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California Casualty Insurance Co. v. State Farm Mutual Automobile Insurance Co.2/27/1996
Opinion
SULT, Judge
Excess liability insurance carrier State Farm Mutual Automobile Insurance Company ("State Farm") appeals from summary judgment declaring that primary carrier California Casualty Insurance Company ("CalCasualty") was not required to reimburse State Farm for attorney's fees and costs it expended in defending a claim against the insured driver because CalCasualty had paid the full amount of its policy limits to a personal injury claimant. The appeal requires us to resolve these issues arising out of the trial court's rulings:
1. whether the language of CalCasualty's policy relieved it of a continuing responsibility to defend the insured driver once it had paid its policy limits to the tort claimant;
2. whether the agreement in exchange for which CalCasualty paid its policy limits to the tort claimant evidenced full compliance by CalCasualty with its contractual duty to defend the insured driver; and
3. whether the doctrine of equitable subrogation did not apply to support State Farm's claim against CalCasualty for reimbursement of defense costs.
Facts and Procedural Background
There is no dispute about the facts revealed by the record. CalCasualty insured a 1980 Subaru Station Wagon owned by Ben Campbell. The policy provided liability limits of $100,000 per person. On November 9, 1989, with the owner's permission, one James Wilson was driving the Subaru with Kristine Campbell and Craig Campbell as his passengers. Wilson was also the named insured under his own automobile liability policy issued by State Farm which had liability limits of $100,000 per person.
With Wilson at the wheel, the Subaru was involved in an accident in which Kristine Campbell was injured. Campbell claimed that Wilson was at fault. Both CalCasualty's and State Farm's policies provided liability coverage for Wilson for claims arising out of the accident. Pursuant to Ariz. Rev. Stat. Ann. (A.R.S.) section 28-1170.01(B) (1989), CalCasualty's policy was deemed to provide primary coverage, while State Farm's policy was deemed to provide excess coverage.
Before Kristine Campbell commenced any litigation against Wilson, CalCasualty entered into settlement negotiations with her through her attorney, Lorin Tobler. On May 18, 1990, Tobler made the following proposal to CalCasualty adjuster Matt Tokasey:
Accordingly, as per our telephone conversation, demand is hereby reaffirmed in the full amount of your policy limits which I understand to be $100,000. . . .
In exchange for the payment of your liability policy limits our client agrees to release your company as to its liability coverage and to release James Wilson as to any personal liability he may have above and beyond any applicable insurance coverages. It is our intent to pursue any other insurance coverages which may be applicable to Mr. Wilson's liability for our client's injuries. Accordingly, if you have not agreed to pay your policy limits by June 2, 1990, we will proceed immediately with litigation.
Tokasey thereafter prepared a "Release of All Claims" on a standard form, by which Kristine Campbell and her husband would release all claims against James Wilson, Ben Campbell and his wife Janet, and CalCasualty in return for $100,000. This release, however, was not executed as prepared.
In his deposition taken after commencement of these proceedings, Tokasey indicated his agreement with the following statement by attorney Tobler:
I [Tobler] personally came to pick-up the settlement check and release on or about the 23rd of May, 1990. At that
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