6.8 Incontestability

• Jurisdiction: Arizona

Under Arizona's Financial Responsibility Act, no violation of a motor vehicle liability policy term or condition by an insured can result in a forfeiture of coverage after any injury or damage covered by the motor vehicle liability policy occurs. A.R.S. Sec. 28-4009(C)(5)(a) provides:

C. A motor vehicle liability policy:

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5. Is subject to the following provisions that are required to be in the policy:

(a) The liability of the insurance carrier with respect to the insurance required by this chapter becomes absolute when injury or damage covered by the motor vehicle liability policy occurs. The policy may not be cancelled or annulled as to that liability by an agreement between the insurance carrier and the insured after the occurrence of the injury or damage, and a statement made by the insured or someone on the insured's behalf or a violation of the policy shall not defeat or void the policy.

Because the insurance company's liability is absolute, the insured's failure to notify the insurance company, as required by the policy, that a lawsuit has been instituted and a default judgment entered against the insured will not void coverage.^[138] The insured's failure to cooperate with the insurance company's investigation of a claim, or in defending the claim, will not result in a coverage forfeiture.^[139] Fraudulent misrepresentations material to the insurance company's acceptance of the risk will not result in a forfeiture of coverage if discovered after an otherwise covered motor vehicle accident has taken place.^[140]

Notwithstanding the provisions of A.R.S. Sec. 28-4009(C)(5)(a), which limits the insurance company's absolute liability "to the insurance required by this chapter"-minimum limits of $15,000 per person/$30,000 per accident, the supreme court in Sandoval v. Chenoweth^[141] found this language and the language of former A.R.S Sec. 28-1170(G) (now Sec. 28-4009(D)) to be ineffectual in limiting coverage to the minimum amount required.^[142] Therefore, the full policy limits will be available.

A.R.S. Sec. 28‑4009(C)(5)(a) precludes an automobile liability insurer from avoiding coverage as to injured third parties even though the automobile policy providing coverage was procured by the insured's deliberate and material misrepresentations in the insurance application.^[143] The provisions of A.R.S. Sec. 28-4009(C)(5)(a) supercede the provisions of A.R.S. Sec. 20-1109 in the context of automobile liability insurance once an accident has occurred...