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Associated Aviation Underwriters v. Wood9/29/2004
nableness of the Morris settlement, the insurers could "attempt to persuade the trier that the settlement was unreasonable in light of the minimal risk of liability being imposed." Id. at n.1.
As noted in 15, supra, our supreme court ultimately depublished, but did not vacate, this court's opinion in Smith. Because that decision remains intact, it represents law of the case. Under the law of the case doctrine, "a court acts within its discretion in 'refusing to reopen questions previously decided in the same case by the same court or a higher appellate court' unless 'an error in the first decision renders it manifestly erroneous or unjust or when a substantial change occurs in essential facts or issues, in evidence, or in the applicable law.'" State v. Wilson, 207 Ariz. 12, 9, 82 P.3d 797, 800 (App. 2004), quoting Powell-Cerkoney v. TCR-Montana Ranch Joint Venture, II, 176 Ariz. 275, 278, 279, 860 P.2d 1328, 1331, 1332 (App. 1993). Although the doctrine is a procedural rule rather than a substantive limitation on the court's power, it generally "promotes an orderly process leading to an end to litigation." Powell-Cerkoney, 176 Ariz. at 278, 860 P.2d at 1331; see also Martinez v. Indus. Comm'n, 192 Ariz. 176, 14, 962 P.2d 903, 906 (1998).
Contrary to AAU's assertion, we do not deem Smith "manifestly and palpably erroneous." Rather, its central holding, that an insurer in the Morris context may not litigate liability issues as a means of avoiding coverage in the DRA, does not undermine Morris but rather is consistent with it. And, as far as we can tell, our supreme court did not disagree, noting in this same case that only "non-liability dependent coverage issues" were appropriate for litigation and resolution in a post- Morris agreement coverage trial. See 183 Ariz. 1, 899 P.2d 162. Though certainly not clear, that language apparently means that purported coverage issues that are either identical to or directly overlap with essential liability questions in the underlying tort case indeed are "precluded or foreclosed" in the DRA coverage trial. See id. Accordingly, we decline AAU's invitation to overrule or abandon Smith. For the reasons explained above, its conclusion is not only sound but is consistent with Morris.
C. Conflict of Interest Issues
Relying primarily on the Restatement of Judgments (Second) § 58 (1982), and Farmers Insurance Co. v. Vagnozzi, 138 Ariz. 443, 675 P.2d 703 (1983), AAU also argues conflict of interest principles permitted it to litigate liability and damage issues in phase I of this DRA and required Intervenors to establish coverage by proving actual bodily injuries were sustained and were caused by TAA/City's tortious acts or omissions during AAU's policy period. In essence, Restatement § 58 provides that when an insurer has received proper notice of a claim against its insured and has had an opportunity to defend the insured against the claimant's action, a judgment for the claimant precludes the insurer in a subsequent action for indemnification "from relitigating those issues determined in the action against the [insured] as to which there was no conflict of interest between the [insurer] and the [insured]." Restatement § 58(1)(b). For purposes of that section, " 'conflict of interest'... exists when the injured person's claim against the [insured] is such that it could be sustained on different grounds, one of which is within the [insurer's] obligation to indemnify and another of which is not." Restatement § 58(2).
In Vagnozzi, our supreme court applied Restatement § 58 and held that "where there is a conflict of interest between an insured and his insurer, the parties will not be estopped from litigating in a su
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