by Nathan Meyer | Aug 8, 2017 | Insurance
Yeager v. State Farm Mut. Auto Ins. Co., 2017 WL 491121 (Ariz. App. February 7, 2017)
Memorandum Decision, a declaratory judgment action, the Arizona Court of Appeals rejected an Insured’s argument that she could stack UIM coverage’s in separate policies issued by the same Insurer. The Insured was involved in a single accident, but argued she made “two” claims—one UIM claim against the negligent driver of the other vehicle and a second UIM claim against the negligent driver of the vehicle in which she was a passenger.
Arizona’s anti-stacking statute, ARS § 20-259.01(H), states, “If multiple policies or coverage’s purchased by one insured on different vehicles apply to an accident or claim, the insurer may limit the coverage so that only one policy or coverage, selected by the insured, shall be applicable to any one accident.” (emphasis added)
The Court of Appeals held the anti-stacking clause in the Insurer’s policy was valid for two primary reasons.
First, the Court of Appeals relied on Giannini v. State Farm Mut. Auto. Ins. Co.,172 Ariz. 468, 837 P.2d 1203 (App. 1992), which rejected the same argument in the same situation. In Giannini,the Court of Appeals reasoned the existence of two negligent drivers in a single accident did not affect an Insurer’s ability to limit stacking under the statute because more than one accident did not occur and the “statute states clearly that the insurer may limit coverage so that only one policy is applicable to any one ‘accident.’” See also State Farm Mut. Ins. Co. v. Sharp,229 Ariz. 487, 491, 277 P.3d 192, 196 (2012) (“The most reasonable interpretation of Subsection (H) is that the phrase ‘multiple policies or coverage’s’ applies when an insured obtains coverage’s for several vehicles and then attempts to claim multiple UIM coverage’s for the same accident.”).
Second, the Court of Appeals held the anti-stacking clause was unambiguous and complied with the Statute. The policy’s anti-stacking clause stated, “If multiple policies or coverage’s purchased from the [Insurer] by one insured on different vehicles provide Underinsured Motor Vehicle Coverage which applies to the same accident or claim, the insured shall select one of these policies or coverage to apply to the accident. Only the one policy selected by the insured shall apply and no coverage will be provided by any of the other policies.” (emphasis added)
What is the primary takeaway from Yeager for Arizona insurers?
Arizona has confirmed that, even if an accident involves two tortfeasors, if an Insurer’s anti-stacking clause is unambiguous and complies with the statute, then the Insured still may not stack UIM coverage’s.
by Nathan Meyer | Aug 8, 2017 | Insurance
American Family Mut. Ins. Co. v. Verdugo, 2017 WL 2211275 (9th Cir. 2017)
Memorandum Decision, a coverage case arising from a homeowners policy, the Ninth Circuit Court of Appeals affirmed an Arizona District Court’s holding that an Abuse Exclusion precluded coverage for derivative negligence claims against Insured’s who allegedly failed to prevent or report abuse.
Insurance Case Overview
In Verdugo,the abuse victim was a minor, the underlying plaintiff was the abuse victim’s mother, the mother’s boyfriend was the abuser, and the underlying defendants/Insured’s were a physician and his wife. The abuse victim died as a result of the abuse. The underlying plaintiff obtained a jury verdict against the Insured’s. The decision did not explain how or when the Insured’s failed to prevent or stop the abuse. The Insured’s sought personal liability coverage under their homeowners policy from the Insurer.
Arizona Abuse Exclusion
The Abuse Exclusion stated the homeowners policy precluded coverage for “bodily injury…arising out of or resulting from any actual or alleged: a. sexual molestation or contact; b. corporal punishment; or c. physical or mental abuse of a person.”
Although Arizona has not addressed this issue, the Ninth Circuit held the Arizona District Court correctly predicted Arizona would rule the Abuse Exclusion precluded coverage for the derivative failure to report or prevent abuse claims, because Arizona has addressed the application of similar exclusions to derivative negligence claims and rejected the argument that such claims are separate and distinct torts not barred by the exclusions. Rather, Arizona considers claims such as negligent entrustment or supervision as claims that “cannot exist apart from the excluded conduct.”
Accordingly, the Ninth Circuit stated, “the district court correctly held that the abuse exclusion barred coverage here, because [the underlying plaintiff’s] claims against the [Insured’s] were for bodily injury arising from physical abuse. The [underlying plaintiff’s] claims necessarily included [abuse], and cannot exist apart from that excluded physical abuse.”
The Ninth Circuit also affirmed the Arizona District Court’s ruling that:
- the Abuse Exclusion is not ambiguous; rather, it “plainly and unambiguously bars coverage for bodily injury arising out of physical abuse”; and
- the District Court “correctly held that application of the[Abuse Exclusion] was not contrary to the [Insured’s’] reasonable expectations of coverage.”
What is the primary takeaway for Insurers in Arizona?
Arizona interprets exclusions to preclude coverage for derivative negligence claims, such as negligent entrustment, negligent supervision, and failure to supervise, report, or prevent the underlying excluded conduct.
by Nathan Meyer | Aug 8, 2017 | Insurance
A “Morris Agreement” is a “settlement agreement entered into when the insurer is defending under a reservation of rights under which the insured stipulates to a judgment, assigns his rights against the insurer to the claimant, and receives in return a covenant from the claimant not to execute against the insured.” See Parking Concepts, Inc. v. Tenney, 207 Ariz. 19 n.1, 83 P.3d 19 n.1 (2004).
What is the Rationale of a “Morris Agreement”?
According to the Arizona Supreme Court, if an insurer defends under a reservation of rights, then the insurer has “not abandon[ed] its insured’s by breaching any policy obligations,” but the insurer also has not “accept[ed] full responsibility for the [insured’s’] liability exposure.” United Services Automobile Association v. Morris, 154 Ariz. 113, 118, 741 P.2d 246, 251 (1987).? Thus, the Arizona Supreme Court distinguishes between an insurer’s duty to defend and duty to indemnify. Id. at 119, 741 P.2d at 252.? Morris concluded that an insurer “who 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.” Id. ?As a result, the Arizona Supreme Court held that, “an insured being defended under a reservation of rights may enter into a [Morris Agreement] without breaching the cooperation clause.” Id.
What are an Insurer’s Defense to a “Morris Agreement’?
An insurer’s defenses to a Morris Agreement include:
- Notice
- Coverage
- Reasonableness of the stipulated judgment
- Fraud and collusion
If an Insured Enters a “Morris Agreement” What Should an Insurer Do?
If an insured and plaintiff enter a Morris Agreement, then an insurer’s best and safest course of action is to:
- Move to intervene in the litigation after the Morris Agreement is signed and/or the insured and plaintiff request a reasonableness hearing.
- File a motion to stay a reasonableness determination until dispositive legal issues subject to a motion for summary judgment, such as notice or coverage, are determined.
- If the insurer loses on the dispositive issues, then contest the reasonableness of the stipulated judgment in a reasonableness hearing.? If, however, plaintiff and insured do not seek a reasonableness determination, then an insurer is entitled to contest reasonableness in a declaratory judgment action.
by Nathan Meyer | Aug 8, 2017 | Insurance
Labertew v. Langemeier, 846 F.3d 1028 (9th Cir. 2017)
The Ninth Circuit overruled the Arizona District Court’s dismissal of a garnishment filed by a Plaintiff/Assignee against an Insurer to collect a $1.5 million stipulated judgment entered against an Insurer pursuant to a “Damron Agreement.”
Under a Damron Agreement, if an insurer refuses to defend an insured, then an insured may stipulate to a judgment against it in exchange for an assignment of the insured’s rights against the insurer and plaintiff’s covenant not to execute the stipulated judgment against the insured personally. An insurer’s only defenses to a Damron Agreement are: (1) coverage, and (2) fraud and collusion. Plaintiffs/assignees often attempt to collect stipulated judgments from insurers by subsequently filing a declaratory judgment action.
In Labertew, the Plaintiff/Assignee filed a garnishment, a procedural device commonly used by judgment creditors to garnish wages from judgment debtors’ employers and banks. The Insurer removed the garnishment to District Court, filed an Answer indicating it owed nothing to Plaintiff (presumably because the Insurer contested coverage), and the Plaintiff/Assignee failed to file an Objection to the Answer within 10 days as required by Arizona law. Consequently, the District Court ruled the garnishment failed and discharged the Insurer/Garnishee.
The Ninth Circuit revived the garnishment for one primary reason. Federal Rule 69, which regards execution of “money judgments” and generally incorporates state procedure, applies only to judgments issued by the particular district court in which the execution is sought. The judgment in Labertew, however, was against the Insured/Assignor in state court rather than against the Insurer in federal court.
In other words, “[o]nce [the garnishment] arrived in federal court, the case was not yet ripe for application of [Federal Rule] 69, which would in general have imported Arizona procedures, because there was neither a judgment of the federal court upon which Rule 69 could operate, nor a judgment against the [Insurer] that might arguably be registered with the federal court and enforced under Rule 69. Consequently, the failure to answer the [Insurer’s] objection did not operate, through Rule 69, to discharge the insurers under Arizona procedural law.”
Ultimately, the Ninth Circuit reversed, vacated the judgment discharging the Insurer, and remanded the case to District Court.
What are the primary takeaways for an Insurer defending a Damron Agreement in Arizona?
- An insured’s attempt to collect a stipulated judgment entered pursuant to a Damron Agreement in a subsequent garnishment—rather than a subsequent declaratory judgment action—poses a procedural pitfall for practitioners unfamiliar with garnishment.
- After a plaintiff/assignee obtains a stipulated judgment under a Damron Agreement, an Insurer should be prepared, if the plaintiff/assignee files a garnishment, to immediately file an answer indicating it owes the insured/assignor nothing. This will allow the 10-day deadline for the assignee/plaintiff to file an objection to expire before the 30-day removal deadline expires.
- If the plaintiff/assignee fails to file an objection, then the insurer should remain in state court and seek to have the garnishment dismissed and discharged.
- If the plaintiff/assignee files a timely objection, then the insurer can still remove to District Court and litigate substantive defenses to the Damron Agreement.
by Nathan Meyer | Aug 8, 2017 | Insurance
City of Phoenix v. First State Ins Co., 2016 WL 4592906 (D. Ariz. Sept. 2, 2016)
(Order), a coverage and bad faith case arising from an Insurer denying an Insured, the City of Phoenix, defense and indemnity from a personal injury claim resulting from asbestos exposure, the Arizona District Court held that the opinion of the Insured’s bad faith expert “will be excluded to the extent that it asserts legal principles, reaches legal conclusion, or asserts facts contrary to or unsupported by the record.”
The Insured’s expert was a law professor who had published books and articles on insurance law. Nonetheless, the Arizona District Court stated his “report extends far beyond the range of admissible expert opinions” because it “consists largely of legal opinions,” including opinions regarding “interpretations of the language in [the Insurer’s] policies,” “assertions of Arizona insurance law,” and “applications of Arizona law to the facts of this case.”
The Arizona District Court held that such a bad faith expert opinion is inadmissible for two primary reasons:
- it invades “the province of the court by expounding on law,” and
- it invades “the province of the jury by resolving facts.”
First, “instructing the jury on the applicable law is the exclusive province of the court.” Consequently, an expert “cannot give an opinion as to her legal conclusion, i.e., an opinion on an ultimate issue of law.”
Second, “Federal Rule of Evidence 702 permits an expert to testify only if the testimony ‘will help the trier of fact to understand the evidence or to determine a fact in issue.’” The Insured’s expert testimony did not help the jury understand the evidence because some of his “opinions [were] incorrect under Arizona law” and not supported by the evidence. Furthermore, the Insured’s expert testimony did not help the jury “determine a fact in issue”; rather, the Insured’s expert attempted to determine fact issues for the jury.
The Arizona District Court also reasoned that the subject Insured’s expert testimony was dissimilar to expert testimony admitted in Hangarter v. Provident Life & Accident Insurance Co., 373 F.3d 998, 1016–17 (9th Cir. 2004). In Hangarter,the expert “merely made passing ‘references’ to legal provisions and never actually ‘reached a legal conclusion.’” Indeed, in Hangarter,the insured’s expert testimony that the Insurer “deviated from industry standards supported a finding of bad faith,” but the expert “never testified that…[the insurer] actually acted in bad faith (i.e. an ultimate issued of law).” Hangarter,373 F.3d at 1016 (parentheses in original). In City of Phoenix v. First State Ins. Co., however, the Insured’s expert did “not just ‘refer’ to legal provisions; he spent pages detailing insurance law, complete with case citations” and offered “to testify that [the Insurer:] [a] breached the terms of its policies, [b] acted in bad faith, and [c] deserves punitive damages.” The Arizona District Court reiterated that “None of that is admissible.”
Ultimately, the Arizona District Court granted, in part, the Insurer’s Motion to Exclude Expert Testimony and granted the Insurer’s Motion for Summary Judgment on both coverage and bad faith.
What are the primary takeaways from the City of Phoenix v. First State Ins. Co for insurer’s defending bad faith claims in Arizona District Court?
First, an Insurer should be vigilant that its own claims handling expert does not extend beyond the range of permissible expert opinions by stating the applicable law, resolving fact issues, and rendering an opinion on the ultimate issue—whether the Insurer acted in bad faith.
Second, an Insurer in Federal Court should likewise move to strike the opinions of an Insured’s claims handling expert that makes similar transgressions.
by Nathan Meyer | Apr 21, 2017 | Insurance
In?Romero v. Mendota Ins. Co., 2016 WL 6775950 (D. Ariz. Nov. 16, 2016), the Arizona District Court granted a Motion to Remand a breach of contract and insurance bad faith case arising from UIM claims-despite the Insureds certifying the case was worth more than the $50,000 compulsory arbitration limit and seeking punitive damages-because the Insurer did not prove the amount in controversy “more likely than not” exceeded $75,000.
In granting the Motion to Remand, the District Court relied on these principles:
- “Courts strictly construe the [removal] statute against removal jurisdiction.”?Romero, 2016 WL 6775950, at?[1]?
- “There is a strong presumption against removal and federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance.”?Id. (internal cites omitted)
- The Insurer “always has the burden of establishing that removal is proper.”?Id.
- “Where doubt regarding the right to removal exists, a case should be remanded to state court.”?Id.
- “Where a complaint does not demand a specific dollar amount, the defendant bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds $75,000.”?Id. (internal cited omitted).
- ?An Insurer must “present specific facts in support of jurisdiction rather than relying on conclusory allegations.”?Id. at?[2]
- An Insurer is “not confined by the face of the complaint”; rather, the Insurer “may submit facts presented in the removal petition as well as any summary judgment-type evidence relevant to the amount in controversy at the time of the removal,” such as a settlement letter.?Id. at?[2].
In?Romero, the District Court remanded because the complaint alleged no specific amount of damages, the Motion to Remand alleged both Insureds incurred less than $8,000 in medical expenses, and-despite the combined policy limits of $50,000, the Insureds’ certification that the claim was worth more than $50,0000, and the claim for punitive damages-the Insurer failed to allege sufficient specific facts and simply made the conclusory allegation that it was a “reasonable inference” that the amount in controversy exceeded $75,000.?Id.
The District Court remanded the case “because doubt regarding the right to removal exists.”?Id. The District Court did not mention whether the complaint sought attorney fees and did not address the line of Arizona District Court and Ninth Circuit cases that indicates a potential award of attorney fees to Insureds should be considered in determining whether the amount in controversy exceeds $75,000.
About the Author:?Nathan D. Meyer?is a Partner at the?Phoenix law firm of Jaburg Wilk. One of his specialties is insurance coverage and bad faith.?Micalann C. Pepe?is an attorney at Jaburg Wilk who focuses her practice on insurance law. Nate and Micalann advise and represent insurance clients in coverage, bad faith, contribution and liability matters.
[1]?Romero v. Mendota Ins. Co., 2016 WL 6775950 (D. Ariz. Nov. 16, 2016)
[2]?Manonev. Farm Bureau Prop. &Cas. Co., 2016 WL 1059539, at (D. Ariz. Mar. 17, 2016) (amount in controversy may attorney fees and costs);
[2]?Wood v. State FarmMut. Auto. Ins. Co., 2015 WL 3953909, at (D. Ariz. June 29, 2015) (if recoverable, amount in controversy includes reasonable attorney fees);
Haskell v. State FarmMut. Auto.Ins. Co., 69 F.?App’x?877, 878 (9th Cir. 2003) (same);
Nasiriv. AllstateIndem.Co.,?41?Fed.Appx. 76 (9th Cir. 2002) (court may consider reasonable estimate of attorney fees when determining amount in controversy in bad faith case);
Galt v. JSS Scandinavia, 142 F.3d 1150, 1156 (9th Cir.1998) (if recoverable, court may consider reasonable estimate of attorney fees).
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