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 [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.