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 …

By David Shughart, Esq., Tracy Gromer, Esq. and Steve Guy, Esq. PART 2 II. Drafting and Executing Independent Settlement Agreements.     Independent settlement agreements take many forms but fundamentally involve the transfer of the insured’s/indemnitee’s rights and claims against the indemnitor/insurer (and/or an insurance agent or broker) to the claimant along with a judgment (by default or stipulation and possibly following a hearing on damages or reasonableness) against the insured/indemnitee in exchange for a covenant not to execute on the judgment. There are many ways to structure these agreements, but certain provisions, like a recital of foundational facts and a covenant not to execute, are standard and fundamental. A. Pre-Agreement Considerations and Strategies.     When a liability insurer breaches a duty, it may make sense for the litigating parties to settle independently rather than proceed with the underlying claim. It is relatively rare today for an insurer to refuse to defend in light of Damron and potential excess liability. Most insurers will choose the safer path of defending under a reservation of rights. And, when they have done so but are given notice of a proposed independent settlement, insurers may lift their reservation of rights if coverage defenses …