Lessons on Ownership Proof and the Evolving Standard of Bad Faith in Arizona

A recent decision by the Ninth Circuit Court of Appeals in Altschuler v. Chubb National Insurance Company ¹ reaffirms some foundational insurance principles when it comes to proof of ownership and the handling of claims for unique, high-value property. The ruling also provides insight into how Arizona courts evaluate claims of bad faith, a standard that has become more nuanced and seemingly difficult to prove in recent years.

Douglas Altschuler, a passionate art collector, brought suit against Chubb after the company denied his claim for the theft of a valuable silkscreen artwork entitled Andy Mouse, created by Keith Haring in tribute to Andy Warhol. Altschuler claimed the artwork was stolen from his mother’s home, where he kept much of his collection. Chubb denied the claim, arguing that Altschuler failed to prove he owned the specific version of the artwork described in his policy. Both the district court and the Ninth Circuit agreed with Chubb.

The key issue was not whether the artwork had value or was lost but whether Altschuler owned the specific piece that was insured. His insurance policy covered an editioned silkscreen print labeled “Edition of 30,” and more specifically, he had submitted an appraisal identifying the piece as number 3 out of 30. However, during the investigation, it became clear that Altschuler had traded away the only numbered edition he once owned years earlier. He later claimed that he might have owned an “artist’s proof” instead, which is a different type of print, but one that was not specifically listed in the policy.

The Ninth Circuit held that ownership of the insured item is a core element of any insurance breach of contract claim. Without proving ownership of the property as it was listed in the policy schedule, Altschuler could not meet his burden of establishing coverage. As a result, summary judgment in favor of Chubb was proper.

While the decision to deny the breach of contract claim was significant, the case also presented an opportunity for the courts to examine the evolving bad faith doctrine under Arizona law. Altschuler had alleged that Chubb’s denial was not just incorrect but amounted to bad faith and merited punitive damages. Both the district and appellate courts rejected that claim.

In Arizona, under the court’s ruling, the standard for proving bad faith is twofold. The insured must show that the insurer lacked a reasonable basis for denying the claim, and that the insurer either knew or acted with reckless disregard about the unreasonableness of its position. This is more than just showing that the insurer was wrong or negligent. There must be evidence of what Arizona courts call “consciously unreasonable conduct.”

The courts have emphasized that insurance companies are allowed to challenge claims that are “fairly debatable.” In Zilisch v. State Farm, the Arizona Supreme Court made clear that insurers have a duty to treat their insureds fairly and to investigate claims thoroughly, but if a claim is fairly debatable, that fact alone may defeat a bad faith allegation. Later decisions like Rawlings v. Apodaca and Noble v. National Life added that bad faith requires more than just an error in judgment. It requires an improper motive or reckless indifference to the insured’s rights.

In Altschuler’s case, the Ninth Circuit found that Chubb’s position was not only fairly debatable, but well-supported by the evidence. The insurer had received inconsistent information from Altschuler about the artwork’s origin and edition number, and its investigation revealed that the specific edition listed in the policy had been split up and sold before the coverage even began. That kind of discrepancy gave Chubb every reason to question the legitimacy of the claim. Without proof that Chubb acted with knowledge of wrongdoing or with reckless disregard, there could be no bad faith.

The appellate court also agreed with the district court’s dismissal of the punitive damages claim. Under Arizona law, punitive damages require proof of an “evil mind,” meaning that the defendant acted with intent to harm or with a conscious disregard of the insured’s rights. Because the record showed Chubb acted reasonably during the claim investigation, that heightened level of misconduct was not present.

This is a compelling example of how Arizona federal courts are applying a more disciplined framework to bad faith claims. It emphasizes that bad faith is not simply about disagreement over coverage or even mistakes in handling claims. Rather, it focuses on the insurer’s intent and reasonableness during the entire claims process. The Altschuler decision also reinforces how critical it is for policyholders to keep accurate records, understand what is actually listed in their policy schedules, and ensure appraisals and descriptions match what they truly own.

For policyholders and claims professionals, the takeaway from this case is ownership matters on personal property claims and policy language matters. Furthermore, while bad faith remains a vital check against insurer misconduct, Arizona federal courts continue to apply a high bar for proving it.

Thought For The Day 

“Get your facts first, then you can distort them as you please.”
— Mark Twain

¹ Altschuler v. Chubb National Insurance Company, No. 24-2986, 2025 WL 1392133 (9^th Cir. May 14, 2025).