KnightBrook Insurance Company; Knight Management Insurance Services LLC, Plaintiffs/Counter-Defendants/Appellees,
Payless Car Rental System Incorporated, Defendant/Appellant, PCR Venture of Phoenix LLC, Defendant/Counter-Claimant/Appellant.
States District Court for the District of Arizona No.
Question from the United States Court of Appeals for the
Ninth Circuit KnightBrook Ins. Co. v. Payless Car Rental Sys.
Inc.; PCR Venture of Phoenix, LLC, 855 F.3d 1072 (9th Cir.
R. Christian, Gena L. Sluga (argued), Douglas L. Christian,
Stephen M. Dichter, Christian Dichter & Sluga, PC,
Phoenix, Attorneys for KnightBrook Insurance Company and
Knight Management Insurance Services LLC.
William J. Maledon, Thomas L. Hudson, Osborn Maledon, P.A.,
Phoenix; William F. Greaney (argued), Philip J. Levitz,
Covington & Burling LLP, Washington, D.C.; and Arron
Nesbitt, Wilson Elser, Denver, CO, Attorneys for Payless Car
Rental System Incorporated and PCR Venture of Phoenix, LLC.
JUSTICE LOPEZ authored the opinion of the Court, in which
CHIEF JUSTICE BALES, VICE CHIEF JUSTICE PELANDER, and
JUSTICES BRUTINEL, TIMMER, BOLICK, and GOULD joined.
The United States Court of Appeals for the Ninth Circuit
certified the following questions for our review: (1) whether
Arizona equitable indemnity law incorporates the Restatement
(First) of Restitution § 78 (Am. Law Inst. 1937)
(hereinafter "First Restatement") and, if so, (2)
whether § 78 requires that the indemnity plaintiff and
indemnity defendant's liability be coextensive as to the
underlying plaintiff. We hold that § 78 is not
incorporated in Arizona law. Consequently, we decline to
answer the second certified question as moot.
Michael Bovre rented a vehicle from Payless Car Rental System
Inc. ("Payless"). At the rental counter, Payless
offered Bovre supplemental liability insurance
("SLI") under a master policy provided by
KnightBrook Insurance Co. ("KnightBrook"). Bovre
did not pay the $13.95 daily premium for such coverage, but
he contends that he is entitled to coverage because he did
not initial the space provided in the rental contract to
decline SLI coverage.
While driving the rented vehicle, Bovre caused an accident
that injured Robert and Lorraine McGill. The McGills sued
Bovre and made a settlement offer, which included an amount
representing SLI coverage. KnightBrook denied Bovre's
demand for SLI coverage because he did not purchase it.
Bovre ultimately entered into a settlement agreement with the
McGills, under which they were paid the combined policy
limits of $530, 000 from the state-mandated insurance and
Bovre's own Travelers policy. Bovre also executed a
Damron agreement, in which he assigned to the
McGills his claims against KnightBrook and Payless for their
alleged failure to provide SLI insurance (breach of contract,
negligence, and insurance bad faith), and agreed to an $8
million adverse judgment in exchange for the McGills'
covenant not to execute on the judgment against his personal
assets. See Damron v. Sledge, 105 Ariz. 151 (1969)
(recognizing the validity of an agreement in which an insured
stipulates to a judgment, assigns his claims against the
insurer to the claimant, and, in turn, the claimant agrees
not to execute the judgment against the insured personally).
The McGills then sued Payless and KnightBrook, seeking to
recover the $8 million judgment. The McGills and KnightBrook
entered into a settlement in which the McGills'
(previously Bovre's) claims against Payless were further
assigned to KnightBrook, which paid the McGills the $970, 000
SLI policy limit and promised them a percentage of any
recovery from Payless. The settlement resolved the
McGills' insurance bad faith and Damron claims
against KnightBrook but did not extinguish all the claims
against Payless. Payless was not notified of the final
settlement agreement terms until after it had been executed.
KnightBrook subsequently filed an action in federal court
against Payless, asserting its assigned claims, along with an
equitable indemnification claim for the $970, 000 it paid the
McGills, arguing that the Payless employee at the rental
counter was at fault for not memorializing Bovre's denial
of SLI coverage. The district court dismissed the contract
claims, holding that they were extinguished by accord and
satisfaction when KnightBrook settled with the McGills.
Relying on the First Restatement § 78, the court also
ruled that KnightBrook was entitled to equitable
indemnification from Payless for the $970, 000 SLI policy
limits it paid to settle the McGills' claims.
Payless appealed to the Ninth Circuit, which concluded that
the outcome of the case rests on answers to the two questions
certified to this Court. We ...