2.7 Cooperation and Consent to Settlement Clauses [NEW]

• Jurisdiction: Arizona

The principal purpose of policy cooperation and consent to settle clauses are to prevent collusion between the insured and third parties and to restrain the insured from materially prejudicing the insurance companies' rights.^[569] Indeed, the Arizona courts recognized the validity of insurance policy cooperation clauses.^[570] A breach of the insurance policy's cooperation clause forfeits coverage under Arizona law.^[571]

Cooperation clause compliance is supported by the implied covenant of good faith and fair dealing, which is implied by Arizona law and imputed into all insurance policies governed by Arizona law.^[572] The duty of good faith and fair dealing governs the discharge of contractual responsibilities for both the insurance company and the insured. The mutuality of this duty was recognized by the Arizona Supreme Court in Rawlings v. Apodaca.^[573] One of the rights in favor of the insurance company under its policy is that its insured will abide by the policy terms and conditions and not enter into an unauthorized settlement with a third-party claimant before even a lawsuit was filed against the insured. Most policies contain consent to settlement clauses, which require the insured to receive the permission of the insurance company...