Smith v. Tucson Airport Auth
In Smith v. Tucson Airport Auth., 180 Ariz. 165, 882 P.2d 1291 (App. 1994) the Court concluded that the issue of whether no coverage existed because of TAA/City's alleged non-liability under landlord/tenant law was "a liability question, not a coverage question," and that the grant of summary judgment had violated Morris. Id
The Arizona Supreme Court initially granted review of that decision. After oral argument, however, the court concluded "that nonliability-dependent coverage issues are not precluded or foreclosed by the Court of Appeals' opinion." Smith v. Tucson Airport Auth., 183 Ariz. 1, 899 P.2d 162 (1995).
Apparently on that basis, the supreme court determined that review had been improvidently granted but ordered that our decision not be published. Id.
In Smith, the Court recognized that when an insured enters into a Morris agreement, the insurer "retains the right to contest coverage and to further contest whether the settlement was reasonable and prudent." 180 Ariz. at 166, 882 P.2d at 1292.
But we rejected the insurers' position, taken again by AAU here, "that no coverage existed because TAA and the City were not liable for the actions of their lessees in disposing of TCE." Id.
The issue of "whether TAA and the City were 'legally obligated'" under the terms of the policies, we stated, was "a liability question, not a coverage question." Id.
Ultimately, this court held in Smith that "'liability' under Morris includes not only how the trier will view the facts but also how the court will apply the law." Id.
Consequently, the Court stated, an insurer whose insured has entered into a Morris agreement "is foreclosed . . . from claiming that no liability existed in the original case and thus no coverage exists in this DRA." Id.
The Court noted, however, that in any future hearing on the reasonableness of the Morris settlement, the insurers could "attempt to persuade the trier that the settlement was unreasonable in light of the minimal risk of liability being imposed." Id. at n.1.