Twin City Fire Insurance Company, Plaintiff/Counter-Defendant/Appellee,
Graciela Leija, Defendant/Counter-Claimant/Appellant.
from the Superior Court in Maricopa County The Honorable
Michael J. Herrod, Judge The Honorable J. Richard Gama,
Judge, (Retired) No. CV2012-004506
of the Court of Appeals, Division One 243 Ariz. 175 (App.
L. Myles, Jr., Jefferson T. Collins, Lori L. Voepel (argued),
Jones, Skelton & Hochuli, P.L.C., Phoenix, Attorneys for
Twin City Fire Insurance Company
B. Robbins (argued), Anne E. Findling, Robbins & Curtin,
PLLC, Phoenix; and David L. Abney, Ahwatukee Legal Office,
P.C., Phoenix, Attorneys for Graciela Leija
A. Kendall (argued), CopperPoint Mutual Insurance Company,
Phoenix, Attorneys for Amicus Curiae CopperPoint Mutual
B. Webb, Miller, Pitt, Feldman & McAnally, P.C., Tucson,
Attorneys for Amici Curiae Mark Ballinger and Patricia
C. Young, Mandel Young PLC, Phoenix, Attorneys for Amicus
Curiae American Insurance Association
W. Lippman, Lippman Recupero, Tucson, Attorneys for Amicus
Curiae National Association of Subrogation Professionals
JUSTICE PELANDER authored the opinion of the Court, in which
CHIEF JUSTICE BALES, VICE CHIEF JUSTICE BRUTINEL, and
JUSTICES TIMMER, GOULD, and LOPEZ joined.
Under the Arizona Workers' Compensation Act (the
"Act"), an insurance carrier obtains a lien on a
claimant's (or a claimant's dependents') recovery
from third persons who negligently injured or killed the
claimant to the extent of workers' compensation benefits
paid (less reasonable and necessary expenses incurred in
securing the recovery). A.R.S. § 23-1023(D). In
Aitken v. Industrial Commission, this Court held
that the insurance carrier may assert the lien "only to
the extent that the compensation benefits paid exceed the
[non-party] employer's proportionate share of the total
damages fixed by verdict in the [third-party] action."
183 Ariz. 387, 392 (1995). We today hold that a claimant who
settles all of his or her third-party claims is not entitled
to a post-settlement trial to determine the percentage of
employer fault solely to reduce or extinguish the insurance
Victor Leija died while working as a window washer when he
fell from a building after a scaffold collapsed. Victor's
widow and children (collectively, "Leijas") claimed
workers' compensation benefits through Victor's
employer's workers' compensation carrier, Twin City
Fire Insurance Company ("Twin City"). Twin City
accepted the claim and pays monthly benefits of $1857 to the
Leijas. Eventually, the payments will total approximately
Exercising their right under the Act to bring a tort claim
against any third person who negligently caused Victor's
death, see § 23-1023(A), the Leijas filed a
negligence action against the City of Glendale, which owned
the building from which Victor fell, the building's
property manager and maintenance company, and the companies
that furnished and fabricated the scaffold.
During settlement negotiations between the Leijas and the
third-party defendants, Twin City asserted its right under
§ 23-1023(D) to fully enforce a lien against all
settlement proceeds for the amount of workers'
compensation benefits it had paid and would pay in the
future. Nevertheless, Twin City offered to reduce its lien by
five percent if the Leijas settled all their third-party
claims. The Leijas rejected the offer, arguing that Twin City
was required to reduce its lien by more than five percent due
to the alleged comparative fault of Victor's employer in
causing the accident. Although Twin City did not object to
any settlement, it never wavered from its position that it
was not required to reduce its lien. The Leijas ultimately
settled with all the third-party defendants for $1.6 million.
After that settlement, Twin City filed this action against
the Leijas to enforce its lien. Consistent with its
pre-settlement position, Twin City sought to fully enforce
its lien under § 23-1023(D) against all the settlement
proceeds to the extent of past and future workers'
compensation benefits. The Leijas counterclaimed, arguing, as
relevant here, that Twin City breached its duty of good faith
and fair dealing by refusing to reduce its lien to account
for Victor's employer's alleged comparative fault.
Alternatively, the Leijas requested that the superior court
set a trial to establish the employer's proportionate
fault and the resulting amount of Twin City's lien.
On the parties' cross-motions for summary judgment, the
superior court ruled in Twin City's favor, reasoning that
"a separate action after compromise of the third-party
claim is not the appropriate vehicle to allocate fault"
to a non-party employer. The court further reasoned that,
contrary to the Leijas' assertions, a workers'
compensation insurance carrier does not owe a duty of good
faith and fair dealing to reduce its lien against a
claimant's settlement proceeds to account for a non-party
employer's alleged comparative fault.
The court of appeals reversed, holding that "when a
worker settles a claim against a third party for less than
the limits of the third party's insurance, the worker may
obtain a judicial determination of whether the carrier's
lien should be reduced to account for the employer's
comparative fault." Twin City Fire Ins. Co. v.
Leija, 243 Ariz. 175, 177 ¶ 1 (App. 2017). The
court reasoned that "the fact that the Leijas settled
their [third-party] claims rather than try them to a verdict
does not preclude equitable apportionment under
Aitken." Id. at 181 ¶ 20. The court
observed that "the settlement with [the City of]
Glendale did not touch multiple layers of coverage and the
record contains significant evidence of employer fault."
Id. ¶ 21. Therefore, the court stated, Twin
City's lien should be equitably apportioned because
"estimations of [Victor's] employer's
comparative fault undoubtedly affected the amount the Leijas
were able to recover in settlement." Id. ¶
19. The court of appeals remanded the case to the superior
court to set "a trial to equitably apportion Twin
City's lien" and directed that court to
"address the specifics of such a proceeding,"
including "whether damages and the employer's
comparative fault should be determined by the court or by a
jury." Id. ¶ 23.
Finally, because the court of appeals "ruled that the
Leijas have a right to a trial by which Twin City's lien
may be apportioned," it found "no need" to
reconsider the principle that a workers' compensation
carrier does not breach its duty of good faith and fair
dealing when, "absent a fair adjudication of damages and
employer comparative fault," it refuses to compromise or
reduce its lien under § 23-1023(D). Id. at 182
We granted review because this case presents recurring issues
of statewide importance. We have jurisdiction under article
6, section 5(3) of the ...