In GEICO Indem. Co. v. Smith, 2016 WL 5791532 (D. Ariz. Oct. 4, 2016) (Arizona and Pacific Reporter citations not yet available), the Arizona District Court held that an Insurer who offers its policy limits as a business consideration, but never concedes coverage, is not liable as a matter of law for an excess judgment against its Insured.
In Smith, an Insurer twice denied coverage for a claim, but then offered its $20,000 policy limits as a business consideration when presented with the choice of either paying the policy limits or the Insured executing a “Damron Agreement,” an agreement in which the Insured would stipulate to a $2 million judgment and assign all its rights against the Insurer to the plaintiff. Despite the Insurer’s agreement to pay the policy limits to plaintiff, the Insured and the plaintiff executed the Damron Agreement anyway.
The decision
Plaintiff cited Acosta v. City of Phoenix Indem. Ins. Co., 214 Ariz. 380, 153 P.3d 401 (Ariz. App. 2007), and argued the Insurer was liable as a matter of law for the stipulated $2 million excess judgment. The District Court, however, held that “Acosta does not hold that insurers that make settlement offers are liable for excess judgments as a matter of law.” Rather, Smith explained that Acosta held, “if an insurer concedes coverage” and the concession is not based on the “discovery of new facts going to coverage,” then the insurer cannot argue the insured (or the insured’s assignee) is equitably estopped from using the concession of coverage against the insurer. Since the Insurer in Smith never conceded coverage, Acosta did not apply to render the Insurer liable as a matter of law for the excess judgment.
The primary takeaway
From Smith is that, in Arizona, if an Insurer offers policy limits as a business consideration, then the Insurer should not concede coverage and make it clear that it is not conceding coverage when it offers policy limits.
Nate is a partner at Jaburg Wilk in Phoenix, Arizona. His practice focuses on insurance coverage, bad faith litigation, commercial litigation, general liability litigation and professional liability litigation. He represents insurance companies, contractors, policy holders, global corporations, insurance adjusters, business owners, insurance agents and professionals. If you have questions about insurance law contact Nate at 602-248-1032 or ndm@jaburgwilk.com