Arizona Court ofAppeals Division One Holds that Settlement Payments Are Not Reimbursable Costs in a Successful Indemnity Action Brought Pursuant to A.R.S. § 12-684(A).

Heatec sold an oil burner to an asphalt plant, and the oil burner ultimately caused a fire at the plant.  The owner of the plant, Vulcan Materials Company, sued Heatec.  Heatec tendered defense to R. W. Beckett Corporation, the manufacturer of the allegedly improperly designed oil burner, which Beckett rejected.  Vulcan eventually settled its action against Heatec for $200,000.  Heatec then filed suit against Beckett seeking statutory indemnity.  Under A.R.S. § 12-684(A), when a manufacturer in a product liability action rejects a tender of defense, the seller is entitled to reimbursement of its reasonable attorneys’ fees and costs.  The trial court determined that Heatec’s $200,000 settlement payment was not a reimbursable cost.  Heatec appealed.     

The Arizona Appeals Court affirmed.  The Court noted that the word “costs” is typically a specific term of art with a limited meaning.  After noting that A.R.S. § 12-684(A) itself does not define the term, the Court looked to A.R.S. § 12-332(A), which defines taxable costs in civil actions.  Settlement payments are not among the “limited” enumerated expenses that may be taxed against the losing party pursuant to A.R.S. § 12-332(A), and therefore the trial court correctly declined to award reimbursement for the settlement payment.           

Judge Brown authored the opinion; Judges Timmer and Norris concurred.