A "Morris agreement" between a title insured
and mechanics lien claimants was unenforceable, because the
agreement wasn't an arms-length transaction, and the settlement
left the insured without any risk of personal liability, the
Arizona Court of Appeals ruled in Fidelity National Title Insurance Company v.
Centerpoint Mechanic Lien Claims, LLC. In doing so, the court
passed on the opportunity to decide whether title insurance
policies can be subject to a "Morris
agreement."
In a "Morris agreement" – a type of
settlement that derives from the Supreme Court of Arizona's
1987 decision in United Services Automobile Ass'n v. Morris
– an insured independently settles with a third-party
claimant, assigning to the claimant his rights against his insurer,
who agreed to defend the insured while reserving its right to
challenge coverage under the insured's policy.
In Centerpoint, the agreement in question was between the
insured title holder and a mechanics' lien claimant that was
actually controlled by the insured, and essentially removed all of
the insured's liability. In effect, the court noted, the
agreement allowed the claimants to "seek reimbursement under
the insurance contract, and if appropriate, to pursue a potential
bad faith claim based on [the insurer's] allegedly improper
reservation of rights. Given these circumstances, the settlement
agreement ... was not a compliant Morris
agreement."
Fidelity had also argued that, as a matter of law, a title
insurance policy holder may not enter a Morris agreement.
Fidelity and amicus curiae American Land Title Association
asserted that, unlike the third-party insurance claim at
issue in Morris, a title policy provides insurance for a
first-party property loss, meaning a loss caused by
alleged title defects that could lessen the value of the
insureds' property. Unfortunately, the court refused to address
this argument because even assuming Morris applies to
title insurance claims, the settlement agreement was not a
compliant Morris agreement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
