dismissed with prejudice from this action. 9 IT IS FURTHER ORDERED that the Clerk of Court shall terminate Defendant 10 | North American Risk Services, Inc. as a party to this action. 11 Dated this 30th day of April, 2026.

13 Honorable even P. Lggan 14 United States District udge 15 16 17 18 19 20 21 22 23 24 25 26 27 28