UM/UIM Demand Letter - Arizona

UM/UIM (UNINSURED/UNDERINSURED MOTORIST) DEMAND LETTER

State of Arizona

[LAW FIRM LETTERHEAD]

PRIVILEGED AND CONFIDENTIAL
SETTLEMENT COMMUNICATION — FOR SETTLEMENT PURPOSES ONLY
INADMISSIBLE UNDER ARIZ. R. EVID. 408 AND FED. R. EVID. 408

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [________________________________]

Date: [__/__/____]

[INSURANCE_COMPANY_NAME]
[________________________________]
[________________________________], Arizona [____]

Attention: [ADJUSTER_NAME], [ADJUSTER_TITLE]

Re: UM/UIM POLICY LIMITS DEMAND — ARIZONA LAW
Insured/Claimant: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Location of Loss: [________________________________], Arizona
UM/UIM Policy Limits: $[____] per person / $[____] per accident
Tortfeasor: [________________________________]
Tortfeasor's Liability Carrier: [________________________________]
Tortfeasor's Bodily Injury Limits: $[____] per person / $[____] per accident
Response Deadline: [__/__/____] at 5:00 p.m. Mountain Standard Time (Arizona does not observe daylight saving time — A.R.S. § 1-242)

Dear [ADJUSTER_NAME]:

I. INTRODUCTION AND NATURE OF DEMAND

This firm represents [CLIENT_NAME] ("our client" or "Insured") in connection with a claim for [uninsured / underinsured] motorist benefits arising from a motor vehicle collision that occurred in Arizona on [__/__/____]. This letter constitutes a formal demand for payment of the full UM/UIM policy limits of $[____] pursuant to A.R.S. § 20-259.01 and the common-law duty of good faith and fair dealing recognized by the Arizona Supreme Court in Noble v. National American Life Insurance Company, 128 Ariz. 188, 624 P.2d 866 (1981), and Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986).

As you are aware, uninsured and underinsured motorist coverage in Arizona is an "add-on" or "excess" form of coverage — that is, UIM benefits pay the difference between the tortfeasor's available liability limits and the insured's damages, up to the UIM policy limit. See A.R.S. § 20-259.01(B), (C), (H). The purpose of UM/UIM coverage under Arizona law is to place the insured in the same position she would have occupied had the tortfeasor carried liability limits equal to the UM/UIM coverage she purchased. Calvert v. Farmers Ins. Co., 144 Ariz. 291, 697 P.2d 684 (1985).

Our client's damages in this case vastly exceed both the tortfeasor's liability limits and the UM/UIM limits on the subject policy. This is a textbook policy-limits case, and payment of the full limits is required to discharge your company's obligations under Arizona law.

II. CONTROLLING ARIZONA UM/UIM LAW

A. Statutory Framework — A.R.S. § 20-259.01

Arizona has one of the broadest UM/UIM statutes in the nation. A.R.S. § 20-259.01 requires every insurer writing motor vehicle liability coverage in Arizona to:

1. Make available uninsured motorist (UM) coverage in limits not less than the bodily injury liability limits on the policy (§ 20-259.01(A));
2. Make available underinsured motorist (UIM) coverage in the same limits (§ 20-259.01(B));
3. Obtain a knowing, written rejection of higher limits from the named insured, or higher limits are deemed to be part of the policy (§ 20-259.01(B));
4. Ensure that the selection or rejection form is in the form prescribed by the Director of the Arizona Department of Insurance and Financial Institutions (A.R.S. § 20-259.01(B)).

The Arizona minimum financial-responsibility limits under A.R.S. § 28-4009 are $25,000 per person / $50,000 per accident for bodily injury and $15,000 for property damage. UM/UIM coverage may not be sold in limits below $25,000/$50,000.

B. "Add-On" / Excess Nature of UIM Coverage

Under A.R.S. § 20-259.01(H), UIM coverage in Arizona is "excess" over the tortfeasor's liability coverage. The UIM carrier's obligation is triggered once the insured's damages exceed the tortfeasor's available liability limits. Unlike "limits-to-limits" states, Arizona's add-on approach means a policy with $100,000 UIM limits pays up to $100,000 after exhaustion of the tortfeasor's liability — not merely the delta up to $100,000 minus any prior payment. See State Farm Mut. Auto. Ins. Co. v. Connolly, 212 Ariz. 417, 132 P.3d 1197 (Ct. App. 2006).

C. Stacking of UM/UIM Coverage

Contrary to carrier boilerplate, Arizona has long permitted inter-policy stacking of UM/UIM coverage where policy language and statutory requirements are satisfied. See Higgins v. Fireman's Fund Ins. Co., 160 Ariz. 20, 770 P.2d 324 (1989) (voiding "other insurance" exclusions that would deny an insured UIM coverage while occupying his own owned-but-uninsured-by-that-carrier vehicle); Taylor v. Travelers Indem. Co. of America, 198 Ariz. 310, 9 P.3d 1049 (2000).

In 2023, the Arizona Supreme Court clarified anti-stacking limits in Franklin v. CSAA General Insurance Company, 255 Ariz. 409 (2023) (addressing whether two tortfeasor "claims" from a single accident allow stacking of UIM coverage). Counsel should review any policy "other insurance," "anti-stacking," or "setoff" provisions against these authorities before accepting the carrier's coverage representation.

Our client reserves all rights to stack coverages where permitted under Arizona law.

D. Common-Law Duty of Good Faith — Arizona's Seminal Cases

• Noble v. National American Life Insurance Company, 128 Ariz. 188, 624 P.2d 866 (1981): Arizona became one of the first states to recognize the tort of first-party insurance bad faith.

• Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986): The Arizona Supreme Court rejected the notion that an insurer can simply point to a "fairly debatable" claim as a shield. Bad faith may exist even where coverage is debatable if the insurer's conduct otherwise breaches the duty of good faith.

• Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 995 P.2d 276 (2000): The Court held that an insurer must "immediately conduct an adequate investigation, act reasonably in evaluating the claim, and act promptly in paying a legitimate claim. It should do nothing that jeopardizes the insured's security under the policy. It should not force an insured to go through needless adversarial hoops to achieve its rights under the policy. It cannot lowball claims or delay claims hoping that the insured will settle for less." Zilisch, 196 Ariz. at 238.

E. Comparative Fault — Pure Comparative Negligence

Arizona is a pure comparative negligence jurisdiction. A.R.S. § 12-2505. Any comparative fault attributable to our client — and there is none here — would reduce recovery only proportionally and does not bar recovery. See Gunnell v. Arizona Pub. Serv. Co., 202 Ariz. 388, 46 P.3d 399 (2002).

III. COVERAGE ANALYSIS

Coverage Trigger

☐ Uninsured Motorist Claim. The tortfeasor qualifies as an uninsured motorist under A.R.S. § 20-259.01(K)(8) because:
- ☐ The tortfeasor had no liability insurance in force on the date of loss;
- ☐ The tortfeasor's liability carrier has denied coverage or is insolvent;
- ☐ The tortfeasor was a hit-and-run driver whose identity cannot be determined and physical contact occurred (or an unidentified phantom vehicle under § 20-259.01(M));
- ☐ The tortfeasor's limits are below the Arizona minimum of $25,000/$50,000.

☐ Underinsured Motorist Claim. The tortfeasor qualifies as underinsured under A.R.S. § 20-259.01(G) because the tortfeasor's per-person bodily injury limit of $[____] is insufficient to compensate our client for damages exceeding $[____].

IV. THE COLLISION AND LIABILITY

A. Facts of the Collision

On [__/__/____] at approximately [____] [a.m./p.m.] Arizona time, our client was [________________________________] at or near [________________________________], [CITY], [____] County, Arizona.

B. Investigating Agency

C. Tortfeasor Negligence

The tortfeasor, [TORTFEASOR_NAME], was negligent per se and at common law under Arizona law:

☐ Failure to yield (A.R.S. § 28-771 to § 28-775)
☐ Following too closely (A.R.S. § 28-730)
☐ Speed greater than reasonable and prudent (A.R.S. § 28-701)
☐ Running red light / stop sign (A.R.S. § 28-645; A.R.S. § 28-855)
☐ Driving under the influence (A.R.S. § 28-1381)
☐ Extreme DUI / Super Extreme DUI (A.R.S. § 28-1382)
☐ Aggressive driving (A.R.S. § 28-695)
☐ Distracted driving / texting (A.R.S. § 28-914)
☐ Unsafe lane change (A.R.S. § 28-729)
☐ Other: [________________________________]

D. Our Client's Freedom from Comparative Fault

Under A.R.S. § 12-2505, our client bears zero percent comparative fault. [EXPLAIN WHY — e.g., client had the right of way, was stopped at a red light, etc.]: [________________________________]

V. INJURIES AND TREATMENT

A. Injury Summary

As a direct and proximate result of this collision, our client sustained the following injuries:

Primary Injuries:
- [________________________________]
- [________________________________]
- [________________________________]

B. Treatment Timeline

C. Current Condition and Prognosis

[________________________________]

D. Permanent Impairment

Evaluated pursuant to AMA Guides to the Evaluation of Permanent Impairment, Sixth Edition, as commonly applied in Arizona:

VI. DAMAGES

A. Past Medical Expenses

Note on Collateral Source Rule: Under Arizona's traditional collateral source rule, our client is entitled to the reasonable value of medical services, not merely amounts paid by health insurance. See Lopez v. Safeway Stores, Inc., 212 Ariz. 198, 129 P.3d 487 (Ct. App. 2006).

B. Future Medical Expenses (Present Value)

C. Lost Earnings and Earning Capacity

• Past lost wages: $[____]
• Future lost earning capacity (present value, discounted using appropriate Arizona actuarial tables): $[____]

D. Pain, Suffering, and Loss of Enjoyment of Life

Under Arizona law, non-economic damages are uncapped. Article 2, § 31 of the Arizona Constitution expressly prohibits the Arizona Legislature from capping damages recoverable for death or personal injury: "No law shall be enacted in this state limiting the amount of damages to be recovered for causing the death or injury of any person." This constitutional provision distinguishes Arizona from the majority of states that have imposed caps.

E. Consortium / Loss of Services (if applicable)

[________________________________]

F. Damages Summary

VII. SETTLEMENT WITH TORTFEASOR'S LIABILITY CARRIER — CONSENT TO SETTLE

A. Status of Liability Settlement

We [have reached / are negotiating] a settlement with the tortfeasor's liability carrier, [TORTFEASOR_CARRIER], for the tortfeasor's policy limits of $[____].

B. Request for Consent to Settle (Preservation of Subrogation)

Most Arizona UIM policies contain a clause requiring written consent from the UIM carrier prior to settlement with the tortfeasor in order to preserve the UIM carrier's subrogation rights. Pursuant to that provision and the Arizona Supreme Court's guidance in State Farm Mut. Auto. Ins. Co. v. Paynter, 118 Ariz. 470, 577 P.2d 1089 (Ct. App. 1978), we hereby request written consent to settle with [TORTFEASOR_CARRIER] for the tortfeasor's liability limits.

Response required within thirty (30) days. Silence or unreasonable denial will be treated as a waiver of any subrogation objection and may constitute an independent act of bad faith.

VIII. POLICY LIMITS DEMAND AND UIM CALCULATION

A. Calculation of UIM Benefits Due (Add-On Methodology)

B. Policy Limits Demand

Pursuant to A.R.S. § 20-259.01 and Arizona common law, we hereby demand tender of the full UM/UIM policy limits of $[____] to resolve this claim in full.

Our client's damages of $[____] vastly exceed all available coverage. Under Clearwater v. State Farm Mut. Auto. Ins. Co., 164 Ariz. 256, 792 P.2d 719 (1990), and Zilisch, this is precisely the type of claim in which a carrier's failure to tender limits constitutes bad faith.

IX. BAD FAITH WARNING UNDER ARIZONA LAW

[CARRIER_SHORT_NAME] owes our client — its own insured — the fiduciary-like duty of good faith recognized in Noble, Rawlings, and Zilisch. Any attempt to delay, lowball, or manufacture coverage defenses will expose your company to:

1. Compensatory damages beyond policy limits, including consequential economic loss and emotional distress damages. Rawlings, 151 Ariz. at 160.

2. Punitive damages under A.R.S. § 12-2310 and Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 723 P.2d 675 (1986), upon clear and convincing evidence that the carrier acted with an "evil mind" — i.e., (a) intending to injure, (b) acting from spite or ill will, or (c) consciously pursuing a course of conduct while aware it creates a substantial risk of significant harm. See also Sparks v. Republic National Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127 (1982) (affirming punitive damages in first-party bad faith action).

3. Attorneys' fees under A.R.S. § 12-341.01 as the action sounds in contract.

4. Administrative complaint to the Arizona Department of Insurance and Financial Institutions (DIFI), 100 North 15th Avenue, Suite 261, Phoenix, Arizona 85007, under A.R.S. § 20-461. While Ring v. State Farm Mut. Auto. Ins. Co., 147 Ariz. 32, 708 P.2d 457 (Ct. App. 1985), and A.R.S. § 20-462 establish that there is no private right of action under the Unfair Claim Settlement Practices Act, violations of § 20-461 are routinely admitted as evidence of bad faith in Arizona common-law tort actions.

X. ARBITRATION PROCEDURES

A. Policy Arbitration Clause

Many Arizona UM/UIM policies require binding arbitration of disputes over the insured's entitlement to or amount of benefits. The policy [contains / does not contain] an arbitration clause.

B. Arbitration Demand (If Applicable)

If [CARRIER_SHORT_NAME] fails to accept this demand by the deadline below, this letter shall also serve as our formal demand for arbitration under the policy. Please designate your arbitrator within thirty (30) days. Our client's arbitrator will be [________________________________].

Arbitration awards in Arizona are enforceable under the Arizona Revised Uniform Arbitration Act, A.R.S. §§ 12-3001 to 12-3029.

XI. RESPONSE DEADLINE

This demand expires at 5:00 p.m. Mountain Standard Time on [__/__/____].

Consequences of Non-Response

If [CARRIER_SHORT_NAME] fails to accept this demand by the deadline:

1. We will file a civil action in the Superior Court of Arizona, [_______________] County, asserting breach of contract, declaratory judgment, and first-party bad faith under Noble, Rawlings, and Zilisch.
2. We will pursue compensatory damages in excess of policy limits, consequential damages, and punitive damages under Linthicum and A.R.S. § 12-2310.
3. We will seek attorneys' fees pursuant to A.R.S. § 12-341.01.
4. We will file a consumer complaint with the Arizona Department of Insurance and Financial Institutions, 100 North 15th Avenue, Suite 261, Phoenix, Arizona 85007, https://difi.az.gov.

XII. STATUTE OF LIMITATIONS RESERVATION

Our client reserves all rights under the two-year statute of limitations applicable to first-party bad faith claims (A.R.S. § 12-541(5)) and the six-year statute applicable to contract claims on written insurance policies (A.R.S. § 12-548). The statute of limitations for UIM contract claims in Arizona generally runs from the date of denial or breach, not the date of loss. See Taylor v. State Farm Mut. Auto. Ins. Co., 185 Ariz. 174, 913 P.2d 1092 (1996).

XIII. DOCUMENT PRESERVATION NOTICE

This letter constitutes formal notice to preserve all documents, ESI, claim files, adjuster notes, diary entries, reserve records, supervisor notes, and claims handling guidelines relevant to this claim. Destruction or alteration will subject your company to sanctions and adverse inferences under Arizona law.

XIV. CONCLUSION

This claim presents clear liability, catastrophic injuries, and damages that dwarf the available UM/UIM coverage. [CARRIER_SHORT_NAME] has the opportunity to fulfill its statutory and contractual promises to its own insured. Failure to do so will be met with vigorous litigation under every remedy Arizona law affords.

Respectfully submitted,

[LAW_FIRM_NAME]

By: ______________________________
[ATTORNEY_NAME], Arizona State Bar No. [____]
[________________________________]
[CITY], Arizona [____]
Telephone: [________________]
Email: [________________]

Counsel for [CLIENT_NAME]

ENCLOSURES:
- ☐ Policy declarations page and UM/UIM endorsement
- ☐ Arizona DIFI Form UM/UIM selection/rejection (if obtained)
- ☐ Arizona Traffic Crash Report
- ☐ Medical records and itemized bills
- ☐ Wage loss documentation
- ☐ Expert reports (accident reconstruction, life care plan, vocational, economic)
- ☐ Photographs of scene, vehicles, and injuries
- ☐ Tortfeasor policy information

CC:
- [CLIENT_NAME]
- [TORTFEASOR_CARRIER] — re: consent to settle

SOURCES AND REFERENCES

• A.R.S. § 20-259.01 — https://www.azleg.gov/ars/20/00259-01.htm
• A.R.S. § 28-4009 — Arizona financial responsibility limits
• A.R.S. § 20-461 — Unfair Claim Settlement Practices Act
• A.R.S. § 20-462 — Administrative enforcement
• A.R.S. § 12-2505 — Pure comparative negligence
• A.R.S. § 12-2310 — Punitive damages standard
• A.R.S. § 12-541(5) — Statute of limitations (bad faith tort, two years)
• A.R.S. § 12-548 — Statute of limitations (written contract, six years)
• A.R.S. § 12-341.01 — Discretionary attorneys' fees
• Noble v. National American Life Ins. Co., 128 Ariz. 188, 624 P.2d 866 (1981)
• Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986)
• Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 995 P.2d 276 (2000)
• Higgins v. Fireman's Fund Ins. Co., 160 Ariz. 20, 770 P.2d 324 (1989)
• Franklin v. CSAA Gen. Ins. Co., 255 Ariz. 409 (2023)
• Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 723 P.2d 675 (1986)
• Sparks v. Republic National Life Ins. Co., 132 Ariz. 529, 647 P.2d 1127 (1982)
• Calvert v. Farmers Ins. Co., 144 Ariz. 291, 697 P.2d 684 (1985)
• Clearwater v. State Farm Mut. Auto. Ins. Co., 164 Ariz. 256, 792 P.2d 719 (1990)
• Arizona Department of Insurance and Financial Institutions (DIFI) — https://difi.az.gov
• Arizona State Legislature (ARS) — https://www.azleg.gov/arsDetail/?title=20
• State Bar of Arizona, Recommended Arizona Jury Instructions — Bad Faith (RAJI) — https://www.azbar.org

ARIZONA UM/UIM QUICK REFERENCE