Associated Aviation Underwriters v. Wood

Decision Date29 September 2004
Docket NumberNo. 2 CA-CV 2003-0091.,2 CA-CV 2003-0091.
Citation209 Ariz. 137,98 P.3d 572
PartiesASSOCIATED AVIATION UNDERWRITERS, an unincorporated association, Plaintiff/Appellant/Cross-Appellee, v. Theresa Lynn WOOD, as Personal Representative of Cleda F. Brown; Maria Dimas Caraballo; Carl H. Fuller, as Personal Representative of Ruth Ann Fuller; Sharon Louise Jardee; Walter E. Leming, Jr.; Peter Paul Lopez; Josie G. Montoya; Patricia (Obregon) Moreno; Laurie Ann Navarro; Mary Helen Quintana; Frances Bernal Rosas; Frederick M. Sianez; Wanda Mae Sollie; Susan C. Villescas; Frances Estes; Edward Lopez; and Yvonne Montejano, Intervenors/Appellees/Cross-Appellants.
CourtArizona Court of Appeals

Gust Rosenfeld, P.L.C. by Peter Collins, Jr., Michael S. Woodlock, and Roger W. Frazier, Tucson, for Plaintiff/Appellant/Cross-Appellee.

Baron & Budd, P.C., By Frederick M. Baron and Steven Baughman Jensen, Dallas, Texas, The Gonzales Law Firm by Richard J. Gonzales, Tucson, for Intervenors/Appellees/Cross-Appellants.


PELANDER, Chief Judge.

TABLE OF CONTENTS INTRODUCTION ¶¶ 1-4 BACKGROUND ¶¶ 5-22 DISCUSSION ¶¶ 23-157 APPEAL ¶¶ 23-121 I. Morris-related issues ¶¶ 23-65 A. Effect of Morris agreement on liability and damage issues ¶¶ 23-37 B. The Smith decision ¶¶ 38-41 C. Conflict of interest issues ¶¶ 42-47 D. Other policy considerations ¶¶ 48-54 E. Failure to follow pretrial order ¶¶ 55-61 F. AAU's challenge to particular Intervenors ¶¶ 62-65 II. Trigger of insurance coverage ¶¶ 66-99 III. Reasonableness ¶¶ 100-121 A. Background ¶¶ 100-105 B. Legal framework ¶¶ 106-109 C. Global settlement ¶¶ 110-116 D. Evidence of insurance reserves ¶¶ 117-118 E. Specific dollar amount ¶¶ 119-120 F. Other issues ¶ 121 CROSS-APPEAL ¶¶ 122-157 I. AAU's occurrence policy and Intervenor Montejano ¶¶ 122-123 II. Intervenors Lopez and Estes ¶¶ 124-125 III. Intervenors' request for money judgment ¶¶ 126-157 A. Procedural background ¶¶ 126-135 B. Availability of supplemental relief ¶¶ 136-143 C. Continued validity of Gerardo judgment ¶¶ 144-154 D. Other considerations ¶¶ 155-157 DISPOSITION ¶ 158

¶ 1 This declaratory relief action (DRA) relating to insurance coverage arises from underlying mass-tort actions brought by the seventeen appellees/cross-appellants and approximately 1,600 other individuals (hereinafter, "Intervenors") against Tucson Airport Authority and the City of Tucson (collectively, TAA/City). During the relevant time frame, TAA/City was insured under comprehensive general liability (CGL) policies issued by appellant/cross-appellee Associated Aviation Underwriters (AAU). In the underlying tort actions, AAU defended TAA/City under a reservation of rights. After AAU filed this DRA to contest coverage, Intervenors and TAA/City entered into a settlement agreement pursuant to United Services Automobile Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987).1 Pursuant to that agreement, the trial court later entered a stipulated judgment in favor of Intervenors and approximately 1,600 other plaintiffs and against TAA/City in the aggregate sum of almost $35 million.

¶ 2 In this DRA the trial court ultimately ruled as a matter of law, based primarily on the Morris agreement and consent judgment, that AAU's policies in force from 1960 to 1969 covered Intervenors' claims against TAA/City in the underlying tort cases. After an evidentiary hearing, the trial court later ruled that the Morris agreement was reasonable and confirmed the earlier ruling on coverage. AAU appeals on multiple grounds from the ensuing judgment entered against it and in favor of fourteen trial intervenors in September 2002. Intervenors cross-appeal from various rulings the trial court previously made, and three Intervenors appeal from the trial court's subsequent judgment of March 2003 relating to them.2 ¶ 3 On AAU's appeal, we conclude that, to the extent coverage under AAU's policies hinges on an initial determination of liability against the insureds, TAA/City, the Morris agreement and consent judgment preclude AAU from litigating what essentially are liability issues in its effort to defeat coverage. In the Morris context, liability-related issues are not pertinent to coverage, but rather only to the separate question of whether the Morris agreement is reasonable and prudent. Because the trial court essentially proceeded and ruled in that fashion, we affirm its ruling on coverage, including its ruling that Intervenors'"bodily injury, sickness or disease" occurred during the time period of AAU's policies. And, because the court's ruling on the reasonableness of the Morris agreement is supported by the record and not contrary to law, we also affirm that ruling.

¶ 4 On Intervenors' cross-appeal, we conclude that the trial court erred in finding no coverage under AAU's occurrence policy and dismissing Intervenor Yvonne Montejano on that basis, in entering judgment against Intervenors Frances Estes and Edward Lopez, and in declining to grant a money judgment in favor of the fourteen trial intervenors on their motion for supplemental relief in this DRA. We also conclude that the consent judgment entered against TAA/City and in favor of Intervenors has not expired due to their failure to timely renew it under A.R.S. § 12-1551, but rather, that their complaint-in-intervention in this DRA qualified as an action on the underlying judgment pursuant to A.R.S. § 12-1611.


¶ 5 On appeal from a declaratory judgment, we view the facts and all reasonable inferences therefrom in the light most favorable to upholding the trial court's judgment. See Polk v. Koerner, 111 Ariz. 493, 494, 533 P.2d 660, 661 (1975); Globe Am. Cas. Co. v. Lyons, 131 Ariz. 337, 340, 641 P.2d 251, 254 (App.1981). The factual and procedural background of this case is lengthy and complex. The mass-tort litigation underlying this DRA began almost twenty years ago. It involved over 1,600 plaintiffs and concerned complicated facts relating to the use of the chemical trichloroethylene (TCE) in the process of cleaning airplanes in the mid-1940's through the early 1950's and its subsequent contamination of one of Tucson's groundwater aquifers. The following history only attempts to set forth a broad overview of the case while highlighting those matters especially pertinent to the issues raised by the parties and our resolution of them.

¶ 6 In 1985, Barbara Valenzuela and approximately 1,600 other plaintiffs (again, referred to herein as "Intervenors") sued Hughes Aircraft Company in federal district court. Valenzuela v. Hughes Aircraft Co., No. CIV 85-903-TUC-WDB (D.Ariz.). The plaintiffs alleged they had been injured by exposure to water from an underground aquifer that had been contaminated by TCE that had been used at Hughes's facility. Hughes filed a third-party complaint against TAA/City seeking contribution for any liability that might be imposed against it. After receiving the third-party complaint, TAA/City asked its insurer, AAU, to defend it in the action and indemnify it should it be found liable. AAU agreed to defend TAA/City, but reserved its right to later contest whether its policies covered the plaintiffs' claims.

¶ 7 In 1986, the Valenzuela plaintiffs filed a new action in Pima County Superior Court against TAA/City, alleging that TAA/City was responsible for their injuries because it had contaminated the groundwater aquifer with TCE. Gerardo v. City of Tucson, PCSC No. 247622. TAA/City again tendered their defense to AAU, which again agreed to defend its insureds while reserving its rights to later contest its own indemnity obligation under its policies.

¶ 8 Some background on those policies is appropriate here. Between 1960 and 1972, which the parties agree is the pertinent time frame for this coverage dispute, AAU insured TAA/City with two different insurance policies commonly known as "accident" and "occurrence" policies. The first policy, in force from October 1, 1960, to August 1, 1969, provided that AAU agreed to pay on TAA/City's behalf

all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law, ... for damages... because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person or persons, caused by accident and arising out of such of the hazards defined herein....

The second policy, which was in force from August 1, 1969, to October 1, 1972, contained identical language except, instead of insuring against injuries "caused by accident," covered injuries "caused by an occurrence." The second policy defined "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."

¶ 9 In May 1988, AAU exercised its reserved right to contest coverage and filed this DRA against TAA/City, seeking a declaration that its policies did not cover the tort claims of the plaintiffs/Intervenors in either Valenzuela or Gerardo. In February 1989, as this DRA was progressing, the Intervenors offered to settle all their underlying claims against TAA/City. TAA/City notified AAU about the settlement proposal and urged AAU to either pay the settlement demand or attempt to negotiate a settlement more amenable to it. TAA/City also told AAU that if it did not settle or negotiate with Intervenors, they would enter a Morris agreement with them. AAU refused to settle or otherwise negotiate with Intervenors.

¶ 10 After negotiating settlement terms and conditions, Intervenors and TAA/City executed a Morris agreement in June 1989. Under the agreement, the parties stipulated to the entry of a judgment against TAA/City in Gerardo for $35 million, with TAA/City assigning all its rights to indemnity from AAU for that amount to Intervenors in return for Intervenors' release of all claims against TAA/City and a covenant not to execute on the consent...

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