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California Casualty Insurance Co. v. State Farm Mutual Automobile Insurance Co.2/27/1996
primary insurer's escape from its contractual duties. The primary carrier is not entitled to avoid or reduce its defense costs based on the fortuity of excess coverage and at the expense of the excess carrier. Requiring the primary insurer to continue its defense induces the primary carrier to cooperate with the excess insurer in settling any claim that implicates the excess coverage. At the same time, it does not place the excess carrier in an unfairly superior bargaining position.
Continental Casualty Co. v. Farmers Ins. Co., 180 Ariz. 236, 883 P.2d 473 (App. 1994) admittedly says otherwise, but in that case the court did not consider the effect of a covenant on the insured, the economic incentives created by allowing primary carriers to shift the defense to excess carriers, or the requirement that the duty to defend be defined by the insurance policy. In addition, the assertion in that decision that a covenant is "as complete" as a settlement as the primary carrier could obtain, id. at 239, 883 P.2d at 476, is incorrect. When a claim is settled for less than policy limits, the primary carrier can obtain a complete release. When a claim exceeds the policy limits, the primary and excess carriers can participate in a full settlement, again obtaining a complete release.
For these reasons, I cannot fully concur in the majority opinion.
Jefferson L. Lankford, Judge
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