2.6 Duty to Cooperate

JurisdictionArizona

[531]

Standard insurance policies require the insured to cooperate with and to aid the carrier in the defense of the claim being asserted against the insured. This assistance is required by the policy's "cooperation" clause.[532] Insurance carriers insert cooperation clauses into their policies to protect the carrier's right to a fair adjudication of the insured's liability and to prevent collusion between the insured and the injured claimant.[533]

A cooperation clause in an insurance policy, when properly drafted, will ordinarily relieve the carrier of its duty to indemnify a non-cooperative insured.[534] The terms of the cooperation clause will be enforced despite its adhesive nature unless it is inequitable to enforce it.[535] The insured cannot unreasonably decline to assist the carrier in making a legitimate defense to the claim and the insured's refusal to assist in asserting a valid defense will excuse the carrier from liability under its policy.[536] However, "cooperation" does not require the insured to assist the carrier in presenting a sham defense.[537] The court in Royal Indemnity Co. v. Morris[538] made the following observation about the insured's obligation to participate in questionable litigation: "[The insured] is not to be a mere puppet in the hands of the insurer; he is under no obligation to permit a sham defense to be set up in his name, nor can he be expected to verify an answer which he does not believe to be true."[539] The insured is not required to yield to any demand entailing violation of any law or ethical principle.[540] Cooperation does not require the insured to become hostile to the claimant.[541] However, the insured is required to give the carrier full, fair, and frank disclosure of all information reasonably requested by the carrier to enable the carrier to determine whether there is a genuine defense to the claim.[542] Cooperation does not require abstract conformity to ideal conduct.[543]

It is the carrier's burden to establish the insured's breach of the policy's cooperation clause.[544] The carrier must show that the insured failed to cooperate in a substantial and material way.[545] A technical or inconsequential lack of cooperation is insufficient to result in a policy forfeiture.[546]

In Baumler v. State Farm Mutual Automobile Insurance Co.,[547] the court delineated the elements required to establish a breach of the policy's cooperation clause:

Proof of noncooperation requires establishing at least two elements: (1) that the insured in bad faith refused or neglected to cooperate with the [carrier]; and (2) that the noncooperation caused substantial prejudice to the [carrier's] preparation of a defense to a claim lodged against the insured.[548]

"Cooperation" implies a reciprocal duty of good faith attaching to both the carrier and the insured.[549] "The problem of non-cooperation has a dual aspect: not only what the assured failed to do, but what the insurer on its part did to secure co-operation from an apathetic, inattentive . . . policy holder."[550] The carrier has a "duty to exercise reasonable diligence to secure the assistance of the insured," including making a reasonable request for such assistance.[551] Where the insured is an additional insured and not a named insured, the carrier must prove that the insured knew of the insurance coverage, and that the carrier used reasonable efforts to locate the insured and to apprise her of the existence of the policy and its conditions.[552]

As part of its proof of prejudice, the carrier must make a good faith demonstration that the insured's failure to cooperate hampered the carrier in defending the claim.[553]

The court in Arizona Property & Casualty Insurance Guaranty Fund v. Helme,[554] held that where a party to an insurance contract repudiates its contractual obligations on the basis of an erroneous interpretation of the contract, that party has committed an anticipatory breach.[555] "[O]nce an insurer breaches any duty to its insured, the insured is no longer fully bound by the cooperation clause."[556] While the carrier's anticipatory repudiation may narrow the scope of the cooperation clause, it does not eliminate the insured's duty of cooperation. The court stated:

We do not hold that the insurer's anticipatory repudiation eliminates the insured's duty of cooperation so that the insured may enter into any type of agreement or take any type of action that may protect him from financial ruin. We hold only that once the insurer commits an anticipatory breach of its policy obligations, the insured need not wait for the sword to fall and financial disaster to overtake. The insurer's breach narrows the insured's obligations under the cooperation clause and permits him to take reasonable steps to save himself. Among those steps is making a reasonable settlement with the claimant.[557]

The court in Helme concluded that the insured...

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