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Associated Aviation Underwriters v. Wood9/29/2004
f a stipulated judgment is, at least implicitly, based on application of collateral estoppel principles against an insurer, even when material, disputed issues in the underlying case have not been "actually litigated," as the collateral estoppel doctrine otherwise requires. Campbell v. SZL Props., 204 Ariz. 221, 9, 62 P.3d 966, 968 (App. 2003) (setting forth elements of collateral estoppel). Although the "actually litigated" element is lacking from a consent judgment entered pursuant to a Morris agreement, Morris permits the insurer to litigate the pertinent liability and damage issues, at least to a limited extent, in the reasonableness trial. See Waddell, 207 Ariz. 529, n.4, 88 P.3d 1141, 1148 n.4. In most cases, the insurer's ability to do so represents a fair balance of the insured's and insurer's interests when the insurer has reserved its rights. But when Morris is applied in the context of a mass-tort case such as this, that delicate balance might be upset.
In the mass-tort context, suspension of the "actually litigated" element of collateral estoppel under a Morris analysis greatly benefits the insured and claimants but severely hampers the insurer's ability to meaningfully challenge the merits of the underlying claims. Given the nature of mass-tort cases and the voluminous evidence and discovery they engender, the insurer faces a difficult choice. It can challenge the consent judgment's reasonableness by focusing on specific evidence relating to the merits of each claimant's case, a difficult if not impossible task, or it will be left to challenge the settlement only on a more global basis. And, from a practical standpoint, the insurer might well be limited to the latter option when all discovery in a mass-tort case has not, and perhaps cannot, be completed, a consideration that likely factored into the insured's decision to settle in the first place.
As noted below, see 100-121, infra, we have no basis for disturbing the trial court's finding that the consent judgment entered pursuant to the Morris agreement was reasonable in fact and amount. But we also note that the policy considerations underpinning the Morris rule -- balancing of the relative equities that exist between insurers and insureds in a typical tort case -- are arguably altered in the mass-tort context. As one court has stated, "'mass-exposure toxic-tort cases involve public interests not present in conventional tort litigation.'" Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974, 985 (N.J. 1994), quoting Ayers v. Township of Jackson, 525 A.2d 287, 314 (N.J. 1987). Those differing public interests are only compounded when, as here, a court is constrained to resolve a mass-tort case on the basis of insurance law principles. But we cannot deviate from or overrule a decision of our supreme court. See State v. Smyers, 207 Ariz. 314, n.4, 86 P.3d 370, 374 n.4 (2004). Therefore, we must apply Morris, even when it produces counterintuitive results in a mass-tort case, particularly as to specific individuals.
E. Failure to Follow Pretrial Order
AAU's next arguments are largely premised on its misguided interpretation of Morris. AAU maintains the trial court (J. Velasco) erroneously failed to follow one of its pretrial orders and thereby allowed Intervenors to obtain a favorable ruling on coverage despite not having proven an "insured event."
In December 1999, after extensive briefing and argument, the trial court issued a formal pretrial order on the "issues to be tried" in phase I. In that order, the trial court stated that Intervenors had "the burden to prove," inter alia, "the happening of an insured event." The court also stated that, in order to prove an "accident" or "
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