Recovering More Than
the Policy Limits
An insurer cannot be obligated to pay more
than the policy limits solely as the result of a
breach of contract, regardless of the amount
of the judgment against the insured. There
must be “something more” to require a
payment in excess of the limits. The tort of
bad faith refusal to settle is that “something
more.” 43 If a plaintiff has not given an insurer the opportunity to settle within policy
limits before entering into one of the four
agreements discussed here, the insurer’s liability will almost certainly be capped at the
While Arizona law recognizes there may
be occasions when the liability and damages
are so bad that the insurer has an obligation
to make settlement offers without waiting
for the plaintiff, the courts have been re-
luctant to find an insurer guilty of bad faith
on this basis alone. A plaintiff who hopes to
recover more than the policy limits should
give the insurer an opportunity to settle the
case within limits before entering into one
of these agreements. A tort claim for bad
faith gives rise to a claim for extra-contrac-
tual damages, which includes the difference
between the policy limits and the amount of
the final judgment, punitive damages, attor-
ney’s fees and, in the case of an individual
insured, damages for emotional distress. 44
An insurer should not do anything to impede or prevent an insured from taking
advantage of the protections provided by
these agreements, although it can negotiate
with the insured to reach an agreement to
provide protection that the insured finds
acceptable. While the former is almost certainly bad faith, the latter has been held not
to interfere with the contractual rights of a
plaintiff, at least where a Morris agreement
has been proposed.45
For the reasons previously mentioned,
an insurer should attempt to intervene in
any default hearing and request a jury tri-
al on damages, because a contested hearing
before a jury is likely to result in a lower
amount than might be set at an uncontest-
ed default hearing before a judge or com-
missioner. Furthermore, allowing a default
hearing to proceed without intervention
and planning to claim later that the default
award is unreasonable is a risky and proba-
bly unsuccessful strategy. For the same rea-
sons, a plaintiff should avoid a default hear-
ing in cases in which an insurer might have
a right of intervention and use a stipulated
Where a default hearing is held following
a successful motion to intervene by an insur-
er, the insurer may be permitted to partici-
pate in the name of the insured and to offer
proof on comparative fault and damages,
although this will be within the court’s dis-
cretion. If an insurer participates in a default
hearing, it will almost certainly be bound by
the outcome in any future action. For exam-
ple, if the default hearing is limited to dam-
ages only, the insurer may discuss liability
and comparative fault in a reasonable-
ness hearing to determine how much of the
now-fixed damages a reasonable person
would have paid to settle the case. The
Court of Appeals, however, has encouraged
trial courts to expand default hearings to in-
clude consideration of liability issues to avoid
the necessity of a second reasonability hear-
ing in a subsequent bad faith action.46
Many issues in this area of law remain
unresolved and courts are considering them
on a regular basis. Practitioners should take
advantage of the significant opportunity for
creative lawyering when these situations
1. Arizona Prop. & Cas. Ins Guar.
Fund v. Helme, 735 P.2d 451,
458-59 (Ariz. 1987).
2. Id. at 458.
3. Id. at 458-59.
4. Id. at 459.
7. 460 P.2d 997 (Ariz. 1969).
8. State Farm Mut. Auto Ins. Co.
v. Paynter, 593 P.2d 948, 950
(Ariz. Ct. App. 1979).
10. Damron, 460 P.2d at 1001.
11. Paynter, 593 P.2d at 951-52.
12. Manny v. Anderson’s Estate,
574 P.2d 36, 38 (Ariz. Ct.
13. 153 Ariz. 129, 735 P.2d 451
14. Id. at 460.
15. Farmers Ins. Co. of Arizona v.
Vagnozzi, 675 P.2d 703, 708
18. 741 P.2d 246 (Ariz. 1987).
19. Id. at 251.
22. Parking Concepts, Inc. v. Tenney,
83 P.3d 19, 22 (Ariz. 2004).
24. Id. at 24.
25. H.B.H. v. State Farm Fire and
Cas. Ins. Co., 823 P.2d 1332,
1339 (Ariz. Ct. App. 1991).
26. Tenney, 83 P.3d at 22.
27. H.B.H., 823 P.2d at 1339.
28. Tenney, 83 P.3d at 24.
29. Himes v. Safeway Ins. Co., 66 P.3d
74, 82 (Ariz. Ct. App. 2003).
30. Tenney, 83 P.3d at 24.
31. Id. at 26.
32. The only exception to this rule
involves automobile liability
policies, which are subject to
the financial responsibility provisions of A.R.S. § 28-4009.
Up to the financial responsibility limits, liability coverage
under these policies becomes
absolute at the time of the
accident. § 28-4009(C)( 5)(a).
35. McGough v. Insurance Co. of
North America, 691 P.2d 738
(Ariz. Ct. App. 1984); ARIZ.
CONST. art II, § 23.
36. But see supra note 32.
37. 812 P.2d 1002 (Ariz. Ct. App.
38. Id. at 1007.
39. Id. at 1013-14 (citing Fulton v.
Woodford, 545 P.2d 979, 984
(Ariz. Ct. App. 1976)).
40. Himes, 66 P.3d at 84.
42. A.R.S. § 28-4009(C)( 5)(a).
43. Taylor v. State Farm Mut. Auto.
Ins. Co., 913 P.2d 1092, 1094
(Ariz. 1996); Rawlings v. Apo-
daca, 726 P.2d 565 (Ariz. 1986).
44. Farr v. Transamerica Occiden-
tal Life Ins. Co. of California,
699 P.2d 376 (Ariz. Ct. App.
45. Strojnick v. General Ins. Co. of
America, 36 P.3d 1200, 1207
(Ariz. Ct. App. 2001).
46. Waddell v. Titan Ins. Co., Inc.,
88 P.3d 1141, 1147 (Ariz. Ct.