Bills v. THE FUND

• Decision Date: 28 January 1999
• Docket Number: No. 2 CA-CV 98-0130.,2 CA-CV 98-0130.
• Citation: Bills v. THE FUND, 984 P.2d 574, 194 Ariz. 488 (Ariz. App. 1999)
• Parties: Marie BILLS, individually and as assignee of KTTL, Inc., dba Pacific Beach Club, Inc., an Arizona corporation, Plaintiff/Appellant, v. ARIZONA PROPERTY AND CASUALTY INSURANCE GUARANTY FUND, Defendant/Appellee.
• Court: Arizona Court of Appeals

984 P.2d 574

194 Ariz. 488

Marie BILLS, individually and as assignee of KTTL, Inc., dba Pacific Beach Club, Inc., an Arizona corporation, Plaintiff/Appellant, v. ARIZONA PROPERTY AND CASUALTY INSURANCE GUARANTY FUND, Defendant/Appellee.

No. -0130.

Court of Appeals of Arizona. Division 2, Department A.

January 28, 1999.

Review Dismissed November 22, 1999.

The Kimble Firm, by Stephen Kimble and David F. Toone, Tucson, for Plaintiff/Appellant.

Chandler, Tullar, Udall & Redhair, LLP, by D.B. Udall, Tucson, for Defendant/Appellee.

OPINION

PELANDER, Presiding Judge.

¶ 1 Plaintiff/appellant Marie Bills appeals from the trial court's entry of partial summary judgment for defendant/appellee Arizona Property and Casualty Insurance Guaranty Fund pursuant to Rule 54(b), Ariz. R. Civ. P., 16 A.R.S. We affirm.

BACKGROUND

¶ 2 The facts pertinent to this appeal are undisputed. In an underlying wrongful death action arising from a 1993 motor vehicle accident in which her husband was killed, plaintiff alleged "dram shop" liability against KTTL, Inc., doing business as Pacific Beach Club, Inc. (PBC). PBC was insured by Prestige Casualty Insurance Co., with a policy liability limit of $1,000,000. During the course of that litigation, Prestige became insolvent and was placed into receivership. The Fund then assumed all outstanding covered claims against PBC, including its defense of plaintiff's wrongful death action. Contrary to the advice and recommendations of PBC's defense counsel, the Fund refused to pay any amount to settle plaintiff's claim.

¶ 3 After a jury trial resulted in a verdict for plaintiff in the wrongful death action, she obtained a judgment against PBC for $401,706.34, which PBC appealed. Thereafter, the Fund unsuccessfully attempted to settle plaintiff's claim against PBC for $60,000. Plaintiff and PBC then entered into a "Damron"¹ agreement under which PBC dismissed its appeal and assigned to plaintiff any rights it had against the Fund.

¶ 4 Plaintiff, individually and as PBC's assignee, then brought this action against the Fund and others. Claiming negligence, breach of contract, and bad faith, plaintiff alleged that the Fund had unreasonably refused to settle her claim before trial, had failed to post any supersedeas bond for PBC's appeal, and had offered only $60,000 post-trial to settle the claim and satisfy her judgment. In response, the Fund alleged that it "enjoy[ed] immunity pursuant to A.R.S. § 20-675(A)" and moved for summary judgment on that basis. This appeal followed the trial court's entry of partial summary judgment for the Fund as to plaintiff's "causes of action sounding in tort."

DISCUSSION

¶ 5 Citing Wells Fargo Credit Corp. v. Arizona Property and Casualty Insurance Guaranty Fund, 165 Ariz. 567, 799 P.2d 908 (App.1990), the trial court ruled that plaintiff's tort claims against the Fund are barred by § 20-675. The court further ruled that § 20-675 is "not unconstitutional." Plaintiff contends the trial court erred in several respects, arguing that Wells Fargo was wrongly decided by Division One of this court,² § 20-675 "does not purport to grant immunity to the Fund," and if so interpreted, would violate the following provisions in Arizona's Constitution: article 18, § 6 (anti-abrogation clause); article 2, § 31 (no damage limitation clause); and article 2, § 13 (equal protection).

¶ 6 "When reviewing a grant of summary judgment where the facts are undisputed, we determine whether the trial court correctly applied the substantive law to the undisputed facts." Carden v. Golden Eagle Ins. Co., 190 Ariz. 295, 296, 947 P.2d 869, 870 (App.1997). We review de novo statutory interpretation issues and constitutional claims and, if possible, will decide the case on nonconstitutional grounds. Little v. All Phoenix South Community Mental Health Ctr., 186 Ariz. 97, 919 P.2d 1368 (App.1995). In interpreting statutes, our primary mission is "to find and give effect to legislative intent." Mail Boxes, Etc. v. Industrial Comm'n, 181 Ariz. 119, 121, 888 P.2d 777, 779 (1995). We focus first on the statutory wording and, if it is ambiguous or inconclusive, we consider the statute's "context, subject matter, historical background, effects, consequences, spirit, and purpose." Id. at 122, 888 P.2d at 780. Finally, we will affirm the trial court's ruling if it is correct on any ground. Glaze v. Marcus, 151 Ariz. 538, 729 P.2d 342 (App.1986).

I. Statutory Issues

¶ 7 In 1970, the Arizona Legislature enacted a series of statutes that, inter alia, established the Fund's predecessor ("the association"), designated the members of its board, and set forth the association's statutory powers and duties. 1970 Ariz. Sess. Laws, ch. 78, § 2 (enacting former A.R.S. §§ 20-662(A), 20-663, and 20-664). Those laws were repealed and replaced with a new set of statutes, A.R.S. §§ 20-661 through 20-680 ("the statutes"), in 1977. 1977 Ariz. Sess. Laws, ch. 130, §§ 1 and 2. The Fund was created "to assume the liability of insolvent insurers." Betancourt v. Arizona Property & Cas. Ins. Fund, 170 Ariz. 296, 298, 823 P.2d 1304, 1306 (App.1991). Its essential purpose is "to provide for the payment of claims under certain insurance policies to avoid excess delay in payment and financial loss to claimants or policyholders because of the insolvency of an insurer." Wells Fargo, 165 Ariz. at 568, 799 P.2d at 909.

¶ 8 "[T]he Fund is obligated, within limits, to pay all `covered' claims of insolvent insurers." A.H. v. Arizona Property & Cas. Ins. Guar. Fund, 190 Ariz. 526, 527, 950 P.2d 1147, 1148 (1997), quoting A.R.S. §§ 20-667 and 20-661(3). "A `covered claim' is an unpaid claim arising `out of' and `within the coverage' of a policy written by an insolvent insurer to which the statutes apply." A.H., 190 Ariz. at 527, 950 P.2d at 1148, quoting § 20-661(3). The Fund's obligation on covered claims is further limited to a maximum amount of "less than" $100,000. § 20-667(B).

¶ 9 In describing the nature of the Fund and its relationship with the insured and the insolvent insurer, our supreme court recently stated:

Sections 20-661 to 20-680 obligate the Fund to step into the shoes of insolvent insurers and adjust, compromise, settle, and pay covered claims that arise under insurance contracts. It may also deny claims, and defend and indemnify as necessary. See § 20-667(C) ("The fund is deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all the rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent."). As we recognized in [Arizona Property & Casualty Insurance Guaranty Fund v.] Herder, [156 Ariz. 203, 751 P.2d 519 (1988),] however, the rights and obligations of an insolvent insurer and the Fund are not absolutely coextensive but are limited by the statute. 156 Ariz. at 205 n. 3,751 P.2d at 521 n. 3 ("[T]he Fund is deemed the insurer to the extent of the Fund's obligations on the covered claims, and not to the extent of the insolvent insurer's."). The Fund is therefore a creature of statute that assumes the contractual obligations and rights of insolvent insurers within the limits of its legislated mandate—in essence, it exists as the result of a limited, statutorily imposed novation. Thus, its relationship with parties insured by insolvent carriers is governed by the insured's contract. Section 12-341.01(A) is clearly applicable to coverage disputes between the insured and the Fund because the Fund's obligation is determined under the underlying insurance contract.

A.H., 190 Ariz. at 529-30, 950 P.2d at 1150-51 (holding that "a dispute concerning policy coverage resolved by interpretation of § 20-673(C) is one that arises from contract" for purposes of awarding attorneys' fees under A.R.S. § 12-341.01). See also Clark Equip. Co. v. Arizona Property & Cas. Ins. Guar. Fund, 189 Ariz. 433, 445, 943 P.2d 793, 805 (App.1997) ("Even though the Fund was created by statute and has assumed [the insolvent insurer's] obligations because of its statutory duty, the essential nature of this action remains one sounding in contract.").

¶ 10 In light of the language in A.H., the Fund's argument that it "cannot be held liable for breach of contract or bad faith" solely because "there is no contract" between it and PBC is misplaced.³ Rather, the Fund has both a statutory and contractual relationship with the insured, obligating both parties to comply with the terms and conditions of the policy that the insolvent insurer had issued, to the extent those terms are not inconsistent with or superseded by the statutes. In Arizona, insurance contracts give rise to an implied covenant of good faith and fair dealing, which obligates the insurer "to give equal consideration to both the interests of itself and of its insured" in matters relating to settlement. City of Glendale v. Farmers Ins. Exch., 126 Ariz. 118, 120, 613 P.2d 278, 280 (1980).⁴ The statutes do not eliminate or modify that obligation. Therefore, the Fund essentially inherited the duty of good faith and fair dealing when it "step[ped] into the shoes" of the insolvent insurer,⁵ A.H., 190 Ariz. at 529, 950 P.2d at 1150, at least "to the extent of its obligation on the covered claims."⁶ § 20-667(C). See Arizona Property & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 138, 735 P.2d 451, 460 (1987) (suggesting that the Fund has both a "duty to indemnify and to fairly consider settlement proposals").

¶ 11 As it did in the trial court, however, the Fund claims immunity from plaintiff's tort claims under § 20-675(A), which provides:

There shall be no liability on the part of, and no cause of action shall rise against, any member insurer, the board or its agents or employees, the director or representatives of the director for any action taken in the performance of their powers and duties pursuant to this article.

In Wells Fargo, the court concluded that "the legislative intent and the relevant...