Twin City Fire Ins. Co. v. Superior Court of State of Ariz. In and For County of Maricopa
| Decision Date | 29 May 1990 |
| Docket Number | No. CV-89-0353-SA,CV-89-0353-SA |
| Citation | 792 P.2d 758,164 Ariz. 295 |
| Parties | TWIN CITY FIRE INSURANCE COMPANY, an Indiana corporation, Petitioner, v. SUPERIOR COURT OF the STATE OF ARIZONA In and For the COUNTY OF MARICOPA; Honorable Susan R. Bolton, a Judge thereof; Employers Insurance of Wausau, a Wisconsin corporation; the Tanner Companies, an Arizona corporation, Respondents/Real Parties In Interest. |
| Court | Arizona Supreme Court |
Twin City Fire Insurance Company (Twin City) petitioned this court to accept jurisdiction of a special action filed directly from the superior court. We granted jurisdiction in this case, and in Hartford Accident & Indemnity Co. v. Aetna Casualty & Surety Co., 164 Ariz. 286, 792 P.2d 749 (1990) to determine what duty, if any, a primary insurer owes an excess insurer with respect to accepting settlement offers. We granted jurisdiction pursuant to Rules 4(a) and 7(a) of the Arizona Rules of Procedure for Special Actions, 17B A.R.S. We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3).
This case arises out of previous litigation entitled Camargo v. The Tanner Companies, Pima County Superior Court, Civil Cause No. 235764. In that case, Camargo sued Tanner for personal injuries. Employers Insurance of Wausau (Wausau) was Tanner's primary insurer with policy limits of $600,000, including a $50,000 deductible payable by Tanner. Twin City was Tanner's excess insurance carrier providing coverage for Tanner in the amount of $15,000,000 above Wausau's limits. Wausau set a $5000 reserve on the case, which amount was never altered. Wausau defended Tanner and a $991,235 verdict was rendered. The Camargo case was settled by way of a structured payment in which Twin City paid $238,817.81 and Wausau paid $596,569.27.
Twin City sued Wausau and Tanner alleging that a duty of good faith and fair dealing was owed to Twin City under both an equitable subrogation theory and a direct duty theory. The trial court granted Wausau's motion to dismiss on the issue of a direct duty, but allowed Twin City to proceed against Wausau on the theory of equitable subrogation. Wausau does not contest Twin City's right to pursue a claim under an equitable subrogation theory. Twin City petitioned this court for relief seeking reversal of the trial court's dismissal of its claim based on a direct duty.
We have decided this day, in Hartford, that under the doctrine of equitable subrogation, a primary insurance carrier owes an excess insurance carrier a duty of good faith and fair dealing in accepting settlement offers within policy limits. Under equitable subrogation, the excess carrier steps into the shoes of the insured and gains all the rights of the insured. Id. In this case, we are asked to go a step further and hold that a primary insurance carrier, independent of its obligation under the doctrine of equitable subrogation, owes a direct duty of good faith and fair dealing to an excess insurance carrier. We decline to do so.
One of the first cases to recognize a direct duty was Hartford Accident & Indemnity Co. v. Michigan Mutual Insurance Co., 93 A.D.2d 337, 462 N.Y.S.2d 175 (App.Div.1983). In that case, a workman was injured while working for a painting contractor (DeFoe) and its subsidiary (L.A.D.). The workman was also employed by D.A.L., another DeFoe subsidiary. All three entities carried primary insurance with Michigan Mutual and excess insurance with Hartford. The workman sued only DeFoe and L.A.D. for his injuries. Michigan Mutual defended DeFoe and L.A.D. but did not try to join D.A.L. as a third-party defendant. Michigan Mutual's defense of D.A.L. presumably would have increased its liability, and decreased the excess carrier's contribution toward settlement. Hartford, the excess carrier, claimed that Michigan Mutual's failure to name D.A.L. as a third-party defendant was bad faith. The Appellate Division of the New York Supreme Court held that the primary carrier owes the same obligation to the excess carrier as it owes its own insured:
As primary insurer, it acts as a fiduciary and is held to an exacting standard of utmost good faith. Any such right of action arises as a result of the independent and direct duty to the excess insurer and is not dependent upon equitable principles of subrogation.
Id. at 342, 462 N.Y.S.2d at 178 (citation omitted).
In another direct duty case, an insured and primary insurer colluded and wrongfully allocated certain losses to one policy year in order to exhaust the primary insurer's policy limits for that year and bring excess insurance coverage into play. Kaiser Found. Hosp. v. North Star Reinsurance Corp., 90 Cal.App.3d 786, 153 Cal.Rptr. 678 (1979). The California Court of Appeals held that both the primary insurer and the insured owe the excess insurer a direct duty of good faith and fair dealing. Id. at 792, 153 Cal.Rptr. at 682.
In both Michigan Mutual and Kaiser, the courts recognized a direct duty to the excess carrier because equitable subrogation failed to adequately protect the excess insurer's interests.
We do not believe the direct duty theory should be applied to the facts in this case for two reasons. First, in this case, the excess carrier has an adequate remedy under the doctrine of equitable subrogation. Admittedly, there may be times when equitable subrogation is not an adequate remedy for the excess carrier. Under equitable...
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