Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-01149/USCOURTS-azd-2_07-cv-01149-2/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

AMERICAN CASUALTY COMPANY

OF READING, PENNSYLVANIA, a

Pennsylvania Company, 

Plaintiff, 

vs.

VALERIE A. KEMPER; JOHN DOE

KEMPER, 

Defendants. 

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No. CV-07-1149-PHX-GMS

No. CV-07-1520-PHX-GMS

(Consolidated)

ORDER

Pending before the Court is the Motion for Reasonableness Hearing of Plaintiff

American Casualty Company of Reading, Pennsylvania. (Dkt. # 57.) For the following

reasons, the Court grants the motion in part and schedules oral argument on the jury right

issue.

This case is a result of the settlement of litigation between Defendant Valerie Kemper

and Kathleen Bynum, a clinical/rehabilitation counselor, who was insured by Plaintiff

American Casualty for professional and workplace liability. In the prior lawsuit, Kemper

made a defamation claim against Bynum, and the parties eventually settled the claim

pursuant to a Morris Agreement. Bynum stipulated to a judgment amount on the defamation

claim in exchange for Kemper’s agreement not to record or execute the judgment against

Case 2:07-cv-01149-GMS Document 63 Filed 05/08/09 Page 1 of 4
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Bynum. Bynum then assigned her rights and claims under the American Casualty insurance

policy to Kemper.

American Casualty subsequently filed this lawsuit, seeking a declaratory judgment

that it was not required under the policy to defend or indemnify Bynum for the defamation

claim. (Dkt. # 1.) Kemper also filed suit against American Casualty, asserting claims of

breach of contract and breach of the duty of good faith and fair dealing. (Consolidated Case

No. CV-07-1520-PHX-GMS at Dkt. # 1 Pt. 3.) Plaintiff now moves for a hearing to

determine the reasonableness of Defendants’ Morris Agreement. (Dkt. # 57.) 

On February 26, 2009, the Court ruled that American Casualty had not disqualified

itself from requesting a reasonableness hearing. (Dkt. # 46 at 5.) Therefore, to the extent

that Plaintiff’s motion is simply requesting a reasonableness hearing on the Morris

Agreement, the motion is granted. In their Response, however, Defendants request that the

hearing be conducted as part of the jury trial and contend that the issue of reasonableness is

subject to a jury right. (See Dkt. # 61 at 2-3.) In support of their position, Defendants cite

only to Article 6 Section 17 of the Arizona Constitution, Arizona Rule of Civil Procedure 38,

and two Arizona cases, none of which assist the Court in deciding whether a reasonableness

hearing is subject to a jury right in federal court. (See id.) Article 6 Section 17 of the

Arizona Constitution and Arizona Rule of Civil Procedure 38 are merely general provisions

which provide for a jury right when provided for in the Arizona Constitution and otherwise

do not speak to whether a jury right exists for a reasonableness hearing. In Himes v. Safeway

Insurance Company, one of the cases cited by Defendants in support of their request, the

Arizona Court of Appeals expressly declined to address whether a reasonableness hearing

is subject to a jury right. 205 Ariz. 31, 36, 66 P.3d 74, 79 (Ct. App. 2003) (“[W]e do not

wish to appear to decide the issue of whether a reasonableness hearing can only be conducted

before a trial judge or if it is subject to the constitutional or other provisions providing for

a jury determination. That issue has not been addressed in this case.”) (citations omitted).

In its Reply, Plaintiff correctly argues that federal law governs whether a party in a

federal diversity proceeding is entitled to a jury trial on the reasonableness issue. (Dkt. # 62

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at 2-3); see Granite State Ins. Co. v. Smart Modular Tech., Inc., 76 F.3d 1023, 1026-27 (9th

Cir. 1996) (“In a diversity action, federal law governs whether a party is entitled to a jury

trial and if so, on what issues.”). Plaintiff contends that, under federal law, the

reasonableness issue is not subject to a jury right and requests that the Court schedule a

hearing, with the Court as the trier of fact, prior to the jury trial on Defendants’ claims

because “the parties are unable to engage in any meaningful settlement negotiations without

a decision as to the reasonableness of the settlement agreement in the underlying case.” (Dkt.

# 62 at 8.) Plaintiff contends that judicial economy will be served by proceeding with the

reasonableness hearing prior to trial. (Id.) 

While a reasonableness hearing may assist the parties in settlement negotiations, it

would not obviate the need for trial on any of the other issues in this case and therefore may

not result in a more efficient process. Should a jury render a verdict on the coverage issue

in favor of Plaintiff, a reasonableness hearing would be unnecessary. In that eventuality,

conducting a hearing prior to trial would prove much more inconvenient and would

needlessly delay final resolution of the case. Therefore, the Court declines to schedule a

reasonableness hearing before trial in this case. 

The Court, however, will provide the parties an opportunity to argue whether

Defendants have a right to a jury trial on reasonableness on May 21, 2009 at 2:00 p.m. The

Court will thereafter determine whether it will conduct a jury trial in multiple phases or

conduct a reasonableness hearing to the Court if the jury finds liability.

 IT IS THEREFORE ORDERED that the Motion for Reasonableness Hearing of

Plaintiff American Casualty (Dkt. # 57) is GRANTED IN PART.

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IT IS FURTHER ORDERED setting oral argument for May 21, 2009 at 2:00 p.m.

in Courtroom 602. The parties are directed to focus their argument on whether a

reasonableness hearing is subject to a jury right in federal court. Additionally, the parties are

directed to provide the Court with the citations to any case law relevant to this determination.

DATED this 7th day of May, 2009.

Case 2:07-cv-01149-GMS Document 63 Filed 05/08/09 Page 4 of 4