3.5.3 Fund's Rights, Obligations, and Duties

• Jurisdiction: Arizona

The general powers and duties of the Fund are set forth in A.R.S. Sec. 20-664. The Fund is authorized to investigate claims brought against the Fund and to "adjust, compromise, settle and pay covered claims to the extent of the fund's obligation."^[271] The Fund is authorized to negotiate and become a party to such contracts as are necessary to terminate the Fund's obligation.^[272] The Fund is empowered to deny all non-covered claims.^[273]

The Fund has statutory discretion to "defend and appeal any action on a claim brought against the fund."^[274] The Fund may also initiate litigation to determine its obligations.^[275]

The Fund has statutory authorization to seek a stay of proceedings brought against the insured of the insolvent carrier for an initial period of up to 6 months.^[276] This power to stay judicial proceedings is limited in scope.^[277]

When the Fund participates in a covered claim, it steps into the same position held by the insolvent carrier, with the same rights, duties, and obligations that the insolvent carrier had under its policy.^[278] Thus, the Fund owes the insured of the insolvent carrier three duties: (1) to indemnify where a covered claim is involved; (2) to defend; and (3) to treat settlement proposals with equal consideration.^[279] The insured, under the terms of standard insurance policies, has a duty to cooperate with the Fund.^[280] This section will not rehearse for the reader the scope of the above duties as they have been defined by the Arizona courts.

In A.H. v. Arizona Property & Casualty Insurance Guaranty Fund,^[281] the Arizona Supreme Court described the nature of the Fund and its relationship with the insured and the insolvent insurer:

Sections 20-661 to 20-680 obligate the Fund to step into the shoes of insolvent insurers and adjust, compromise, settle, and pay covered claims that arise under insurance contracts. It may also deny claims, and defend and indemnify as necessary. See Section 20-667(C) ("The Fund is deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all the rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent."). As we recognized in [Arizona Property & Casualty Ins. Guaranty Fund v.] Herder, [156 Ariz. 203, 751 P.2d 519 (1988),] however, the rights and obligations of an insolvent insurer and the Fund are not absolutely coextensive but are limited by the statute. 156 Ariz. at 205 n.3, 751 P.2d at 521 n.3 ("[T]he...