Opinion ID: 774243
Heading Depth: 2
Heading Rank: 3

Heading: RRG's Bad-Faith Claims

Text: 60 Our determination that the first two layers of RRG coverage and the MICA policy are equal-level insurers of the judgment against Dr. Romberger controls the analysis of RRG's bad-faith claims. Under Arizona law, an insurer has neither a direct nor a subrogated claim for bad faith against an equal-level insurer. Twin City Fire Ins. Co. v. Superior Court, 792 P.2d 758, 760 (Ariz. 1990) (no direct claim for bad faith against other insurer); Hartford Accident & Indemnity, 792 P.2d 749 (subrogated claim may only be brought by excess insurer against primary carrier). The district court correctly dismissed these claims.
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.
63 Arizona recognizes the right of an excess insurer to bring a subrogated claim against a primary carrier for bad-faith failure to settle within the primary carrier's policy limits. Hartford Accident, 792 P.2d at 749. No such claim exists between two equal-level insurers. 64 Equal-level insurers have an identical duty of good faith toward the insured. A complete failure to settle is necessarily a failure by both insurers. It follows that RRG cannot refuse to settle the Beery litigation on the one hand and, on the other, contend that MICA's refusal to settle was made in bad faith. Because RRG and MICA had equivalent obligations to the insured, the proper approach to resolving their dispute is not a suit for bad faith, but one for contribution. See St. Paul Fire & Marine Ins. v. Allstate Ins. Co., 543 P.2d 147 (Ariz. Ct. App. 1976) (co-primary insurer can bring equitable contribution claim); Mut. Ins. Co. of Ariz. v. Am. Cas. Co. of Reading, Pa., 938 P.2d 71, 75-76 (Ariz. Ct. App. 1996). 65 No Arizona court has recognized the right of an insurer to bring a subrogated bad-faith claim against an equal-level insurer. The rationale for recognizing an excess insurer's right to bring such an action against a primary insurer does not apply in an action between equal-level insurers. As MICA and RRG were equal-level insurers, they had the same duty to enter a good-faith settlement. The district court, therefore, correctly dismissed RRG's subrogated bad-faith claim against MICA.