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Hartford Accident & Indemnity Co. v. Aetna Casualty & Surety Co.5/29/1990
I. JURISDICTION
Hartford Accident & Indemnity Company petitioned this court for transfer from the court of appeals pursuant to Rule 19(a)(1), 17B A.R.S. Civil Appellate Procedure
Rules, claiming that Universal Underwriters Ins. Co. v. Dairyland Mut. Ins. Co., 102 Ariz. 518, 433 P.2d 966 (1967), a decision of this court, should be overruled. We granted the petition due to confusion in this area of the law, and because an issue of statewide interest is presented. We have jurisdiction under Ariz. Const. art. 6, § 5(3) and A.R.S. § 12-120.24.
II. ISSUE
We decide only one question on appeal:
May an excess insurance carrier, under the doctrine of equitable subrogation, assert a claim against a primary insurance carrier for bad faith failure to settle within primary policy limits?
III. FACTS
Jamie Hart was insured under an automobile liability policy issued by Aetna Casualty & Surety Company (Aetna) with a policy limit of $25,000. Hartford Accident & Indemnity Company (Hartford) provided Hart with excess coverage through a policy issued to Hart's employer, Wendy's International, Inc. The Hartford policy covered Wendy's employees driving their own automobiles in the course of their employment.
In May 1985, Hart was involved in an automobile accident with Bradley Harris while Hart was on an errand in the scope and course of her employment. The accident was reported to Aetna, the primary insurer, and a claims file was opened with a personal injury reserve of $2,500 set on the case. After an investigation, Aetna claims representative Erin Lewers determined that Hart failed to yield the right-of-way to Harris and that Aetna therefore should provide coverage.
Prior to trial Harris made several settlement offers. The first of these occurred in November 1985, and was for $10,491.75. Aetna rejected this settlement offer and offered $1,200, then $1,500, both of which were rejected by Harris. Sometime prior to June 1986, Harris offered to settle for $2,500, then for $2,100. However, both offers were withdrawn before being accepted.
In February 1986, Aetna informed a Wendy's staff attorney that the claim appeared to be worth less than the primary policy limits and that Aetna would let the attorney know if it appeared excess exposure would result. No further communication concerning the claim occurred between Aetna, Wendy's and Hartford until judgment was entered in Harris v. Hart. (Brief for Appellant at 13.)
In June 1986, the attorney Aetna hired to defend Hart advised Aetna that, in his opinion, the verdict potential in the case was between $5,000 and $10,000. On June 18, Aetna's claim representative valued Harris's claim at $2,000. On 31 July 1986, Aetna's claim representative made a note to increase the reserve on the file to $6,000.
In August 1986, Aetna offered Harris $3,500 to settle the case. Harris counter-offered for $10,000. On 30 September 1986, Aetna raised the offer to $4,200 after an orthopedic surgeon retained by Aetna to evaluate Harris's condition reported that Harris had a 5% permanent impairment due to injury of the left lateral femoral cutaneous nerve.
A second evaluation of Harris indicated he had a current orthopedic problem with associated pain. Hart's attorney then reported to Aetna that, in his opinion, the verdict potential was between $10,000 and $20,000.
On 13 November 1986, a final review of the file was completed before tri
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