United States District Court, D. Arizona
KnightBrook Insurance Company; and Knight Management Insurance Services, LLC, Plaintiffs,
Payless Car Rental System, Inc.; and PCR Venture of Phoenix, LLC, Defendants.
G. Campbell Senior United States District Judge
an appeal, the Ninth Circuit remanded the equitable
indemnification claim asserted by Plaintiffs KnightBrook
Insurance Company and Knight Management Insurance Services,
LLC (collectively, “KnightBrook”) against
Defendants Payless Car Rental System, Inc. and PCR Venture of
Phoenix, LLC (together, “Payless”). Doc. 418. The
parties have briefed the remaining issues (Docs. 433, 439,
441), and the Court heard oral argument on November 30, 2018
(Doc. 443). For reasons stated below, the Court finds that
KnightBrook has failed to establish a right to
indemnification from Payless.
following background information is based on evidence
presented at the previous bench trial and the Court's
findings of fact. See Doc. 376 at 2-5.
February 2010, Payless rented a car to Michael Bovre. The
rental agreement provided Bovre with an opportunity to
purchase Supplemental Liability Insurance (“SLI”)
of $1 million. KnightBrook provided the SLI coverage pursuant
to a commercial automobile liability insurance policy issued
to Payless. Bovre did not affirmatively decline SLI coverage
by initialing the rental contract where appropriate, and the
Payless desk agent told Bovre that “liability”
coverage was included in the contract at no charge. As
required under Arizona law, Payless provided Bovre with
liability insurance coverage for minimum financial limits of
$15, 000/$30, 000.
March 1, 2010, Bovre was driving the Payless rental car when
he collided with a motorcycle carrying Robert and Lorraine
McGill, causing them significant and permanent injuries.
Bovre sought coverage for the accident under the SLI policy,
but KnightBrook denied the claim because Bovre did not pay
for SLI coverage.
McGills sued Bovre and issued a settlement demand in February
2011. See McGill v. Bovre, No. CV2011-003518
(Maricopa Cty. Super. Ct. Feb. 8, 2011). The McGills sought
the total available liability limits afforded by (1)
Bovre's personal liability insurance policy with
Travelers, which was $500, 000; (2) Payless's
state-mandated rental car coverage of $30, 000, provided by
Great American Assurance Company, and (3) the SLI coverage of
$1, 000, 000.
and Great American offered to pay $530, 000 to settle the
claims against Bovre, but the McGills declined to accept this
amount in full satisfaction of their claims. To protect his
interests, Bovre entered into a Damron settlement
agreement with the McGills. See Damron v. Sledge,
460 P.2d 997 (Ariz. 1969). Under the agreement, Bovre paid
the available $530, 000 of insurance coverage to the McGills
and assigned them all claims he had against KnightBrook and
Payless. Bovre and the McGills stipulated to an $8 million
judgment against Bovre, and the McGills agreed not to seek
further payments from him.
McGills filed this action in June 2012, asserting Bovre's
assigned claims for breach of contract, negligence, and bad
faith against KnightBrook and Payless. See Doc. 1-2
at 36-43; Doc. 40. On March 14, 2013, the McGills sent a
settlement demand for $1 million to Payless and KnightBrook
that would resolve all claims in the lawsuit. The McGills
later reduced their demand to $970, 000 to account for the
$30, 000 they had received in state-mandated coverage.
suggested to Payless that they each pay half of the $970, 000
to settle the suit. When Payless declined, KnightBrook
settled with the McGills by paying $970, 000 and taking an
assignment of the McGills' claims against Payless. On
June 14, 2013, KnightBrook filed a complaint against Payless
asserting the assigned claims for breach of contract and
negligence, as well as its own claims for equitable
indemnification and breach of fiduciary duty. Doc. 116.
Payless counterclaimed for insurance bad faith. Doc. 144.
Court held on summary judgment that the breach of contract
claims assigned to KnightBrook were extinguished by an accord
and satisfaction when $970, 000 was paid to the McGills.
Docs. 261. Following a bench trial, the Court held that the
negligence and breach of fiduciary duty claims were
time-barred, that Payless failed to prove its bad faith
counterclaim, and that KnightBrook was entitled to equitable
indemnification for the $970, 000 settlement payment. Doc.
376. Relying in part on § 78 of Restatement (First) of
Restitution, the Court held that KnightBrook was subject to
and discharged a “supposed obligation” to the
McGills which Payless had a greater responsibility to
discharge. Id. at 15-18; see KnightBrook v.
Payless, 100 F.Supp.3d 817, 827-34 (D. Ariz. 2015). The
Court entered judgment in favor of KnightBrook and against
Payless on the equitable indemnification claim. Doc. 377 at
appealed the rulings on its bad faith counterclaim and
KnightBrook's equitable indemnification claim. Doc. 385.
The Ninth Circuit certified two questions to the Arizona
Supreme Court: (1) whether Arizona equitable indemnity law
incorporates Restatement § 78, and (2) whether equitable
indemnity liability under § 78 requires that the
indemnity plaintiff's liability to the underlying
plaintiff be “coextensive” with the indemnity
defendant's liability to the underlying plaintiff.
KnightBrook v. Payless, 855 F.3d 1072, 1074 (9th
Cir. 2017). The Arizona Supreme Court answered the first
question in the negative and deemed the second question moot.
KnightBrook v. Payless, 409 P.3d 293, 294 (Ariz.
2018). The Ninth Circuit remanded KnightBrook's equitable
indemnification claim to this Court to apply the
“actual obligation” standard articulated by the
Arizona Supreme Court and to determine whether
KnightBrook's $970, 000 settlement with the McGills
discharged a “common” liability of KnightBrook
and Payless. KnightBrook v. Payless, 731 Fed.Appx.
632, 634 (9th Cir. 2018). The Ninth Circuit affirmed the
judgment against Payless on its bad faith counterclaim.
a full record had been created by the bench trial, the Court
and the parties agreed that the equitable indemnification
claim could be resolved by additional briefing and argument.
Doc. 427. The Court now finds that KnightBrook did not make
the $970, 000 settlement payment solely to discharge a common
or coextensive obligation. Because the Court cannot determine
what portion of the payment may have been paid to discharge
such an obligation, KnightBrook has not shown that it is
entitled to equitable indemnification under Arizona law.
Given this ruling, the Court need not decide whether an
actual obligation was owed to Bovre.