Arizona Rules of Civil Procedure Rule 68 Interpretation
In Arizona, a plaintiff may bring an action against a workers' compensation lien holder for violating the duty of good faith and fair dealing by unreasonably withholding approval of a settlement between an employee and a third-party defendant. See, e.g., Stout v. State Comp. Fund, 197 Ariz. 238, 242-43, 3 P.3d 1158, 1162-63 (App. 2000); Boy v. Fremont Indem. Co., 154 Ariz. 334, 336-37, 742 P.2d 835, 837-38 (App. 1987).
The purpose of Rule 68 is to encourage settlement and eliminate needless litigation. See Wersch v. Radnor/Landgrant-a Phoenix P'ship, 192 Ariz. 99, 102, 961 P.2d 1047, 1050 (App. 1997).
That purpose is not met by encouraging, and perhaps requiring, collateral litigation to determine whether a lien holder's refusal to approve a desired settlement was in good faith.
Nor is the lien holder's lack of good faith the central concern--as we explained above, the issue under Rule 68 is instead whether the plaintiff had a meaningful opportunity to decide whether to accept the offer. See Duke v. Cochise County, 189 Ariz. 35, 40-41, 938 P.2d 84, 89-90 (App. 1996).
A plaintiff who requests and is refused permission to accept an offer of judgment and later is sanctioned under Rule 68 could file such an action against the lien holder. Therefore, he or she could potentially obtain some relief from the Rule 68 sanctions.
This solution has some facial appeal--it would allow a defendant to recover costs that it would have been able to recover from a plaintiff who voluntarily rejected a Rule 68 offer of judgment.
And it would place some potential burden on the insurance carrier which, perhaps unfairly, stands to benefit from the plaintiff's lawsuit against a third party without shouldering any of the accompanying risks or costs of litigation. Cf. Colorado Counties, Inc. v. Davis, 801 P.2d 10, 12 (Colo. Ct. App. 1990) ("It would be fundamentally unfair and unjustly enrich a workers' compensation carrier for plaintiff to pay all of the expenses and bear the risk of the litigation against a third party but at the same time to absolve the carrier of all costs incurred.").
Ultimately, however, that procedure is at odds with public policy.
Moreover, public policy in the area of tort law generally favors the injured party, not the tortfeasor. See, e.g., Lopez v. Safeway Stores, Inc., 212 Ariz. 198, P 26, 129 P.3d 487, 496 (App. 2006) ("Two guiding principles of tort law are:
(1) the limitation of compensation to the injured party to the amount necessary to make him whole and;
(2) the avoidance of a windfall to the tortfeasor if a choice must be made between him and the injured party.").