State v. Glens Falls Ins. Co.

• Decision Date: 27 March 1980
• Docket Number: CA-CIV,No. 1,1
• Citation: 609 P.2d 598,125 Ariz. 328
• Parties: STATE of Arizona, Defendant-Counterclaimant, Third Party Plaintiff-Appellant, v. GLENS FALLS INSURANCE COMPANY, a New York Corporation, and the Home Indemnity Company, a New Hampshire Corporation, Third Party Defendants-Appellees. 4333.
• Court: Arizona Court of Appeals

Page 598

609 P.2d 598

125 Ariz. 328

STATE of Arizona, Defendant-Counterclaimant, Third Party Plaintiff-Appellant, v. GLENS FALLS INSURANCE COMPANY, a New York Corporation, and the Home Indemnity Company, a New Hampshire Corporation, Third Party Defendants-Appellees.

No. 1 CA-CIV 4333.

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

March 27, 1980.

Robert K. Corbin, Atty. Gen. by J. Michael Low, Asst. Atty. Gen., Phoenix, for appellant

Robbins, Green, O'Grady & Abbuhl, P.A. by Robert H. Green, J. Kenneth Mangum, Phoenix, for appellee Glens Falls Ins. Co.

Holman & Meador by John F. Holman, Phoenix, for appellee The Home Indem. Co.

OPINION

FROEB, Presiding Judge.

This appeal involves a question of liability insurance coverage. The matter to be decided is when damage occurred within the meaning of the insurance policies involved.

An action was brought on July 19, 1976, as a class suit by depositors of Lincoln Thrift Association and U. S. Thrift Association against the State of Arizona. ¹ The suit alleged failure of the State to regulate and supervise the two associations in a manner required by law. The depositors alleged substantial losses of money placed with both associations.

In another action from which this appeal arises, Travelers Indemnity Company, a Connecticut corporation, brought suit against the State of Arizona (referred to hereafter as the State) and certain other defendants, including state agencies and former state officials, for a declaratory judgment as to whether Travelers had a duty to defend and pay damages in the class action brought by the depositors of the two thrift associations. In addition to answering and filing a counterclaim, the State filed a third party complaint which joined three other insurers, including Glens Falls Indemnity Company, a New York corporation (Glens Falls) and The Home Indemnity Company, a New Hampshire corporation (Home), (sometimes referred to here as the insurers). The third party complaint sought a declaratory judgment concerning the obligation of Glens Falls and Home to defend the class action and to pay damages. After Glens Falls and Home filed motions for summary judgment, the trial court ruled that neither company had a duty to defend or pay damages on behalf of the State in connection with the class action claims. The State now appeals from that judgment. The duty of Travelers to defend or pay damages is not at issue in the appeal.

Lincoln Thrift Association was incorporated April 18, 1967, and U. S. Thrift Association was incorporated on December 15, 1969. An affidavit in the record states the liabilities of Lincoln Thrift Association exceeded its assets continuously from September 30, 1969, and the liabilities of U. S Thrift Association exceeded its assets continuously from December 31, 1971. On November 28, 1975, both Lincoln Thrift Association and U. S. Thrift Association were ordered into federal receivership.

The Glens Falls policy provided coverage to the State from July 1, 1967, to July 1, 1968. The Home policy covered from July 1, 1968, to July 1, 1971. The relevant covering language of the policies is set forth in the footnote. ²

The trial court ruled that the liability, if any, of the insurers arose when damage occurred to the depositors and that this damage did not occur until November 28, 1975, when the thrift associations were placed into federal receivership. For reasons hereafter set forth, we agree.

The State presents the following issues:

1. Did the superior court err in granting the insurer/appellees' motions for summary judgment because it concluded as a matter of law that the depositors in Lincoln and U. S. Thrift Associations were not damaged, within the meaning of certain insurance policies, until the date, November 28, 1975, the federal receivership order was entered, notwithstanding the Associations long and continuous history of being insolvent and of sustaining operating losses?

2. Is there reasonable evidence in the record to support the conclusion that prior to November 28, 1975, all depositors in Lincoln and U. S. Thrift Associations could have withdrawn the full amount of their deposits, together with any interest accruing thereon, and that the Associations had the financial capability to honor such requests in full?

The State concedes that the controlling inquiry with respect to whether an "occurrence" or "accident" falls within the coverage of the policies is the time of the actual damage to the complaining party and not the time of the wrongful act. See Century Mutual Insurance Co. v. Southern Arizona Aviation, Inc., 8 Ariz.App. 384, 446 P.2d 490 (1968); annot., Occurrence of accident or injury as during, or before or after, time period of coverage of liability policy. 57 A.L.R.2d 1385.

The main argument of the State is that the damage arose when the liabilities of the thrift associations first exceeded their assets. At that point, the State argues, the depositors were damaged because irrespective of the amount of the deficit, it would have been financially impossible for the depositors to withdraw the full amounts of their deposits together with accrued interest.

The insurers argue that while insolvency of the thrift associations may have preceded the order placing them into receivership, even for a lengthy and continuous period of time, that fact alone is not damage to the depositors within the meaning of the insurance policies. They argue that damage in this setting arose only when it...