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Associated Aviation Underwriters v. Wood9/29/2004
tigated and resolved in the coverage phase of the DRA, to which the insurer was a party. Morris neither contemplates nor permits such a scenario. Rather, the Morris court clearly deemed "the facts bearing on the liability and damage aspects of claimant's [underlying] case" as relevant issues for litigation and evaluation in the reasonableness phase, not the coverage phase, of a DRA. Id. at 121, 741 P.2d at 254; see also Waddell, 207 Ariz. 529, 17, 24, 26, 88 P.3d at 1146-48 (insurer may test reasonableness of Morris settlement by presenting evidence on liability, comparative fault, and damages); Himes v. Safeway Ins. Co., 205 Ariz. 31, 33, 66 P.3d 74, 85 (App. 2003) (insured's liability and claimant's damages relevant in examining reasonableness of settlement). And even in the reasonableness phase, only potential, not actual, liability is at issue. See Trim v. Clark Equipment Co., 274 N.W.2d 33, 37 (Mich. Ct. App. 1978) (reasonableness depends on "the amount paid in settlement of the claim in light of the risk of exposure"); accord Plumbers Specialty Supply Co. v. Enterprise Prods. Co., 632 P.2d 752 (N.M. Ct. App. 1981).
Third, as Intervenors correctly point out, adoption of AAU's position would upset Morris 's "compromise framework," which delicately balanced the various competing interests that arise when an insurer defends an insured under a reservation of rights. As the court stated in Morris, " he insurer's reservation of the privilege to deny the duty to pay relinquishes to the insured control of the litigation, almost as if the insured had objected to being defended under a reservation." 154 Ariz. at 119, 741 P.2d at 252. But under AAU's view, the insured's "control of the litigation" would be meaningless because the insurer would always be able to litigate all liability and damage issues in a DRA on "coverage" if resolution of those issues in the underlying case is not to its liking. Again, Morris does not contemplate or countenance that result. For all of the foregoing reasons, we reject AAU's argument that Morris supports, let alone compels, the conclusion that "no coverage exists under the AAU policies."
Although we reject AAU's Morris -related argument, we are deeply concerned about Morris 's ramifications in a case such as this and disagree with several assertions Intervenors make. For example, Intervenors argue, " ecause [they] needed to prevail on the legal issue regarding landlord-tenant liability and the fact issues of exposure, causation, and injury in the underlying tort litigation in order for the City/TAA to be liable, the existence of the Morris agreement precludes their relitigation as coverage issues in this case." According to Intervenors, all such liability and "medical causation" issues "were essential to," and "necessarily resolved" against TAA/City in, the consent judgments entered in Gerardo and, therefore, AAU is bound by those determinations. Similarly, Intervenors contend " o conflict exists with respect to the issues of exposure, causation, and injury because those issues were all necessary to Intervenors' underlying tort judgments."
We find those assertions meritless. They are based on the fiction that liability and damage issues were actually litigated in the underlying tort action and that resolution of those issues in favor of Intervenors was indispensable to the Gerardo judgment. On the contrary, however, Morris made clear that a consent judgment, such as that entered in Gerardo, "'does not purport to be an adjudication on the merits; it only reflects the settlement agreement.'" 154 Ariz. at 120, 741 P.2d at 253, quoting Miller v. Shugart, 316 N.W.2d 729, 735 (Minn. 1982). Morris 's rule that an insurer is nonetheless bound by the fact o
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