Arizona Court of Appeals Division Two Reverses Grant of Summary Judgment in Favor of Insurer in Automobile Accident Case.

After being injured in a car accident while riding as a passenger, Appellant filed a negligence lawsuit against the car’s driver and owner. The driver filed a petition for bankruptcy. Appellant, the driver, and the insurance company then entered into a settlement agreement in which the parties agreed that Appellant would file an action against the insurer for bad faith as though Appellant had obtained a judgment against the driver at a trial on the merits, and after the judgment became final, the driver had assigned his bad faith claims against the insurer to Appellant. Appellant then filed a bad faith claim against the insurer, alleging that the insurer had breached the implied covenant of good faith and fair dealing by failing to settle Appellant’s claim against the driver. The parties filed cross-motions for summary judgment, with the insurer arguing that it could not have settled because the driver had filed a bankruptcy petition. The trial court denied Appellant’s motion and granted the insurer’s motion, finding that the insurer had no duty to solicit a settlement before the driver filed his bankruptcy petition. The court of appeals reversed. The court agreed with the trial court’s view that the evidence showed a high potential that Appellant would have been successful in his negligence action and recovered damages in excess of the policy limit. But the court also found that there was an issue regarding the driver’s non-permissive use of the car, with the insurer initially relying on the driver’s statement that he did not have permission to drive the car, and later changing its position and conceding coverage. The court determined that the case would have to be remanded to the trial court for a determination of when the insurer had changed its position on coverage, which would affect the question of whether the Apellant was estopped from claiming recovery in excess of the policy limits (because the driver had informed the insurer early on that his use of the car was non-permissive.) The court was unconvinced by the insurer’s claim that settlement was impossible because of the automatic bankruptcy stay, noting that the insurer could have agreed to the settlement and then sought bankruptcy court approval before making payments. Accordingly, the court reversed the grant of summary judgment in the insurer’s favor and remanded the case.

The opinion was authored by Judge Vásquez and joined by Judges Pelander and Howard.