By: Ted Schmidt
Colorado Casualty Ins. Co. v. Safety Control Co., Inc.,
625 Ariz. Adv. Rep. 7 (App. Div. I, January 5, 2012) (J. Johnsen)
DAMRON AGREEMENT ENFORCEABLE EVEN WHEN INSURED IS
DEFENDED AND INDEMNIFIED BY AN EXCESS CARRIER/JUDGMENT ENTERED AS PART OF DAMRON
BINDS INSURER REFUSING TO DEFEND REGARDING FACTS SUPPORTING DUTY TO
INDEMNIFY
DBA Construction contracted with Arizona to perform a road
improvement project and hired Safety Control Co. as a sub contractor.
Safety Control obtained liability insurance from Employers Mutual Casualty
[EMC]and DBA obtained excess coverage from Colorado Casualty. A motorist
involved in a collision at the construction site sued the state and DBA.
Colorado Casualty tendered the defense of DBA to Safety Control and EMC. The
tender was rejected. Colorado Casualty paid the injured motorist $75,000 and
the state paid $20,000. DBA and the state entered a stipulated judgment
for $750K with the motorist who agreed not to execute on the judgment [a Damron
agreement]. DBA and the state assigned the motorist their rights against the
subcontractors and their insurers. Ultimately the trial court ruled that EMC breached
its duty to defend and was liable to pay the stipulated judgment and attorneys’
fees. The Arizona Court of Appeals affirmed in part and reversed and remanded
in part.
The court of appeals rejected EMC’s argument that the Damron
agreement was collusive or fraudulent based upon the fact the insured was
not left without a defense and subject to personal liability when EMC refused
the tender because Colorado Casualty stood to defend and indemnify. The
court noted that if EMC was primarily responsible to defend and indemnify it
would be precluded from escaping the consequence of a judgment entered when it
turned its back.
Here the question of EMC’s responsibility to indemnify
turned upon whether or not the judgment constituted a liability that “arises
out of” the subcontractor Safety Control’s work. If the judgment in fact
resolved that question than EMC having elected not to defend would be bound by
such a determination. However, the court found that the stipulated
judgment did not specify how the collision occurred or how any of the parties
were negligent. In fact the stipulated judgment incorporated by reference a
settlement agreement where the parties expressly denied any liability. While
the duty to defend is determined by the allegations in the complaint and the
facts known at the time of the tender, the duty to indemnify is determined by
the facts actually proven and established. Because it was not determined
in this action whether or not the damages and consequent stipulated judgment arose
out of work by Safety Control the court remanded the matter for such a
determination by the trial court.
