By David Shughart, Esq., Tracy Gromer, Esq. and Steve Guy, Esq.
PART 1
It has been more than 53 years since the Arizona Supreme Court’s watershed opinion in Damron v. Sledge1 and over 35 since United Services Automobile Association v. Morris2 freed insured defendants to settle claims without the consent or participation of their liability insurers in certain cases. These landmark cases and their namesake settlement agreements3 have been refined and analyzed for decades, yet even experienced lawyers often seek guidance as to the nuances of settlement independent of a liability insurer.
This article will address how breach by an insurer may release an insured from the duty to cooperate (found in the “cooperation clause” of standard liability policies), the process of entering into settlement without the insurer’s consent, and the essential elements of such independent settlement agreements. We will discuss considerations regarding the negotiation, drafting, and implementation of independent settlement agreements, as well as defenses to their enforceability. Finally, we explain establishing, when required, the reasonableness of an independent settlement and touch on collection of judgments based on independent settlements.
I. Liability Insurers’ Duties and the Effect of Breach.
A contract of liability insurance4 imposes certain express and implied duties on the parties. The liability insurer has an obligation to defend its insured if any claim may be covered by the terms of the insurance contract,5 an obligation to indemnify within the bounds of the contract,6 and an implied good faith duty to give equal consideration to the interests of its insured(s) in performing its duties, such as considering settlement offers.7 The liability insurer normally controls defense of the litigation and its breach of duty may have serious consequences. Because a breach may leave the insured open to potential personal liability, an insurer’s breach releases the insured from the duty to cooperate with the insurer in defending and settling the claim and gives rise to a claim against the insurer for breach of contract and possibly the tort of “bad faith.” The duties to defend and indemnify are set forth in standard liability contracts and have been interpreted and explained in numerous cases over the years, the details of which are not critical to this article. The duty of “equal consideration” arises from the insurer’s implied duty to act in good faith and was recognized by Arizona’s Supreme Court in 1957 in Farmers Insurance Exchange v. Henderson,8 which articulated “equal consideration” as follows:
It occurs to us that when the insurer is defending litigation against the insured, employs attorneys to represent the interests of both and has sole power and opportunity to make a settlement which would result in the protection of the insured against excess liability, common honesty demands that it not be moved by partiality to itself nor be required to give the interest of the insured preferential consideration. A violator of this rule of equality of consideration cannot be said to have acted in good faith.9
A year later, in General Accident Fire & Life Assurance Corp. v. Little,10 the Arizona Supreme Court drilled down further regarding what “equal consideration” means in the liability insurance context:
When an insurance company evaluates a claim without looking to the policy limits and as though it alone would be responsible for the payment of any judgment rendered on that claim, it views the claim objectively, and in doing so renders “equal consideration” to the interests of itself and the insured. 11
The “equal consideration” standard is currently articulated in Arizona’s third-party bad faith recommended jury instruction as follows:
There is an implied duty of good faith and fair dealing in every insurance contract. [name of plaintiff] claims that [name of defendant] breached this duty. The duty of good faith and fair dealing requires an insurance company to give the same consideration to its insured’s interests as it gives to its own when it considers a settlement offer.
The test for evaluating whether an insurance company has given equal consideration to the interests of its insured is whether a prudent insurer without policy limits would have accepted the settlement offer. 12
When “there is a high potential of claimant recovery and a high potential of damages exceeding policy limits,” equal consideration obligates an insurer to affirmatively “initiate and attempt settlement.”13
In Arizona Property & Casualty Insurance Guaranty Fund v. Helme,14 the Arizona Supreme Court explained the effect of an insurer’s breach of any duty:
As a general matter, insurance carriers owe their insureds three duties, two express and one implied. These are the duties to indemnify, the duty to defend, and the duty to treat settlement proposals with equal consideration. Any breach, actual or anticipatory, of these duties deprives the insured of the security that he has purchased because the breach leaves him exposed to personal judgment and damage which may not be covered or may exceed the policy limits. Accordingly, when such a breach occurs, the insured is generally held to be freed from his obligations under the cooperation clause.15
Once an insurer breaches any contractual duty to its insured, the insured is no longer fully bound by the insurance contract’s cooperation clause, which would otherwise prevent the insured from entering into settlement without the consent and participation of the insurer. Thus, when a liability insurer breaches a duty to its insured, the insured may enter into an independent settlement agreement with the claimant to protect himself from personal liability, notwithstanding any objection from his insurer. No other rule is sensible.16
A. Refusal to Defend: Damron.
An insurer’s refusal to defend releases the insured from the cooperation clause, freeing the insured to protect his own interests by entering into an independent settlement.17 In Damron v. Sledge, the plaintiffs sustained injuries in a car accident allegedly caused by a permissive user of the insured’s auto. The insurer defended its named insured, but refused to defend the driver, contending the driver was not a permissive user and thus not insured under the policy.18 Prior to trial, the parties agreed to settle without the insurer. Plaintiffs agreed to dismiss the lawsuit against the named insured with prejudice and the driver agreed to withdraw his answer and allow a default judgment to be taken against him.19 The driver was given a covenant not to execute on the judgment against him in exchange for assignment of his claims against the insurer.20 The trial judge found the agreement to be collusive and dismissed the plaintiffs’ complaint entirely.21
The Arizona Supreme Court concluded plaintiffs had an “absolute right” to dismiss the named insured with prejudice and the attorney retained by the insurer to defend the named insured had no grounds to object to the insured’s dismissal.22 The court further held that the independent settlement agreement and assignment (the famed “Damron agreement”) was not “ipso facto collusive”23 – collusion does not exist merely because a defendant chooses not to defend when he can escape financial exposure through settlement. Arizona’s Supreme Court found a trial court must hold an evidentiary hearing on any claim of fraud or collusion before exercising its inherent power to dismiss collusive cases.24 The court noted there might have been a different result if there had been evidence the defaulting permissive-driver defendant had agreed to perjure himself or some other definite evidence of fraud or collusion.25
Damron also rejected the insurer’s argument that dismissal of the named insured would result in an unjustifiably large verdict due to the absence of rebuttal witnesses the insurer-appointed attorney for the named insured would have called if the named insured had not been dismissed.26 Noting that an insurer can avoid such a result by defending under a reservation of rights, the court said, “[i]f the company refuses to defend at all, it must accept the risk that an unduly large verdict may result from lack of cross-examination and rebuttal.”27 Damron’s lesson for insurers is that refusal to defend a potentially-covered claim may subject the insurer to greater liability, including liability in excess of the policy limit, if the insurer is ultimately proven wrong on coverage. Insurers have taken Damron to heart and now commonly defend under a reservation of the right to deny coverage and file a simultaneous lawsuit to resolve the coverage dispute. An outright refusal to defend is now rare, leading us to Morris and the effect of an insurer’s defense under a reservation of the right to deny coverage.
B. Anticipatory Breach of the Duty to Indemnify: Helme.
The insurer’s anticipatory breach of the terms of the insurance contract will also permit an independent settlement. The Arizona Supreme Court addressed an independent settlement in Arizona Property & Casualty Insurance Guaranty Fund v. Helme involving an insurer’s denial of coverage for two occurrences (as opposed to a single occurrence) under the policy.28 In Helme, the State of Arizona Guaranty Fund, standing in the shoes of an insolvent liability insurer, refused to provide indemnity for two occurrences, claiming there was only a single occurrence.29 The plaintiff and defendants entered into an independent settlement with an assignment of rights and a covenant not to execute.30 The Arizona Supreme Court found the plaintiff had alleged two separate occurrences and, therefore, the Fund was liable for two occurrences/limits.31 The court found the Fund had anticipatorily breached its duty to indemnify by denying coverage for the second occurrence.32 Therefore, even though the Fund provided a defense, its anticipatory breach of the duty to indemnify freed the insureds to enter into an independent settlement.33 Helme did not address additional issues such as whether the independent agreement was binding on the insurer and liability in excess of the policy limit was not an issue.
C. Reservation of Rights: Morris.
It is common for insurers and insureds to disagree regarding coverage and thus face unresolved questions regarding indemnity/coverage for ongoing litigation. To avoid the risk of excess liability posed by Damron, most insurers will defend under a reservation of the right to dispute liability coverage and file a separate action to resolve the coverage issue. In United Services Automobile Association v. Morris, the Arizona Supreme Court found an insurer’s reservation of the right to deny coverage, even while providing a defense, freed the insured to enter into an independent settlement agreement similar to that permitted in Damron.34 Because the defending insurer controls the defense and settlement of a claim and because the insured faces “the sharp thrust of personal liability” in the event there is no liability coverage, Morris held an insured may protect himself from the risk of an uncovered judgment (or a judgment in excess of policy limits) by entering into an independent settlement without breaching the cooperation clause.35
An insurer that performs the duty to defend but reserves the right to deny the duty to pay should not be allowed to control the conditions of payment. The insurer’s insertion of a policy defense by way of reservation or nonwaiver agreement narrows the reach of the cooperation clause and permits the insured to take reasonable measures to protect himself against the danger of personal liability. Accordingly, we hold that the cooperation clause prohibition against settling without the insurer’s consent forbids an insured from settling only claims for which the insurer unconditionally assumes liability under the policy.36
Recognizing, however, that such agreements may be unfair to an insurer performing its duty to defend, the court imposed two distinct requirements for an independent settlement where an insurer is providing a defense: advance notice and reasonableness.37 Finding a middle ground between an insurer’s wish to litigate all issues of liability and damages and the claimant’s desire to bind the insurer to the independent settlement, and because the insurer should have some protection against insureds who might agree to anything to avoid personal liability, the court held the insurer is not bound by either the fact or amount of liability unless the insured or claimant assignee is able to prove the settlement was reasonable.38 “The test as to whether the settlement was reasonable and prudent is what a reasonably prudent person in the insureds’ position would have settled for on the merits of the claimant’s case. This involves evaluating the facts bearing on the liability and damage aspects of claimant’s case, as well as the risks of going to trial.”39 The claimant-assignee has the burden of showing that the resulting judgment was not fraudulent or collusive and was fair and reasonable under the circumstances.40 If the claimant is unable to show the entire judgment was reasonable, the claimant can recover only the portion proven to be reasonable.41
Morris also held an insurer defending under a reservation of rights must be given advance notice of a pending independent settlement, citing Helme, in which the parties had advised the insurer that they were discussing the possibility of a Damron-type settlement in case the insurer did not agree to settle within the policy limit. Morris did not expound, but stated simply: “Such agreements must be made fairly, with notice to the insurer, and without fraud or collusion on the insurer.”42 Morris does not explain what type of notice, the purpose of notice, or when notice must be given, but is generally assumed to require advance notice to the insurer of a pending independent settlement in a Morris-type situation. This gives the insurer an opportunity to consider withdrawing its reservation of rights and/or agreeing to indemnify its insured for liability in excess of the policy limit.
A Morris type of independent settlement also involves assignment of the insured’s rights against the insurer and a covenant not to execute against the insured on any judgment. The parties may choose to stipulate to liability with a hearing to determine damages or stipulate to a damages number. Either way, there must be a hearing at some point to determine the reasonableness of the independent settlement in order to recover from the insurer. The insurer is not bound by any stipulation between the claimant and the insured (or even any litigated fact) as to which the insurer and insured had a conflict of interest (e.g., facts bearing on the existence of coverage) in the context of either Damron or Morris.43
D. Failure to Settle: Peaton.
In State Farm Mut. Auto. Ins. Co. v. Peaton, Arizona’s Court of Appeals held an independent settlement is permitted where an insurer breached its good faith duty to give equal consideration to its insured’s interests by rejecting a reasonable settlement offer within the policy limit that would have protected the insured from personal liability.44 Although the court ultimately found the insurer in Peaton acted reasonably in rejecting the settlement offer and thus the insured was not free to enter into an independent settlement, Peaton rejected an argument that only breach (or anticipatory breach) of the duties to defend or indemnify can free insureds to enter into an independent settlement, and held breach of the implied duty of good faith and fair dealing by failure to give equal consideration to the interests of its insured in connection with a settlement offer will also free an insured to enter into an independent settlement.45
“When an insurer refuses to consider settlement opportunities because the company does not believe that the policy provides coverage for the claim, it acts at its peril even if the company has an honest though erroneous belief that the policy does not provide coverage.”46 This can result in liability in excess of the policy limit and may thus provide an opening to claimants and insureds and requires careful consideration by insurers.
Assuming breach of the duty of equal consideration freeing the insured to enter into an independent settlement, the next question is whether notice and proof of reasonableness are required in this context as in Morris (defense under a reservation of rights that could potentially be withdrawn). The issue of reasonableness has been addressed – it is required in any case where the insurer defended its insured: “[The insurer], by meeting its duty to defend, was entitled to a reasonableness hearing on the issue of damages in spite of the alleged failure to treat settlement offers with equal consideration.”47 Accordingly, an independent settlement in a case where the insurer is defending, will permit the insurer to intervene in any damages hearing and/or contest the reasonableness of the settlement, and the claimant (with the cooperation of the insured), must show the settlement was reasonable and not fraudulent or collusive.48
The question of advance notice outside the Morris context is not clearly resolved. Some sort of notice seems to have been assumed without discussion in at least one case,49 but the courts have not directly addressed it outside Morris. Looking to Morris, we see the requirement was based on a general reference to Helme:
The insurer’s insertion of a policy defense by way of reservation or nonwaiver agreement narrows the reach of the cooperation clause and permits the insured to take reasonable measures to protect himself against the danger of personal liability. Accordingly, we hold that the cooperation clause prohibition against settling without the insurer’s consent forbids an insured from settling only claims for which the insurer unconditionally assumes liability under the policy. Cay Divers, supra; Taylor, supra. Thus, an insured being defended under a reservation of rights may enter into a Damron agreement without breaching the cooperation clause. Such agreements must be made fairly, with notice to the insurer, and without fraud or collusion on the insurer. Helme, supra.50
Helme, however, did not cite to any authority or discuss any need for advance notice of the intent to enter into an independent settlement.51 Helme simply noted that the insured told the insurer the parties were considering a Damron-type independent settlement in the event the insurer rejected a pending settlement offer.52 Helme did discuss the need for notice of the underlying claim and an opportunity to defend as a requirement for indemnification. It is not clear what type of notice Morris intended to reference when citing Helme. In discussing the need to prove the reasonableness of the settlement, Morris cited certain cases discussing common-law indemnity (as opposed to contractual indemnity), which cases indicate that advance notice to the indemnitor of a pending settlement allows the indemnitor an opportunity to either approve the settlement or defend with an agreement to indemnify for any judgment amount, and such advance notice relieves the indemnitee of the need to show actual (as opposed to potential) liability for the underlying claim when seeking indemnity for the amount of the settlement under the common law.53
If the justification for advance notice is an opportunity to withdraw the reservation of rights or correct an anticipatory breach of an indemnity obligation, then the requirement makes sense in cases where the insurer has provided a defense under a reservation of rights – the insurer is given the opportunity to change course while it can still protect/indemnify the insured. It does not make as much sense in cases where the alleged breach releasing the insured from the cooperation clause is the insurer’s bad faith failure to accept a reasonable policy-limit settlement demand that has expired. In the latter case, the opportunity to accept the demand and protect the insured is gone and cannot be recovered despite notice of the insured’s intent to enter into an independent settlement – advance notice would not allow the insurer an opportunity to cure its bad faith. The rationale for an advance notice requirement has not been specifically addressed in any Arizona case regarding independent settlement and would benefit from clarification.
Though the Helme and Peaton cases do not expressly require advance notice, providing advance notice in the Helme context (insurer refused to acknowledge a second occurrence/policy limit) would give the insurer the opportunity to lift the policy limit and agree to indemnify the insured for the full settlement amount or judgment. And even in the Peaton context (refusal of settlement within policy limit), advance notice of an independent settlement would give the insurer an opportunity to approve the settlement or agree to lift the policy limit and indemnify for any liability, thus relieving the insured of any personal exposure. Providing advance notice may also mitigate against any later argument that the settlement was fraudulent or collusive and will avoid time and effort spent litigating whether advance notice was required. It will be interesting to see how this law develops.
Even absent a duty to give advance notice, there is always a need to notify the insurer of the execution of an independent settlement prior to the entry of judgment and/or any damages or reasonableness hearing, so the insurer may intervene to protect its own interests. Arizona law permits an insurer to intervene in the tort lawsuit where its interests might be affected so long as the insurer has not refused to defend.54 If an insurer has the right to intervene when faced with an independent settlement agreement, logically, the insurer is entitled to notice of such an agreement in time to protect its interests. Otherwise, an insurer’s right to intervene could be rendered meaningless. The need to provide notice after the fact may also mitigate in favor of providing advance notice of an independent settlement.
E. Insurance Agent Negligence: Webb.
In Webb v. Gittlen,55 the Arizona Supreme Court addressed the validity of an independent settlement between a plaintiff and an insured defendant in which the defendant assigned an insurance agent malpractice claim in exchange for a stipulated judgment and covenant not to execute.56 The court first found a professional liability claim against an insurance agent assignable, reversing existing law.57 The effect of assignment of a negligence claim against an insurance agent or broker, however, is different from assignment of a claim against an insurer. Because an agent or broker has no duty to defend or indemnify, the independent settlement/judgment has no preclusive effect as to the agent.58 Absent actual litigation of an issue by the insurance agent, there is no basis for binding an agent or broker as to any liability or damage determination made in an independent settlement of the underlying claim:
In contrast, an insurance agent generally has no contractual duty to defend and indemnify the client. Our prior holdings that an insurer may be bound in certain circumstances by a judgment entered against the insured arose out of, and are limited to, the insurer-insured relationship. Absent such a relationship, we do not perceive, and Gittlen has not suggested, any basis for concluding that insurance agents would be bound by stipulated judgments to which they were not parties. Indeed, principles of issue preclusion suggest the opposite conclusion. Under those principles, the insurance agent would be barred from re-litigating an issue only if, among other things, the agent or her privy was a party in a prior action in which the issue was actually litigated.59
As a practical matter, a tort claimant may need to consider taking an assignment of a defendant’s claim for agent or broker negligence whenever the defendant’s insurer might successfully deny coverage and blame the absence of coverage, or the insured’s expectation of coverage, on an independent agent or broker whose conduct is not binding on the insurer. Taking such an assignment and pursuing the claim in a timely manner while also resolving the insurance coverage issue can prove delicate, because a claim for agent/broker negligence may accrue when the insurer has denied coverage and the defendant insured incurs any damage/expense, such as paying defense costs in the underlying litigation.60 Accordingly, the tort claimant may have to proceed with an assigned agent/broker negligence claim prior to resolution of the coverage issue.
F. Denial of Defense/Indemnity in a Commercial Lease: Cunningham.
Independent settlement agreements are not limited to the insurance context. In Cunningham v. Goettl Air Conditioning, Inc.61 the Arizona Supreme Court considered an independent settlement agreement in the context of an indemnity clause in a commercial lease agreement.62 A tort plaintiff and defendant entered an independent settlement because the landlord indemnitor refused to defend or indemnify the defendant tenant under an indemnity clause in the lease.63 The independent settlement involved a payment of $90,000 by the defendant, a stipulated judgment in the amount of $250,000, a covenant not to execute, and assignment of the tenant indemnitee’s claim against the landlord indemnitor.64 Relying on the Restatement (Second) of Judgments, § 57, the court found the indemnitor liable to the tort plaintiff assignee, but limited liability to the $90,000 actually paid by the tenant, because while the independent settlement included a covenant not to execute, it also included an actual release of the defendant tenant’s liability.65 Thus, while recognizing the validity of an independent settlement in an indemnity agreement outside the liability insurance context,66 Goettl demonstrates that a covenant not to execute on the judgment must be used (with no release) in order to establish and maintain liability for which the indemnitee may seek indemnification.
G. Insurer versus insurer settlement agreements: Leflet.
In Leflet v. Redwood Fire & Casualty Insurance Co.,67 a group of homeowners sued a developer, Hancock, for construction defects.68 Hancock and two of its insurers entered into an independent settlement with the claimants in which the two insurers agreed to pay the plaintiffs a modest sum that was less than the insurers’ combined policy limits in exchange for a stipulated judgment of $8.475 million and an assignment of indemnity claims against various subcontractors and their insurers.69 The Court of Appeals found that the agreement wrongfully attempted to transfer the primary insurer’s liability to the other parties and their insurers.70 The court stated that the defendant insured “did not act simply to protect itself from an insurer’s refusal to extend unconditional coverage, but wrongfully acted as an agent of an insurer that sought to limit its own liability.”71 The court held that “… an insurer that reserves its rights may not employ Morris to reduce its liability below policy limits, and an insured that facilitates such an effort breaches its duty to cooperate with its other insurers.”72 Nothing prevents an independent settlement to resolve insurance coverage disputes, however, when the settlement is not made to reduce the liability of a primary insurer, as in Colo. Cas. Ins. Co. v. Safety Control Co.73
Conclusion to Part One
Having discussed the basic principles of independent settlement agreements and relevant case law, the second part of this article will address the practical aspects of drafting and utilizing these agreements. Part Two will include discussion regarding issues such as notice, reasonableness, fraud and collusion, coverage litigation, judgment collection, and defense strategies.
Endnotes
1 105 Ariz. 151 (1969).
2 154 Ariz. 113 (1987).
3 Where an insurer refuses to defend and the insured is thus free to enter into an independent settlement, the agreement is commonly called a “Damron agreement.” Where the insurer provides a defense, but reserves a right to later deny coverage or breaches a duty that frees the insured to enter into an independent settlement, the agreement is commonly called “a Morris agreement,” or even other specific case names according to the type of breach. The commonality in all such cases is a settlement between claimant(s) and insured(s) independent of the insurer in which the insured concedes liability (withdrawing the Answer or stipulating to liability) and assigns all rights against the insurer in exchange for a covenant not to execute on the judgment against the insured (which judgment amount may be stipulated or determined by a hearing). Because the use of individual case names is cumbersome and confusing even for specialists in the area, we have chosen to call all of these agreements “independent” settlement agreements.
4 A.R.S. § 20-2401(4) and (5), defining “insurance” and “liability,” respectively. Liability insurance can be found in home, auto, business, professional, and other policies.
5 Western Casualty & Surety Co. v. International Spas of Arizona, Inc., 130 Ariz. 76, 634 P.2d 3 (Ariz. Ct. App. 1981).
6 Arizona Prop. Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 137 (Ariz. 1987) (“As a general matter, insurance carriers owe their insureds three duties, two express and one implied. These are the duties to indemnify, the duty to defend, and the duty to treat settlement proposals with equal consideration.”).
7 Id.
8 82 Ariz. 335 (App. 2004).
9 Id. at 338–39.
10 103 Ariz. 435 (1968).
11 Id. at 442.
12 Revised Arizona Jury Instructions (Civil)
Bad Faith 8 (Third-Party).
13 Fulton v. Woodford, 26 Ariz. App. 17, 22
(1976).
14 153 Ariz. 129 (1987).
15 Id. at 137 (citations omitted).
16 Id.
17 Damron v. Sledge, 105 Ariz. 151, 152
(1969).
18 Id.
19 Id. at 154.
20 Id. at 152–53.
21 Id.
22 Id. at 153–54.
23 Id. at 153.
24 Id. at 155.
25 Id.
26 Id.
27 Id.
28 153 Ariz. 129 (1987).
29 Id. at 132.
30 Id. at 133.
31 Id. at 134, 136.
32 Id. at 137.
33 Id. at 128, 138.
34 United Servs. Auto. Ass’n. v. Morris, 154
Ariz. 113, 119 (1987).
35 Id. at 118 (quoting Ariz. Prop. & Cas. Ins.
Guar. Fund v. Helme, 153 Ariz. 129, 137 (1987)).
36 Id. at 119.
37 Id. at 120–21.
38 Id. at 120–21.
39 Id. at 121 (citations omitted).
40 Id.
41 Id.
42 Id. at 119 (citing Helme, supra).
43 Id. at 120 (citing Farmers Insurance Co.
of Arizona v. Vagnozzi, 138 Ariz. 443, 448 (1983) (insurers are not bound even by litigated issues as to which there was a conflict of interest)); see also Quihuis v. State Farm Mut. Auto. Ins. Co., 235 Ariz. 536, 542–547 (2014) (even where the insurer refused to defend, in the context of a default or stipulated judgment, the insurer is not bound as to facts bearing on coverage even if those same facts were essential to the insured’s liability resulting in the underlying judgment).
44 State Farm Mut. Auto. Ins. Co. v. Peaton,
168 Ariz. 184 (App. 1990).
45 Id. 168 Ariz. at 195.
46 Acosta v. Phoenix Indem. Ins. Co., 214 Ariz. 380, 383, (App. 2007) (citing State Farm Auto. Ins. Co. v. Civil Serv. Emps. Ins. Co., 19 Ariz.App. 594, 602 (1973) and adopting as “correct statement of the law”). Also, Parsons v. Continental Nat. Am. Group, 113 Ariz. 223, 229 (1976) (“fact that the carrier believed there was no coverage under the policy and so refused to give any consideration to the proposed settlements did not absolve them from liability for the entire judgment entered against the insured.”); Rogan v. Auto-Owners Ins. Co., 171 Ariz. 559, 563 (App. 1991) (an insurer that erroneously denies coverage does so at its own peril and is liable on any judgment entered against its insured); Farmers Ins. Exch. v. Henderson, 82 Ariz. 335, 341 (1957).
47 Himes v. Safeway Insurance Co., 205 Ariz. 31, 41, par 30 (App. 2003) (following Mora v. Phoenix Indem. Ins. Co., 196 Ariz. 315 (App. 1999) (insurer entitled to intervene to appear at damages hearing on independent settlement despite alleged breach of duty to give equal consideration to settlement offer)).
48 Id.
49 Id. at 37, n. 7. See also, Safeway Insurance
Co. v. Guerrero, 210 Ariz. 5 (2005) (related case).
50 Morris, supra, 154 Ariz. at 118 (emphasis
added).
51 Helme, supra, 153 Ariz. at 132-33. 52 Id.
53 Parfait v. Jahncke Service, Inc., 484 F.2d 296, 304-5 (5th Cir. 1973) (cited with approval in Morris, supra, 154 Ariz. at 120 for the proposition that the insured need only show the reasonableness of the independent settlement). “In this case we do not find any circumstances present which, in fairness to the indemnitor, call for proof of actual liability. A practical device by which an indemnitee can protect himself against the awkward possibility of having to prove the original plaintiff’s case against himself, the original defendant, is to offer the indemnitor before any settlement is concluded the choice of (1) approving the settlement or (2) taking over the defense of the case and agreeing to hold the indemnitee harmless in any event for damages which may be assessed against him in excess of the amount of the proposed settlement. See Tankrederiet Gefion A/S v. Hyman-Michaels Company, supra at 1043-1044 of 406 F.2d. If the indemnitor approves the settlement or defends unsuccessfully against the original claim, he cannot later question the indemnitee’s liability to the original claimant. If the indemnitor declines to take either course, then the indemnitee will only be required to show potential liability to the original plaintiff in order to support his claim over against the indemnitor.” Id.
54 See generally Mora v. Phoenix Indem.
Ins. Co., 196 Ariz. 315 (App. 1999). 55 217 Ariz. 363 (2008).
56 Id. at 364.
57 Id. at 369.
58 Id. at 368–69.
59 Id. at 369.
60 Satamian v. Great Divide Insurance Co.,No. CV-23-0085-PR (Supreme Court of Arizona, April 9, 2024) (claims of agent/broker negligence and promissory estoppel time barred)
61 194 Ariz. 236 (1999).
62 Id. at 491–92.
63 Id.
64 Id.
65 Id. at 493–95.
66 See also, A Tumbling-T Ranches v. Flood Control Dist. of Maricopa Cnty., 220 Ariz. 202, 208 (App. 2008) (Rejecting contention that independent settlements are limited to the insurance context: “We discern no fundamental difference between the obligations imposed under §57(1)[Restatement (Second) of Judgments] and those set forth in the Damron/Morris line of cases.” “We emphasize, however, that this holding does not determine whether indemnification for the judgment so entered will be required. As Cunningham makes clear, “[t]he language of the [] indemnity agreement, not the consent judgment, determines the extent of Goettl’s liability to its indemnitee.””)).
67 226 Ariz. 297 (App. 2011).
68 Id. at 298.
69 Id.
70 Id. at 300.
71 Leflet, 226 Ariz. at 301.
72 Id.; see also Fid. Nat’l Title Ins. Co. v. Centerpoint Mech. Lien Claims, LLC, 238 Ariz. 135, 141, ¶ 29 (App. 2015) (invalidating a purported Morris-type agreement where the agreement fell outside the parameters of such agreements because it was between two related parties whose interests were the same).
73 230 Ariz. 560, 566, 288 P.3d 764, 770 (App. 2012) (subcontractor’s insurer refused to defend and indemnify the developer as an additional insured; distinguished Leflet and upheld the independent settlement as consistent with Damron – subcontractor’s insurer could not avoid the result of its failure to defend simply because another insurer met its obligation to provide a defense).