The Holding

In Swift Trans. Co. of Az., LLC. v. Carman in and for County of Yavapai, — Ariz. —, 515 P.3d 685 (Aug. 23, 2022), a bodily injury and wrongful death case arising from a tractor-trailer accident, the Arizona Supreme Court recently held, “to be entitled to punitive damages in a negligence action, a plaintiff must generally show that the defendant’s conduct was outrageous, oppressive, or intolerable, and created a substantial risk of tremendous harm, thereby evidencing a conscious and deliberate disregard of the interests and rights of others.” (all emphases in original, unless otherwise indicated)

The Takeaways

• Although Swift primarily addresses negligence cases, Swift has numerous, defense-friendly statements regarding the limited availability of punitive damages in Arizona that insurers and defendants will undoubtedly cite in negligence and insurance bad faith cases for years to come.
• Swift confirmed that, to be entitled to punitive damages, a plaintiff must establish an “evil hand” and an “evil mind.”
• To establish an “evil mind,” a plaintiff must present clear and convincing evidence that the defendant’s conduct was:
  • intended to cause harm,
  • motivated by spite, or
  • outrageous.
• In negligence cases, outrageous conduct is often the only way to establish an “evil mind” because:
  • by definition, a negligent defendant does not act with intent; and
  • spite usually does not motivate a negligent defendant.
• Although society typically deters outrageous conduct that causes a substantial risk of harm by imposing criminal liability, to establish entitlement to punitive damages in negligence cases, Swift does NOT require:
  • a plaintiff to establish criminal conduct, or
  • a plaintiff to identify an applicable criminal statute.
• To be entitled to punitive damages in a negligence case, a plaintiff must establish: (1) (a) subjective knowledge of facts creating a substantial risk of harm, or (b) subjective appreciation of facts creating a substantial risk of harm, and (2) conscious disregard of a substantial risk of harm. “[I]t is not enough that a defendant had reason to appreciate the severity of the risk; the defendant must have actually appreciated the severity of the risk before consciously disregarding it.”
• Arizona’s model jury instruction regarding punitive damages will be revised because it currently allows punitive damages if a defendant “acted to serve his own interests, having reason to know and consciously disregarding a substantial risk that his conduct might significantly injure the rights of others.” (emphasis added)

The Facts

Swift arose from a tractor-trailer, multiple-vehicle accident. The tractor-trailer Driver was operating the tractor-trailer in the rain, while on a hands-free telephone call, with his cruise control set 13 mph below the speed limit, on a downhill-sloping curve, and attempting to pass a vehicle in the right lane when the tractor-trailer hydroplaned, jack-knifed, and partially blocked traffic in the left lane. Shortly thereafter, another tractor-trailer attempted to avoid the stopped tractor-trailer, collided with two vehicles, and the collision injured or killed several travelers.

Plaintiffs sought Defendant’s financial records to support a punitive damages claim. The trial court ruled Plaintiffs were entitled to Defendant’s financial records because it found the facts demonstrated the Driver “consciously disregarded the unjustifiable substantial risk of significant harm to others.” Defendant filed a Special Action and the Court of Appeals granted jurisdiction, denied relief, and found the record supported the trial court’s finding.

The Rationale

First, Swift reviewed the evolution of Arizona’s standard for punitive damages.

Before 1986, reckless indifference to the rights or safety of others was sufficient to support a claim for punitive damages. But, the Supreme Court “significantly altered the availability of punitive damages in civil lawsuits” in Rawlings v. Apodaca, 151 Ariz. 149 (1986), and Linthicum v. Nationwide Life. Ins. Co., 150 Ariz. 326 (1986), two insurance bad faith cases.

Rawlings held a jury may award punitive damages “only when a plaintiff can prove that the defendant’s evil hand was guided by an evil mind.” The requisite “evil hand” is merely “the intent to do the act” and is “sufficient to establish the tort of bad faith.” However, both an “evil hand” and an “evil mind” are “necessary to warrant punitive damages…because something more than the mere commission of a tort is always required for punitive damages, in order to restrict its availability to those cases in which the defendant’s wrongful conduct was guided by evil motives.” The requisite “‘evil mind’ is “the intention to engage in the wrongful conduct required for punitive damages.” “An evil mind may be found where the defendant [1] intended to injure the plaintiff or… [2] consciously pursued a course of conduct knowing that it created a substantial risk of significant harm to others.”

Rawlings also noted outrageous conduct is necessary to award punitive damages. “[P]unitive damages are recoverable in bad faith tort actions when, and only when, the facts establish that defendant’s conduct was aggravated, outrageous, malicious or fraudulent.” Mere negligence—even if “so extreme or egregious to be characterized as gross”—is insufficient to warrant punitive damages. Conduct justifying an award of punitive damages must involve some element of “outrage similar to that found in a crime.”

Linthicum also focused on outrageous conduct and raised the standard of proof for punitive damages to clear and convincing evidence. Linthicum stated, “before a jury may award punitive damages there must be evidence of an evil mind and aggravated and outrageous conduct.” However the “requisite mental state is expressed, the conduct must also be aggravated and outrageous.” Linthicum also held “punitive damages should be awardable only upon clear and convincing evidence…”

Just one year after Rawlings and Linthicum, however, Swift noted the Supreme Court “muddied the waters” in Gurule v. Ill. Mut. Life & Cas. Co., 152 Ariz. 600 (1987), another insurance bad faith case. Gurule stated, “[e]ven if the defendant’s conduct was not outrageous, a jury may infer evil mind if the defendant deliberately continued his actions despite the inevitable or highly probable harm that would follow,” and the “quality of the defendant’s conduct is relevant and important only because it provides one form of evidence from which the defendant’s motives may be inferred.” Swift observed, “[t]hese statements seemingly conflict with Linthicum, which required an evil mind and outrageous conduct to support a punitive damage award” and “cases following Gurule failed to clarify this point.” Swift, however, made an important distinction—it noted “Gurule was not a negligence case” and “most of [the Supreme] Court’s punitive damages jurisprudence addresses the outrageous conduct issue only in the context of intentional tort claims.”

Next, Swift observed Volz v. Coleman Co., 155 Ariz. 567 (1987)—a post-Rawlings/Linthicum case that analyzed a punitive damages claim arising from negligence—is instructive. In Volz, a manufacturer defectively designed a liquid fuel lantern, learned of the defect, corrected the defect in new lanterns, did not recall old lanterns, did not notify purchasers of old lanterns of the defect, and an old lantern sprayed burning fuel that severely burned a child. Volz set aside the jury’s award of punitive damages because “plaintiff’s evidence was insufficient as a matter of law to demonstrate that type of outrageous conduct on which an award of punitive damages must depend.” Volz cited Rawlings and Linthicum and “affirmed that the punitive damages standard in Arizona requires something more than gross negligence, and that something more is the evil mind, which may be shown by: [1] evil actions; [2] spiteful motives; or [3] outrageous, oppressive or intolerable conduct that creates a substantial risk of tremendous harm to others.” Thus, Volz “required that, absent evidence of evil actions or spiteful motives, the evil mind motivating a defendant’s conduct must be shown by outrageous, oppressive or intolerable conduct that creates substantial risk of tremendous harm to others.”

Second, Swift distinguished some of Arizona’s rationales for compensatory damages versus punitive damages and emphasized the limited availability of punitive damages in Arizona.

Swift observed that compensatory damages deter negligent conduct, but punitive damages deter and punish outrageous conduct. Swift noted “punitive damages serve two functions: punishment and deterrence,” but “courts do not aim to punish and deter all negligent conduct by way of punitive damages, only that [conduct] which involves some element of outrage similar to that usually found in crime.” Thus, the Arizona Supreme Court’s punitive damages jurisprudence has “repeatedly stated that courts may not award punitive damages based on mere negligence, gross negligence, or recklessness.” A “defendant may not be subject to civil punishment through punitive damages unless he or she acts with a knowing, culpable state of mind.” “Compensatory damages are sufficient to deter unintentional and even grossly negligent conduct.” As an example, Swift cited Filasky v. Preferred Risk Mut. Ins. Co., 152 Ariz. 591, 599, n3 (1987), and noted “a trial judge would commit error by including” the phrase “reckless disregard in jury instructions on punitive damages in a bad faith case.” A “defendant may not be subject to civil punishment through punitive damages unless he or she acts with a knowing, culpable state of mind.” Requiring evidence of “an evil mind, as mandated by [the Arizona Supreme Court’s] previous decisions, was intended to limit punitive damage awards only to cases in which they further the objectives of punishment and deterrence.”

Third, Swift reasoned that, in negligence cases, outrageous conduct is often the only way to establish the “evil mind” necessary for punitive damages.

Swift confirmed that, to be entitled to punitive damages, a plaintiff must still prove both an “evil hand” and an “evil mind.” “To establish an evil mind requires clear and convincing evidence that the defendant’s actions[/conduct] either (1) intended to cause harm, (2) were motivated by spite, or (3) were outrageous, creating a substantial risk of tremendous harm to others.” Id. In negligence cases, however, “by definition there is not intent to injure the plaintiff,” and “a negligent defendant is unlikely to be motivated by spite or ill will.” Id. Thus, the “outrageousness of the defendant’s conduct” is “the only means by which” a plaintiff may prove the requisite evil mind for punitive damages in a negligence case. Id.

Application

Swift applied the above reasoning to the facts and concluded Plaintiffs did not establish a prima facie case for punitive damages because the Driver’s conduct, although negligent and perhaps even grossly negligent:

• did not “amount to the sort of outrageous conduct required to establish an evil mind,”
• was “not so far outside the realm of reasonable conduct [to] be considered one of the most egregious cases warranting punitive damages,”
• could “hardly be considered aggravated or outrageous,”
• complied with applicable laws and regulations,” and
• was a “far cry from outrageous or quasi-criminal conduct sufficient to establish an evil mind.”

Accordingly, Swift vacated both the Court of Appeals’ and trial court’s orders.