Safeway Ins. Co., Inc. v. Guerrero

• Decision Date: 24 February 2005
• Docket Number: No. CV-04-0146-PR.,CV-04-0146-PR.
• Citation: 106 P.3d 1020,210 Ariz. 5
• Parties: SAFEWAY INSURANCE COMPANY, INC., a foreign corporation, Plaintiff-Appellant, v. Peter A. GUERRERO, individually, Peter A. Guerrero, P.C., an Arizona professional corporation; Charles D. Roush, individually, Charles D. Roush, P.C., an Arizona professional corporation; and Roush, McCracken, Guerrero & Miller, Attorneys at Law, a partnership of professional corporations, Defendants-Appellees.
• Court: Arizona Supreme Court

106 P.3d 1020

210 Ariz. 5

SAFEWAY INSURANCE COMPANY, INC., a foreign corporation, Plaintiff-Appellant, v. Peter A. GUERRERO, individually, Peter A. Guerrero, P.C., an Arizona professional corporation; Charles D. Roush, individually, Charles D. Roush, P.C., an Arizona professional corporation; and Roush, McCracken, Guerrero & Miller, Attorneys at Law, a partnership of professional corporations, Defendants-Appellees.

No. CV-04-0146-PR.

Supreme Court of Arizona, En Banc.

February 24, 2005.

Parrillo, Weiss & O'Halloran by Ronald E. Huser, Tempe, Attorneys for Plaintiff-Appellant.

Turley, Swan & Childers, P.C. by Kent E. Turley, Phoenix, and Haralson, Miller, Pitt, Feldman & McAnally, P.L.C., by Stanley G. Feldman, Tucson, Attorneys for Defendants-Appellees.

Law Office of JoJene Mills, P.C., by JoJene E. Mills, Tucson, and Plattner Verderame, P.C., by Richard S. Plattner, Phoenix, Attorneys for Amicus Curiae Arizona Trial Lawyers Association.

Law Offices of John L. Tully, P.C., by John L. Tully, Tucson, and Law Offices of James D'Antonio, by James J. D'Antonio, Tucson, Attorneys for Amicus Curiae United Policyholders.

OPINION

HURWITZ, Justice.

¶ 1 This case requires us once again to consider issues arising out of a Morris agreement.¹ The question presented is whether attorneys who negotiate a Morris agreement on behalf of a plaintiff in a personal injury action can be subjected to liability to the defendant's insurer for intentional interference with contractual relations. We conclude that such a claim does not lie in this case.

I.

¶ 2 This case arises out of an automobile accident in which Holly Castano suffered catastrophic injuries.² Castano's mother, Patricia Himes, was appointed as her conservator and retained Peter A. Guerrero of the firm of Roush, McCracken & Guerrero (collectively "Guerrero"), to handle Castano's personal injury claims. Steven Botma drove the car that caused the accident. Safeway Insurance Company ("Safeway") insured the vehicle that Botma was driving. The insurance policy provided coverage limits of $15,000 per person and $30,000 per accident.

¶ 3 Guerrero made a settlement offer that included a demand of the $15,000 policy limits. Guerrero later withdrew the offer, and then sued Botma and General Motors, the manufacturer of the car in which Castano was injured. Safeway appointed counsel for Botma, who filed a counterclaim alleging that Safeway had accepted the settlement offer before it was withdrawn. That issue was tried to a jury, which found that no settlement had been reached. The court of appeals affirmed in a memorandum decision.

¶ 4 Shortly before the scheduled trial of the personal injury lawsuit, Himes and Botma entered into a Morris agreement under which Botma admitted liability in the amount of $12 million and assigned to Himes any claims that he had against his original counsel³ and Safeway. Safeway intervened in superior court to contest the amount of the settlement. The superior court found the $12 million settlement reasonable.⁴

¶ 5 After the Morris settlement, Safeway filed two lawsuits. The first, filed in federal court, sought a declaratory judgment that Botma had breached the cooperation clause of the insurance contract by entering into the Morris agreement.⁵ Himes and Botma counterclaimed, alleging that Safeway had acted in bad faith by failing to accept the policy limits settlement offer. The district court granted summary judgment to Safeway, finding that the insurer had not acted in bad faith and that Botma therefore breached the cooperation clause of his insurance contract by signing the Morris agreement. Safeway Ins. Co. v. Botma, No. CIV-00-553-PHX-RCB (D.Ariz. Mar. 7, 2003) (order granting partial summary judgment). An appeal of that judgment is pending in the Ninth Circuit.

¶ 6 In the second suit, filed in superior court, Safeway sued Guerrero for intentional interference with contractual relations. The complaint alleged that Guerrero "devised a scheme" to induce Botma to admit liability and assign his bad faith claim against Safeway, in order to allow Guerrero to "receive a much larger fee." Safeway alleged that Guerrero induced Botma's breach of the cooperation clause by threatening Botma with a multi-million dollar judgment, manufacturing a bad faith claim against Safeway through aborted settlement negotiations, and misrepresenting to Botma what had occurred during those negotiations.

¶ 7 Guerrero filed a motion for summary judgment. The superior court granted the motion, holding that "on the undisputed facts, plaintiff's complaint fails as a matter of law."⁶ The court of appeals reversed, finding a genuine issue of material fact as to whether Guerrero engaged in improper conduct that could give rise to the intentional interference claim. Safeway Ins. Co. v. Guerrero, 207 Ariz. 82, 95 ¶¶ 55-56, 83 P.3d 560, 573 (App.2004) ("Safeway").

¶ 8 We granted Guerrero's petition for review because the case presents an issue of statewide importance and first impression. We have jurisdiction under Article 6, Section 5(3) of the Arizona Constitution, and Arizona Revised Statutes ("A.R.S.") § 12-120.24 (2003).

II.

A.

¶ 9 Morris agreements are designed to reconcile the "conflicting interests" of an insured and a liability insurer in certain difficult situations. Parking Concepts v. Tenney, 207 Ariz. 19, 22 ¶ 12, 83 P.3d 19, 22 (2004) (quoting United Servs. Auto. Ass'n v. Morris, 154 Ariz. 113, 117, 741 P.2d 246, 250 (1987)). One such situation occurs when an insurer defends an insured against a claim by a third party but reserves the right to dispute whether the claim is covered under the policy. While an insurer with a good faith policy defense has a right to dispute coverage, the insured is thereby placed in a "precarious position." Id. (quoting Morris, 154 Ariz. at 118, 741 P.2d at 251). Even though the insurer is providing a defense to the claim, the insured faces the possibility that any judgment, even one within policy limits, may not be covered by the policy. Id.

¶ 10 In order to allow insureds to protect themselves from "the sharp thrust of personal liability," Morris, 154 Ariz. at 118, 741 P.2d at 251, we held that the cooperation clause of the insurance contract is not violated by a Morris agreement when the insurer defends under a reservation of rights. Id. at 119, 741 P.2d at 252. To protect the insurer, we place the burden on the insureds (or their assignees) to show that any Morris agreement is free of "fraud or collusion," Parking Concepts, 207 Ariz. at 22 ¶ 13, 83 P.3d at 22, and reasonable in amount, id. at ¶ 15, 83 P.3d 19. If the insurer eventually succeeds in establishing that the claim is not covered by the policy, the insurer is not liable for any part of the settlement. Morris, 154 Ariz. at 121, 741 P.2d at 254.

¶ 11 A similar situation arises when an insured is confronted with a claim that exceeds the limits of the insurance policy, and the insurer fails to accept an offer to settle within those limits. The insurer owes the insured an implied contractual "duty to treat settlement proposals with equal consideration" to its interests and those of an insured. Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 137, 735 P.2d 451, 459 (1987). Failure to give such "equal consideration" is a breach of contract by the insurer that frees the insured from the contractual prohibition on settlement without the insurer's approval. Id. But when an insurer fails to settle a claim, the insured may be forced to proceed to trial on the claim before a final determination can be made as to whether the insurer acted in bad faith. Use of a Morris agreement under such circumstances allows insureds to protect themselves against personal liability, while reserving to the insurer the ability to prove that its actions were not in bad faith. If bad faith is not established, the Morris agreement will be a breach of the cooperation clause and the insurer will be excused from any duty to pay the stipulated judgment, no matter how reasonable the amount. See State Farm Mut. Auto. Ins. Co. v. Peaton, 168 Ariz. 184, 192-93, 812 P.2d 1002, 1010-11 (App.1990)

.

B.

¶ 12 This case involves a Morris agreement premised on Safeway's alleged bad faith failure to settle. However, the federal district court has held that Safeway did not act in bad faith in handling the Castano claim against Botma. Unless that holding is overturned by the federal courts, it follows that Botma breached his duty to cooperate with the insurer by entering into the Morris agreement.

¶ 13 We have "long recognized" that a person who intentionally interferes with contractual relationships between other parties can be held liable under certain circumstances to a party injured by the interference. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust, 201 Ariz. 474, 493 ¶ 74, 38 P.3d 12, 31 (2002). Safeway's complaint alleges that Guerrero intentionally interfered with Safeway's contractual relationship with Botma by inducing Botma to enter into the Morris agreement.

¶ 14 The tort of intentional interference with contractual relations requires a plaintiff to prove:

(1) existence of a valid contractual relationship, (2) knowledge of the relationship on the part of the interferor, (3) intentional interference inducing or causing a breach, (4) resultant damage to the party whose relationship has been disrupted, and (5) that the defendant acted improperly.

Id. The opinion below focused solely on the fifth element, whether Guerrero "acted improperly." Safeway, 207 Ariz. at 92 ¶ 41, 83 P.3d at 570. Because it found a genuine issue of material fact as to this element, the court of appeals reversed the superior court's summary judgment and remanded for trial. Id. at 95 ¶¶ 55-56, 83 P.3d at 573.

III.

A.

¶ 15 Guerrero argues that lawyers acting on behalf of their clients hold a qualified privilege from liability for tortious interference with...