Desert Mountain Properties Ltd. Partnership v. Liberty Mutual Fire Insurance Co
In Desert Mountain Properties Ltd. Partnership v. Liberty Mutual Fire Insurance Co.,225 Ariz. 194,13, 17, 236 P.3d 421, 427-28 (App. 2010) the Court was asked to interpret the phrase "legal obligation to pay," which was found in an insurance contract but was not defined in that contract.
The court determined that:
The language in the insurance policies may be interpreted according to its plain and ordinary meaning, as one untrained in law or business would understand it.
Reading the policies in that manner, a "legal obligation to pay" means any obligation enforceable by law, including, for example, an obligation created by statute, contract or the common law.
Once created, the obligation exists prior to and even in the absence of a suit to enforce it or a court order compelling performance.
In short, although a court may enforce a legal obligation, in the usual case, no court action is required to create a legal obligation.
For that reason, we conclude the better-reasoned rule is that coverage for sums an insured becomes "legally obligated to pay as damages" may be triggered even in the absence of a civil lawsuit against the insured or a court order requiring the insured to make payment. Id.17-18.