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Associated Aviation Underwriters v. Wood9/29/2004
underlying tort case," in which the insurer was not a party, "the insurer can litigate them in the coverage case." AAU contends the trial court (J. Velasco) erred in finding coverage based merely on its application of Morris and collateral estoppel. The finding of coverage was erroneous, AAU argues, because "Intervenors never introduced testimony of a specific causal connection between TCE exposure and any Intervenor's disease, never presented proof of actual injury..., and never presented proof of a specific value of any individual claim."
According to AAU, Morris 's "true rule" is that,
Whatever may have happened in the tort case between plaintiff and the insured, in which the insurer was not a party, has no effect to establish coverage in a subsequent action against the insurer.... In such a case the claimant must prove all the elements of coverage. He must prove an "insured event."
And, AAU argues, " roof of an insured event required proof of (1) an accident, (2) for which TAA would be liable, (3) occurring and producing injury during the policy period." Because Intervenors failed to establish an "insured event," AAU further argues, it is entitled to reversal and a directed judgment in its favor.
Intervenors' position, of course, is different. They argue the Morris agreement and consent judgment established all the elements of TAA/City's legal liability and, accordingly, also established those elements as they pertain to whether AAU's policies covered Intervenors' claims against TAA/City. Intervenors thus maintain the trial court (J. Velasco) was correct when it essentially determined that collateral estoppel bars AAU from litigating liability issues as part of its coverage defense in this DRA. According to Intervenors,
Morris provides that issues essential to an agreed judgment entered in the context of a Morris settlement must be given the same binding, collateral estoppel effect as if the judgment in the underlying tort action had been entered after a fully litigated trial -- subject only to a judicial determination that the settlement is reasonable and non-collusive.
To not give Morris agreements such binding effect, Intervenors argue, "would undercut the entire policy basis underlying the [ Morris ] decision," because "any plaintiff who reaches a Morris agreement with a defendant in an underlying tort action must then prove both a coverage case and the same underlying tort case in order to have that agreement enforced."
The starting point for our analysis is Morris, inasmuch as both sides agree that case "is controlling and its ruling is clear." There, John Morris filed a tort action against two of United Services Automobile Association's (USAA) insureds, alleging he had been injured by their gross negligence and recklessness. After USAA reserved its right to contest coverage under its policy, its insureds entered into an agreement with Morris whereby they agreed to having a money judgment entered against them, to be collected solely from USAA, in exchange for Morris's promise not to execute against their personal assets. Our supreme court examined two issues on review: (1) whether insureds defended under a reservation of rights can enter into such settlement agreements without breaching their insurance policy's cooperation clause, and (2) if so, the extent to which such agreements bind the insurer in a subsequent coverage dispute. See 154 Ariz. at 117, 741 P.2d at 250.
In first finding settlement agreements between insureds and injured third-party tort claimants valid, the court held that the cooperation clause prohibition against [an insured] settling without the insurer's consent forbids an in
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