Could Ariz. Worker Turn Carrier’s 40-day Claim Denial into Bad-Faith Win?

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Can a carrier that blows by a statutory deadline face a bad faith claim even if the worker ultimately isn’t entitled to benefits? An Arizona case addressed whether a carrier’s handling of a claim—including taking 40 days to deny it—amounted to bad faith or unfair claim processing.

The employee in that case suffered a serious injury when he fell headfirst into a gate at the bottom of some stairs at work. His wife initially handled his workers’ compensation claim. That led to some communication problems. Although the claims administrator provided the correct email address, the wife initially sent materials to a different address.

The carrier also had trouble getting a medical records release. It hired a private investigator who attempted to obtain it. The investigator offered to come to the couple’s home to help them complete the paperwork. They declined because they were concerned the investigator might be an impostor.

The carrier ultimately took 40 days after receiving official notice of the claim to deny it, even though Arizona law generally gives a carrier 21 days to accept or deny a claim. It paid the statutory penalty for its late denial by providing compensation as though the claim had been accepted for the period between earlier.

Meanwhile, the worker’s underlying compensation claim failed on the basis that the fall, which was caught on video, was intentional. The worker nevertheless pursued allegations that the carrier and employerinadequately investigated his claim and failed to accept or deny it in a timely manner.

Under Arizona law, bad faith can include unreasonably delaying benefit payments. Unfair claim processing can include failing to act reasonably and promptly on communications from the claimant.

Did the worker establish bad faith or unfair claim processing?

A. Yes. The carrier missed Arizona’s 21-day deadline and waited 40 days to deny the claim.

B. No. The worker was not entitled to benefits and the carrier acted reasonably in investigating and processing his claim.

If you selected B, you agreed with the court in Halloum v. Industrial Commission of Arizona, No. 1 CA-IC 26-0009 (Ariz. Ct. App. 09/10/26), which affirmed the denial of the worker’s bad-faith and unfair-claim-processing claims.

First, claims based on unreasonable delay require a compensable claim. Because the worker was not entitled to benefits, he could not establish bad faith on that basis.

Second, the carrier exercised due diligence in investigating the claim. It attempted to obtain the worker’s medical records but the worker did not fully cooperate with those efforts.

Third, although the carrier missed the 21-day deadline for accepting or denying the claim, it paid the statutory penalty.

The communication problems between the parties were “unfortunate,” the court said, but the evidence did not establish that they resulted from unresponsiveness or neglect by the carrier.

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