Colo. Cas. Ins. Co. v. Safety Control Co.

• Decision Date: 11 September 2012
• Docket Number: No. 1 CA–CV 10–0871.,1 CA–CV 10–0871.
• Citation: 288 P.3d 764,230 Ariz. 560
• Parties: COLORADO CASUALTY INSURANCE COMPANY, a Colorado corporation, Plaintiff/Appellee, v. SAFETY CONTROL COMPANY, INC., an Arizona corporation; Employer's Mutual Casualty Company, an insurance company, Defendant/Appellant, Hugo Roman, an individual, Intervenor/Appellee.
• Court: Arizona Court of Appeals

230 Ariz. 560

288 P.3d 764

COLORADO CASUALTY INSURANCE COMPANY, a Colorado corporation, Plaintiff/Appellee,

v. SAFETY CONTROL COMPANY, INC., an Arizona corporation; Employer's Mutual Casualty Company, an insurance company, Defendant/Appellant,Hugo Roman, an individual, Intervenor/Appellee.

No. 1 CA–CV 10–0871.

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

Sept. 11, 2012.

Raymond Greer & Sassaman PC By Daniel W. McCarthy, Michael J. Raymond, Phoenix, Attorneys for Defendant/Appellant Safety Control Co., Inc.

Stinson Brown By William G. Stinson, Jr., Glendale, and William H. Douglas, PLLC By William H. Douglas, Scottsdale, Attorneys for Defendant/Appellant Employer's Mutual Casualty Co.

The Rees Law Firm By David W. Rees, Tucson, Attorneys for Plaintiff/Appellee.

Fennemore Craig PC By Julio M. Zapata, John D. Everroad, Alexander R. Arpad, Phoenix, Attorneys for Intervenor/Appellee.

OPINION

JOHNSEN, Judge.

¶ 1 We address in this case the validity and effect of a Damron agreement involving a contractor and its excess insurer by which the contractor assigned to a tort victim the contractor's indemnification rights against its primary insurer.¹ We hold the agreement is enforceable but remand for a determination of whether the stipulated judgment falls within the primary insurer's policy.

FACTS AND PROCEDURAL HISTORY

¶ 2 The Arizona Department of Transportation (“ADOT”) hired DBA Construction Company (“DBA”) to perform a road-improvement project on the Loop 101 freeway. Safety Control Company, Inc. was one of DBA's subcontractors. As required by the subcontract, Safety Control purchased from Employer's Mutual Casualty Company (“EMC”) a certificate of insurance identifying DBA as an additional insured on a policy providing primary coverage for liability arising out of Safety Control's work. DBA itself had purchased a policy from Colorado Casualty Insurance Company that provided excess coverage for liability arising out of the work of its subcontractors, including Safety Control.

¶ 3 A collision occurred at the construction site, injuring a motorist, Hugo Roman, who sued ADOT and DBA for damages. Colorado Casualty tendered DBA's defense to the subcontractors, including Safety Control. Safety Control and EMC rejected the tender. Roman eventually settled his claims against DBA and ADOT. DBA and ADOT stipulated with Roman for entry of judgment of $750,000; Roman received $75,000 from DBA (paid by Colorado Casualty) and $20,000 from ADOT, and agreed not to execute on the stipulated judgment. DBA, ADOT and Colorado Casualty assigned to Roman their rights against the subcontractors and other insurers.

¶ 4 Colorado Casualty then filed suit against three subcontractors and their insurance carriers—including Safety Control and EMC—to recover what it had paid to defend DBA and ADOT and settle with Roman. Roman in turn moved to intervene and dismiss, arguing Colorado Casualty had assigned its subrogation rights to him as part of the settlement agreement. The superior court did not dismiss the suit, but allowed Roman to intervene. Roman then filed a counterclaim against Colorado Casualty and a cross-claim against the subcontractors.

¶ 5 Roman and Colorado Casualty eventually settled their claims against all but Safety Control and EMC. The superior court ruled on summary judgment that EMC breached a duty to defend DBA and that as a result, “DBA was entitled to settle with Roman without EMC's consent as long as the settlement was not collusive or fraudulent.” After more briefing, the court held the stipulated judgment was neither collusive nor procured by fraud and that EMC therefore was liable to Roman on the stipulated judgment and for his attorney's fees. The court also held Safety Control breached its subcontract with DBA by failing to procure completed-operations insurance coverage and would be liable for damages to the extent that EMC did not satisfy what remained (after the other settlements) of the stipulated judgment and awards of attorney's fees.

¶ 6 Safety Control and EMC timely appealed from the judgment. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution, and Arizona Revised Statutes (“A.R.S.”) section 12–2101(A)(1) (2011).

DISCUSSION

A. Standard of Review.

¶ 7 On review of summary judgment, we view all facts and inferences in the light most favorable to the parties against whom judgment was entered. Case Corp. v. Gehrke, 208 Ariz. 140, 143, ¶ 10, 91 P.3d 362, 365 (App.2004). “Interpretation of a contract is a question of law that we review de novo.” Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C., 213 Ariz. 83, 86, ¶ 12, 138 P.3d 1210, 1213 (App.2006).

B. The Disagreement Between Roman and Colorado Casualty Does Not Preclude Them from Pursuing Their Claims Against EMC and Safety Control.

¶ 8 We first address the contention by Safety Control and EMC that the judgment against them is unenforceable because a dispute remains between Roman and Colorado Casualty about which of them owns some of the claims at issue.

¶ 9 The record discloses that the initial version of a settlement agreement among Roman, DBA, ADOT and Colorado Casualty reserved Colorado Casualty's right to pursue claims against Safety Control and/or EMC for fees and costs it incurred in defending DBA and ADOT against Roman's complaint. But the final version of the settlement agreement omitted any mention of any such subrogation rights. Colorado Casualty's complaint and Roman's complaint-in-intervention disagree about which of them has the right to pursue the claims for fees and costs.

¶ 10 The superior court's judgment includes $97,011.03 awarded to Colorado Casualty, which we understand to be on its claims for reimbursement of defense fees and costs. As to that amount, however, the judgment provides, “Roman and Colorado Casualty shall resolve their dispute concerning this award amongst themselves.” Consistent with that statement, in the summary judgment proceedings in the superior court and on appeal, Roman and Colorado Casualty assert that they have agreed to pursue the assigned claims jointly and to resolve the question of which of them is entitled to the proceeds after the matter is resolved on the merits.

¶ 11 Safety Control and EMC cite Arizona Rule of Civil Procedure 17(a) to support their argument that the superior court should have determined which party owns the claims for fees and costs before entering judgment. That rule states, “Every action shall be prosecuted in the name of the real party in interest.” The purpose of this rule “is to enable the defendant to avail himself of the evidence and defenses that he has against the real party in interest and to assure the finality of the results in the application of res judicata.” Cruz v. Lusk Collection Agency, 119 Ariz. 356, 358, 580 P.2d 1210, 1212 (App.1978).

¶ 12 Under these circumstances, we conclude Rule 17(a) does not preclude the judgment the superior court entered on the claims for recovery of defense fees and costs. Safety Control and EMC do not argue that the agreement between Roman and Colorado Casualty has prevented them from raising any defenses to the claims or that the judgment might allow a double recovery. The judgment only awarded the fees and costs to Colorado Casualty, not to Roman or to both of them, and we fail to see how Safety Control and EMC might be prejudiced.

C. The Settlement Agreement Is Not Otherwise Invalid.

¶ 13 An insurance policy imposes on the insurer the duty to defend the insured against claims potentially covered by the policy and the duty to indemnify the insured for covered claims. United Servs. Auto. Ass'n v. Morris, 154 Ariz. 113, 117, 741 P.2d 246, 250 (1987); Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 137, 735 P.2d 451, 459 (1987). The insured, in turn, must cooperate with the insurer and aid in his defense. See Helme, 153 Ariz. at 136, 735 P.2d at 458;see also Morris, 154 Ariz. at 117, 741 P.2d at 250.

¶ 14 In Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (1969), our supreme court held that when an insurer breaches a contract of insurance by failing to defend, the duty of cooperation does not prevent the insured from entering into a settlement with the claimant and assigning his rights under the policy to the claimant. Id. at 153, 460 P.2d at 999;see Morris, 154 Ariz. at 119, 741 P.2d at 252 (insured may enter similar agreement if insurer defends but reserves its right to dispute coverage). As long as the stipulated judgment is not fraudulent or collusive, an insurer that has failed to defend is bound by the judgment “with respect to all matters which were litigated or could have been litigated in that action.” State Farm Mut. Auto. Ins. Co. v. Paynter, 122 Ariz. 198, 200, 593 P.2d 948, 950 (App.1979).²

¶ 15 EMC argues DBA's settlement with Roman was collusive because, unlike the insured in a typical Damron/Morris situation, DBA was not compelled to settle to avoid “the sharp thrust of personal liability.” See Damron, 105 Ariz. at 153, 460 P.2d at 999. Given that Colorado Casualty was providing DBA with a defense, EMC argues the impermissible purpose of the agreement was not to protect DBA but to shift liability for the settlement amount from Colorado Casualty to EMC.

¶ 16 We begin our analysis by noting that DBA assigned to Roman only its indemnity claim against EMC; it did not assign a claim for breach of any other duty an insurer owes an insured. See generally Rawlings v. Apodaca, 151 Ariz. 149, 159, 726 P.2d 565, 575 (1986). Under these circumstances, we see no reason why the validity of the settlement and assignment should not be governed by “general principles of indemnity law.” A Tumbling–T Ranches v. Flood Control Dist. of Maricopa County, 220 Ariz. 202, 207, ¶ 11, 204 P.3d 1051, 1056 (App.2008) (citing Restatement (Second) of Judgments § 57(1)(1982)).

¶ 17 In A Tumbling–T Ranches we approved a Damron/Morris agreement in a purely commercial indemnity setting. 220 Ariz....