Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-02237/USCOURTS-azd-2_07-cv-02237-0/pdf.json

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

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

American Family Mutual Insurance Co., a

Wisconsin corporation, 

Plaintiff, 

vs.

National Fire & Marine Insurance Co., a

foreign corporation; et al, 

Defendants. 

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No. CV07-2237-PHX-NVW

ORDER

[Not for Publication]

Pending before the Court is Defendant American Safety Indemnity Company’s

Motion for Summary Judgment (Phase One) (doc. #467).

A party moving for summary judgment must “file a statement, separate from the

motion and memorandum of law, setting forth each material fact on which the party relies

in support of the motion.” LRCiv 56.1(a). Any party opposing a motion for summary

judgment must file a separate statement responding to each paragraph of the moving

party’s separate statement of facts and setting forth any additional facts that establish a

genuine issue of material or otherwise preclude judgment in favor of the moving party. 

LRCiv 56.1(b). LRCiv 56.1(d) permits the moving party to file a “reply memorandum,”

but does not permit the moving party to file a separate statement responding to the

nonmoving party’s separate statement. Any evidentiary objections to the nonmoving

party’s separate statement may be included in the reply memorandum, but may not be

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made in a separate statement. Therefore, the Court disregards and does not rely upon

Defendant American Safety Indemnity Company’s Response to Plaintiff’s Separate

Statement of Facts (doc. #552).

I. Legal Standard for Summary Judgment

The Court should grant summary judgment if the evidence shows there is no

genuine issue as to any material fact and the moving party is entitled to judgment as a

matter of law. Fed. R. Civ. P. 56(c). The moving party must produce evidence and

persuade the Court there is no genuine issue of material fact. Nissan Fire & Marine Ins.

Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). To defeat a motion for

summary judgment, the nonmoving party must show that there are genuine issues of

material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A material fact

is one that might affect the outcome of the suit under the governing law. Id. at 248. A

factual issue is genuine “if the evidence is such that a reasonable jury could return a

verdict for the nonmoving party.” Id.

 The party seeking summary judgment bears the initial burden of informing the

court of the basis for its motion and identifying those portions of the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, which it believes demonstrate the absence of any genuine issue of

material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The nature of this

responsibility varies, however, depending on whether the moving party or the nonmoving

party would bear the burden of proof at trial on the issues relevant to the summary

judgment motion. If the nonmoving party would bear the burden of persuasion at trial,

the moving party may carry its initial burden of production under Rule 56(c) by

producing “evidence negating an essential element of the nonmoving party’s case,” or by

showing, “after suitable discovery,” that the “nonmoving party does not have enough

evidence of an essential element of its claim or defense to carry its ultimate burden of

persuasion at trial.” Nissan Fire, 210 F.3d at 1105-06; High Tech Gays v. Defense Indus.

Sec. Clearance Office, 895 F.2d 563, 574 (9th Cir. 1990). 

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When the moving party has carried its burden under Rule 56(c), the nonmoving

party must produce evidence to support its claim or defense by more than simply showing

“there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co.

v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Where the record, taken as a whole,

could not lead a rational trier of fact to find for the nonmoving party, there is no genuine

issue of material fact for trial. Id. 

In the context of summary judgment, the court presumes the nonmoving party’s

evidence is true and draws all inferences from the evidence in the light most favorable to

the nonmoving party. Eisenberg v. Ins. Co. of North America, 815 F.2d 1285, 1289 (9th

Cir. 1987). If the nonmoving party produces direct evidence of a genuine issue of fact,

the court does not weigh such evidence against the moving party’s conflicting evidence,

but rather submits the issue to the trier of fact for resolution. Id.

However, each numbered paragraph of the moving party’s separate statement of

facts shall be deemed admitted for purposes of the motion for summary judgment if not

specifically controverted by a correspondingly numbered paragraph in the opposing

party’s separate statement of facts. LRCiv 56.1(b).

II. Facts Undisputed or Presumed True for Summary Judgment

Astragal, L.L.C. (“Astragal”) was the developer of the project commonly known

as Astragal Luxury Villas at Thompson Peak located in Maricopa County, Arizona

(“Villas”). Astragal entered into a contract with George F. Tibsherany Development

Company (“GFTDC”) to serve as the general contractor for the Villas. GFTDC entered

into a subcontract agreement with Structures, Inc. (“Structures”), among others, to

perform work at the Villas. The subcontract required Structures to maintain specifically

described insurance coverage and to cause all its insurance companies to name GFTDC as

an additional insured on all insurance policies required under the subcontract. A

Certificate of Liability Insurance dated June 18, 2003, was issued to GFTDC showing

Structures was insured by “American Safety Indemnity c/o CRC, Chicago” and

“American States/Safeco, CA office.” 

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“You” in the Policies refers to Structures.

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American Safety Indemnity Company (“American Safety”) is a surplus lines

insurance carrier, a non-admitted insurance company, which placed the Policies with

Structures through CRC of Illinois, Inc. (“CRC”), a designated surplus lines broker

authorized to place insurance in the State of Arizona. The Producer Agreement between

American Safety and CRC grants CRC limited authority to issue Certificates of Insurance

in CRC’s capacity as the representative of CRC’s accounts and clients and not as an agent

or authorized representative of the applicable insurance carriers or American Safety. It

states that CRC “shall have no authority to extend the time for payment of premiums, to

waive or extend any policy obligation or condition, or to incur any liability on [American

Safety’s] behalf, unless such authority is expressly granted to [CRC] by [American

Safety] in writing.” It also provides: “[CRC] shall immediately notify [American Safety]

of any claim of which [CRC] become[s] aware on any policy of insurance, bond or

otherwise, and shall provide [American Safety] with all relevant information of which

[CRC is] aware or subsequently obtain[s] and will provide [CRC’s] full cooperation to

[American Safety] and any insurance carrier in connection therewith.” The Producer

Agreement does not state that CRC has authority to accept tenders of defense or demands

for indemnity on American Safety’s behalf. 

American Safety issued three commercial general liability policies to Structures: 

policy number XGI 02-3188-001, effective June 17, 2002, to June 17, 2003; policy

number XGI 03-3188-002, effective June 17, 2003, to June 17, 2004; and policy number

ESL 001303-04-03, effective June 17, 2004, to June 17, 2005 (collectively “Policies”). 

The Policies include the following provisions:

2. Duties In The Event of Occurrence, Offense, Claim Or Suit

a. You1

 must see to it that we are notified as soon as practicable

of an “occurrence” or an offense which may result in a claim. 

To the extent possible, notice should include:

(1) How, when and where the “occurrence” or offense

took place;

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(2) The names and addresses of any injured persons and

witnesses; and 

(3) The nature and location of any injury or damage

arising out of the “occurrence” or offense.

b. If a claim is made or “suit” is brought against any insured,

you must:

(1) Immediately record the specifics of the claim or “suit”

and the date received; and

(2) Notify us as soon as practicable.

You must see to it that we receive written notice of the claim

or “suit” as soon as practicable.

c. You and any other involved insured must:

(1) Immediately send us copies of any demands, notices,

summonses, or legal papers received in connection

with the claim or “suit”;

(2) Authorize us to obtain records and other information;

(3) Cooperate with us in the investigation or settlement of

the claim or defense against the “suit”; and

(4) Assist us, upon our request, in the enforcement of any

right against any person or organization which may be

liable to the insured because of injury or damage to

which the insurance may also apply.

d. No insured will, except at that insured’s own cost, voluntarily

make a payment, assume any obligation, or incur any

expense, other than for first aid, without our consent.

* * *

ENDORSEMENT – SERVICE OF SUIT CLAUSE

This Endorsement shall not serve to increase our limits of insurance, as

described in SECTION III – LIMITS OF INSURANCE.

It is agreed that the service of process in any “claim” or “suit” on the policy

against American Safety Indemnity Company may be made upon the

highest one in authority bearing the title “Commissioner,” “Director” or

“Superintendent” of Insurance of the state or commonwealth wherein the

policy is issued. The one in authority bearing the title “Commissioner,”

“Director” or “Superintendent” of Insurance of the state or commonwealth

wherein the policy is issued is hereby authorized and directed to accept

service of process on our behalf in any such “claim” or “suit,” provided

such “Commissioner,” “Director” or “Superintendent” has a procedure for

forwarding “claims” and “suits” to insurance companies by registered or

certified mail and agrees to abide by such procedure by mailing via

registered or certified mail all documents so served to American Safety

Indemnity Company at 1845 The Exchange, Suite 200, Atlanta, Georgia

30339. It is further agreed that the insured shall, by registered or certified

mail, send to American Safety Indemnity Company, a copy of all

documents relating to the service of process in the “claim,” or “suit” as the

insured has delivered to the highest one in authority of the Insurance

Department of the state or commonwealth wherein the policy is issued.

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All other terms, conditions and exclusions under the policy are applicable to

this Endorsement and remain unchanged.

* * *

ADDITIONAL INSURED – OWNERS, LESSEES OR CONTRACTORS

(MODIFIED FORM B)

This Endorsement shall not serve to increase our limits of insurance, as

described in SECTION III – LIMITS OF INSURANCE.

Name of Person or Organization: Those parties required to be

named as an Additional Insured in

a written contract with the Named

Insured entered into prior to the

loss or occurrence.

Name of Project: Those projects on file with the

Company. . . . .

In consideration of the payment of premiums, it is hereby agreed that the

following changes are incorporated into the policy:

WHO IS AN INSURED (SECTION II) is amended to include as an insured

the person or organization shown in the Schedule, but only with respect to

liability arising out of “your work” which is performed at the project

designated above. This Endorsement applies only to ongoing operations

performed by the Named Insured on or after the effective date of this

Endorsement.

. . . .

All other terms, conditions and exclusions under the policy are applicable to

this Endorsement and remain unchanged.

Lebaron & Carroll, CDI, is an independent insurance agency that negotiated the

Policies on behalf of Structures and was not an agent of American Safety in this

transaction. Lebaron & Carroll, CDI, issued the Certificate of Liability Insurance to

GFTDC showing Structures was insured by “American Safety Indemnity c/o CRC,

Chicago.”

On October 19, 2004, Astragal Condominium Unit Owners Association (“Astragal

HOA”) filed a lawsuit against Astragal and GFTDC alleging numerous defects in the

construction of the Villas (“HOA Lawsuit”). At all relevant times, GFTDC was insured

under a commercial general liability policy issued by American Family Mutual Insurance

Co. (“American Family”). American Family provided a defense to GFTDC in the HOA

Lawsuit.

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On August 11, 2005, GFTDC filed a third-party complaint in the HOA Lawsuit

against Structures and other subcontractors to recover damages against the subcontractors

to the extent they had failed to perform their scope of work in a workmanlike manner. 

Gust Rosenfeld represented GFTDC in the HOA Lawsuit. Matthew Bedwell, an attorney

at Gust Rosenfeld, provided Gloria Zanella, a legal secretary for Gust Rosenfeld, with a

draft letter to be mailed to each of the subcontractors named as third-party defendants to

GFTDC’s third-party complaint with a copy to each of the insurance companies indicated

on certificates of liability insurance or other insurance documents for each subcontractor. 

In addition to the draft letter, Bedwell provided Zanella with a list of subcontractors

named as third-party defendants and a binder of certificates of liability for the listed

subcontractors. Zanella prepared a letter addressed to each of the subcontractors and

listed the insurance companies indicated on the certificates of liability insurance for each

particular subcontractor as recipients of a copy of the letter.

To obtain addresses for the insurance companies, Zanella researched the Arizona

Department of Insurance website, the internet, and other sources. She then compiled the

insurance companies’ addresses on a document titled “List of Insurer Addresses.” After

obtaining the addresses, Zanella printed a copy of each letter for each of insurance

companies indicated on the letter as a copy recipient. Zanella addressed envelopes for

each insurance company that was copied on one of the letters and enclosed a copy of the

signed letter and enclosures provided by Bedwell. After stuffing the envelopes and

sealing them, Zanella placed the envelopes in the firm’s outgoing mail baskets for postage

to be affixed by mail room employees and for delivery by Central Courier personnel to

the United States Postal Service. She did not arrange for any of the letters to be mailed

by certified or registered mail.

If Zanella was unable to locate an insurance company’s address, a copy was

mailed once the address was obtained. Zanella’s affidavit states, “To my knowledge,

every subcontractor and insurance company carbon copied on the letter was mailed a

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copy.” Her affidavit does not state that she found addresses for all of the insurance

companies.

A letter dated August 17, 2005, was sent to Bob Yost, Structures, that demanded a

defense and indemnity from Structures as well as insurance coverage as an additional

insured under Structures’ insurance policy (“Structures Tender Letter”). The letter states

that Structures was “required to name GFTDC as an additional insured under the policies

issued by American Safety Indemnity, CRC, Chicago, American States/Safaeco [sic], CA

Office, Employers Mutual Companies and General Insurance Company of America.” 

The Structures Tender Letter also states:

Accordingly, please immediately place your insurance carrier on

notice of this claim and further put them on notice that GFTDC will be

looking to them directly as an additional insured for coverage under the

policy in regard to the allegations being presented by the condominium unit

owners association. By copy of this correspondence to your agent and

insurance carrier, we are formally placing them on notice of GFTDC’s

demand for defense and coverage under the terms and conditions of the

policy of insurance noted above and noted in the attached certificate. 

GFTDC formally demands that your insurance carrier respond to this

request for defense and coverage within 20 days. In addition, GFTDC

intends to look to you and your insurance carrier for the payment of all

expenses and costs associated with this defense as it relates to the

allegations from the condominium unit owners association. Please confirm

within 20 days of the date of this correspondence your agreement to defend

and indemnity [sic] GFTDC completely in regard to any and all allegations

being presented.

The Structures Tender Letter indicates a copy was mailed to “American Safety

Indemnity, CRC, Chicago.” However, Gust Rosenfeld’s “List of Insurer Addresses”

includes “American Safety Indemnity, CRC, Chicago,” without any address. Zanella’s

affidavit does not state that she recalls, or has personal knowledge of, finding an address

for American Safety or CRC, addressing an envelope to American Safety or CRC, or

mailing a letter addressed to American Safety or CRC. It does not state that she actually

mailed a copy of the Structures Tender Letter to American Safety or CRC. 

On September 13, 2005, CRC sent to American Safety a First Report of Loss

pertaining to the HOA Lawsuit. The First Report of Loss included the following

attachments: September 6, 2005 Letter from Roberts, Rowley & Chapman, Ltd. to

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Structures, Summons, Certificate of Compulsory Arbitration, and Third-Party Complaint. 

The September 6, 2005 letter stated that Roberts, Rowley & Chapman, Ltd., as statutory

agent for Structures, had received service of the HOA Lawsuit on September 6, 2005,

which named Structures as a defendant. The letter also stated: “I assume that you will

turn this matter over to your insurance carrier for handling. However, if that assumption

is incorrect and you need us to assist you in defending the lawsuit, please contact us. 

Otherwise, we will not do anything further on this matter unless we hear from you.” The

First Report of Loss did not include a copy of the Structures Tender Letter. 

As a result of receiving the First Report of Loss, American Securities opened a

claim file for the loss and assigned it Claim No. 11009. American Securities has no

record of a prior claim involving Structures or the Astragal project before September

2005. Jean Fisher, the American Securities claims manager who oversaw all construction

defect claims in 2005, conducted an exhaustive review of files related to Claim No. 11009

and found that American Securities has no evidence of any receipt of any tender of

defense or demand for indemnity by GFTDC or its legal counsel to American Securities

under the Policies with respect to the HOA Lawsuit. Further, Fisher found that American

Securities’ claim file does not contain a copy of the Structures Tender Letter.

On November 28, 2005, CRC received a copy of the Structures Tender Letter by

fax from Lebaron & Carroll, CDI. There is no evidence in the record that CRC forwarded

a copy of the Structures Tender Letter to American Securities.

American Family is seeking to recover defense costs and indemnification from

American Safety under the theory American Family and American Safety both insured

GFTDC. American Family’s Third Amended Complaint seeks (1) indemnification in

connection with the Astragal HOA property damage claims, (2) contribution for the cost

of the defense, and (3) equitable contribution for breach of duties by failing to participate

in the defense of GFTDC.

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III. Analysis

Under the doctrine of equitable contribution, an insurer who has paid a claim may

seek contribution directly from other carriers that are liable for the same loss. W. Agric.

Ins. Co. v. Indus. Indem. Ins. Co., 838 P.2d 1353, 1355 (Ariz. App. 1992). One insurer

may be required to contribute to another insurer’s payment of a claim if the policies cover

(1) the same parties, (2) in the same interest, (3) in the same property, and (4) against the

same casualty. Id. The doctrine is appropriate where two insurers have agreed to

indemnify the same party because it avoids the loss claimant making an arbitrary choice

as to which insurer should pay and it does not give one indemnitor an incentive to avoid

paying a just claim to its insured hoping the other indemnitor will pay. Id. at 1356. 

However, if a party to an insurance policy breaches it, the other party is no longer

obligated to perform its contractual obligations under the policy. Holt v. Utica Mut. Ins.

Co., 759 P.2d 623, 628 (Ariz. 1988). 

A. GFTDC Failed to Tender Its Defense and Demand for Indemnity to

American Safety.

American Safety contends that American Family may not obtain equitable

contribution from American Safety because GFTDC failed to tender its defense and to

demand indemnification. American Family contends that genuine issues of material fact

regarding GFTDC’s tender of defense preclude summary judgment. 

Before an insurer’s duty to defend may be found, it must be shown that the insurer

received sufficient notice that the insured was tendering the defense to it. Purvis v.

Hartford Accident & Indem. Co., 877 P.2d 827, 830 (Ariz. App. 1994). A tender of

defense, “whether written or oral, must contain full and fair information concerning the

pending action and an unequivocal, certain and explicit demand to undertake the defense

thereof, with an offer to surrender control of the action to the indemnitor at least as to that

portion of the claim for which the indemnitee seeks ultimately to hold the indemnitor

liable.” Litton Sys., Inc. v. Shaw’s Sales & Serv., Ltd., 579 P.2d 48, 52 (Ariz. App. 1978);

accord Purvis, 877 P.2d at 830. “What is required is knowledge that the suit is

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potentially within the policy’s coverage coupled with knowledge that the insurer’s

assistance is desired.” Purvis, 877 P.2d at 830 (quoting Hartford Accident & Indem. Co.

v. Gulf Ins. Co., 776 F.2d 1380, 1383 (7th Cir. 1985)).

1. The “Mail Delivery Rule” Does Not Create a Presumption that

American Safety Received the Structures Tender Letter. 

Arizona law recognizes a “mail delivery rule.” Lee v. Arizona, 182 P.3d 1169,

1171, ¶ 8 (Ariz. 2008). Under this common law rule:

[T]here is a presumption that a “letter properly addressed, stamped and

deposited in the United States mail will reach the addressee.” That is, proof

of the fact of mailing will, absent any contrary evidence, establish that

delivery occurred. If, however, the addressee denies receipt, the

presumption of delivery disappears, but the fact of mailing still has

evidentiary force. The denial of receipt creates an issue of fact that the

factfinder must resolve to determine if delivery actually occurred.

Id. (citations omitted). See Anderson v. United States, 966 F.2d 487, 491-92 (9th Cir.

1992) (mailbox rule applied where plaintiff’s contention she had mailed her tax return

was supported by her notarized statement that she had mailed the return, her sworn

testimony that she had seen the postal clerk postmark her return and place the envelope in

the mailing pouch, and the affidavit of a witness who accompanied plaintiff to the post

office, waited in the car, and saw plaintiff return to the car from the post office without

the envelope that had contained the tax return).

American Family urges the Court to presume, under the common law mailbox rule,

that the Structures Tender Letter was received by American Safety because of its “proper

and timely mailing.” The “mail delivery rule,” however, requires “proof of the fact of

mailing.” See Lee, 182 P.3d at 1171, ¶ 8. The evidence submitted by American Family

shows only that GFTDC’s counsel prepared tender letters to numerous subcontractors,

intended to mail copies to all of the subcontractors’ insurers, found addresses for some

but not all of the insurers, prepared for mailing copies to those insurers for which

addresses were found, kept a list of insurers’ addresses that did not include an address for

American Safety or CRC, and placed some envelopes with letters in the firm’s outgoing

mail baskets. Without an address, GFTDC’s counsel could not have mailed a copy of the

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Structures Tender Letter to either American Safety or CRC. American Family has

provided no evidence GFTDC ever found an address for American Safety or CRC or that

the Structures Tender Letter was actually mailed to American Safety, or CRC, by GFTDC

or its counsel. There is, therefore, no basis for applying the “mail delivery rule” or

presuming that American Safety received the Structures Tender Letter.

2. CRC Did Not Have Express or Ostensible Agency Authority to

Accept a Tender of Defense or a Demand for Indemnity on

American Safety’s Behalf.

American Family contends that CRC had actual authority as American Safety’s

agent to receive GFTDC’s tender on behalf of American Safety. Although the acts of the

insurance agent are imputable to the insurer, those of the independent agent or broker

generally are not. Curran v. Indus. Comm’n, 752 P.2d 523, 525 (Ariz. App. 1988). 

However, the broker becomes the agent of the insurer where the insurer’s actions create

actual or apparent authority for a broker to act on its behalf. Id. at 526. Thus, actual or

ostensible agency may be created by the insurer’s actions, but not by the broker’s. See id.

Whether an agency relationship exists is a question of law for the court when the material

facts from which the agency relationship could be inferred are not in dispute. Sparks v.

Republic Nat’l Life Ins. Co., 647 P.2d 1127, 1140 (Ariz. 1982). 

CRC is a broker that represents insureds. The Producer Agreement expressly

states that CRC shall have no authority to incur any liability on American Safety’s behalf

unless such authority is expressly granted to CRC by American Safety in writing. And

the Producer Agreement does not expressly grant CRC authority to accept a tender of

defense or demand for indemnity on American Safety’s behalf. Therefore, CRC does not

have actual authority to act on American Safety’s behalf.

Further, the Certificate of Liability Insurance showing Structures was insured by

“American Safety Indemnity c/o CRC, Chicago” was issued by Lebaron & Carroll, CDI,

not American Safety. American Family does not dispute that Lebaron & Carroll, CDI,

was not an agent of American Safety in this transaction. Therefore, Lebaron & Carroll,

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CDI’s actions do not create ostensible authority for CRC to accept tenders of defense or

demands for indemnity on behalf of American Safety or act as American Safety’s agent. 

American Family also contends that CRC’s receipt of a copy of the Structures

Tender Letter from Lebaron & Carroll, CDI, by fax in November 2005 constitutes proper

and timely tender from GFTDC to American Safety because CRC was contractually

obligated to immediately notify American Safety of any claim on any insurance policy of

which CRC became aware. Even if it were presumed that CRC would comply with its

obligation to notify American Safety if it became aware of a claim on one of American

Safety’s policies and that CRC interpreted the Structures Tender Letter as a claim on one

of American Safety’s policies, American Safety’s lack of receipt would rebut the

presumption. 

American Safety has produced evidence negating an essential element of

American Family’s case and shown that American Family does not have enough evidence

to carry its ultimate burden of persuasion at trial. See Nissan Fire, 210 F.3d at 1105-06. 

American Family has not submitted direct evidence of a genuine issue of fact regarding

GFTDC’s failure to tender its defense and demand for indemnity to American Safety. See

Eisenberg, 815 F.2d at 1289. GFTDC’s failure to tender its defense and demand for

indemnity to American Safety relieves American Safety of its obligations to GFTDC

under the Policies.

B. GFTDC Breached Its Contractual Obligation to Immediately Send

American Safety Copies of Any Demands, Notices, Summonses or

Legal Papers Regarding the HOA Lawsuit.

American Safety contends that GFTDC breached (a) Section IV, paragraph 2(c)(1)

of the Policies, which required GFTDC to immediately send American Safety “copies of

any demands, notices, summonses, or legal papers received in connection with the claim

or ‘suit,’” and (b) the Service of Suit endorsement requiring GFTDC to send American

Safety documents related to the HOA Lawsuit, by failing to send American Safety a copy

of the HOA Lawsuit complaint or summons served on GFTDC on October 25, 2004, or a

demand for defense. Even if GFTDC had mailed the Structures Tender Letter to

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American Safety, American Safety contends GFTDC should have attempted further

contact with American Safety when it did not receive a response within 20 days as

demanded by the letter to ensure that American Safety was notified as required by the

Policies. American Family contends that it would be inequitable to enforce the Policies’

notice requirements because American Safety did not deliver a copy of the Policies to

American Family and therefore GFTDC did not have notice of the notice requirements. 

An insured’s failure to give notice does not relieve an insurer of its contractual

liability unless it can show that it has been prejudiced thereby. Lindus v. N. Ins., 438 P.2d

311, 315 (Ariz. 1968); Zuckerman v. Transamerica Ins. Co., 650 P.2d 441, 445, 447

(Ariz. 1982); Liberty Mut. Fire Ins. Co. v. Mandile, 963 P.2d 295, 302 (Ariz. App. 1997). 

Delay alone does not establish prejudice. Mandile, 963 P.2d at 302.

In Mandile, the insureds’ five-year-old son was struck by an underinsured driver. 

963 P.2d at 296. Shortly after settling with the driver for his policy limits, the insureds

submitted their claim for underinsured motorist (“UIM”) coverage to their insurer. 

Although the UIM insurer did not receive notice until almost six years after the accident

and one month after the insureds settled with the driver, it was not prejudiced by any

delay in receiving notice of the insureds’ UIM claim because UIM coverage, like excess

coverage, is triggered only upon the payment of another’s coverage limits and the UIM

insurer did not demonstrate that it would have done anything before settlement with the

driver. Id. at 301, 303. In contrast, breaching a consent-to-settle provision has been

found to prejudice a primary insurer as a matter of law where the insurer was not

consulted about the settlement, the settlement was not tendered to it, and the insurer had

no opportunity to participate in or consent to the ultimate settlement decision. Motiva

Enterprises, LLC v. St. Paul Fire & Marine Ins. Co., 445 F.3d 381, 386 (5th Cir. 2006).

Here, American Family contends that American Safety was not prejudiced by the

lack of notice because CRC received notice and CRC was American Safety’s agent, an

argument disposed of above. It does not dispute that failure to receive notice caused

actual prejudice by depriving American Safety of opportunity to investigate the claim,

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participate in GFTDC’s defense, control the litigation, and contribute to the settlement

agreement reached in the HOA Lawsuit. 

Relying on Zuckerman, American Family contends that “it would be inequitable

and contrary to GFTDC’s reasonable expectations to enforce a boilerplate policy

conditions [sic] of which it had no notice” because American Safety did not provide

GFTDC a copy of the Policies. In Zuckerman, an insurance policy for fire loss contained

a clause requiring that any action for recovery on a claim insured under the policy must

be commenced within twelve months after the loss, which was significantly shorter than

the Arizona limitations period for an action on a written contract. 650 P.2d at 442-43,

444. Within the one-year period, the insured consulted counsel and also negotiated

directly with the insurer’s adjuster. Although tentative settlement was reached, the

agreement fell apart, and the insured filed an action against the insurer three months after

the expiration of the one-year policy period. Id. at 443. The Arizona Supreme Court held

the insurer was estopped to enforce the adhesive clause because it did “no more than

provide a trap for the unwary.” Id. at 448-49. The court further found the insurer was not

prejudiced by the fact that the suit was brought more than one year after the loss occurred

because there never was any dispute regarding the loss, its cause, the existence of

coverage for the loss, or the amount of damage. Id.

But the Policies’ requirements that insureds immediately send American Safety

copies of legal papers received in connection with lawsuits against the insureds is not “a

trap for the unwary.” GFTDC’s subcontract with Structures required Structures to obtain

insurance that named GFTDC as an additional insured. A Certificate of Liability

Insurance was issued to GFTDC showing Structures was insured by American Safety. If

GFTDC wanted to read the specific language of the Policies, it could have requested that

American Safety send it a copy. Requiring insureds to send American Safety copies of

legal papers received in connection with lawsuits against the insureds for which they want

coverage is not outside of reasonable expectations and is identical to the requirement in

other subcontractors’ policies covering GFTDC as an additional insured. American

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Safety does not contend that GFTDC failed to send specific documents or comply with

specific procedures or timelines—GFTDC did not send American Safety anything it

received in connection with the HOA Lawsuit.

GFTDC’s counsel prepared a letter to Structures that identified American Safety as

a copy recipient. American Family cannot claim that GFTDC did not know that the

Policies required it to send American Safety papers received in connection with the HOA

Lawsuit or was surprised by such a requirement. It is not inequitable to find GFTDC

breached Section IV, paragraph 2(c)(1) of the Policies and the Service of Suit

endorsement requiring GFTDC to send American Safety documents related to the HOA

Lawsuit. 

GFTDC’s breach of the Policies’ notice requirements caused American Safety

prejudice and relieves American Safety of its obligations to GFTDC under the Policies.

IV. Attorneys’ Fees

American Safety seeks award of attorneys’ fees under A.R.S. § 12-341.01(A). 

Under the statute, the Court may exercise its discretion to award attorneys’ fees to the

successful party in any contested action arising out of a contract upon consideration of

multiple factors. Associated Indem. Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz. 1985). 

Because American Safety has not addressed any of the factors the Court should consider

in determining whether to exercise its discretion under the statute and has not presented in

any argument in favor of exercising such discretion, the Court will deny American

Safety’s request for attorneys’ fees.

V. Rule 54(b) Certification

There is no just reason for delay in entry of final judgment in favor of Defendant

American Safety Indemnity Company. Granting American Safety summary judgment

resolves all claims in this action against this Defendant. Further, the issues decided in

this Order are discrete and do not overlap with issues to be decided later in this case. 

Moreover, an immediate appeal of this Order would not threaten duplication of judicial

work through repetitive appeals on related issues or transactions and may contribute to

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appellate economy by permitting review of this Order in conjunction with review of other

Orders issued today in this action on similar issues. For these reasons, pursuant to Fed. R.

Civ. P. 54(b), the Court directs entry of final judgment against Plaintiff American Family

Mutual Insurance Co. and in favor of Defendant American Safety Indemnity Company.

IT IS THEREFORE ORDERED that Defendant American Safety Indemnity

Company’s Motion for Summary Judgment (Phase One) (doc. #467) is granted.

IT IS FURTHER ORDERED that American Safety Indemnity Company’s request

for attorneys’ fees and costs pursuant to A.R.S. § 12-341.01(A) is denied.

IT IS FURTHER ORDERED that the Court expressly determines that there is no

just reason for delay in the entry of final judgment in favor of Defendant American Safety

Indemnity Company. The Court directs the Clerk to enter final judgment against Plaintiff

American Family Mutual Insurance Co. and in favor of Defendant American Safety

Indemnity Company.

DATED this 2nd day of September, 2009.

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