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Apollo Educ. Grp., Inc. v. Nat'l Union Fire Ins. Co., of Pittsburgh, PA - 2/17/2021

Arizona Supreme Court holds that under an insurance policy without a contractual duty to defend, the objective reasonableness of the insurer’s decision to withhold consent is assessed from the perspective of the insurer, not the insured.


An insured corporation was sued.  The plaintiffs and the insured came to an agreement to settle the case.  The insurer refused to consent to the settlement.  The insured entered into the settlement anyway, paid the settlement amount out of pocket, and then sued the insurer in federal court.  The Ninth Circuit certified to the Arizona Supreme Court the question of how to interpret the insurance contract under Arizona law.  In particular, should the federal district court assess the objective reasonableness of the insurer’s decision to withhold consent from the perspective of an insurer or an insured?

The Court held that the terms of the contract indicated that the reasonableness of the insurer’s decision to withhold consent should be assessed from the perspective of the insurer.  Importantly, the Court distinguished this case from United Services Automobile Association v. Morris, 154 Ariz. 113 (1987).  This case is distinguishable because the insurer has no duty to defend, and so the insured controls the litigation.  Unlike in Morris, the insured is not at risk of the insurer settling in excess of the coverage amount.  Therefore, there is no need to protect the insured from an unfair allocation of risk, such as by implying a duty to accept settlements that are reasonable from the insured’s perspective.  Rather, where there is no duty to defend, and the contract requires an insurer to not unreasonably withhold consent to a settlement proposed by the insured and a third party, courts should examine whether the insurer’s decision to withhold consent to a settlement is reasonable from the insurer’s perspective.

The Court further noted that an insurer is still required to act in the way a reasonable insurer would act and conduct a full investigation, and that a court should sustain the insurer’s determination if it protects the insured’s benefit of the bargain.

The Dissent would have held that the language of the policy itself does not state whether the reasonableness of the insurer’s decision is viewed from the insured’s perspective or its own, and that the implied covenant of good faith and fair dealing would require the insurer to give equal consideration to the insured’s interests as well as its own in deciding whether to consent to a settlement agreement.

Justice Bolick authored the Opinion; Chief Justice Brutinel, Vice Chief Justice Timmer, and Justices Beene and Montgomery joined.  Justices Gould and Lopez dissented.

Posted by: Bryce Talbot

Posted On: 3/3/2021