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Geurden v. Quantum Transportation LP

United States District Court, D. Arizona

March 28, 2018

Yves Geurden, et al., Plaintiffs,
v.
Quantum Transportation LP, et al., Defendants.

          ORDER

          JAMES A. TEILBORG SENIOR UNITED STATES DISTRICT JUDGE

         Pending before the Court is Plaintiff's Motion for Entry of Stipulated Judgment (Doc. 66). Intervenors have responded, (Doc. 68), and Plaintiff has replied (Doc. 69). Plaintiff has also filed a motion to supplement her reply (Doc. 71). The Court now rules on the motions.

         I. Background

         On October 13, 2014, Vahik Alaverdyan fell asleep at the wheel of his tractor and collided into Vincent Guerden. (Doc. 48 at 2). Geurden died as a result of this collision. (Id.) During settlement negotiations, Plaintiff Yves Guerden (“Plaintiff”), demanded $7 million from Defendants Vahik Alaverdyan and Quantum Transportation L.P. (“Defendants”). (Doc. 66-4 at 2). Following this demand, Hallmark American Insurance Company (“Hallmark”), one of Defendants' insurers, sent a letter to the Greenwich Insurance Company (“Greenwich”) on February 3, 2017, demanding that Greenwich “tender its policy limits for settlement.” (Id.) On March 9, 2017, Greenwich wrote two letters denying that it had any “duty to defend and/or indemnify” Defendants at that time. (Doc. 66-1); (Doc. 66-2). Greenwich further asserted that its insurance policy was excess to policies of other insurers that were currently providing a defense in this litigation. (Doc. 66-1 at 6). In response to Greenwich's letters, Plaintiff and Defendants agreed to enter into a stipulated judgment on June 26, 2017. (Doc. 42). In this stipulation, the parties acknowledged that they were entering into a “Damron Agreement” and requested that the Court grant default judgment. (Doc. 42). On June 28, 2017, the Court inquired whether it had the duty to inquire into the reasonableness of the settlement agreement before entering judgment. (Doc. 43). On July 12, 2017, Greenwich Insurance Company and XL Specialty Insurance Company (“XL”) (together, “Intervenors”) moved to intervene in this matter, opposing the Court's entry of the stipulated judgment. (Docs. 46 and 47). Believing that neither party's briefs adequately addressed whether Intervenors were entitled to a reasonableness hearing, the Court denied the stipulated judgment without prejudice and ordered supplemental briefing on two issues: (1) when is an excess insurance carrier's duty to defend triggered? And (2) even if such an insurer had no duty to defend, may they recant a prior decision on which the parties relied in reaching a settlement?

         II. Discussion

         a. Legal Standard

         When an insurer refuses to defend or denies coverage to its insured, the insured may enter into a settlement agreement with a plaintiff that “admits to liability and assigns to a plaintiff his or her rights against the liability insurer . . . in exchange for a promise . . . not to execute the judgment against the insured.” Safeway Ins. Co. v. Guerrero, 106 P.3d 1020, 1022 (Ariz. 2005). In Arizona, these settlement agreements may take two forms: Damron and Morris agreements. Id. at 1022 n.1. Damron agreements are entered into because of “an insurer's refusal to defend the insured.” Id. (citing Damron v. Sledge, 460 P.2d 997 (1969)). When parties enter into a Damron agreement, the Court does not conduct a reasonableness inquiry. Parking Concepts, Inc. v. Tenney, 83 P.3d 19, 22 n.3 (Ariz. 2004). Morris agreements, on the other hand, “can be prompted by a number of circumstances.” Safeway Ins. Co., 106 P.3d at 1022 n.1 (collecting cases). Unlike Damron agreements, the Court must inquire into Morris agreements for their reasonableness. United Servs. Auto. Ass'n v. Morris, 741 P.2d 246, 250-51 (Ariz. 1987); Ariz. Property & Cas. Ins. Guar. Fund v. Helme, 735 P.2d 451, 460 (Ariz. 1987).

         Arizona courts explain that these agreements are necessary to protect an insured whenever he is “placed in a precarious position” by his insurer's choice to either defend under a reservation of rights or to refuse to defend altogether. Safeway Ins. Co., 106 P.3d at 1024 (“Even though the insurer is providing a defense to the claim, the insured faces the possibility that any judgment, even one within policy limits, may not be covered by the policy.”) (citing Parking Concepts v. Tenney, 83 P.3d 19, 22 (2004)). When the insurer makes such a choice, it deprives the insured of the “security from financial loss which he may sustain from claims against him” that he purchased. Helme, 735 P.2d at 459. Thus, the law does not require the insured to risk continued exposure “to the sharp thrust of personal liability, ” but instead allows him to enter into an agreement to protect himself. Damron, 460 P.2d 997 at 999 (quoting Critz v. Farmers Ins. Grp., 230 Cal.Rptr. 401, 408 (Cal.Ct.App. 1964)).

         At the same time, Arizona courts strive to avoid placing an insurer “between Scylla and Charybdis” by forcing it to “either give up its right to raise tenable coverage defenses or its right to insist on full application of the cooperation clause.” Morris, 741 P.2d at 251-52 (citing McGough v. Ins. Co., 691 P.2d 738, 745 (Ariz.Ct.App. 1984)). Courts also recognize the danger that an insured might enter into “collusive settlements that bear little relation to the underlying case, ” because he and the plaintiff have “little incentive to minimize the amount of the [stipulated] judgment.” Leflet v. Redwood Fire & Cas. Ins. Co., 247 P.3d 180, 183 (Ariz.Ct.App. 2011). In order to avoid these undesirable outcomes, and to properly balance the equities between insurer and insured, Arizona courts “permit an insurer to raise the coverage defense . . . while at the same time protecting the insurer from unreasonable agreements between the claimant and the insured.” Morris, 741 P.2d at 252. Thus, a settlement agreement that falls under the Morris rubric will bind the insurer “only if the insurer has declined an opportunity to defend and the insured establishes that the settlement was reasonable and prudent.” Webb v. Gittlen, 174 P.3d 275, 281 (Ariz. 2008) (citing Morris, 741 P.2d at 253).

         b. Anticipatory Breach

         Plaintiff first alleges that because XL anticipatorily repudiated all of its duties to the insured it is not entitled to a reasonableness hearing. (Doc. 66 at 2). Intervenors disagree and argue that “Helme does not support the proposition that an insurer's anticipatory repudiation of its policy obligations permits an insured to enter an unreasonable settlement with the insured.” (Doc. 68 at 11). This Court agrees with Intervenors' interpretation of the law.

         An insured may enter into a Morris-type agreement when his insurer anticipatorily repudiates contractual duties it owes him. See Helme, 735 P.2d at 459. However, an insurer's anticipatory repudiation of a contractual duty does not permit the insured to “enter into any type of agreement or take any type of action that may protect him from financial ruin. . . . The insurer's breach . . . permits him to take reasonable steps to save himself. Among those steps is making a reasonable settlement with the claimant.” Id. at 460 (emphasis added); see also Safeway Ins. Co., 106 P.3d at 1022 n.1 (characterizing Helme as a situation giving rise to a Morris agreement).

         Plaintiff argues that Helme stands for the proposition that “once an insurer breaches its duty to its insured by way of a complete denial of coverage and refusal to defend or indemnify, the insured is not required to come back to the insurer for permission to enter a Damron agreement.” (Doc. 66 at 4). This argument overstates Helme's sweep. Arizona courts have been careful to limit Damron agreements to situations where the insurer actually breaches its duty to defend. See Safeway Ins. Co., 106 P.3d at 1022 n.1; Mora v. Phoenix Indem. Ins. Co., 996 P.2d 116, 120 (Ariz.Ct.App. 1999) (explaining that an insurer only forfeits its right to intervene when it commits a “substantial” breach that is “antithetical to the essential purpose of the insurance contract”); Anderson v. Martinez, 762 P.2d 645, 649 (Ariz.Ct.App. 1988) (explaining that only refusal to defend waives an insurer's right to intervene). Therefore, even if an insurer breaches all three of its duties to the insured, the operative duty for purposes of whether a Damron agreement is permissible is the duty to defend. See Mora, 996 P.2d at 120 (explaining that an insurer asserting no duty to defend its insured, is also implying that it owes no duty to indemnify, and that it therefore has no interest in the litigation). Embodying this careful approach, Helme made clear that an insurer's anticipatory repudiation of any of its obligations does not give an insured license to “enter into any type of agreement or take any type of action that may protect him from financial ruin.” Helme, 735 P.2d at 460. Rather, an anticipatory repudiation-even of the duty to defend-only allows an insured to enter into “a reasonable settlement with the claimant.” Id.

         Plaintiff further argues that because Helme used “the same test for a settlement agreement in the Damron case” that it was free to enter into a Damron agreement “when XL anticipatorily breached all its obligations to its insureds.” (Doc. 69 at 6). Neither Helme, nor subsequent cases, support Plaintiff's contention. The applicable passage is:

[T]he insurer's breach narrows the insured's obligations under the cooperation clause and permits him to take reasonable steps to save himself. Among those steps is making a reasonable settlement with the claimant. So long as that settlement agreement is neither fraudulent, collusive, nor otherwise against public policy, the insured has not breached the cooperation clause.

Helme, 735 P.2d at 461. Plaintiff contends that the third sentence in this passage defines the word “reasonable, ” used in the second sentence, as “neither fraudulent, collusive, nor otherwise against public policy.” (Doc. 69 at 6). But, it is more likely that when the court used the words “that settlement agreement” it was referring to the “reasonable settlement” it discussed in the preceding sentence. The opinion more naturally reads as requiring settlement agreements that are reasonable and neither fraudulent, collusive, nor otherwise against public policy-the standard used in Morris. Morris, 741 P.2d at 254. Second, even if it were true that the Helme court thought it was applying the test used in Damron, subsequent opinions of the Arizona Supreme Court hold that anticipatory breaches give rise to Morris agreements. Sa ...


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