Rawlings v. Apodaca
In Rawlings v. Apodaca, 151 Ariz. 149, 161-62, 726 P.2d 565, 577-78 (1986) (in banc), the Arizona Supreme Court rejected the notion that punitive damages should be available in every bad faith case and (as the majority notes) endorsed the view that "something more" than the conduct necessary to establish the tort must be proven.
Not surprisingly, the phrase "something more" has proven to be a difficult legal standard for both judges and juries to apply predictably in practice.
In Rawlings, the court made clear that bad faith is an intentional tort, holding:
The "intent" required here is an "evil hand" -- the intent to do the act. Mere negligence or inadvertence is not sufficient -- the insurer must intend the act or omission and must form that intent without reasonable or fairly debatable grounds. . . . To be liable for tort damages, it need only to have intended its act or omission, lacking a founded belief that such conduct was permitted by the policy.
The founded belief is absent when the insurer either knows that its position is groundless or when it fails to undertake an investigation adequate to determine whether its position is tenable. In either event, its position is without reasonable basis and subjects it to payment of damages in addition to those traditionally recoverable in a breach of contract action. 151 Ariz. at 160, 726 P.2d at 576.