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Cornerstone National Insurance Co. v. Itule

United States District Court, D. Arizona

September 30, 2014

Cornerstone National Insurance Company, Plaintiff,
James Itule, Defendant.


G. MURRAY SNOW, District Judge.

Pending before the Court is Plaintiff's Motion for Judgment on the Pleadings (Doc. 32). On September 9, 2014, the Court converted the Motion into a Motion for Summary Judgment pursuant to Federal Rule Civil Procedure 56, allowing the parties to submit additional materials. See Fed.R.Civ.P. 12(d). (Doc. 52.) For reasons specified below, the Court now grants the Motion.


On January 5, 2010, a collision occurred between Barbara Contreras and Defendant James Itule after Contreras allegedly failed to stop at a red light. (Doc. 1 ¶¶ 8-9; Doc. 25 ¶¶ 8-9.) Plaintiff Cornerstone National Insurance Company ("Cornerstone") insured Contreras's vehicle with a policy (the "Policy") that limits personal injury liability to $15, 000 per person. (Doc. 1 ¶¶ 10; Doc. 25 ¶¶ 10.) The Policy contains a cooperation provision requiring Contreras to cooperate with Cornerstone in the investigation, settlement, or defense of any claim or lawsuit when seeking coverage. (Doc. 1 ¶ 31; Doc. 25 ¶ 31.) On April 27, 2010, Itule sent a demand letter to Cornerstone demanding, among other things, an affidavit from Contreras attesting to certain information, including the extent of her assets, checks for all applicable Policy limits, and a bodily injury release form for Itule to sign. (Doc. 1 ¶ 12; Doc. 25 ¶ 12.) The demand letter specifically stated that sending a release for Itule's signature without sending the settlement funds, would "be taken as a counter to our offer, and will not be acceptable." (Doc. 55 ¶ 3; Doc. 58 ¶ 3.) The letter gave a deadline of May 17, 2010 to comply. (Doc. 1 ¶ 13; Doc. 25 ¶ 13.)

On May 14, 2010 Cornerstone requested an extension in the deadline until May 21, 2010. (Doc. 54 ¶ 3.) In a letter dated May 17, 2010, Cornerstone offered to pay the applicable Policy limit of $15, 000 and provide the release form for Itule to sign, but did not send a check or the asset affidavit from Contreras. (Doc. 54. ¶ 4; Doc. 55 ¶ 12.) On May 17, 2010, Itule filed suit against Contreras (the "Tort Action"). (Doc. 55 ¶ 18.) On May 18, 2010, Itule's counsel sent a letter via fax denying Cornerstone's May 14, 2010 request for an extension of the deadline. (Doc. 37-1 at 15.) On the same day, Itule's counsel sent a letter to Cornerstone acknowledging the offer of the $15, 000 policy limit, but rejecting it for falling short of the demand letter terms. (Doc. 37-1 at 37.) Also on May 18, 2010, Cornerstone mailed a check for the $15, 000 policy limit to Itule's counsel. (Doc. 55 ¶ 14.) Itule's counsel rejected this check. ( Id. ¶ 17.)

Cornerstone retained an attorney to defend Contreras in the lawsuit filed by Itule. (Doc. 1 ¶ 20; Doc. 25 at ¶ 20.) On August 18, 2010, Cornerstone filed an interpleader action, naming multiple medical providers who had claims in excess of the policy limits and stating that it was ready and willing to pay the $15, 000 policy limits at issue in the Tort Action into the court. (Doc. 1 ¶¶ 21-22; Doc. 25 ¶ 21-22; Doc. 54 ¶ 12.) The state court consolidated the interpleader action with the Tort Action on November 23, 2010. ( Id. at 4-5.) On December 14, 2011, Cornerstone was dismissed without prejudice from the case on the condition it deposit the $15, 000 policy limits with the clerk of the court, which it did on November 2, 2011. (Doc. 54-1 at 28-38; see Doc. 1 ¶ 24, Doc. 25 at ¶ 24.)

On December 28, 2012, Itule and Contreras entered into an Irrevocable Settlement Agreement (the "Settlement Agreement"), whereby Contreras withdrew her answer to Itule's state court complaint, allowed a default judgment in Itule's favor of $950, 000, and assigned any breach of contract or breach of good faith claims that Contreras may have against Cornerstone to Itule in exchange for Itule's agreement not to execute the state court judgment against Contreras. (Doc. 1 ¶ 26-28; Doc. 25 ¶ 26-28.) Cornerstone filed this declaratory judgment action against Itule on January 11, 2013. (Doc. 1.) Cornerstone requests the Court to declare that (1) Cornerstone met all its duties and obligations to Contreras under the policy; and (2) Contreras breached the cooperation clause of the policy by confessing judgment and entering into the Agreement. ( Id. at 7-9.) Alternatively, Cornerstone requests a declaration that the stipulated amount of $950, 000 to settle the underlying injury claim was unreasonable. ( Id. at 7.) Cornerstone further requests attorneys' fees and costs. ( Id. ) Cornerstone filed a Motion for Judgment on the Pleadings for its claims on January 6, 2014. (Doc. 32.) The Court will evaluate that Motion, and the additional submissions by the parties[1], as a Motion for Summary Judgment. (Doc. 52.)


I. Legal Standard

Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). Substantive law determines which facts are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "A fact issue is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving party must show that the genuine factual issues "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Cal. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (original emphasis omitted) (quoting Anderson, 477 U.S. at 250).

The interpretation of an insurance contract is a question of law to be determined by the court. Sparks v. Republic National Life, 132 Ariz. 529, 534, 647 P.2d 1127, 1132 (Ariz. 1982). The provisions of an insurance contract are interpreted according to their plain and ordinary meaning. National Bank of Arizona v. St. Paul Fire and Marine Insurance Co., 193 Ariz. 581, 584, 975 P.2d 711, 713 (App. 1999).

II. Analysis

A. Validity of Settlement Agreement

For the Settlement Agreement between Contreras and Itule to be valid, Cornerstone must have first breached one of its obligations to Contreras under the Policy. Arizona Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 137, 735 P.2d 451, 459 (1987). Contreras' policy contains a standard cooperation provision whereby anyone seeking coverage is required to cooperate with Cornerstone in the investigation, settlement, or defense of any claim or lawsuit. (Doc. 1 ¶ 31; Doc. 25 ¶ 31.) A cooperation clause in a liability insurance contract "is used to protect the insurer's right to a fair adjudication of the insured's liability and to prevent collusion between the insured and the injured person." Helme, 153 Ariz. at 136, 735 P.2d at 458. Under Arizona law, an insured is justified in breaching the cooperation clause when an insurer has violated their contractual agreement and "flatly refused to defend" an insured. Damron v. Sledge, 105 Ariz. 151, 154, 460 P.2d 997, 1000 (1969). Thus, when an insurer's breach, either actual or anticipatory, leaves the insured exposed to excess personal judgment, "the insured is generally held to be freed from his obligations under the ...

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