2.2.3.3 Procedural Issues Regarding Determination of Reasonableness
Jurisdiction | Arizona |
In Morris, the court did not delineate the type of proceeding courts would utilize to assess the reasonableness of the settlement or judgment amount, i.e., default hearing, garnishment or through a declaratory judgment action.
A common scenario arises when the Damron-type agreement is entered and as a condition of the agreement the answer which had previously been filed on behalf of the insured is withdrawn and a default is thereafter taken against the insured. Two options are then available: (1) present a stipulation for entry of judgment to the court in the default proceedings, or (2) proceed forward with a default hearing under Arizona Rules of Civil Procedure, Rule 55(b)(2). The default process authorizes the court to enter judgment or, where necessary, "to take an account or to determine the amount of damages or to establish the truth of any averment by evidence or to make an investigation of any other matter. . . .[318] The court is authorized to conduct "such hearings or order such references as it deems necessary and proper"[319] for the administration of justice and the adjudication of judgment. Moreover, Rule 55(b)(2) requires the court to "accord a right of trial by jury to the parties when required by law."[320]
In Waddell v. Titan Ins. Co.,[321] the insurance company was given a time limit demand to pay policy limits in a catastrophic injury case. The time limit for accepting the policy limits settlement offer expired. Later, the insurance company attempted to offer the policy limits but the claimants refused. Plaintiffs filed suit against the insured tortfeasors. The insurance company retained counsel to represent and defend them. The insured tortfeasors were being defended unconditionally by the insurance company until a default agreement was reached between the plaintiffs and the insured tortfeasor. Plaintiffs claimed that the insurance company, by not settling the plaintiffs' claim for policy limits when it had the opportunity to do so, breached its duty to give equal consideration to the interests of its insured and to its own interests. Plaintiffs proposed a default agreement to the insured tortfeasor which was accepted. The insured tortfeasor agreed to withdraw his answer, allow a default to be taken against him, and assigned any rights he had against the insurance company to plaintiffs. In return, plaintiffs agreed not to execute on the anticipated judgment against the insured tortfeasor's personal assets.
In Waddell the insurance company requested, and was granted, leave to intervene prior to the default hearing on damages. In addition to contesting damages, the insurance company sought to present evidence at the damages hearing regarding liability and comparative fault issues. The insurance company claimed that there was a dispute whether the insured tortfeasor was driving the car at the time of the accident. The insurance company also asserted plaintiffs' comparative fault in failing to wear seat belts and in getting into the car after all three individuals had been drinking. In support of its request to present evidence on these issues, the insurance company referenced the Arizona Supreme Court's explanation in Morris that determining the reasonableness of a settlement agreement "involves evaluating the facts bearing on the liability and damage aspects of claimant's case, as well as the risks of going to trial."[322] The plaintiffs argued, and the court agreed, that the insurance company should be limited to contesting only the damages to be awarded.
The Arizona Court of Appeals noted that while the insurance company was arguing that the damages hearing had been expanded or transformed into a "reasonableness hearing" as contemplated under Morris, it was incumbent upon the insurance company intervenor to either move to amend the pleadings or to file additional pleadings...
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