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Here’s the line most Phoenix bad faith articles get wrong, and it matters from sentence one: in Arizona, you can sue your own insurance company for bad faith. You cannot sue the other driver’s insurance company for bad faith. Those are two different worlds. If you don’t understand which one you’re in, you’ll waste a year chasing a claim that doesn’t legally exist.
This article walks through what insurance bad faith actually means under Arizona law, what it looks like in a Phoenix car accident, what damages you can recover, the evidence we build to prove it, and what to do right now if you suspect your insurer is acting in bad faith. If you’re searching for a Phoenix insurance bad faith lawyer because your UM/UIM carrier is stalling on a claim, you’re in the right place.
The Arizona Supreme Court created the tort of insurance bad faith in Noble v. National American Life Insurance Co., 128 Ariz. 188 (1981). The basic rule: every insurance contract carries an implied covenant of good faith and fair dealing, and an insurer breaches that covenant when it fails to handle a claim with reasonable care, including by unreasonably denying or delaying payment of a valid claim.
The doctrine evolved through Rawlings v. Apodaca, 151 Ariz. 149 (1986), and was sharpened in Zilisch v. State Farm Mutual Auto Insurance Co., 196 Ariz. 234 (2000). Zilisch is the case Phoenix bad faith lawyers cite most. The court held that an insurer must give equal consideration to its insured’s interests as it gives its own. Intentional disregard of the insured’s financial interests is bad faith. That’s the standard.
It is not a high bar in concept. It is a high bar in practice, because you have to prove what an adjuster was thinking, not just what they did.
This is the most important distinction on this page.
First-party claim. You file a claim against your own insurance policy. UM/UIM, medical payments coverage, collision, comprehensive. You are the insured. The insurer owes you a duty of good faith. If they breach that duty, you have a bad faith tort claim.
Third-party claim. You file a claim against the at-fault driver’s liability policy. You are not the insured. The other driver’s insurer owes its duty of good faith to its own insured (the at-fault driver), not to you. In Arizona, you have no direct bad faith cause of action against the other driver’s carrier. The Arizona Court of Appeals confirmed this in Leal v. Allstate Insurance Co., 199 Ariz. 250 (App. 2000).
That doesn’t mean the other driver’s adjuster can do whatever they want. They can still be liable for fraud, for unfair claims practices that violate Arizona’s Unfair Claim Settlement Practices Act, and their conduct can drive up a verdict at trial. But “bad faith” as a tort claim against them? No. Not in Arizona.
So when someone calls our office angry that Progressive (the other driver’s carrier) is stonewalling, that’s a settlement-pressure problem, not a bad faith case. When someone calls because their own State Farm UM/UIM carrier has been sitting on a valid claim for six months, that’s a potential bad faith case.
The Zilisch line of cases, plus the 14 prohibited practices in A.R.S. § 20-461 (Arizona’s Unfair Claim Settlement Practices Act), give us a working list of conduct that supports a bad faith claim. Here’s what we see most often in Phoenix:
Understanding how insurers apply Insurance Claim Pressure tactics can help you recognize when a settlement dispute crosses into bad faith territory.
One important note about A.R.S. § 20-461: those 14 practices do not give you a private right of action. You cannot sue an insurer for “violating the UCSPA.” But violations are evidence of bad faith. We use them in discovery and at trial as benchmarks against which to measure the insurer’s conduct.
Most Arizona bad faith lawsuits arise from uninsured motorist or underinsured motorist claims. Here’s why.
Arizona’s minimum liability limits are 25/50/15 (A.R.S. § 28-4009): $25,000 per person bodily injury, $50,000 per accident, $15,000 property damage. Those are tiny numbers for any real injury. Hit by a driver with $25K in liability coverage, and you have a $90K medical bill? The at-fault carrier tenders the policy, and you turn to your own UM/UIM coverage to make up the gap.
Under A.R.S. § 20-259.01, insurers must offer UM/UIM coverage to every Arizona consumer. You can reject it in writing, but the offer is required. Minimum UM/UIM amounts match liability minimums (25/50). Arizona also prohibits stacking UM coverage across multiple policies, which limits how much coverage you can pyramid even if you have multiple cars insured.
Once you trigger UM/UIM, the insurer is no longer playing on the same team. You’re the plaintiff. They’re the defendant. They have every financial incentive to delay, dispute liability, dispute damages, and pay less. The insurer that smiled at you for ten years of premiums is now adverse.
That shift is where most Phoenix bad faith claims are born. The carrier underpays the UM/UIM claim. The insured pushes back. The carrier digs in. Eventually, the conduct itself becomes a second cause of action.
Common UM/UIM bad faith fact patterns we see:
– Insurer disputes that the hit-and-run was actually a hit-and-run (to avoid UM coverage)
– Insurer inflates the insured’s fault percentage to reduce the claim, weaponizing Arizona’s pure comparative negligence rule against its own insured
– Insurer demands an examination under oath, then uses minor inconsistencies to deny
– Insurer ignores treating-physician opinions in favor of a paper-review IME doctor it has used for years
A first-party bad faith claim in Arizona is a tort claim. That means the damages go beyond what the contract itself would allow.
Contract damages. What the policy should have paid. If your UM/UIM carrier owed you $100,000 and refused, that $100,000 is recoverable as contract damages.
Consequential damages. Out-of-pocket losses that resulted from the insurer’s bad-faith conduct. Lost wages because you couldn’t pay for the surgery the insurer was refusing to fund. Emotional distress from the financial stress. Damage to your credit because you couldn’t pay medical bills the insurer should have covered. Rawlings v. Apodaca established consequential damages as recoverable in bad faith.
Punitive damages. Possible, but they require an extra showing. We cover that in the next section.
Attorney’s fees. Available in some bad faith fact patterns under A.R.S. § 12-341.01 (contract-related) and case law.
Punitive damages in Arizona are not awarded just because the insurer behaved badly. The Arizona Supreme Court set the standard in Linthicum v. Nationwide Life Insurance Co., 150 Ariz. 326 (1986): the plaintiff must prove the defendant acted with an “evil mind.” That means a conscious disregard for the rights of others, or aggravated and outrageous conduct with knowledge of the substantial risk of harm to the insured.
“The adjuster was sloppy” doesn’t get you there. “The adjuster knew the claim was valid, was internally documented as valid, and continued to deny it to extract a discounted settlement under financial pressure” might. The line is intent and consciousness, not negligence.
What this means for your case: punitive damages are real but rare. They require evidence we can usually only get through discovery, particularly through the claim file and internal communications.
Bad faith is won and lost in discovery. The insurer almost never wants to produce what we need. We fight for:
Insurers know this material is damaging, so they fight production hard. Privilege logs the length of phone books. Redactions. “Work product” claims on documents that aren’t work product. A real bad faith case includes a discovery fight before it includes a verdict.
Two clocks run at once, and they run at different speeds.
Bad faith tort claim: 2 years under A.R.S. § 12-542. The clock generally starts when the insurer’s bad-faith conduct caused harm, which is fact-specific. This is the same as Arizona’s two-year statute of limitations for personal injury.
Breach of insurance contract claim: 6 years under A.R.S. § 12-548 (written contracts).
This split is a practitioner trap. Some Phoenix bad faith pages cite only the 6-year contract SOL and miss the 2-year tort SOL. If you wait four years to sue, you may have a contract claim but no bad faith tort claim, which means no consequential damages, no punitive damages, and far less leverage.
Don’t rely on either deadline. Talk to a lawyer early. The facts that determine when the clock starts are often disputed, and there is no upside to waiting.
The Arizona Department of Insurance and Financial Institutions (ADIFI) accepts consumer complaints against insurers. The complaint process is governed by A.R.S. § 20-142 and ADIFI’s consumer affairs procedures.
A few things to understand about the regulator path:
When we advise clients suspecting bad faith, we look at three paths and often pursue more than one: an ADIFI complaint, a formal demand letter to the insurer’s claims department citing the bad-faith conduct, and (if warranted) a lawsuit. They are not mutually exclusive.
If your own insurer is denying, delaying, or lowballing a valid claim, here’s the practical sequence:
No. Arizona only recognizes a bad faith tort claim against your own insurer, the one that owes you a contractual duty of good faith. The other driver’s insurance company owes that duty to its insured, not to you. Leal v. Allstate, 199 Ariz. 250 (App. 2000) settled this question. You may have other claims against them (fraud, unfair practices as evidence), but not bad faith.
Two years for the bad faith tort claim under A.R.S. § 12-542. Six years for the breach of insurance contract claim under A.R.S. § 12-548. They run on separate tracks. The 2-year tort clock is the one most people miss.
No. An ADIFI complaint is optional, not a prerequisite to suit. It can help build the record, but you can go straight to civil litigation if the facts support it.
Our team handles bad faith and UM/UIM cases on contingency, meaning no attorney’s fees unless we recover. Case costs and the exact fee structure depend on your written fee agreement. Bad faith cases are expensive to litigate because of discovery fights and expert witnesses, but the contingency model is designed so you don’t pay out of pocket.
Maybe. If you signed a release that covers bad faith claims, recovery is harder but not always impossible (releases obtained through misrepresentation or coercion can be challenged). If you signed only a release of the underlying coverage claim, the bad faith tort may still be alive. Don’t sign anything else until you’ve had it reviewed.
UM/UIM disputes after a serious car accident. The at-fault driver is uninsured or carries 25/50/15 minimum limits, the injuries blow through that, and the insured turns to their own UM/UIM coverage. The carrier then disputes liability, damages, or both. That’s where most Phoenix bad faith lawsuits originate.
Bad faith cases are not generic injury cases. They turn on the conduct of the insurer, the contents of the claim file, and the discipline of building a record the insurer doesn’t want produced. Our team focuses on first-party bad faith and UM/UIM disputes in Phoenix and across Arizona.
If your own insurance company is stalling, denying, or undercutting a valid claim, get a clear answer about your case before the 2-year tort statute of limitations gets in the way.
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To start that review, Contact Us and a member of our team will walk through the facts of your claim.
By Jared J. Pehrson | Impact Legal Car Accident Attorneys
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