dissenting.
I respectfully dissent. I do agree that the reservation of rights letter that Equity General sent to C & A was not sugar-coated and would have been adequate had it also been sent to counsel for C & A. I believe, however, that material facts remain in dispute on the issue of whether Equity General acted in bad faith and that C & A should be entitled to litigate that issue.
A detailed reference to the underlying facts is appropriate: After C & A was sued by Pruitt, Equity General retained the law firm of Udall, Shumway, Blackhurst, Allen, Lyons & Davis to defend C & A. This law firm had previously represented C & A as its private counsel handling any problems arising in the ordinary conduct of the company’s business. The lawyer who had primary responsibility for the Pruitt lawsuit was John Lyons.
Shortly after the Pruitt lawsuit was filed, and after the Udall law firm had been retained to handle the case, Equity General sent a “reservation of rights” letter to C & A. It did not send a copy of that letter to the law firm. The letter was received by a representative of C & A who had no legal training and who testified that he did not understand the significance of the letter. Based on his assumption that Lyons knew about the letter, C & A’s representative did not mention it to the attorney. Even though Pruitt eventually filed an amended complaint against C & A, and Lyons’ firm forwarded the second complaint with an explanation of its differences to Equity General, the insurance company never advised Lyons, or readvised C & A, that it was questioning coverage for any judg*520ment rendered in the Pruitt lawsuit. The first time Lyons learned of the reservation of rights was after judgment was entered against C & A Realty.
As Pruitt’s case against C & A proceeded, Lyons had a number of exchanges with Jim Baxter, an Equity General employee who was handling the claim for the insurer. More than two years after the initial complaint was filed by Pruitt, Pruitt’s attorneys suggested in pre-trial negotiations with Lyons that Pruitt would settle for an amount between $50,000 and $60,000. Lyons informed Baxter of the offer and suggested that Baxter authorize settlement in the amount of $40,000 because of Lyons’ concern about the high damages which might potentially be assessed against C & A. Without mentioning any question about coverage, Baxter said he would not authorize settlement for more than the defense costs, which he thought should not exceed $7,500. Although Baxter recognized that the potential existed for a high judgment, he said he “was going to take a chance on trying this case.” Based on Baxter’s decision, Lyons told Pruitt that settlement would not be possible. At no time during his discussion with Lyons did Baxter mention the possibility that Equity General would deny coverage.
Lyons filed an affidavit as to what he would have done had he known about the reservation of rights:
If this possible denial of coverage had been mentioned, I would have then gone to C & A Realty and explained the potential for a large judgment existed, that Equity General was going to deny coverage, and that C & A Realty should authorize me to settle the case and pay the settlement from C & A Realty’s own monies, and then sue Equity General to recover the sums paid.
After judgment was ultimately entered against C & A, the insurer advised that it had been defending under a reservation of rights. In contrast to the original reservation of rights letter, which had only been sent to C & A, Equity General sent the later notice to both C & A and Lyons.
There appears to be no case law on whether a reservation of rights letter must be sent to both the insured and counsel for the insured. Certainly, as this case illustrates, that would be the better practice. In any event, several basic principles interact and bear on the circumstances of this case in such a way as to raise unresolved questions of fact.
First, counsel, even though originally hired by the insurance company, “owes him [the insured] ‘undeviating and single allegiance’ whether the attorney is compensated by the insurer or the insured.” Parsons v. Continental National American Group, 113 Ariz. 223, 227, 550 P.2d 94, 98 (1976), quoting Newcomb v. Meiss, 263 Minn. 315, 116 N.W.2d 593 (1962). Although Lyons presumably had access to the insurance policy and might have discovered that there were express exclusions for fraud, for intentional acts and for punitive damages, and although he conceded that he knew that most liability policies excluded coverage for fraudulent or intentional acts, he, as attorney for C & A, had no duty to Equity General to suggest coverage defenses to it. Parsons, 113 Ariz. at 227, 550 P.2d 94. At most, his suspicions might have prompted him to inquire of C & A as to whether it had any notice that Equity General was defending under a reservation of rights.
Second, an insurer owes a duty to consider, in good faith, the totality of the insured’s interests when it refuses to settle an action against the insured within the policy limits. Farmers Insurance Exchange v. Henderson, 82 Ariz. 335, 313 P.2d 404 (1957). It must take into account the following factors:
[T]he strength of the injured claimant’s case on the issues of liability and damages; attempts by the insurer to induce the insured to contribute to a settlement; failure of the insurer to properly investigate the circumstances so as to ascertain the evidence against the insured; the insurer’s rejection of advice of its own attorney or agent; failure of the insurer to inform the insured of a compromise *521offer; the amount of financial risk to which each party is exposed in the event of a refusal to settle; the fault of the insured in inducing the insurer’s rejection of the compromise offer by misleading it as to the facts; and any other factors tending to establish or negate bad faith on the part of the insurer.
General Accident Fire & Life Assurance Corp. v. Little, 103 Ariz. 435, 439, 443 P.2d 690, 694 (1968), quoting Brown v. Guarantee Insurance Co., 155 Cal.App.2d 679, 689, 319 P.2d 69, 75 (1957). (emphasis added)
Whether an insurer should have, in the exercise of due care, settled an action against its insured for an amount within the policy limits is a question for the trier of fact. Globe Indemnity Co. v. Gen-Aero, Inc., 459 S.W.2d 205 (Tex.App.1970); Peterson v. Allcity Insurance Co., 472 F.2d 71 (2d Cir.1972). I think the rules with respect to a duty to settle within the policy limits apply to settlement on terms that are within the coverage of the policy.
This means in respect to this case that it is possible that Equity General acted in bad faith in refusing to settle on terms that were covered by the policy. Given Lyons’ experience, integrity and ability, it seems likely (¡that the settlement agreement would have been structured as compensation to the plaintiff Pruitt for C & A’s negligence, as opposed to compensation for fraud or punitive damages, thus keeping it within the coverage of the policy. Even if that were not the case, Lyons could have done what he said in his affidavit he would have done, that is, have his client settle and then bring an action against the insurer to recover what the client paid out. Of course, if Lyons were unaware of the reservation of rights, he would hardly take the steps necessary to protect C & A from a judgment not covered by the policy.
Third, the law of estoppel figures into the equation. An estoppel may occur where one party, by its conduct, induces another to believe and have confidence in certain material facts, which inducement results in acts in reliance thereon, justifiably taken, which causes injury to the person thus relying. State Farm Mutual Automobile Insurance Co. v. Robison, 11 Ariz.App. 41, 45, 461 P.2d 520, 524 (1970). In the context of this case, all parties originally contributed to the failure to communicate which led Lyons to believe that there was full coverage for all claims. C & A should have told Lyons about the letter. Lyons arguably should have inquired of C & A about a reservation of rights. Equity General arguably should have sent the letter to both C & A and Lyons. Even if Lyons and C & A were derelict, if Equity General was aware that Lyons was operating on the belief that there was complete coverage (and his failure to remonstrate with the insurer’s refusal to settle might well have tipped the company off to the fact that such was his assumption), then Equity General should have to pay the judgment for punitive damages. This situation is analogous to the rule of contract law that a unilateral mistake of fact is not grounds to reform an agreement unless one party knows that the other party is mistaken about its rights and obligations under the agreement and takes advantage of that mistake. See Isaak v. Massachusetts Indemnity Life Insurance Co., 127 Ariz. 581, 623 P.2d 11 (1981).
Crystallized, what this means is that there are disputed issues of material fact as to whether Lyons acted justifiably in not independently exploring the coverage question and whether Equity General knew or should have known that the insured and its attorney were operating on the premise there was complete coverage. The case must be tried to resolve these issues. I simply do not agree with the majority that there is no contention that Equity General was guilty of bad faith in not settling. While that claim may not be sharply focused, it is subsumed in C & A’s argument concerning the duty of the insurer to give notice of the reservation of rights to C & A’s counsel.
Based upon the foregoing, I would reverse the summary judgment and remand this case for trial.