SUPREME COURT OF ARIZONA
En Banc
D. JERE' WEBB, through ) Arizona Supreme Court
assignment granted by Gail Susan ) No. CV-07-0127-PR
Berliant and Neal Berliant (dba )
The Liquor Vault, Inc. and ) Court of Appeals
Berliant, LLC), ) Division One
) No. 1 CA-CV 06-0300
Plaintiff-Appellant, )
) Maricopa County
v. ) Superior Court
) No. CV2005-093597
VICTORIA GITTLEN; G&G INSURANCE )
SERVICE, INC., an Arizona )
corporation; CDS INSURANCE )
AGENCY LLC, a limited liability ) O P I N I O N
company doing business in )
Arizona, )
)
Defendants-Appellees. )
)
_________________________________)
Appeal from the Superior Court in Maricopa County
The Honorable Helene F. Abrams, Judge
REVERSED AND REMANDED
________________________________________________________________
Memorandum Decision of the Court of Appeals, Division One
Filed Mar. 8, 2007
REVERSED
________________________________________________________________
MATTHEW L. RIGGS, P.C. Mesa
By Matthew L. Riggs
Attorney for D. Jere' Webb
LEWIS, BRISBOIS, BISGAARD & SMITH, L.L.P. Phoenix
By Greg S. Como
Rob A. Justman
Attorneys for Victoria Gittlen, G&G Insurance
Service Inc., and CDS Insurance Agency, L.L.C.
THE HASSETT LAW FIRM, P.L.C. Phoenix
By Myles P. Hassett
Lucas N. Frank
Attorneys for Amicus Curiae Independent Insurance Agents
and Brokers of Arizona
________________________________________________________________
B A L E S, Justice
¶ 1 Under Arizona law, an insurance agent’s clients may
assert claims for professional negligence against the agent. We
hold that clients may assign such claims to third parties.
I.
¶ 2 In 2000, Neal and Gail Berliant bought a liquor store
called The Liquor Vault. To insure themselves, they purchased a
business and umbrella liability policy from Victoria Gittlen, a
licensed insurance agent. Gittlen then worked for G&G Insurance
Service; she later moved to CDS Insurance Agency. The Berliants
allege that Gittlen did not advise them that they could also
purchase liquor liability coverage.
¶ 3 In 2001, The Liquor Vault sold beer to a minor who
gave it to another. The second youth drove his car into a
cement barrier, killing his passenger. The passenger’s father,
D. Jere’ Webb, filed a wrongful death claim against the
Berliants and The Liquor Vault. The Berliants tendered the
claim to their insurance company, which refused to defend
because the Berliants lacked liquor liability coverage.
2
¶ 4 To settle the wrongful death claim, the Berliants
stipulated to the entry of a $3 million judgment; Webb agreed
not to execute on the judgment and, in exchange, the Berliants
assigned to Webb their rights to sue both their insurer and
their insurance agent and her employers. Webb then sued
Gittlen, G&G, and CDS, alleging negligence and breach of
fiduciary duty. The trial court dismissed these claims, citing
Premium Cigars International Ltd. v. Farmer-Butler-Leavitt
Insurance Agency, which held that claims against an insurance
agent for professional negligence are not assignable. 208 Ariz.
557, 96 P.3d 555 (App. 2004).1
¶ 5 The court of appeals affirmed in a memorandum decision
that also relied upon Premium Cigars. We granted review to
consider whether insureds may assign claims against their
insurance agent. This Court has jurisdiction pursuant to
Article 6, Section 5(3) of the Arizona Constitution, Arizona
Revised Statutes (“A.R.S.”) § 12-120.24 (2003), and Arizona Rule
of Civil Appellate Procedure 23(c)(3).
II.
¶ 6 Arizona case law generally allows the assignment of
unliquidated legal claims except those involving personal
injury. This distinction reflects the evolution of the common
1
Webb also sued the insurance company. Those claims are not at
issue here.
3
law, which once held that “choses in action” could not be
assigned, except to the crown. Welch v. Mandeville, 14 U.S. (1
Wheat.) 233, 237 n.a (1816). A legal claim is one type of
“chose in action,” but the concept also encompasses “debts of
all kinds” and “rights to recover ownership or possession of
real or personal property.” Restatement (Second) of Contracts §
316 cmt. a (1981); see also W.S. Holdsworth, The History of the
Treatment of Choses in Action by the Common Law, 33 Harv. L.
Rev. 997 (1920) (tracing the term’s evolution).
¶ 7 The broad prohibition on assignment exemplified the
common law view that litigation was vexatious or otherwise
socially undesirable. Max Radin, Maintenance by Champerty, 24
Cal. L. Rev. 48, 57-58 (1935). Illustrative is Lord Coke’s
statement:
And first was observed the great wisdom and policy of
the sages and founders of our law, who have provided
that no possibility, right, title, nor thing in
action, shall be granted or assigned to strangers, for
that would be the occasion of multiplying of
contentions and suits, of great oppression of the
people.
Lampet’s Case, (1613) 77 Eng. Rep. 994, 997 (K.B.).
¶ 8 As courts became more accessible and litigation a more
accepted means for resolving disputes, the prohibition on
assignment gradually became the exception rather than the rule.
By the end of the 17th century, the English equity courts
permitted assignees to recover debts. The common law courts
4
later followed suit, although they sometimes required the action
to be filed in the name of the assignor for the benefit of the
assignee. Welch, 14 U.S. at 237 n.a; Walter Wheeler Cook, The
Alienability of Choses in Action, 29 Harv. L. Rev. 816, 821-22
(1916). American courts have long allowed the assignment of
various choses in action, including many unliquidated legal
claims. See Welch, 14 U.S. at 236-37 (upholding assignment and
denying preclusive effect to a collusive judgment reached by
assignor and debtor); Deatsch v. Fairfield, 27 Ariz. 387, 397-
98, 233 P. 887, 891 (1925) (allowing assignment of breach of
contract claim); Rice v. Stone, 83 Mass. (1 Allen) 566, 568
(1861) (noting that property claims and property tort claims
could be assigned).
¶ 9 One class of unliquidated claims was excluded from the
emerging rule of assignability: personal injury claims.
Restatement (First) of Contracts § 547 (1932). Since Roman
times, such claims were considered “personal” to the claimant
and could not be asserted by others. Holdsworth, supra ¶ 6, at
1002-03, 1022-24. Consistent with this perspective, absent a
statute allowing for survival, a deceased claimant’s personal
injury claim could not be asserted by heirs or an estate. See
McClure v. Johnson, 50 Ariz. 76, 81, 69 P.2d 573, 575 (1937).
Many courts concluded that whether a claim would survive the
claimant’s death should also determine whether it could be
5
assigned during the claimant’s life and applied this test to
both personal injury and other claims. See, e.g., Comegys v.
Vasse, 26 U.S. (1 Pet.) 193, 213 (1828) (dicta noting that “mere
personal torts, which die with the party, and do not survive to
his personal representatives, are not capable of passing by
assignment.”); United Verde Extension Mining Co. v. Ralston, 37
Ariz. 554, 559-60, 296 P. 262, 264 (1931) (holding that claims
for property damage would survive and thus were assignable).
¶ 10 This “survivability” test did not itself survive in
Arizona after 1955, when the legislature enacted a statute
providing for the survival of most causes of action, including
personal injury claims. See Harleysville Mut. Ins. Co. v. Lea,
2 Ariz. App. 538, 540-41, 410 P.2d 495, 497-98 (1966) (quoting
A.R.S. § 14-477 (1955)).2 Although this statute undermined one
rationale for refusing to allow the assignment of personal
injury claims, courts did not abolish the rule. Instead, they
resurrected the common law public policy rationale – fear of
vexatious litigation. In Harleysville, the first decision to
embrace this approach, the court of appeals concluded that
allowing assignment of personal injury claims would be “fraught
with possibilities” and noted that many early writers “objected
2
Under the modern survivability statute, the only claims that do
not survive are those for damages for breach of promise to
marry, seduction, libel, slander, maintenance, alimony, loss of
consortium, and invasion of privacy. A.R.S. § 14-3110 (2005).
6
to ... assignability because they felt that unscrupulous people
would purchase causes of action and thereby traffic in law suits
for pain and suffering.” Harleysville, 2 Ariz. App. at 541-42,
410 P.2d at 498-99.
¶ 11 This Court subsequently endorsed Harleysville and
expressly relied on public policy considerations in reaffirming
the rule against assignment of personal injury claims. State
Farm Fire & Cas. Co. v. Knapp, 107 Ariz. 184, 185, 484 P.2d 180,
181 (1971). Both Harleysville and Knapp, however, noted that
the legislature could specify whether certain claims are
assignable. Id.; Harleysville, 2 Ariz. App. at 542, 410 P.2d at
499; see also K.W. Dart Truck Co. v. Noble, 116 Ariz. 9, 11, 567
P.2d 325, 327 (1977) (holding that the legislature could
statutorily assign an injured worker’s claim to his employer’s
insurer in certain circumstances).
¶ 12 Public policy considerations have also guided courts
in determining the assignability of claims not involving
personal injury. For example, the court of appeals has held
that legal malpractice claims cannot be assigned, although the
principal policy consideration offered has been deference to the
attorney-client relationship, not fears about trafficking in
lawsuits. See Botma v. Huser, 202 Ariz. 14, 17 ¶ 11, 39 P.3d
538, 541 (App. 2002) (citing Schroeder v. Hudgins, 142 Ariz.
395, 399, 690 P.2d 114, 118 (App. 1984), abrogation on other
7
grounds recognized by Franko v. Mitchell, 158 Ariz. 391, 399
n.1, 762 P.2d 1345, 1353 n.1 (App. 1988)).
¶ 13 The current principles under Arizona law for
determining if an unliquidated claim may be assigned can be
summarized as follows: (1) claims generally are assignable
except those involving personal injury; (2) the legislature may
specify whether particular claims are assignable; and (3) absent
legislative direction, public policy considerations should guide
courts in determining whether to depart from the general rule.
Cf. Restatement (Second) of Contracts § 178 (1981) (stating that
contracts are unenforceable where legislation so provides or
where public policy clearly outweighs contractual terms).3
III.
¶ 14 Against this background, Gittlen argues that claims
against insurance agents for professional negligence cannot be
assigned because (1) claims against lawyers for legal
3
Despite the common law prohibition on assigning personal injury
claims, the law allows a claimholder to release a claim as part
of a settlement and a tortfeasor to purchase an insurer’s
agreement to defend prospective claims. Although neither of
these scenarios involves assertion of a claim by a third-party
assignee, they can be regarded as variations of an “assignment”
of rights to assert or defend a personal injury claim. See
Michael Abramowicz, On the Alienability of Legal Claims, 114
Yale L.J. 697, 710 (2005). Some commentators advocate allowing
assignment of all tort claims. See Isaac Marcushamer, Note,
Selling Your Torts: Creating a Market for Tort Claims and
Liability, 33 Hofstra L. Rev. 1543 (2005); Patrick T. Morgan,
Note, Unbundling Our Tort Rights: Assignability for Personal
Injury and Wrongful Death Claims: Lingel v. Olbin, 66 Mo. L.
Rev. 683 (2001).
8
malpractice are not assignable; (2) the court of appeals in
Premium Cigars correctly extended this rule to insurance agents,
as their relationship with clients is analogous to the attorney-
client relationship; and (3) although the legislature has not
addressed the assignment of claims against insurance agents,
allowing such assignment would violate public policy.
A.
¶ 15 In contending that legal malpractice claims may not be
assigned, Gittlen presumes this Court has embraced such a rule.
Although the court of appeals has done so, this Court has not
yet decided this issue. Some, but not all, states prohibit the
assignment of such claims. Compare Greene v. Leasing Assocs.,
Inc., 935 So.2d 21, 24 (Fla. Ct. App. 2006); Joos v. Drillock,
338 N.W.2d 736, 739 (Mich. Ct. App. 1983); Godley v. Wank &
Wank, Inc., 133 Cal. Rptr. 83, 87 (App. 1976), with N.H. Ins.
Co. v. McCann, 707 N.E.2d 332, 336-37 (Mass. 1999) (permitting
assignment). We need not decide today whether legal malpractice
claims are assignable, but assume for analytical purposes that
they are not.
B.
¶ 16 Gittlen argues that professional negligence claims
against insurance agents are sufficiently analogous to legal
malpractice claims to justify extending the prohibition on
assignment. We disagree.
9
1.
¶ 17 The cases prohibiting assignment of legal malpractice
claims do so because of the “uniquely personal” relationship
between attorney and client, which gives rise to a “fiduciary
relation of the very highest character.” Botma, 202 Ariz. at 17
¶ 11, 39 P.3d at 541 (quoting Schroeder, 142 Ariz. at 399, 690
P.2d at 118). Therefore, “considerations of public policy
require that actions arising out of [the] relationship not be
relegated to the market place and converted to a commodity to be
exploited and transferred to economic bidders.” Id. Rather,
the cases conclude that malpractice claims should be asserted
only by the wronged client to whom the attorney owes fiduciary
duties. Schroeder, 142 Ariz. at 399, 690 P.2d at 118.
¶ 18 In Premium Cigars, the court of appeals extended this
rationale to professional negligence claims against insurance
agents. It held that such claims may not be assigned because
the relationship of insurance agent and client is similar to
that of attorney and client. Premium Cigars, 208 Ariz. at 566
¶¶ 25-26, 96 P.3d at 564. An insurance transaction, the court
said, “is not simply a commercial transaction but a transaction
personal in nature for the benefit of the client.” Id. at ¶ 24.
Furthermore, like attorneys, agents owe a “duty to the insured
to exercise reasonable care, skill and diligence” in carrying
out the duty to procure insurance. Id. at 566 ¶ 22, 96 P.3d at
10
564 (quoting Darner Motor Sales, Inc. v. Universal Underwriters
Ins. Co., 140 Ariz. 383, 397, 682 P.2d 388, 402 (1984) (holding
that such a duty exists)). Like the courts in the legal
malpractice cases, the court in Premium Cigars expressed concern
that negligence claims against insurance agents could become
“bargaining chips” in settlement negotiations. Id. at 566 ¶ 26,
96 P.3d at 564.
2.
¶ 19 We reject the Premium Cigars rationale. The
relationship between an insurance agent and client, while
certainly important, differs from that between an attorney and
client in several critical respects.
¶ 20 Attorneys are fiduciaries with duties of loyalty,
care, and obedience, whose relationship with the client must be
one of “utmost trust.” In re Piatt, 191 Ariz. 24, 26, 951 P.2d
889, 891 (1997). By contrast, insurance agents generally are
not fiduciaries, but instead owe only a duty of “reasonable
care, skill, and diligence” in dealing with clients. Darner,
140 Ariz. at 397, 682 P.2d at 402; see also Sw. Auto Painting &
Body Repair, Inc. v. Binsfield, 183 Ariz. 444, 448, 904 P.2d
1268, 1272 (App. 1995) (holding that it was a question of
breach, not duty, whether an agent’s failure to advise a client
about additional insurance gave rise to liability). Furthermore,
duties of reasonable care similar to insurance agents’ arise in
11
many other contexts that do not give rise to non-assignability,
such as auditor-client, and even in some cases that give rise to
fiduciary relationships, such as trustee-beneficiary. See
Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 17, 945
P.2d 317, 328 (App. 1996) (auditors); Forest Guardians v. Wells,
201 Ariz. 255, 260 ¶ 13, 34 P.3d 364, 369 (2001) (trustees).
¶ 21 Similarly, although clients share personal information
with both their insurance agents and attorneys, they typically
share much less with their agents. While clients often inform
their agents about their medical history, financial information,
prior claim history, and personal habits, they provide their
attorneys more extensive or sensitive information about their
private and public conduct, including activities that may expose
them to civil or criminal liability.
¶ 22 Furthermore, attorney-client confidentiality protects
broader interests than does insurance agent-client
confidentiality. It protects the public interest in accessible
legal advice by allowing people to consult their attorneys
without fear of retribution. It also ensures that clients are
effectively represented, which in criminal cases is essential to
defendants’ constitutional right to assistance of counsel.
Ariz. R. Sup. Ct. 42, ER 1.6 cmt. 2; cf. McClure v. Thompson,
323 F.3d 1233, 1242-47 (9th Cir. 2003) (evaluating whether
disclosure of client confidences constituted ineffective
12
assistance of counsel). By contrast, insurance agent-client
confidentiality appears to protect only the client’s privacy, an
interest that, while important, has fewer societal ramifications
than do the interests protected by the attorney-client
relationship.
¶ 23 Once attorneys receive information, they are also
bound by stricter confidentiality duties than are insurance
agents. Attorneys may disclose information only to prevent
client crimes, Ariz. R. Sup. Ct. 42, ER 1.6(b), (d)(1), or in a
few other limited circumstances, id. at (d)(3)-(4) (also
allowing disclosure to secure legal advice about compliance with
the rules and to defend against suits brought by the client).
Insurance agents, by contrast, are statutorily allowed to
disclose client information in seventeen different
circumstances, including when an affiliate seeks the information
for marketing purposes. A.R.S. § 20-2113 (2002 & Supp. 2007)
(also allowing disclosure connected with proposed sales of the
insurance institution or requests for verification of benefits
from hospitals or doctors).
¶ 24 Considered together, these distinctions demonstrate
that the relationship between insurance agents and their
clients, while perhaps personal, is not “uniquely personal” in a
sense comparable to an attorney-client relationship. The
13
differences are substantial and the similarities do not justify
holding that claims against agents cannot be assigned.
C.
¶ 25 Gittlen also advances four public policy reasons for
prohibiting the assignment of professional negligence claims
against insurance agents.
1.
¶ 26 Gittlen first suggests that allowing assignment would
undermine the personal relationship between agent and client by
allowing professional negligence claims to become a “bargaining
chip” that may be “commercializ[ed].”
¶ 27 This argument is unpersuasive. Although the agent-
client relationship has personal dimensions, it arises from a
commercial transaction – the purchase of insurance. It is
therefore odd to suggest that it should not be commercialized.
At any rate, to the extent that the relationship contains
personal elements, they exist for the client’s benefit. Clients
are best positioned and should be empowered to decide whether to
value that relationship above the benefits they could obtain
from assigning a professional negligence claim.
2.
¶ 28 Gittlen also contends that allowing assignment
conflicts with this Court’s decision in Napier v. Bertram, which
held that a taxicab company’s insurance agent did not owe a
14
passenger the duty to secure uninsured motorist insurance for
the company. 191 Ariz. 238, 244 ¶¶ 20-21, 954 P.2d 1389, 1395
(1998). She argues that because Napier holds that insurance
agents owe no duties to non-clients, it would be inconsistent to
allow an assignee to sue an insurance agent. To do so, she
contends, would improperly recognize that people who are not
parties to an insurance contract may still benefit from the
insurance agent-client relationship.
¶ 29 This argument misconstrues the scope of Napier and the
nature of a claim asserted by an assignee. Napier holds that
agents generally owe duties to their clients only, but it does
not address whether claims for a breach of these duties may be
assigned. Assignees do not seek to expand insurance agents’
duties beyond those owed to the client. Instead, they merely
seek to assert the client’s claim. Allowing them to do so does
not improperly increase the beneficiaries of an insurance agent-
client relationship, because even though the insurance agent’s
duties do not extend beyond the client, Napier recognizes that
such duties “are discharged for the benefit of the non-client.”
191 Ariz. at 243 ¶ 19, 954 P.2d at 1394.
3.
¶ 30 Gittlen and her amici next argue that allowing
assignment of professional negligence claims will result in
“collusive” stipulated judgments that will bind insurance agents
15
who had no chance to contest them. This argument rests on a
faulty premise. Such judgments would not bind the agent.
¶ 31 This Court has recognized that, in some circumstances,
an insurer may be bound by a stipulated judgment entered
pursuant to a settlement between an insured and a plaintiff.
This typically occurs after the insurer has either reserved its
rights to contest coverage or declined to defend or indemnify
the insured. See United Servs. Auto. Ass’n v. Morris, 154 Ariz.
113, 120, 741 P.2d 246, 253 (1987). Under such settlements,
generally referred to as Morris or Damron agreements, the
insured admits liability and assigns to the plaintiff the
insured’s rights against the liability insurer in exchange for
the plaintiff’s promise not to execute the judgment against the
insured. See Safeway Ins. Co. v. Guerrero, 210 Ariz. 5, 7 ¶ 1
n.1, 106 P.3d 1020, 1022 n.1 (2005) (discussing differences
between Morris and Damron agreements). If the insurer is
ultimately found to be required to afford coverage or to have
breached its duties, the insurer may be barred from disputing
the insured’s liability as specified in the stipulated judgment.
See Morris, 154 Ariz. at 120, 741 P.2d at 253.
¶ 32 The rule that a stipulated judgment may bind the
insurer arises from the insurer’s contractual obligations to
defend and indemnify its insured. Id. When the insurer
breaches these obligations or reserves the right to deny
16
coverage, insureds are allowed to protect themselves from “the
sharp thrust of personal liability,” id. at 118, 741 P.2d at
251, by entering into Morris or Damron agreements. Such
agreements would offer no benefit to the plaintiff if they could
not conclusively determine the settling insured’s liability.
Id. at 120, 741 P.2d at 253. At the same time, they would pose
a danger if the insurer could be bound by inflated settlements.
Balancing these concerns, this Court held that the insurer may
be bound by the insured’s agreement only if the insurer has
declined an opportunity to defend and the insured establishes
that the settlement was reasonable and prudent. Id.
¶ 33 In contrast, an insurance agent generally has no
contractual duty to defend and indemnify the client. Our prior
holdings that an insurer may be bound in certain circumstances
by a judgment entered against the insured arose out of, and are
limited to, the insurer-insured relationship. Absent such a
relationship, we do not perceive, and Gittlen has not suggested,
any basis for concluding that insurance agents would be bound by
stipulated judgments to which they were not parties. Indeed,
principles of issue preclusion suggest the opposite conclusion.
Under those principles, the insurance agent would be barred from
re-litigating an issue only if, among other things, the agent or
her privy was a party in a prior action in which the issue was
actually litigated. See Maricopa-Stanfield Irrigation &
17
Drainage Dist. v. Robertson, 211 Ariz. 485, 491-92 ¶ 39, 123
P.3d 1122, 1128-29 (2005).
4.
¶ 34 Finally, Gittlen argues that allowing assignment would
flood courts with unwarranted litigation. We think this
unlikely. Although allowing assignment may lead to an increase
in the number of professional negligence claims that are
actually pursued, this is not necessarily a bad result. Insofar
as the claims are meritorious, they will serve the goals of
affording compensation for the clients who are victims of
professional negligence (who benefit from the consideration they
receive for assigning their claims), increasing the likelihood
that the victims of the underlying tort are compensated (insofar
as they can recover on the assigned claim against the agent),
and deterring negligence on the part of insurance agents. See
Michael Abramowicz, On the Alienability of Legal Claims, 114
Yale L.J. 697, 741 (2005). To the extent that allowing
assignment might foster non-meritorious claims, we believe they
will be better deterred by specifically targeted rules, such as
Arizona Rule of Civil Procedure 11, rather than an absolute bar
on assignment. Cf. Guerrero, 210 Ariz. at 15 ¶ 35, 106 P.3d at
1030 (discussing deterrents to the filing of frivolous claims).
18
¶ 35 In short, the policy concerns identified by Gittlen do
not support a rule generally barring the assignment of
professional negligence claims against insurance agents.
IV.
¶ 36 Because we hold that the Berliants may assign to Webb
their claims for professional negligence, we reverse the
decision of the court of appeals and the judgment of the trial
court and remand this case for further proceedings.
_______________________________________
W. Scott Bales, Justice
CONCURRING:
_______________________________________
Ruth V. McGregor, Chief Justice
_______________________________________
Rebecca White Berch, Vice Chief Justice
_______________________________________
Michael D. Ryan, Justice
_______________________________________
Andrew D. Hurwitz, Justice
19
Webb v. Gittlen
Court: Arizona Supreme Court
Date filed: 2008-01-10
Citations: 174 P.3d 275, 217 Ariz. 363
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