Decision Date17 June 2005
Docket NumberNo. 2 CA-CV 2004-0199.,2 CA-CV 2004-0199.
Citation210 Ariz. 478,113 P.3d 701
PartiesARIZONA PROPERTY AND CASUALTY INSURANCE GUARANTY FUND, Plaintiff/Appellee, v. Bunny MARTIN and Roy Martin, wife and husband, Defendants/Appellants.
CourtArizona Court of Appeals

Jones, Skelton & Hochuli, P.L.C., By Michael A. Ludwig and Randall H. Warner, Phoenix, for Plaintiff/Appellee.

Block Grynkewich, P.C., By Gary S. Grynkewich, Tucson, for Defendants/Appellants.


PELANDER, Chief Judge.

¶ 1 In this declaratory relief action (DRA) that involves a Morris1 agreement, appellants Bunny Martin and her husband appeal from the trial court's grant of summary judgment in favor of appellee Arizona Property and Casualty Insurance Fund (Fund). Martin contends the trial court erred in allowing the Fund to litigate alleged liability issues in the coverage phase of this case. Finding no error, we affirm the trial court's decision.


¶ 2 On appeal from a summary judgment, we view the facts "in the light most favorable to the party against whom judgment was entered." Bothell v. Two Point Acres, Inc., 192 Ariz. 313, ¶ 2, 965 P.2d 47, 49 (App.1998). Here, the parties agree the material facts are undisputed. Martin was an employee of First Chiropractic, where Robin O'Neal and Paul Ries worked as chiropractic doctors. As one of the benefits of her employment, Martin received chiropractic "adjustments" free of charge. No records were kept for the twenty-five to forty treatments Martin received during the course of her employment with First Chiropractic. Martin filed a tort action against First Chiropractic, O'Neal, and Ries (First defendants), claiming two chiropractic adjustments they performed had caused permanent injury to her neck.

¶ 3 The First defendants were insured under a professional liability insurance policy issued by Reliance National Indemnity Company. Reliance assumed the defense of the tort action but reserved its rights to contest coverage. In their answer in that underlying case, the First defendants alleged as an affirmative defense that Martin's "claims may be barred by the worker's compensation laws of the state of Arizona." After Reliance became insolvent in 2001, the Fund took over the defense of the tort action pursuant to A.R.S. §§ 20-661 and 20-667.

¶ 4 In February 2003, the Fund filed this DRA, requesting a ruling that insurance coverage was excluded under the Reliance policy because Martin's alleged injuries had occurred in the course of her employment and because the chiropractors had violated their professional code of conduct. The Fund also requested a declaration that Martin's injuries constituted one incident under the policy. In March, O'Neal and First Chiropractic entered into a Morris agreement with Martin and, pursuant to their stipulation, the trial court entered a default against O'Neal and First Chiropractic in the underlying action.2

¶ 5 The Fund moved for summary judgment in this DRA on the issue of coverage and Martin, standing in the shoes of O'Neal and First Chiropractic pursuant to the Morris agreement's assignment provision, cross-moved for summary judgment. The trial court granted the Fund's motion and denied Martin's. This appeal followed the trial court's entry of judgment pursuant to Rules 54(b) and 56, Ariz. R. Civ. P., 16 A.R.S., Pt. 2.


¶ 6 Martin contends "[t]he trial court erred in granting summary judgment in favor of the Fund in that its ruling was based on an issue completely subsumed under the terms of... [the] Morris agreement." "On appeal from a summary judgment, we must determine de novo whether there are any genuine issues of material fact and whether the trial court erred in applying the law." Bothell, 192 Ariz. 313, ¶ 8, 965 P.2d at 50. "We will affirm if the trial court's ruling is correct on any ground." Rowland v. Great States Ins. Co., 199 Ariz. 577, ¶ 6, 20 P.3d 1158, 1162 (App.2001).

¶ 7 The Reliance policy contained various exclusions to coverage, including the following language:

This policy does not apply to any claim or suit arising directly or indirectly from:
1. bodily injury to you in the course of your employment.
3. any obligation for which you or any carrier acting as insurer may be held liable under any workers' compensation... law or under any similar law.
15. injury or damage to:
• your employee ... arising out of the course of his or her work;
This exclusion applies:
• whether you may be liable as an employer or in any other capacity, and
• to any obligation to share loss with or repay someone else who must pay because of the injury.

¶ 8 In its ruling, the trial court found that "Bunny Martin was, at the time of her injury, an employee of Defendant First Chiropractic and Defendant Robin O'Neal." The trial court also stated that "Martin's injury arose out of and occurred within the course and scope of her employment with Defendant First Chiropractic" and that "A.R.S. [§] 23-1022(A) provides that Worker's Compensation is the exclusive remedy for employees who are injured in the course of their employment." Presumably on all of those bases, but without referring to the policy exclusions or otherwise specifying the particular grounds on which it relied, the trial court granted summary judgment in favor of the Fund.3

¶ 9 Focusing on the trial court's reference to the exclusivity provision of § 23-1022(A), Martin maintains the trial court "based [its] decision" on "[w]hat this Court prohibited" in Associated Aviation Underwriters v. Wood, 209 Ariz. 137, 98 P.3d 572 (App.2004) (AAU). In that case, decided by this court after the trial court had ruled, we applied the principles set forth in United Services Automobile Association v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987), and stated:

when an insured who is being defended under a reservation of rights enters into a Morris agreement and stipulates to an adverse judgment, the insurer may not litigate in the coverage phase of a DRA "the same legal and factual issues" that underlie the judgment.... Morris does not authorize, but rather essentially prohibits, an insurer's attempt in that context to litigate tort liability and damage issues in the guise of a coverage defense.

AAU, 209 Ariz. 137, ¶ 37, 98 P.3d at 585.

¶ 10 According to Martin, the Fund violated AAU's principles by litigating liability issues in this action on coverage. If the workers' compensation defense that the Fund presented here had been successfully urged in the underlying tort action, she argues, it would have "defeated Martin's claim of liability." Thus, Martin reasons, the trial court erred because its ruling "hinged on facts and law bearing directly on [O'Neal's and First Chiropractic's] liability in the underlying action." We do not agree with Martin's reading or application of our decision in AAU.

¶ 11 The insurer in AAU argued it was "entitled to a declaration of `no coverage' under its policies" if the plaintiffs in the underlying case did not prove "actionable fault" on the insureds' part. Id. Relying primarily on "the basic insuring provision of its policies," id. ¶ 32, the insurer contended no coverage existed because those plaintiffs had "failed to establish an `insured event'" absent proof of liability, causation, and damages in the DRA. Id. ¶ 25. In other words, the insurer in AAU "essentially argue[d] it may fully litigate all liability and damage issues in the coverage phase of [the] DRA, irrespective of what occurred in the [underlying tort] cases." Id. ¶ 32. We rejected that argument because the purported coverage issue the insurer sought to litigate—the existence of actionable fault—was "completely subsumed in the consent judgment" that had been entered in the underlying tort actions pursuant to the Morris agreement. Id. ¶ 35.

¶ 12 In contrast, Morris involved defendants in the underlying case who had stipulated that their acts "were either negligent or intentional." 154 Ariz. at 120,741 P.2d at 253. Our supreme court found "the coverage issue [was] clearly unresolved," because the defendants would be liable under either theory, but the insurance policy at issue excluded intentional acts from coverage. Id. The court further explained that the insurer could not "relitigate all aspects of the liability case," id., because that would destroy the purpose of the Morris agreement—allowing insureds "to act reasonably to protect themselves from `the sharp thrust of personal liability.'" Id. at 118, 741 P.2d at 251, quoting Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 137, 735 P.2d 451, 459 (1987). But, the court also cautioned that "[a]n insured's settlement agreement should not be used to obtain coverage that the insured did not purchase." Morris, 154 Ariz. at 120,741 P.2d at 253; see also Parking Concepts, Inc. v. Tenney, 207 Ariz. 19, ¶ 25, 83 P.3d 19, 24 (2004) ("Morris neither imposes new contractual duties on the insurer nor otherwise expands the rights of the insured under the contract of insurance.").

¶ 13 The parties agreed below that at all pertinent times Martin was O'Neal's and First Chiropractic's employee and that her "injuries occurred during the course and scope of her employment." According to Martin, that conceded fact would relieve O'Neal and First Chiropractic of liability because workers' compensation is generally an exclusive remedy for on-the-job injuries. Therefore, she maintains, her employee status cannot be litigated, or raised as a defense to coverage, in this DRA because it is a liability question subsumed in the underlying tort action. But, as noted earlier, the Reliance insurance contract specifically excluded, inter alia, "[i]njury or damage to ... your employee ... arising out of the course of his or her work."4

¶ 14 With respect to that exclusion, as the Fund points out, "[t]here are circumstances in which the [workers' compensation] defense would not apply but the exclusion nonetheless would." For example, if the insured...

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