Legal Memorandum: Settlement Agreement and Release in AZ

Issue: Whether a Settlement Agreement and Release could excuse an insurance company’s tortious bad faith conduct under Arizona law.

Area of Law: Business Organizations & Contracts, Insurance Law
Keywords: Settlement agreement and release; Bad faith claims; Unilateral mistake
Jurisdiction: Arizona
Cited Cases: 251 P. 2d 303; 27 P.2d 529; 377 P.2d 192; 790 P.2d 304; 539 P.2d 529; 75 Ariz. 1; 92 Ariz. 344; 164 Ariz. 18
Cited Statutes: None
Date: 06/01/2000

All bad faith causes of action, by definition, arise in the context of processing or settling insurance claims.  TA s "Stephen S. Ashley, Bad Faith Actions § 5:05 (West G" c 0See generally TA s "Stephen S. Ashley, Bad Faith Actions § 5:05 (West G" c 1 l "Stephen S. Ashley, Bad Faith Actions § 5:05 (West Group 1997 & Supp. 1999)"Stephen S. Ashley, Bad Faith Actions § 5:05.  If insurance companies were permitted to delay or underpay policy coverages and then obtain releases to indelibly cover their tracks, the tort of bad faith could never exist in connection with underpaid claims settled by release.  And yet the insurance industry’s insistence on unfettered freedom to make and breach its contracts is the very reason why the tort of bad faith is now recognized in Arizona courts and throughout the country.

An aggrieved insured who may have both contract and tort claims is certainly entitled to elect the causes of action upon which relief is sought.  And as the evolving bad faith case law has shown, trial courts have broad powers to fashion noncontractual remedies for bad faith arising in the context of settling insurance claims.

Assuming, however, that insurance companies could permissibly defend bad faith claims simply by proffering release agreements, Arizona courts are still empowered to admit parol evidence showing that a release was obtained through either fraud or mistake.  See, e.g., TA s "Lowther v. Hopper Truck Lines, 92 Ariz. 344, 346-47," c 2 l […]

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