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Bills v. Arizona Property and Casualty Insurance Guaranty Fund2/2/1999
entitled to indemnity, regardless of whether he or she is immune in the underlying action pursuant to subsection (A).
Thus, subsection (B) has some limited purpose and utility. As this case illustrates, someone may sue the Fund's board, its agents, or employees even though they are immune from liability pursuant to subsection (A). In that event, the Fund is obligated to indemnify the board, its agents, or employees for any expenses they incur in defending the action, for example, in preparing and litigating a motion to dismiss under Rule 12(b)(6), Ariz. R. Civ. P., 16 A.R.S., unless they engaged in the type of conduct set forth in subsection (B), including bad faith. Immunity under subsection (A) does not guarantee indemnification under subsection (B). In addition, there may be circumstances in which indemnity under subsection (B) clearly is precluded but immunity under subsection (A) is far from clear, for example, if an agent of the Fund's board embezzles or intentionally converts Fund monies for an improper purpose. Such conduct hardly could be viewed as "action taken in the performance of [the agent's] powers and duties" pursuant to the statutes. § 20-675(A).
Even if subsections (A) and (B) were irreconcilable, that would not undermine the principle that the legislatively created Fund is "statutorily limited to the payment of 'covered claims,' the definition of which does not include tort claims made against the Fund." Wells Fargo, 165 Ariz. at 572, 799 P.2d at 913. See also T & N PLC (damages allegedly caused by state guaranty fund's bad faith handling of claim not recoverable because they do not constitute "covered claim" within meaning of statute virtually identical to § 20-661(3)); Vaughn (same). Because "the rights and obligations of an insolvent insurer and the Fund are not absolutely coextensive but are limited by the statute," A. H., 190 Ariz. at 530, 950 P.2d at 1151, the Fund is not subject to liability on plaintiff's tort claims, notwithstanding the alleged invalidity or incongruity of § 20-675.
Plaintiff presents some public policy reasons, however, that arguably support recognizing and permitting bad faith claims against the Fund in some circumstances. If the Fund's claim handling and settlement activities are "unchecked by any real consequence for failure to be fair and reasonable," she asserts, the Fund's agents "are not going to be reliably fair and reasonable." According to her, "immunity renders the obligation to act in good faith an illusion," and the Fund "can treat the insured with indifference or even contempt" without ever "hav to answer for its conduct." The Fund openly acknowledged at oral argument that permitting it to act in utter bad faith with impunity and immunity is "bothersome." We agree.
On the other hand, the record does not indicate, nor does plaintiff argue, that the Fund or its agents routinely or cavalierly engage in bad faith practices in handling covered claims. There is no evidence of a pattern of misbehavior. In addition, we note that plaintiff is not without a remedy. Her claim that the Fund is contractually and statutorily obligated to pay the "statutory limits" is still pending in the trial court. If she prevails on that claim, she not only will be entitled to recover up to $100,000 under § 20-667(B), but also could potentially recover prejudgment interest and attorneys' fees. See A.H.; Clark Equip.; Alta Vista Plaza, Ltd. v. Insulation Specialists Co., 186 Ariz. 81, 919 P.2d 176 (App. 1995). The Fund's exposure to such awards should help to deter any tendency to engage in unreasonable negotiation and settlement tactics.
Although plaintiff's policy arguments are somewhat compelling, they are b
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