Opinion ID: 774243
Heading Depth: 3
Heading Rank: 1

Heading: Direct Bad-faith Claim

Text: 61 Under Arizona law, an insurer owes only the insured a duty of good faith. [T]he insurer's obligation to settle, as well as the obligation to defend, arises out of the contract between the parties. State Farm Auto. Ins. Co. v. Civil Service Employees Ins. Co., 509 P.2d 725, 733 (Ariz. Ct. App. 1973). Because MICA never entered into a contract with RRG, it owed no duty to RRG and cannot be liable on a direct claim for bad faith. This reasoning is equally applicable without regard to whether RRG is a true excess carrier or merely a co-excess insurer of the Beery judgment. 62 In Twin City, 792 P.2d at 758, the Arizona Supreme Court held that an excess carrier could not bring a direct claim for bad faith against a primary carrier. Although there is language in Twin City that suggests such a cause of action is possible in some circumstances, a subsequent decision from the Arizona Court of Appeals interpreted Twin City as foreclosing all direct-duty claims initiated by an excess carrier against a primary insurer. Cal. Cas. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 913 P.2d 505, 510 (Ariz. Ct. App. 1996) (excess insurer may assert only a claim that derives from the primary's contract with the insured). 4 The district court correctly dismissed RRG's direct claim for bad faith against MICA.