McGough v. Insurance Co. of North America, 1

• Court: Arizona Court of Appeals
• Writing for the Court: CONTRERAS
• Citation: McGough v. Insurance Co. of North America, 143 Ariz. 26, 691 P.2d 738 (Ariz. App. 1984)
• Decision Date: 20 November 1984
• Docket Number: CA-CIV,No. 1,1
• Parties: Joan McGOUGH, surviving spouse of Harry Francis McGough, Jr., deceased, on her own behalf and for and on behalf of Heather Leigh McGough, surviving daughter of Harry Francis McGough, Jr., and Harry McGough, Sr., and Dorothea McGough, surviving parents of Harry Francis McGough, Jr., Plaintiffs-Appellees, v. INSURANCE COMPANY OF NORTH AMERICA, Intervenor-Appellant. 5779.

Page 738

691 P.2d 738

143 Ariz. 26

Joan McGOUGH, surviving spouse of Harry Francis McGough, Jr., deceased, on her own behalf and for and on behalf of Heather Leigh McGough, surviving daughter of Harry Francis McGough, Jr., and Harry McGough, Sr., and Dorothea McGough, surviving parents of Harry Francis McGough, Jr., Plaintiffs-Appellees, v. INSURANCE COMPANY OF NORTH AMERICA, Intervenor-Appellant.

No. 1 CA-CIV 5779.

Court of Appeals of Arizona Division 1, Department C.

Nov. 20, 1984.

Langerman, Begam, Lewis & Marks by Samuel Langerman, Thomas F. Dasse, Amy G. Langerman, Phoenix, for plaintiffs-appellees.

Black, Robertshaw, Frederick, Copple & Wright, P.C. by Steven D. Copple, Jon R. Pozgay, Phoenix, for intervenor-appellant.

OPINION

CONTRERAS, Presiding Judge.

This case arises from a wrongful death action in which the plaintiffs and defendants stipulated (by means of a covenant not to execute) to a judgment against the defendants in the amount of $1,100,000.00. The appeal was not brought by either the plaintiffs or the defendants. Instead, appellant in this case is the defendants' insurance company, the Insurance Company of North America (INA). INA seeks to appeal both from the $1,100,000.00 judgment as well as from the trial court's order denying INA's alternative motions, which were: 1) a motion to consolidate the wrongful death action with a pending declaratory judgment action on the issue of insurance coverage; 2) a motion to intervene in the wrongful death action and to request declaratory relief; 3) a petition to enjoin the parties from interfering with INA's right to defend under a reservation of rights and from attempting to bind INA to the stipulated value of the case; and 4) a motion to continue the evidentiary hearing (where the $1,100,000.00 judgment would be submitted by stipulation to the court) and to set for trial the issues of liability and damages. We conclude that the trial court erred in not permitting INA to intervene in the wrongful death action. Accordingly, for reasons we set forth, the judgment is reversed and the cause is remanded with directions that intervention be granted and for further proceedings consistent with this opinion.

FACTS

On June 22, 1978, an aircraft owned by Stephen and Kathy McCabe and piloted by Dr. Ralph Whiting crashed while being flown from Arizona to Oregon. A passenger in the aircraft, Harry Francis McGough, Jr., died as a result of injuries sustained in that crash.

The owners of the aircraft, the McCabes, had a $100,000.00 liability policy covering the aircraft in question, which policy was issued by Compass Insurance Company (Compass). The pilot, Dr. Whiting, was insured under a $1,000,000.00 policy issued by INA. INA notified the Whitings that it was reserving all rights under the policy. Subsequently INA informed them that no coverage was available under the policy because the subject aircraft was experimental i.e., the aircraft had not received an airworthiness certificate. Compass also denied coverage under the McCabe policy.

The Whitings retained private counsel and on July 6, 1979, filed a declaratory judgment action to determine coverage under the INA policy. INA answered, denying coverage. On October 11, 1979, decedent's surviving spouse on her behalf and on behalf of other surviving relatives of the deceased brought a wrongful death action against the McCabes along with Dr. Whiting and his spouse. Counsel for the Whitings filed an answer on their behalf.

In early December, 1979, the Whitings retained new counsel, Leroy W. Hofmann, who wrote to INA demanding that INA retain counsel to defend the Whitings. On January 7, 1980, Hofmann wrote to INA's counsel, Steven D. Copple, noting that he had spoken with Copple by telephone at which time Copple had advised Hofmann "that INA was going to accept the defense of ... Dr. and Mrs. Whiting." Hofmann's letter went on to state that he had advised the Whitings "that INA would probably require a Reservation of Rights Agreement, and they are agreeable to that." He also indicated that he wanted arrangements for INA's defense of the Whitings accomplished by January 20.

By letter dated January 17, 1980, INA authorized Copple to defend the Whitings under a reservation of rights and asked that Hofmann be so advised. Apparently Hofmann never received this information. Copple, viewing the INA policy as an "excess" policy and the Compass policy as primary, attempted to ascertain whether or not Compass was planning to accept the Whitings' defense. On March 14, 1980, Compass accepted the Whitings' defense under a reservation of rights and hired attorney Robert Welliever to defend. ¹ Hofmann also indicated that the Whitings planned to dismiss their declaratory judgment action against INA. On June 12, 1980, INA filed a declaratory judgment action with respect to coverage against the Whitings. Shortly thereafter, the Whitings moved to dismiss their declaratory judgment action against INA, which motion was granted on July 29, 1980.

In August of 1980, Copple learned that Compass was considering paying its policy limits of $100,000.00 and withdrawing from the defense of the suit. On August 21, 1980, Copple wrote to all the parties in the action stating "that INA will assume the cost of defending Whiting in the McGough v. Whiting lawsuit if and when Compass Insurance determines it no longer has such an obligation." He also stated that INA would retain the same attorney that Compass had retained to defend the Whitings "in order to maintain a continuity of Whiting's defense." Copple limited this offer by stating that INA would continue to require full reservation of its rights under the policy regarding any obligation to pay a judgment rendered against the Whitings.

On August 27, 1980, Hofmann responded by letter to Copple, stating that the Whitings refused to allow INA to provide a defense unless INA dismissed its declaratory judgment action and acknowledged coverage under its policy. On the same date, the plaintiffs and the Whitings executed a covenant not to execute. Pursuant to that covenant, it was agreed that a stipulated judgment on liability and damages would be entered against the Whitings in the amount of $1,100,000.00; that plaintiffs would not execute against the Whitings thereon; that Compass would pay $100,000.00 to plaintiffs and thereby be free from further claims; and that any rights held by the Whitings against INA were assigned to plaintiffs.

An evidentiary hearing was scheduled for September 12, 1980, at which time INA, by and through attorney Copple, appeared and sought to intervene on its own behalf claiming that, although it believed as a matter of law no coverage was afforded under its policy for the wrongful death claim, the issue had not been resolved and, until it was, INA retained a vested interest in the outcome of the wrongful death litigation. ² The trial judge took INA's motion under advisement and continued with the evidentiary hearing. Plaintiffs submitted to the court a copy of the covenant not to execute. INA's motion was subsequently denied and formal judgment was entered for plaintiffs and against defendants Whiting in the stipulated amount of $1,100,000.00.

A threshold issue that must be decided is whether INA may appeal from the judgment entered against the Whitings. Rule 1 of the Arizona Rules of Civil Appellate Procedure provides that "An appeal may be taken by any party aggrieved by the judgment." Under this rule one must be both (1) a party to the action; and (2) one "aggrieved" by the judgment or order from which the appeal is taken. Christian v. Cotten, 1 Ariz.App. 421, 403 P.2d 825 (1965). In order for one to qualify as an aggrieved party "there must be a denial of some personal or property right to the party by the decree, and such denial must come as a direct result of the decree, and not merely as a result in some other proceeding of the application of a legal principle established in the decree appealed from." In re Roseman's Estate, 68 Ariz. 198, 200, 203 P.2d 867, 868 (1949).

Clearly, INA has a direct and substantive interest in the outcome of this litigation since it may be subject to a claim of res judicata on the issues of Dr. Whiting's liability for the decedent's death and the amount of damages should the INA insurance policy be held to cover the occurrence in question. By virtue of the fact that intervention was denied below, however, INA was prevented from becoming an actual party to the action.

INA has also appealed from the order denying its motion to intervene. This order was entered pursuant to Rule 54(b) and INA has properly appealed therefrom. In Hill v. Alfalfa Seed & Lumber Co., 38 Ariz. 70, 76-77, 297 P. 868, 870-71 (1931), our supreme court considered whether a principal had a right to appeal from an order denying him the right to intervene in an action against his surety. The court held:

Section 3659, Revised Code of 1928. Subdivision 5 of said section provides for appeal "from any order affecting a substantial right, made in any action when such an order in effect determines the act and prevents judgment from which an appeal might be taken." ³ We think the order denying intervention affected a very substantial right of Hill's. It determined the action, so far as Hill was concerned; it prevented a judgment for or against him from which an appeal could be prosecuted.... He was not a stranger or interloper, showing no interest in the litigation. It is provided in section 3658, Revised Code of 1928, that any party aggrieved by a judgment or order reviewable by this court may appeal. This language is certainly broad enough to include a person whose application to intervene has been denied, especially when the application shows him to be primarily and ultimately liable for any obligation established in the action. We think a person applying to intervene, who qualifies within the statute, is, under existing law, entitled to appeal from an...