INA Ins. Co. of N. Am. v. Valley Forge Ins. Co

In INA Ins. Co. of N. Am. v. Valley Forge Ins. Co., 150 Ariz. 248, 252, 722 P.2d 975, 979 (App. 1986), a homeowner sued her insurance carrier and its agent and asserted the carrier and the agent had wrongfully refused to pay her fire loss claim. 150 Ariz. at 250, 722 P.2d at 977. The agent tendered his defense to the insurance carrier pursuant to an indemnification clause in his agency agreement with the carrier. Id. at 251, 722 P.2d at 978. That clause required the carrier to indemnify and hold harmless the agent against liability "you may become obligated to pay for damages sustained and caused by our error or omission . . . provided you have not caused or contributed to such liability by your own acts, errors or omissions." Id. The carrier took the position the allegations of the homeowner's complaint controlled the agent's right to indemnity and refused the tender because the homeowner's complaint contained allegations of wrongdoing by the agent. Id. Ultimately, the agent's professional errors and omissions insurer ("E and O insurer") defended the agent. Id. After the homeowner's case was dismissed by stipulation, the E and O insurer demanded the carrier pay the attorneys' fees and costs it had incurred in defending the agent. Id. The carrier refused, and the E and 0 insurer sued the carrier for indemnification. Id. The Court rejected the carrier's argument the allegations in the homeowner's complaint controlled the agent's contractual right to indemnity. Id. at 253, 722 P.2d at 980. After noting its argument was premised in part on analogizing its position to an insurer's duty to defend its insured, the Court stated: The duty to defend, however, is not the same as the duty to indemnify. The duty to defend arises at the earliest stages of litigation and generally exists regardless of whether the insured is ultimately found liable. The duty to indemnify depends on whether the indemnitee engaged in actual, active wrongdoing. The accrual of the obligation to provide a defense does not control the accrual of the obligation to indemnify. Id. at 255, 722 P.2d at 982. The Court then rejected the carrier's argument that the agency agreement only provided indemnification for damages, not attorneys' fees: "A party is not 'held harmless' unless the indemnitor bears the indemnitee's costs of defending the third party's claim." Id.