[00:00:00] Speaker 03:
But we'll now call the second case that's related, which is Continental Casualty Company versus Culver.

[00:00:07] Speaker 03:
And this is a consolidated case, 24-3491 and 24-3493.

[00:00:13] Speaker 03:
And we'll hear again.

[00:00:17] Speaker 01:
Thank you, Your Honor.

[00:00:17] Speaker 01:
Again, it's David Tissel.

[00:00:19] Speaker 01:
Again, I'm here on behalf of the defendant appellants who were the victims of the mishandling of body parts in the Beecher action.

[00:00:25] Speaker 01:
I think I'm going to be briefer here, and I will reserve, if I can, two minutes of my time for rebuttal.

[00:00:34] Speaker 01:
But with my limited time, I'd like to focus on three areas of error that I think are important.

[00:00:41] Speaker 01:
And the first factual point, the distinction here, is that deck action two was filed by Continental after my clients obtained the assignment of gores in contract and bad faith rights under the policy.

[00:00:55] Speaker 01:
Once they received that, they were sued.

[00:00:57] Speaker 01:
And then the countersuit for bad faith and breach of contract by and through Gore as a Sinese is what brings us here.

[00:01:04] Speaker 01:
The three points of error I'd like to focus on first, it was error to dismiss Gore's bad faith claims on the erroneous legal basis that a breach in the insurance contract is necessary as a prerequisite to an insurance bad faith claim under Arizona law.

[00:01:20] Speaker 01:
That position contradicts 30-year precedent in Arizona.

[00:01:24] Speaker 01:
We've got Deese.

[00:01:25] Speaker 01:
We have Zillich.

[00:01:26] Speaker 01:
And as the Arizona Supreme Court actually held 39 years ago in Rawlings v. Apodaca, 726 P.

[00:01:32] Speaker 01:
2nd, 565, the insurance contract and the relationship it creates contain more than the company's bare promise to pay certain claims when forced to do so.

[00:01:43] Speaker 01:
Implicit in the contract and the relationship is the insurer's obligation to play fair with his insured.

[00:01:49] Speaker 01:
And in this case, unlike the cases that

[00:01:52] Speaker 01:
that Continental tries to cite where there was no defense given and no.

[00:01:56] Speaker 01:
The Continental asserted its rights as the insurer to take over the litigation after Gore had been left without a lawyer for four years on the eve of trial.

[00:02:08] Speaker 01:
And then once they took over that trial, they served him the same day with the deck action one to try to take away his rights, creating the conflict of interest that we talked about before.

[00:02:21] Speaker 01:
This those bet the bad faith conduct that was engaged in here that that we I'm not going to go through the I don't have time with my limited time to go through all the facts but the bad faith conduct that was engaged in was all based upon the control they had taken over Gores defense in this case and then screwed it up exposing him to

[00:02:40] Speaker 01:
an extreme excess verdict.

[00:02:42] Speaker 01:
And I think what's really important is the second point of error here is that we are now talking about Gore's contract rights and Gore's bad faith rights, which are issues that have never been fully and fairly litigated as to Gore in any prior forum.

[00:02:58] Speaker 01:
As to Gore, he was not a party to the Beecher motion that Judge Thomason ruled on in Beecher.

[00:03:06] Speaker 01:
And in deck action one, he did not participate.

[00:03:09] Speaker 01:
He was served with, he wasn't actually served.

[00:03:12] Speaker 01:
The lawyer that Continental hired, they had him as his first order of duty.

[00:03:17] Speaker 01:
accept service of the complaint against Gore, and then tell Glory, this isn't about you, you don't have to show up.

[00:03:23] Speaker 01:
And then he didn't participate in deck one.

[00:03:25] Speaker 01:
But very important, I don't want to lose it because I don't have time, is that there was no default judgment entered against Gore because Continental chose to dismiss Gore without prejudice from deck action one.

[00:03:36] Speaker 01:
And why is that relevant?

[00:03:38] Speaker 01:
Because in the second action, Continental attempted to transfer the deck action two, the bad faith case,

[00:03:47] Speaker 01:
over to her courtroom because she had just ruled on the motion on summary judgment, saying these cases are the same.

[00:03:53] Speaker 01:
And she denied that, and I think her order is very telling.

[00:03:56] Speaker 01:
She says, quote, the, and I call it the bad faith action, however, concerns different questions of law, such as Continental's bad faith, the failure to defend Stephen Gore for almost four years, their failure to pay,

[00:04:12] Speaker 01:
and their intentional exposure of Stephen Gore to an excess judgment, and whether Stephen Gore had a right to protect himself against financial ruin by signing a Damron agreement.

[00:04:23] Speaker 01:
And that order starts at 3, excerpt of record 364 and the cluttered language is at 367.

[00:04:30] Speaker 01:
I think that is telling and that the court in District Court 1 is saying the issues about Gore, I didn't decide those.

[00:04:37] Speaker 01:
I was looking at my clients standing in their own shoes going to your honest point from the argument I just ended, standing in our own shoes and burdened with the

[00:04:47] Speaker 01:
with the potential of collateral estoppel of what we had had below, I was not looking at Gore's rights.

[00:04:53] Speaker 01:
And I was not deciding Gore's rights here.

[00:04:56] Speaker 01:
That's for the second action.

[00:04:58] Speaker 01:
Unfortunately, the court below on the bad faith action said, as to the contract claims, the opposite.

[00:05:06] Speaker 01:
These issues were decided in deck action one, collateral estoppel, and those are out.

[00:05:11] Speaker 01:
And then it compounded the error by then saying that if you don't have a breach of the insurance contract, that you can't have bad faith.

[00:05:18] Speaker 03:
Dismissed those claims as well Just to sort of Button this up it seems like the collateral estoppel issue in the first place rolls over into the second case right I mean right because if we say there was no collateral estoppel in the first case then we Issue the same ruling here, and it has to be remanded on the collateral estoppel This is an argument that even if we say there is collateral estoppel you're saying

[00:05:46] Speaker 03:
We still get a redo on the bad faith.

[00:05:50] Speaker 03:
We don't.

[00:05:55] Speaker 01:
I think technically the way that I would present it, Your Honor, is we're not asking for a redo as to us.

[00:05:59] Speaker 01:
We now stand in the shoes of Gore once we have the assignment.

[00:06:03] Speaker 01:
And that issue has not been fully and fairly litigated.

[00:06:06] Speaker 01:
And so while I respectfully disagree with Judge Humata was ruling on

[00:06:10] Speaker 01:
In the first case, I'm saying, accepting that she's correct.

[00:06:13] Speaker 01:
I'm not.

[00:06:14] Speaker 01:
But accepting that she's correct.

[00:06:15] Speaker 03:
Then we would still have to send it back.

[00:06:17] Speaker 03:
So help me understand.

[00:06:20] Speaker 03:
I think I agree with you in principle that the contract claim is not coextensive with the bad faith claim.

[00:06:34] Speaker 03:
And maybe it doesn't matter, because we can't get into the merits here.

[00:06:36] Speaker 03:
But help me understand why

[00:06:39] Speaker 03:
there would be a claim here if there was no duty to insure Gore.

[00:06:45] Speaker 01:
Even if there's not a duty to indemnify, there's a duty to play fairly with your insured and to handle the defense appropriately and reasonably as an insurer.

[00:06:54] Speaker 03:
And why do you think that wasn't done?

[00:06:56] Speaker 03:
Because Gore eventually did have counsel, right?

[00:07:00] Speaker 03:
But it's the delay that was the problem.

[00:07:01] Speaker 01:
Well, no.

[00:07:02] Speaker 01:
The problem was that the counsel was hired by Continental for Gore.

[00:07:07] Speaker 01:
Ostensibly to defend him at the same time accepting the service in deck action one, but to get to your point I'll give you a perfect example Here is gore that is facing financial ruin and the evidence in the record is that on the eve of trial There was an opportunity to resolve this case well within set within policy limits and

[00:07:29] Speaker 01:
And the case law in Arizona is clear that an insurance company has an obligation to give equal consideration to the interest of its insured, even if they have a coverage defense, even if they have issues as to, well, we may win, we may lose this in the future.

[00:07:44] Speaker 01:
They have an obligation to give equal consideration as the actual standard to both.

[00:07:51] Speaker 01:
What were the limits?

[00:07:53] Speaker 01:
What were the policy limits?

[00:07:55] Speaker 01:
No, no, because I've lived with this case for too long.

[00:08:00] Speaker 01:
I'm not laughing at you.

[00:08:02] Speaker 01:
I'm laughing at you.

[00:08:03] Speaker 01:
It's a big issue.

[00:08:04] Speaker 01:
I think it's called the excess loss report from CNA, and they had $12 million listed in that.

[00:08:15] Speaker 01:
But even if we talk about, even if we say it was just $4 million for one period, if you take the amounts that were used to pay the settlements,

[00:08:24] Speaker 01:
the core was included in plus what was offered to settle it would still have been well within that 4 million yet they had they had internal reports

[00:08:34] Speaker 01:
from Louis Brisboye, who they had brought in to do a review.

[00:08:37] Speaker 01:
And then, as I know your honors have read the record from the questions today, they had actually done a mock jury.

[00:08:45] Speaker 01:
Even though they were now representing Gore, they didn't tell him about it.

[00:08:49] Speaker 01:
And they set him up in the mock jury as he's going to be the patsy for this, and let's see what happens.

[00:08:54] Speaker 01:
Both of those told them two things.

[00:08:56] Speaker 01:
He wasn't going to get out of this trial with a defense verdict as to all defendants.

[00:09:00] Speaker 01:
There were issues as to some defendants.

[00:09:02] Speaker 01:
I'm sorry, some plaintiffs.

[00:09:03] Speaker 01:
And he and the chances was he was going to get hit with a huge massive excess verdict of 30 million dollars or more and as the record shows it actually was that and and they and the testimony from the actual adjuster a marine quattrochi and please don't ask me to spell that

[00:09:21] Speaker 01:
For the record, Q is what we refer to her as.

[00:09:25] Speaker 01:
Her testimony was that she was assigned as the adjuster for Gore's case.

[00:09:29] Speaker 01:
And she was told they would never pay any indemnity dollars to settle his case.

[00:09:36] Speaker 01:
She was not asked to participate in discussing.

[00:09:40] Speaker 03:
And I apologize.

[00:09:41] Speaker 01:
And I think, Your Honor, I've taken almost.

[00:09:44] Speaker 01:
Well, we'll give you this time for rebuttal.

[00:09:46] Speaker 01:
Thank you.

[00:09:55] Speaker 02:
Good morning again, your honor.

[00:09:56] Speaker 02:
It's Mark Feldman for Continental and Valley Forge.

[00:09:59] Speaker 02:
I have limited time on this version, so I would like to jump in and directly address the points that counsel made.

[00:10:06] Speaker 02:
And the reason is because they're based on fundamentally flawed and false premises.

[00:10:12] Speaker 02:
The first point was that somehow the district court erred because under Arizona law, there can still be bad faith even if there is no duty to indemnify.

[00:10:20] Speaker 03:
Well, that is true, though.

[00:10:21] Speaker 02:
That is true.

[00:10:23] Speaker 02:
However, that was not the basis for the district court's ruling.

[00:10:26] Speaker 02:
The basis for the district court's ruling was that because Gore was not an insured at all, Continental did not owe him any duty.

[00:10:35] Speaker 00:
But that's not true, right?

[00:10:36] Speaker 00:
I mean, there's no dispute that he's an insured for the period following May 2013.

[00:10:42] Speaker 02:
Yes.

[00:10:43] Speaker 00:
So he is an insured of Continental, correct?

[00:10:46] Speaker 02:
He wasn't insured for that period.

[00:10:48] Speaker 00:
Doesn't the Arizona case law say that there's a duty

[00:10:51] Speaker 00:
to act in good faith, for the insurance company to act in good faith in their relations with an insured, even when there's a dispute of coverage for certain claims.

[00:11:03] Speaker 02:
Yes, it does.

[00:11:03] Speaker 00:
So there's a dispute of coverage of the pre-May 2013 claims.

[00:11:07] Speaker 00:
And if you're right, then he was not an insured for that period.

[00:11:11] Speaker 00:
But he was undoubtedly an insured of Continental.

[00:11:15] Speaker 00:
Isn't that right?

[00:11:16] Speaker 00:
So you're not I don't think you're arguing that the insurance company only owed him a duty of good faith with respect to things that claims that follow May 2013 I think I mean insurance the insurance company owes the insured a good faith with respect to all claims even if it turns out some of them are not actually covered well it is that's partially correct and partially incorrect where is it incorrect it's incorrect because

[00:11:41] Speaker 02:
In the cases we said in our brief, an insurance company does owe an insured a duty of good faith, has an obligation to provide a defense, provide a defense in good faith.

[00:11:50] Speaker 02:
It does not owe any duty to someone who's not insured.

[00:11:54] Speaker 02:
Even if someone is insured, it does not owe a duty to settle.

[00:11:58] Speaker 02:
And that is the theory.

[00:11:59] Speaker 02:
That is their bad faith theory here, that Continental failed to settle a couple.

[00:12:03] Speaker 00:
Well, we're not reaching the merits of the bad faith claim.

[00:12:06] Speaker 00:
We're just whether he can even proceed

[00:12:11] Speaker 00:
I think is the question and I don't I don't think the district were To the extent the district court said he was not insured and that's why he can't proceed He was only not an insured with respect to certain claims At most to the appellant's claims.

[00:12:25] Speaker 02:
Those are the only claims that issue in other words There are other plaintiffs from the Beecher action to whom Gore arguably qualified question continentals duty to Gore Gore was an insured of continental correct

[00:12:39] Speaker 02:
Yes, but not for repellents claims, and those are the only ones at issue here.

[00:12:43] Speaker 02:
So for example, if Continental had defended Gore, which it did, against claims that post-dated May 2013, and Continental did something wrong with respect to those claims, those plaintiffs arguably could bring a bad faith claim against Continental.

[00:13:00] Speaker 02:
However, it's undisputed that Continental settled all of those post-May 2013 claims.

[00:13:06] Speaker 02:
The only claims that

[00:13:07] Speaker 02:
remained were the claims of appellants.

[00:13:10] Speaker 02:
And you can divide it.

[00:13:11] Speaker 02:
Once those claims were settled, Gore was not an insured for those claims.

[00:13:15] Speaker 02:
And if you look at the Bodart case and the other cases we cited in our brief, as well as Couch and many horn books on insurance law, once covered claims are eliminated from a suit and someone does not qualify for coverage and does not qualify as an insured for whatever claims remain,

[00:13:35] Speaker 02:
the insurance company does not owe further duties.

[00:13:38] Speaker 02:
So you're correct, Your Honor, that he was insured, was defended for claims of other people.

[00:13:43] Speaker 02:
But those people are not here.

[00:13:44] Speaker 02:
He was not insured under the Continental policy for appellants' claims.

[00:13:50] Speaker 02:
And that's why the district court ruled Continental didn't owe him any duties, either a duty to indemnify, which was ruled on by Judge Kumitewa, a duty to defend, or a duty of the implied covenant of good faith and fair dealing, because all the cases

[00:14:05] Speaker 02:
that appellants themselves have cited state that while there could be a bad faith claim in the absence of a duty to indemnify, they also all state that an insurance company owes a duty of implied good faith and fair dealing only to someone who is actually an insured under the policy.

[00:14:25] Speaker 03:
So your position is that these two cases rise and fall together?

[00:14:29] Speaker 03:
Rise or fall together?

[00:14:30] Speaker 03:
Meaning, if we say there's no collateral estoppel in the case we just heard,

[00:14:35] Speaker 03:
then this one also needs to be sent back.

[00:14:38] Speaker 03:
But if we say there is collateral estoppel in the first case, there's no wiggle room for us to have a different ruling in this case.

[00:14:46] Speaker 02:
I agree 100% with the second part of your point, Your Honor, and slightly less than 100% with the first part.

[00:14:53] Speaker 02:
So yes, if you agree that collateral estoppel applies in the coverage action, this case goes away.

[00:14:58] Speaker 02:
If you decide that collateral estoppel did not apply in the first case, I agree that most of this case, this appeal probably goes away as well.

[00:15:08] Speaker 02:
I think there's enough evidence in the rec.

[00:15:09] Speaker 03:
Wait, hold on.

[00:15:11] Speaker 03:
It goes back to the district court.

[00:15:12] Speaker 02:
It goes back to the district court.

[00:15:13] Speaker 02:
It goes out of this court.

[00:15:15] Speaker 02:
However, I do think even if the court decided collateral estoppel did not apply in case one, independently, based on an undisputed record, the court could and should rule that at most Continental is responsible for only a $17 million verdict.

[00:15:36] Speaker 02:
The delta between

[00:15:38] Speaker 02:
the $17 million reduction in the verdict and the original $58.5 million.

[00:15:43] Speaker 03:
You would be asking us to do that in the first instance because the district did it.

[00:15:48] Speaker 02:
Yes, but I wanted to qualify that.

[00:15:49] Speaker 02:
I understand.

[00:15:50] Speaker 03:
No, thank you for the clarification.

[00:15:51] Speaker 03:
That's helpful.

[00:15:52] Speaker 03:
It might be a bit more than we want to bite off, but you can ask for the move.

[00:15:58] Speaker 02:
I wanted to answer your question.

[00:16:01] Speaker 02:
And then to move on to the second point that council made, because I think it's really important and it's fundamentally incorrect,

[00:16:08] Speaker 02:
is they argue that Gore's rights were not determined in the coverage action.

[00:16:14] Speaker 02:
And the district court recognized that was an incorrect point.

[00:16:17] Speaker 02:
The district court said, in fact, claimants contend that Judge Humitewa, quote, did not decide whether Gore wasn't insured under the policy and that no court had ever addressed this issue, quote, and that not so.

[00:16:29] Speaker 02:
Judge Humitewa expressly addressed and decided this very issue.

[00:16:33] Speaker 02:
And I think that's apparent from our earlier argument.

[00:16:36] Speaker 02:
But to go to another point, which is perhaps more subtle but equally important, the notion that somehow Gore's claims were dismissed before the summary judgment ruling occurred in the coverage action, that is incorrect.

[00:16:51] Speaker 02:
If the court looks at the judgment, which is the first thing in the excerpts of the record in the coverage action, it's clear that the judgment followed the summary judgment order.

[00:17:02] Speaker 02:
And here's what the judgment said.

[00:17:06] Speaker 02:
Well, first, Gore was not dismissed until after the summary judgment ruling.

[00:17:10] Speaker 02:
And then the district court entered judgment as follows.

[00:17:14] Speaker 02:
The court said the issues have been considered and a decision has been rendered by the court on August 9, 2021, DOC 119, that's the MSJ order, and the remaining claims not resolved by the court at DOC 119 having been dismissed by the parties without prejudice.

[00:17:31] Speaker 02:
It is ordered and judged that pursuant to the August 9 order,

[00:17:34] Speaker 02:
Judgment is entered in favor of plaintiffs to the extent of the court's order and otherwise pursuant to the party's stipulation of dismissal of remaining claims without prejudice.

[00:17:45] Speaker 02:
The complaint is terminated.

[00:17:47] Speaker 02:
So here is the timeline.

[00:17:49] Speaker 02:
The summary judgment was brought.

[00:17:51] Speaker 02:
Gore was not dismissed from the case at that time.

[00:17:53] Speaker 02:
He defaulted, but he was not dismissed.

[00:17:57] Speaker 02:
Judge Kamatewa entered her summary judgment order.

[00:18:00] Speaker 02:
After the summary judgment order, the party stipulated

[00:18:03] Speaker 02:
dismissed the remaining claims.

[00:18:05] Speaker 02:
And judgment was entered against all parties on the issue of coverage, which was the issue on the summary judgment order.

[00:18:12] Speaker 02:
So Gore was in the case at the time of the MSJ order.

[00:18:16] Speaker 02:
They had his assignment at that time.

[00:18:19] Speaker 02:
And he was not dismissed until after that order was rendered.

[00:18:23] Speaker 02:
And I'm out of time.

[00:18:24] Speaker 02:
Unless the court has any other questions, I'm prepared to submit.

[00:18:28] Speaker 03:
Thank you.

[00:18:29] Speaker 02:
Thank you, Your Honor.

[00:18:32] Speaker 03:
We'll give you a minute for rebuttal.

[00:18:34] Speaker 01:
Thank you briefly to start where counsel left off at the end.

[00:18:39] Speaker 01:
We don't dispute that Mr. Gore was not dismissed until after the summary judgment order, but he was not participating in the first declaratory judgment action.

[00:18:49] Speaker 01:
He wasn't served with motion for summary judgment that ended up being in the ruling, and he did not participate in that process.

[00:18:57] Speaker 01:
And under Arizona law, if a party doesn't participate, they have to actually litigate it for it to be fully and fairly litigated.

[00:19:03] Speaker 01:
It can't be held against Gore.

[00:19:05] Speaker 01:
I think what I only have a couple seconds left, but I think what's clear here is that Gore's rights under this policy as to him as an insured have never been determined on the merits in any prior proceeding.

[00:19:20] Speaker 01:
And when counsel reads to you Judge Shimotawa's order, I think her words are really important.

[00:19:28] Speaker 01:
She said, before reaching the merits of appellant's arguments as to the language of the insurance policy,

[00:19:34] Speaker 01:
The court must examine whether it is precluded from reaching those issues based on the state court's decision.

[00:19:39] Speaker 01:
That's the record 320 is where she said that.

[00:19:43] Speaker 01:
In other words, she did not rule on whether Gore had rights under the policy.

[00:19:48] Speaker 01:
She was ruling as to my client standing in their own shoes and whether the Beecher order from Judge Thomason stopped us unless we had more.

[00:19:56] Speaker 01:
Thank you, Your Honor.

[00:19:57] Speaker 01:
I appreciate the time this morning.

[00:19:59] Speaker 03:
Thank you to both council for helping us out in these factually at least complicated cases.

[00:20:07] Speaker 03:
All the cases are now submitted.