Colorado Casualty v. Safety Control; Roman (CA1 1/5/12)

THIS OPINION HAS BEEN AMENDED

This dispute between insurers shows that you need to be careful drafting your Damron paperwork – unless you can convince the Court of Appeals to give you a do-over.

Roman was injured in an accident at a road-construction site on the Loop 101. He sued the general contractor (DBA Contracting) and the Arizona DOT. The situation was routine: subs were required to add the general to their insurance policies while DBA had excess coverage. DBA tendered the defense to subcontractors. They refused it. DBA and the ADOT did a Damron that involved stipulating to a judgment, paying some of it, and assigning their rights (and that of Colorado Casualty, DBA’s insurer, which paid its part of the settlement) to Roman.

Colorado Casualty then sued the subs and their carriers to recover what it had paid. Roman  intervened, arguing that Colorado Casualty had assigned its rights to him, and filed cross- and counterclaims against it and the subs/insurers (which did not include a bad-faith claim). Roman and Colorado Casualty then settled with everyone except subcontractor Safety Control and its insurer, Employers’ Mutual, against which they moved for summary judgment. They hadn’t worked out their own differences yet but agreed to do so after judgment on the merits. The court granted summary judgment, awarding money and saying “Roman and Colorado Casualty shall resolve their dispute concerning this award amongst themselves.”  Safety Control and Employers appealed.

They argued, firstly, that the judgment wasn’t valid because the real party in interest wasn’t identified. The court said that the purpose of the rule (17) requiring a real party in interest is to let the defendant know what defenses it has, and that since the appellants hadn’t been prevented from raising anything the judgment was valid. An issue that would have interested us – how a defendant can be bound by a judgment that can’t be satisfied – apparently wasn’t raised (perhaps the claimants had offered some sort of escrow arrangement).

Employers also argued that the Damron was collusive because Colorado Casualty agreed to defend DBA when Employers refused to and that the agreement was therefore intended not to protect DBA from liability but merely to shift liability for the settlement from Colorado Casualty to Employers. The court ruled that an insurer can’t escape the consequences of denying its contractual obligation simply because another steps in, and that the agreement shifted the liability for settlement to where it should have been in the first place.

The court next holds, however, that there is an issue of fact about whether the judgment “arose out of” Safety Control’s operations, a coverage requirement. Nothing in the judgment, the agreement, or the record established in any detail how the accident occurred or why Safety Control was negligent. But for some reason the court remands with directions that the trial court “shall conduct whatever proceedings it deems appropriate to resolve that issue.” The opinion does not explain why this particular summary-judgment appeal merits special remand instructions (nor why the Damron parties can’t end-run them with some redrafting).

The opinion also addresses a few issues relevant on remand but unimportant for purposes of precedent.

The court finishes by denying everybody’s request for fees “without prejudice to a request for fees incurred in this appeal to be filed by the prevailing party on remand before the superior court.” In other words, Colorado Casualty could get fees for losing an appeal caused by its own failure to make a proper record.

Is this the new standard? When the Court of Appeals finds that an issue of fact prevents summary judgment does it now remand for a specific finding and make a fee award that can charge an appellant money for successfully pointing out that its opponent wasn’t entitled to judgment the first time? The theory, apparently, is that winners below are entitled to a Mulligan but that winners above can be penalized for making them take it.

(link to opinion)