EQUALCONSIDERATIONARTICLE
008
EQUAL CONSIDERATION
DOES NOT REQUIRE
OVERPAYMENT
AUTHOR: Jeff Collins
EMAIL: [email protected]
BIO: jshfirm.com/jeffersontcollins
In Arizona, options are available to insureds when an insurer does not
unconditionally agree to defend without issuing a reservation of rights
letter, or denies coverage altogether. These circumstances give rise to
Morris and Damron Agreements, in which an insured usually stipulates
to a judgment in exchange for a covenant not to execute. The plaintiff
then sues the insurer to recover that judgment, which typically exceeds
the policy limits. Such agreements can also result, however, when
the insurer fails to settle within the limits of the insurance policy, so
it behooves all parties – the insurer, the insured and the plaintiff – to
understand the potential consequences of such agreements.
One of the duties an insurance carrier owes to the insured is to give
“equal consideration” to third-party demands within the limits of the
insurance policy, irrespective of whether the insurer has unconditionally provided coverage or has reserved rights. The standard requires an
insurer to examine “whether [the insurer] without policy limits would
have accepted the [demand].” It must do so “objectively” and as if “[the
insurer] alone would be responsible for the payment of any judgment
rendered.” If the insurance carrier breaches that duty, the insured is not
bound by the “cooperation clause” in the policy and is free to negotiate
a Morris Agreement with the plaintiff.
In examining whether an insurer has given “equal consideration” to a
demand, Arizona courts consider the following factors:
•
strength of plaintiff’s case on issues of liability and damages;
•
attempts by the insurer to induce the insured to contribute to a
settlement;
•
failure of the insurer to properly investigate the circumstances to
ascertain the evidence against the insured;
•
the insurer’s rejection of advice of its own attorney or agent;
•
failure of the insurer to inform the insured of a compromise offer;
•
amount of financial risk to which each party is exposed in the
event of a refusal to settle;
•
fault of the insured in inducing the insurer’s rejection of the compromise offer by misleading it as to the facts; and
•
any other factors tending to establish or negate bad faith on
insurer’s part
Pruett v. Farmers Ins. Co. of Arizona,
175 Ariz. 447, 857 P.2d 1301 (App. 1993).