Arizona Court of Appeals restricts use of Morris agreements

Leflet v. Redwood Fire & Casualty Ins. Co., 226 Ariz. 297, 247 P.3d 180 (Ariz.App. 2011)

Type of Case: Insurance Coverage

Practice Area(s): Insurance Coverage

Lawyer(s): Kurt M. Zitzer Thomas H. Crouch John C. Hendricks

Office(s): Chicago

Date: Feb 14 2011

The Arizona Court of Appeals held that Morris agreements do not extend to agreements that included one insurance company “setting up” other carriers who are allegedly not participating in a mutual insured’s defense or indemnity. Leflet was a construction defect case. The putative insured, Hancock Communities, was defended by its own carrier, and sought additional insured coverage from several other carriers. A dispute arose over defense and indemnity allocations between Hancock’s own primary carrier, and the additional insurers, referred to in the agreement as the “Non-Participating Insurers.” To resolve the case, Hancock’s carrier paid a fraction of its policy limit, and entered into an $8.4 million Morris agreement along with its insured and the claimant.

While the court reaffirmed the rule that a carrier must first have notice of a Morris agreement to be bound by its terms, the court clarified that notice means actual and meaningful notice, and not just constructive notice that the parties are contemplating a Morris agreement. Further, notice of the Morris agreement must include terms sufficient to cause the agreement, if entered into, to be binding and enforceable.

More important, however, was the court’s holding that a Morris agreement which benefits one carrier against another is not a Morris agreement at all. The policy behind Morris was to remove the insured from the potentially crushing exposure of personal liability, and transfer the risk of coverage and collection of the judgment upon the claimant. As the court noted “an insurer that reserves its rights may not employ Morris to reduce its liability below policy limits, and an insured that facilitates such an effort breaches its duty to cooperate with its other insurers.”

Kurt M. Zitzer and John C. Hendricks represented the client at the trial court and were successful in winning summary judgment. Thomas H. Crouch successfully represented the client on appeal, and argued the case on behalf of all the insurance carriers.

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