Taylor v. State Farm Mutual Automobile Insurance Co.

Taylor (plaintiff) purchased a car insurance policy from State Farm Mutual Automobile Insurance Co. (State Farm) (defendant). Taylor’s policy included uninsured motorists coverage up to a limit of $15,000. Taylor was involved in an accident involving several other vehicles. Many of the drivers sued Taylor and obtained a verdict against Taylor for approximately $2.5 million above his policy limits. The owner of one vehicle was uninsured. Months after the jury returned the verdict against Taylor, State Farm paid Taylor $15,000 in uninsured motorist’s benefits in exchange for Taylor’s signature on a release. The release provided that Taylor released “all contractual rights, claims, and causes of action he ha[d] or may have against STATE FARM under the policy of insurance, in connection with the collision…and all subsequent matters.” A State Farm representative directed that “general release language,” with no mention of bad faith, be used in the release. Taylor filed suit against State Farm, claiming that they failed to settle with the other drivers within the policy limits, and that State Farm acted in bad faith in connection with the release. State Farm moved for summary judgment, claiming that the release precluded Taylor’s bad faith claim. Taylor moved for summary judgment, claiming that the release did not preclude his claim. The trial judge denied both motions, finding that, because of the ambiguity of the release, parol evidence would be admissible at trial for the purpose of interpretation. The matter went to trial, and a jury returned a verdict in favor of Taylor. State Farm appealed. The court of appeals held that the release was not ambiguous and, therefore, admitting parol evidence was in error. Taylor appealed to the Arizona Supreme Court.