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Mutual Insurance Co. v. Bodnar5/31/1990
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The above-quoted letters demonstrate that Bodnar's counsel was attempting to find out the basis for MICA's insistence upon defending under a reservation of rights even if the default judgment were set aside without cost to MICA and the question of prejudice caused by a late notice was no longer a factor. The letters make it equally clear that MICA refused to explain any basis for continuing to defend under a reservation of rights, presumably because it could articulate no prejudice stemming from Bodnar's failure to give timely notice of the action if the default were set aside. We can think of none.
MICA has argued that because it was defending under a reservation of rights, Bodnar was free to negotiate with Goglia and settle on reasonable terms without MICA's participation. See United Services Auto. Ass'n v. Morris, 154 Ariz. 113, 119, 741 P.2d 246, 252. However, this argument overlooks the fact that Bodnar was not negotiating a settlement of the lawsuit. Rather, he was attempting to negotiate an agreement to set aside a default which would permit the case to be tried on the merits. As a practical matter, Bodnar's ability to obtain Goglia's consent would be affected by Goglia's evaluation of any coverage defenses that MICA intended to assert. Indeed, the letter from MICA's counsel to Bodnar's counsel states that MICA intended to scrutinize any agreement that Bodnar would make with Goglia as possible grounds for asserting non-coverage.
MICA made no suggestions or alternative proposals which would allow Bodnar to eliminate the claimed prejudice resulting from Bodnar's delay in giving notice of the lawsuit. It had not previously identified any grounds other than the delay in notice as a basis for its reservation of rights. It refused to do so in response to Bodnar's specific requests. Bodnar did not ask MICA to forgo any later discovery of collusion or other policy violations by Bodnar. In any event, MICA could not have been estopped to deny coverage for later discovered policy violations. United Services Auto. Ass'n v. Morris, 154 Ariz. at 117, 741 P.2d at 250. See generally 14 Couch on Insurance 2d ยง 51:88 (rev. ed. 1982). MICA acted in a manner most likely to absolve it from all liability under its policy coverage and to deprive Bodnar of the benefits for which he purchased the insurance. We conclude that MICA's conduct in these circumstances estops it from asserting that it was prejudiced as a result of the default judgment by its obstructive behavior hampering its insured from having that default judgment set aside.
Because we reverse the judgment based on MICA's conduct in failing to assist Bodnar's efforts to negotiate setting aside the default judgment, we do not consider Bodnar's claim that there were issues of fact with respect to whether his delay in notifying MICA of the lawsuit was excusable.
We reverse summary judgment in favor of MICA and remand to the trial court with directions to enter judgment finding that MICA is responsible for defending and indemnifying Bodnar in Goglia v. Bodnar, Maricopa County Cause No. C-530579. Bodnar has requested attorneys' fees based on A.R.S. section 12-341.01(A) both for the trial and on appeal. We direct the trial court to reconsider Bodnar's request for attorneys' fees in light of this decision. We grant Bodnar his attorney's fees on appeal pursuant to A.R.S. section 12-341.01(A).
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