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Twin City Fire Insurance Co. v. Leija

Supreme Court of Arizona

August 2, 2018

Twin City Fire Insurance Company, Plaintiff/Counter-Defendant/Appellee,
Graciela Leija, Defendant/Counter-Claimant/Appellant.

          Appeal from the Superior Court in Maricopa County The Honorable Michael J. Herrod, Judge The Honorable J. Richard Gama, Judge, (Retired) No. CV2012-004506

         Opinion of the Court of Appeals, Division One 243 Ariz. 175 (App. 2017)

          Donald L. Myles, Jr., Jefferson T. Collins, Lori L. Voepel (argued), Jones, Skelton & Hochuli, P.L.C., Phoenix, Attorneys for Twin City Fire Insurance Company

          Joel B. Robbins (argued), Anne E. Findling, Robbins & Curtin, PLLC, Phoenix; and David L. Abney, Ahwatukee Legal Office, P.C., Phoenix, Attorneys for Graciela Leija

          Mark A. Kendall (argued), CopperPoint Mutual Insurance Company, Phoenix, Attorneys for Amicus Curiae CopperPoint Mutual Insurance Company

          Nathan B. Webb, Miller, Pitt, Feldman & McAnally, P.C., Tucson, Attorneys for Amici Curiae Mark Ballinger and Patricia Ballinger

          Taylor C. Young, Mandel Young PLC, Phoenix, Attorneys for Amicus Curiae American Insurance Association

          David 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.



         ¶1 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 carrier's lien.


         ¶2 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 $575, 000.

         ¶3 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.

         ¶4 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.

         ¶5 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.

         ¶6 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.

         ¶7 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.

         ¶8 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 ¶ 28.

         ¶9 We granted review because this case presents recurring issues of statewide importance. We have jurisdiction under article 6, section 5(3) of the ...

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