Travelers Ins. Co. v. Breese, 1

• Decision Date: 28 June 1983
• Docket Number: No. 1,CA-CIV,1
• Citation: Travelers Ins. Co. v. Breese, 138 Ariz. 508, 675 P.2d 1327 (Ariz. App. 1983)
• Parties: TRAVELERS INSURANCE COMPANY, a foreign corporation, Plaintiff-Appellant, v. Earl E. BREESE and Shirley A. Breese, husband and wife, Defendants-Appellees, Paul Broadwell, P.C., an Arizona corporation; Paul Broadwell and Helen Broadwell, husband and wife, Third-Party Defendants-Appellees. 5425.
• Court: Arizona Court of Appeals

Page 1327

675 P.2d 1327

138 Ariz. 508

TRAVELERS INSURANCE COMPANY, a foreign corporation, Plaintiff-Appellant, v.Earl E. BREESE and Shirley A. Breese, husband and wife, Defendants-AppelleesPaul Broadwell, P.C., an Arizona corporation; Paul Broadwell and Helen Broadwell, husband and wife, Third-Party Defendants-Appellees.

No. 1 CA-CIV 5425.

Court of Appeals of Arizona Division 1, Department D.

June 28, 1983.

Rehearing Denied Aug. 30, 1983.

Review Denied Oct. 25, 1983.

Law Office of John F. Day by John F. Day, Phoenix, for plaintiff-appellant.

James Evans Thompson, Phoenix, for defendants-appellees.

Fennemore, Craig, von Ammon, Udall & Powers, P.A. by Jerome B. Shultz and George T. Cole, Phoenix, for third-party defendants-appellees.

OPINION

EUBANK, Judge.

This is an appeal from summary judgment in favor of Earl and Shirley Breese(Breeses or Earl Breese) against Travelers Insurance Company(Travelers), which denied Travelers' attempt to impose a lien, pursuant to A.R.S. § 23-1023(C), against a sum of money collected by the Breeses from their former attorney, Paul Broadwell(Broadwell), in a legal malpractice third-party action.

The facts relevant to this appeal are not in dispute.Earl Breese was an employee of Drivers Service, Inc., an Arizona corporation.On December 27, 1974, while engaged in the scope of his employment in California, Earl Breese's vehicle was struck from behind by a truck owned by Union Oil Company of California (Union Oil), which was operated by one of its employees.Earl Breese sustained injuries resulting from that accident for which he applied and received $20,531.77 in benefits from Travelers, his employer's workmen's compensation insurance carrier.

As part of Travelers' benefits paid to Earl Breese, he was required to sign an "Election of Remedies" agreement in which Earl Breese chose Remedy Number Two.The agreement reads:

KNOW ALL MEN BY THESE PRESENTS:

That I claim to be entitled to benefits under the Workmen's Compensation Act of Arizona for an injury by accident arising out of an in the course of my employment by reason of the negligence or wrong of a person or persons not in the same employ as myself.

I understand that there are two Remedies available to me, as provided by ARS 23 1023:

REMEDY No. 1

I elect to accept compensation and/or accident benefits (medical expenses) as provided by the Workmen's Compensation Law of Arizona.I am advised that under this election I assign to the State of Arizona for the benefit of the State Compensation Fund, or to the person liable for the payment of my benefits, all claims or causes of action whatsoever against the third party or parties responsible for my injuries.

REMEDYNo. 2

I elect to accept compensation and/or accident benefits (medical expenses) as provided by the Workmen's Compensation Law of Arizona.Further, I elect to proceed diligently against the third party or parties responsible for my injuries.However, I understand that the party paying the compensation and accident benefits shall have a lien on the amount actually collectible from the third party to the extent of the benefits paid, less the expenses of recovery permitted by statute.I further understand that if the amount actually collectible from the third party is less than the benefits to which I am entitled under the Workmen's Compensation Law, then the party liable to pay the compensation and accident benefits shall pay only the difference between the sum of money I actually collect from the third party and the total benefits to which I am entitled under the Workmen's Compensation Law.

I further understand that under the law I may not compromise or settle this claim without written approval of the commission.

In accordance with his election to proceed against third parties"responsible for [his] injuries,"Earl Breese hired Broadwell to pursue his claim against Union Oil.Broadwell failed to file an action in California against Union Oil before California's one-year statute of limitations had run, thus barring the Breeses' potential recovery in California.SeeCal.Civil Procedure Code § 340(3)(West 1982).After discovering that the Breeses' attorney had allowed the statute of limitations to run, Travelers brought this action in Maricopa County Superior Court against the Breeses.Travelers' complaint alleges that "[p]ursuant to the [Election of Remedies] agreement and A.R.S. § 23-1023, Travelers acquired a lien for the amount of benefits paid, against any monies [the Breeses] might recover in an action against the responsible third parties."Since any purported recovery against such third parties was allegedly lost when the California statute of limitations expired, Travelers sought to be reimbursed for the benefits it had paid and will continue to pay for Earl Breese's injuries.

The Breeses answered Travelers' complaint and, additionally, filed a third-party complaint against Broadwell sounding in the tort of legal malpractice and breach of contract.On September 14, 1979, Travelers filed a motion for summary judgment in which it claimed a lien upon any amounts the Breeses might recover from Broadwell, under the theory of equitable subrogation.Travelers' contention focused upon Arizona's public policy against allowing a workmen's compensation recipient to receive a double recovery for his injuries.

The Breeses responded to Travelers' motion contending that the Election of Remedies agreement was unenforceable for lack of consideration, and that A.R.S. § 23-1023 precludes a lien upon amounts recovered by the Breeses from Broadwell.Prior to argument upon either motion for summary judgment, however, Broadwell and the Breeses, without notice to Travelers, settled the third-party claim on December 5, 1979, and the trial court ordered the third-party action dismissed on December 6, 1979.

The day before the settlement was filed, Travelers filed a motion to intervene in the third party action as an additional plaintiff.On December 26, 1979, it also filed a motion for relief from the December 6th order and a motion to join Broadwell as an additional partydefendant to the original action.All pending motions were heard on January 24, 1980, and the trial court granted the Breeses' motion for summary judgment and denied all of Travelers' motions by formal written order on March 18, 1980.This appeal by Travelers followed.

THE BREESE ACTION

Travelers initially raised in its complaint the allegation that an "Election of Remedies" agreement had been executed between Travelers and the Breeses "to proceed diligently against the third party or parties responsible for [Earl Breese's] injuries."Travelers alleges that the Breeses' failure to pursue their cause of action against Union Oil breached the agreement, causing Travelers harm to the extent of the benefits they have paid to Earl Breese.The agreement appears to be an attempt to incorporate the provisions of A.R.S. § 23-1023, which were in effect at the time of the agreement, in a written document.¹Section 23-1023, however, does not require the electing party to diligently pursue his remedies against the responsible third party.Rather, the statute gives the employee an exclusive right to pursue his remedies against the responsible third parties for one year, after which time the right is automatically assigned "to the insurance carrier, or to the person liable for the payment" of benefits.A.R.S. § 23-1023(B).Thus, since § 23-1023 does not compel the employee to pursue his remedies, Travelers relies upon the "diligence" language found in the agreement signed by Earl Breese.

The Breeses, however, contend that the "Election of Remedies" agreement is invalid for lack of consideration.We agree.A promise lacks consideration if the promisee is under a preexisting duty to counter-perform.Leone v. Precision Plumbing and Heating of Southern Arizona, Inc., 121 Ariz. 514, 515, 591 P.2d 1002, 1003(App.1979);1 A. Corbin on Contracts, Sec. 171(1963).SeeJ.D. Halstead Lumber Co. v. Hartford Accident & Indemnity Co., 38 Ariz. 228, 298 P. 925(1931).The facts sub judice establish no evidence of forbearance or detriment on the part of the promisee (Travelers), other than to do what it was already required to do under A.R.S. § 23-1023.

Travelers asserts that in exchange for Earl Breese's promise to pursue his remedies against Union Oil, Travelers agreed to refrain from suing Union Oil during the first year after the accident.The record does not support this assertion.First, the agreement contains no language requiring appellant to forego any rights it might have had to sue Union Oil.Indeed, it sets forth no duties, responsibilities or undertakings by Travelers.Any restraints imposed upon Travelers by A.R.S. § 23-1023 regarding its right to sue third parties do not qualify as consideration for Earl Breese's promise.Leone v. Precision Plumbing and Heating of Southern Arizona, Inc., supra.Cf.Gill v. Kreutzberg, 24 Ariz.App. 207, 537 P.2d 44(1975)(agreement held to be valid where it explicitly promised abatement and dismissal of suit where there was no prior underlying duty to abate and dismiss).Second, it is uncontroverted that during the one-year period, Travelers refused Broadwell's offer of assistance and informed him that they would pursue their own remedies against Union Oil.Finally, the heading and prefatory language of the "Election of Remedies" agreement ² strongly suggests that the "agreement" does not purport to bind the employee to any greater duty or different election than those provided for in A.R.S. § 23-1023.Consequently, the "diligence" language is merely precatory.

Since the Breeses did not have a contractual duty to file an action against Union Oil, we must then turn to the statutory language of A.R.S. § 23-1023.As we noted before, this section creates a bifurcated right of action against third party tortfeasors in workmen's compensation cases.If the injured...