Brisco v. Meritplan Ins. Co., s. 1

• Decision Date: 08 April 1982
• Docket Number: CA-CIV,Nos. 1,s. 1
• Citation: 132 Ariz. 72,643 P.2d 1042
• Parties: Norris B. BRISCO and Natalie R. Brisco, husband and wife, Plaintiffs-Appellees, Cross-Appellants, v. MERITPLAN INSURANCE COMPANY, a foreign corporation, Defendant-Appellant, Cross-Appellee. 5196, 1 5220.
• Court: Arizona Court of Appeals

Page 1042

643 P.2d 1042

132 Ariz. 72

Norris B. BRISCO and Natalie R. Brisco, husband and wife, Plaintiffs-Appellees, Cross-Appellants, v. MERITPLAN INSURANCE COMPANY, a foreign corporation, Defendant-Appellant, Cross-Appellee.

Nos. 1 CA-CIV 5196, 1 CA-CIV 5220.

Court of Appeals of Arizona, Division 1, Department A.

April 8, 1982.

Hofmann, Salcito, Stevens & Myers, P. A. by Leroy W. Hofmann, Phoenix, for defendant-appellant, cross-appellee

Langerman, Begam, Lewis & Marks by Noel Fidel, Phoenix, for plaintiffs-appellees, cross-appellants.

OPINION

FROEB, Judge.

An automobile accident occurred in 1974 which was settled by payment of certain amounts to the two persons injured. Thereafter, one of the two injured persons brought this lawsuit on the ground that the insurance company failed to act in good faith in settling the claims involved. The trial court agreed and entered summary judgment in the sum of $86,761.05. The insurance company now appeals the decision on legal issues as there is no issue of material fact.

Plaintiffs Norris B. Brisco (Brisco) and Susan H. Anderson (Anderson) were pedestrians when they were struck by an automobile owned by Jon C. Poe and Irene Poe (Poe) but driven by Christopher J. Corr (Corr).

The Poe automobile was insured by Fireman's Fund American Insurance Companies (Fireman's Fund) under a $300,000.00 combined, single limit policy.

Corr was insured by Meritplan Insurance Company (Meritplan), the defendant in this suit, under a policy having limits of $100,000.00 for each person injured in a single accident and $300,000.00 for all persons injured in a single accident. The Meritplan policy served as excess coverage over the Fireman's Fund policy. Anderson and Brisco filed separate lawsuits in Maricopa County Superior Court against Corr and Poe which were consolidated. Fireman's Fund concluded that the combined damages of Anderson and Brisco exceeded its $300,000.00 coverage and tendered its policy limits to Meritplan, which assumed the defense of the two claims. Fireman's Fund left it to Meritplan to decide how to allocate the $300,000.00 between Anderson and Brisco and how to combine Fireman's Fund money with Meritplan money to accomplish satisfaction of both claims. Meritplan thus had control over the allocation of up to $500,000.00 of insurance to satisfy the claims of Anderson and Brisco.

Meritplan settled the Anderson claim before trial for $163,238.95. It chose to apply $150,000.00 from the Fireman's Fund policy and $13,238.95 from its own policy. That left $150,000.00 remaining under the Fireman's Fund policy and $100,000.00 under the Meritplan policy, a total of $250,000.00. Meritplan offered this sum to Brisco in settlement. Brisco refused, but was willing to settle for $336,761.05. Meritplan refused.

The position of the parties at this point was as follows: Brisco claimed that Meritplan owed its insured, Corr, the duty to apply the funds at its disposal in such a way as to make $336,761.05 available for settlement of the Brisco claim and thereby protect Corr from exposure to an excess verdict in the pending trial. Corr, through his own counsel, agreed. They argued that this could be done by allocating the funds for the Anderson settlement in a different manner. Rather than applying $150,000.00 of Fireman's Fund money and only $13,238.95 of Meritplan money, it could have applied $63,238.95 of Fireman's Fund money and $100,000.00 of Meritplan money. Then, in addition to the $100,000.00 of coverage for Brisco under Meritplan's policy, there would have been $236,761.05 in remaining funds from Fireman's Fund.

From this standoff an unusual agreement was produced which is at the center of the case. Its purpose was to avoid: the necessity of a trial of the Brisco claim potentially resulting in an excess verdict, an assignment by Corr of his bad faith claim to Brisco, and a second lawsuit by Brisco against Meritplan to try the bad faith claim. The agreement was to "telescope" that process so that, in a single lawsuit, Brisco and Meritplan could litigate the narrow issue whether Meritplan's duty of good faith to its insured, Corr, required it to allocate the funds expended for the Anderson settlement in such a manner as to make available $336,761.05 instead of $250,000.00 for settlement with Brisco.

The document which emerged from this is captioned "Covenant and Agreement Not to Sue, Execute or Levy" ¹ (hereafter referred to as the agreement). Although it is signed only by Brisco, Meritplan paid $250,000.00 to Brisco in accordance with its terms. Specific provisions are hereafter discussed in context.

INSURER'S DUTY OF GOOD FAITH

Before reaching the specific issues raised in this appeal, we review briefly some general principles. An automobile liability insurer owes to its insured a good faith duty to terminate a claim against its insured by settlement. Farmers Insurance Exchange v. Henderson, 82 Ariz. 335, 313 P.2d 404 (1957). Bad faith of an insurer in failing to settle a claim within the policy limits exposes the insurer to full liability for a judgment thereafter obtained. Travelers Indemnity Co. v. Hudson, 15 Ariz.App. 371, 488 P.2d 1008 (1971). In determining whether to settle, an insurer must give equal consideration to both its interest and the interest of the insured. Farmers Insurance Exchange v. Henderson, supra; Fulton v. Woodford, 26 Ariz.App. 17, 545 P.2d 979 (1976). By the same token, where an insurer acts honestly and in good faith on adequate information, it should not be held liable for excess liability due to its failure to reach a settlement. General Accident Fire & Life Assurance Corp. v. Little, 103 Ariz. 435, 443 P.2d 690 (1968).

DID MERITPLAN BREACH ITS DUTY OF GOOD FAITH TO ITS INSURED?

Brisco defends the decision of the trial court by pointing out that it is the bookkeeping employed by Meritplan, dealing not only with money from its own policy but money from the Fireman's Fund policy as well, that produced liability for the bad faith claim. Brisco's position, simply put, is that Meritplan should have used less money from the Fireman's Fund policy to settle the Anderson claim so that there would be enough left from both policies to settle the Brisco claim.

Meritplan contends that by settling the automobile case with Brisco and obtaining the agreement, it thereby fully and completely protected Corr, its insured, from personal liability. Meritplan argues that it thereby completely satisfied its duty of good faith toward its insured and exposed Corr to no harm whatever. While this argument is correct, it overlooks the fact that Meritplan accepted the agreement by paying upon it and, in turn, agreed upon the continued existence of the underlying bad faith claim. The agreement put the bad faith issue in a new posture. Corr was protected, yes, but Brisco thereby gained the right to proceed directly against Meritplan for bad faith in apportioning the proceeds of both policies. The agreement released Corr from all liability and at the same time placed a limit on Brisco's potential automobile damage recovery at an amount equal to $86,761.05, assuring Meritplan that its ultimate liability would be within policy limits. The net effect of the agreement was to end the automobile litigation and open the way for resolution of the bad faith bookkeeping issue.

DOES THE AGREEMENT RELEASE MERITPLAN FROM ALL LIABILITY TO BRISCO?

Meritplan argues that the wording of the agreement itself is a bar to Brisco's suit for bad faith. Reference is made here to the wording of paragraph 7 which provides that this agreement may be pleaded as a defense in bar of any action taken on behalf of Brisco on account of any claim against Poe, Corr, Fireman's Fund or Meritplan. Meritplan also refers to the language in paragraph 5 by which Brisco releases Poe, Corr, Fireman's Fund and Meritplan from any claim resulting from the automobile accident. The provision of paragraph 5 continues, stating:

(T)he undersigned expressly waive and release any claim or action against Fireman's Fund and Meritplan based upon bad faith and asserting coverage in excess of the policy limits afforded under the respective policies issued in this matter;

and continues further to state:

(P)rovided, however, it is understood that in the litigation against Meritplan referred to in paragraph 6, that the undersigned (Brisco) will be permitted to raise the claim that the insurance companies acted wrongfully and in bad faith in dividing the $300,000 Fireman's Fund policy in the manner in which it was in fact divided between the claimants SUSAN ANDERSON and NORRIS BRISCO.

Brisco argues that the agreement serves as an abatement of any action brought against the named defendants and their insurers with the exception of the bad faith action expressly reserved by Brisco in paragraph 5 of the agreement. We agree with this latter interpretation.

The court will adopt such construction as will harmonize all parts of the contract, and conflicting provisions will be reconciled by a reasonable interpretation in view of the entire instrument. New Pueblo Constructors, Inc. v. Lake Patagonia Recreation Association, 12 Ariz.App. 13, 467 P.2d 88 (1970). Furthermore, where there is an inconsistency in a contract, the specific provisions qualify the meaning of the general provisions. Central Housing Investment Corporation v. Federal National Mortgage Association, 74 Ariz. 308, 248 P.2d 866 (1952). We cannot read the general clause in paragraph 7 as though it stood by itself, disjointed from the other paragraphs. Hamberlin v. Townsend, 76 Ariz. 191, 261 P.2d 1003 (1953). We must read each section of the agreement in relationship to each other, to bring harmony, if possible, between all parts of the writing. Id.

With this in mind, we examine the entire agreement. It expressly contemplates in recital paragraph 8 the filing of a bad faith action by Brisco against Meritplan to determine "whether the sum of $86,761.05 is/was...