Rules for AZ divers and boaters
For Divers in Arizona
5-362. Diver flag
A red flag with white diagonal stripe from staffhead to opposite corner shall be recognized as a diver flag and shall be displayed when a person or persons are actually diving below the water surface and are equipped with apparatus to allow such person or persons to breathe under water.
This is reiterated in (2003 Edition) published by the Arizona Game and Fish Department:
Scuba divers and snorkelers must display a “diver down flag” that marks their diving area. The flag must be displayed whenever someone is diving below the surface.
For Boaters in Arizona
According to (2003 Edition) published by the Arizona Game and Fish Department:
Vessels should stay as far away from a “diver down flag” as is reasonable and prudent for the circumstances. The suggested safe distance is 100 yards.
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P.S. The information above was as complete and up-to-date at the time as I could make it. It should not be construed as providing legal advice. You should conduct your own legal research or contact an attorney.