Damron v. Sledge
In Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (1969), the court discussed whether a default judgment could bind an insurer that refused to defend its insured in a tort action.
The insured settled the case, assigned to the plaintiff any rights he had against the insurer for bad faith in refusing to defend, withdrew his answer and "let the case go by default" in exchange for a covenant not to execute. 105 Ariz. at 152-53, 154, 460 P.2d at 998-99, 1000.
The court stated that, absent fraud or collusion, the default judgment could be enforced against the insurer because an insurer refusing to defend "must accept the risk that an unduly large verdict may result from lack of cross-examination and rebuttal." Id. at 155, 460 P.2d at 1001.