State v. Arizona Property and Cas. Ins. Guar. Fund

• Decision Date: 27 August 1998
• Docket Number: CA-CV,No. 1,1
• Parties: , 276 Ariz. Adv. Rep. 30 STATE of Arizona, Plaintiff-Appellee, v. ARIZONA PROPERTY AND CASUALTY INSURANCE GUARANTY FUND, Defendant-Appellant. 97-0488.
• Court: Arizona Court of Appeals

Page 557

966 P.2d 557

192 Ariz. 390, 276 Ariz. Adv. Rep. 30

STATE of Arizona, Plaintiff-Appellee, v. ARIZONA PROPERTY AND CASUALTY INSURANCE GUARANTY FUND, Defendant-Appellant.

No. 1 CA-CV 97-0488.

Court of Appeals of Arizona,

Division 1, Department C.

Aug. 27, 1998.

Surrano & Massey, P.C. by Kenneth Januszewski, Charles J. Surrano Phoenix, for Defendant-Appellant.

LaMar & Grasso, P.C. by Steven A. LaMar, Clarisse R. McCormick, Scottsdale, for Plaintiff-Appellee.

EHRLICH, Judge.

¶1 This appeal presents the question whether the State of Arizona ("State") may sue the Arizona Property and Casualty Insurance Guaranty Fund ("Fund") when the Fund refuses to pay a claim after the State's insurer has become insolvent. We conclude that it may.

FACTS AND PROCEDURAL HISTORY

¶2 In 1983, the Arizona Department of Transportation ("ADOT") entered a contract with Ball, Ball & Brossamer ("BB & B"), a California corporation, for highway construction. As required by the contract, BB & B obtained a liability insurance policy naming the State and ADOT as insureds. The policy was issued by Mission National Insurance Company.

¶3 In 1984, several men were injured and two men died as the result of a construction accident, ¹ and a lawsuit against the State was filed. Although Mission Insurance undertook the defense of the suit, it subsequently was placed in receivership in California and ordered not to expend further money either in defense or settlement of the claims against the State. The Arizona Department of Administration ("ADOA"), on behalf of ADOT, settled with the plaintiffs.

¶4 ADOA filed a notice of claim with the California Insurance Guaranty Association to recover the money to which it was entitled had its insurer not been placed in receivership; the claim was denied. ² ADOA then filed a claim with the Fund because Mission Insurance was authorized to do business in Arizona; that claim also was denied. The State thus sought a declaratory judgment that the Fund was obligated to pay the claim.

¶5 The Fund defended on the basis that the suit was a case of the State seeking recovery from itself. The superior court disagreed. It entered summary judgment in favor of the State as follows in pertinent part:

1. The State of Arizona has standing to bring this lawsuit.

2. The State of Arizona was an insured under the Mission Insurance Policy and is officially a "resident" of this state.

3. Mission Insurance is insolvent.

4. The Arizona Guaranty Fund is responsible for the monies paid.

After formal entry of judgment, the Fund appealed.

DISCUSSION

¶6 The validity of the underlying claim is not being challenged. The Fund argues, as it did below, that the State cannot ¶7 The Fund was created by the legislature in 1970 to pay claims against insolvent insurers. ARIZ.REV.STAT. ANN. ("A.R.S.") §§ 20-661 et seq.; Arizona Prop. and Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 132, 735 P.2d 451, 454 (1987). ³ By design, it is separate and distinct in its operation. First, while it is "within the department of insurance," the Fund has a director and exercises its powers through a guaranty fund board of sufficient independence that the Fund may appear in court, borrow funds, sue and be sued, and negotiate and be a party to contracts. A.R.S. §§ 20-662 through 20-664. Second, the Fund's money comes not from general revenues but is collected from insurance companies doing business in Arizona, such as Mission Insurance, based on the amount of their in-state business. A.R.S. § 20-666. Third, as is consistent with the source of its money, the Fund is only "liable to the same extent that the insolvent insurer would have been liable under its policy." Arizona Prop. and Cas. Ins. Guar. Fund v. Herder, 156 Ariz. 203, 205, 751 P.2d 519, 521 (1988) (quoted in A.H. v. Ariz. Prop. and Cas. Ins. Guar. Fund, 189 Ariz. 378, 384, 943 P.2d 738, 744 (App.1997); Betancourt v. Ariz. Prop. and Cas. Ins. Fund, 170 Ariz. 296, 298, 823 P.2d 1304, 1306 (App.1991)); A.R.S. § 20-667. Thus it is responsible only for "covered claims," A.R.S. § 20-667, payment for which does not come from the general fund but is statutorily limited to money from the Fund. A.R.S. § 20-662(C) ("All costs, expenses and liabilities of the fund shall be paid by the fund and shall not be a general obligation of the state.").

sue the Fund because the Fund is a component of the State. The issue thus is one of statutory interpretation, a question of law which we consider de novo. State Compensation Fund v. Superior Court, 190 Ariz. 371, 374-75, 948 P.2d 499, 502-03 (App.1997).

¶8 The Fund asserts that the State may not make a claim against it because the State is neither a "person" ⁴ nor a resident of Arizona. It relies on two statutes for this argument:

Any person recovering pursuant to this article shall be deemed to have assigned his or her rights under the policy to the fund to the extent of his or her recovery from the fund. Every insured or claimant seeking the protection of this article shall cooperate with the fund to the same extent as such person would have been required to cooperate with the insolvent insurer. The fund shall have no cause of action against the insured of the insolvent insurer for any sums it has paid.

A.R.S. § 20-672(A) (emphasis added).

Any person having a claim which may be recovered under more than one insurance guaranty fund or its equivalent or who is insured under more than one policy, shall seek recovery first from the fund of the place of residence of the insured or, if it is a first-party claim for damage to property with a permanent location, from the fund of the location of the property, or shall first exhaust coverage under such other policy....

A.R.S. § 20-673(B)(emphasis added).

¶9 According to the Fund, the legislature has defined "person" not to include the State, citing A.R.S. section 1-215(26):

"Person" includes a corporation, company, partnership, firm, association or society, as well as a natural person. When the word "person" is used to designate the party whose property may be the subject of a criminal or public offense, the term This definition does exclude the State, State ex rel. Dep't of Health Services v. Cochise County, 166 Ariz. 75, 77, 800 P.2d 578, 580 (1990), but we nonetheless reject the Fund's argument.

includes the United States, this state, or any territory, state or country, or any political subdivision of this state which may lawfully own any property, or a public or private corporation, or partnership or association. When the word "person" is used to designate the violator or offender of any law, it includes corporation, partnership or any association of persons.

¶10 First, the use of the word "person" in A.R.S. sections 20-672 and 20-673 is not as significant as the Fund argues. Those sections are ancillary to the pertinent section, section 20-661(3), which uses "insured," not "person," in defining who has a "covered claim" against the Fund.

"Covered claim" means an unpaid claim ... which arises out of and is within the coverage of an insurance policy to which this article applies issued by an insurer, if such insurer becomes an insolvent insurer after August 27, 1977 and the claimant or insured is a resident of this state at the time of the insured event or the property from which the claim arises is permanently located in this state....

There is no doubt in this case that the State is an "insured," as would be logical given the legislation compelling the State to procure insurance:

A. The department of administration shall obtain insurance against loss, to the extent it is determined necessary and in the best interests of the state as provided in subsection F of this section, on the following:

* * *

3. The state and its departments, agencies, boards and commissions and all officers, agents and employees thereof and such others as may be necessary to accomplish the functions or business of the State and its departments, agencies, boards and commissions against liability for acts or omissions of any nature while acting in authorized governmental or proprietary capacities and in the course and scope of employment or authorization except as prescribed by this chapter.

A.R.S. § 41-621(A)(3). In this regard, sometimes and as was true with the BB & B contract, the State acts by requiring a contractor to obtain insurance and make the State an insured.

¶11 The Fund responds that, while this statute requires the State to obtain insurance, it does not allow the State to make a claim against the Fund, unlike other insureds. We do not accept this argument. This would compel the State to obtain a protection of which it could only partially avail itself. It would be illogical to require the State to purchase insurance to safeguard itself against liability and yet to exclude it from the protection which other insureds are given when their insurer becomes insolvent.

¶12 Second, by its terms, A.R.S. section 1-215(26) is not the pertinent definition. It applies "unless the context otherwise requires," and the legislature has provided a different, more expansive definition of "person" for purposes of the insurance code, A.R.S. Title 20:

"Person" includes an individual, company, insurer, association, organization, society, reciprocal or interinsurance exchange, partnership, syndicate, business trust, corporation and entity.

A.R.S. § 20-105. The use of a word as broad as "entity" shows a legislative intent to broadly define "person" for the purpose of the insurance laws. Indeed, the State has declared itself to be a "public entity" in a complementary statute, A.R.S. section 12-820:

In this article [actions against public entities or public employees], unless the context otherwise requires:

* * *

6. "Public entity" includes this state and any political subdivisions of this state.

7. "State" means this state and any state agency, board, commission or department.

Further, the State, as a "public entity" acting through ...