3.5.4 Fund Immunity

• Jurisdiction: Arizona

The Arizona Legislature granted the Fund immunity from prosecution by enacting A.R.S. Sec. 20-675(A), which provides that the Fund shall have no liability and no cause of action shall arise against any member carrier, the Fund's board, or its agents or employees "for any action taken in the performance of their powers and duties pursuant to [A.R.S. Sec. 20-661 et seq.]." The immunity granted to the Arizona Insurance Guarantee Association under the original act was broader than the immunity granted to the Fund (and its representatives) in 1977 when the Fund was established. Under the original act, no liability or cause of action "of any nature" could arise against the Association or its agents and employees for any action taken by them in the performance of their powers and duties.^[285]

When the Fund was created in 1977, the legislature eliminated the "of any nature" language that appeared in the immunity clause of the original act, raising a question whether it intended to narrow the scope of immunity granted to the Fund's board, agents, and employees acting in their individual capacities. This question may be inferentially answered by the legislature's enactment of the indemnification provisions of A.R.S. Sec. 20-675(B), which were not part of the immunity clause of the original act. Under A.R.S. Sec. 20-675(B), the Fund's board, agents, and employees will be indemnified "against all expenses incurred in the defense of any action, suit or proceeding [i.e.], brought . . . on account of any action taken in the performance of [their] powers and duties . . . ." However, if such persons are "finally adjudged to have committed a breach of duty involving gross negligence, bad faith, dishonesty, wilful malfeasance or reckless disregard of the responsibilities of his or her office," the Fund will not provide indemnification.

When the immunity and indemnification principles of A.R.S. Sec. 20-675(A) and (B) are harmonized, it appears that the Fund has absolute immunity from suit while individual board members, agents, and employees of the Fund may not be immunized from suit if they act willfully in violation of their appointed duties.

In Wells Fargo Credit Corp. v. Arizona Property & Casualty Insurance Guaranty Fund,^[286] the court held that A.R.S. Sec. 20-675 immunized the Fund from tort claims such as bad faith and misrepresentation, reasoning in part that the legislature had not provided a method for the Fund to charge its member insurers in order to fund such...