Flood Control District v. Paloma Investment Ltd. Partnership
279 P.3d 1191
Ariz. Ct. App.2012Background
- District indemnified Dam Owners for all liability arising from the Gillespie Dam; indemnity covers liability even when subject to a covenant not to execute; Farmers and Dam Owners settled for $3.3M, with Farmers covenanted not to execute beyond that amount; jury found Dam Owners 80% at fault, District 10% at fault, damages to Farmers total $5.36M; dispute focused on whether the indemnity covers the entire stipulated damages and how to treat covenant-not-to-execute damages and related sanctions; accrual and timeliness issues governed by Hauskins, INA, and related rules, plus Rule 68 sanctions and prejudgment interest; merger doctrine and geographic/temporal scope of indemnity were contested; final judgment involved Rule 68 sanctions allocation and prejudgment interest on Morris settlement, with cross-appeals on attorneys’ fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does indemnity cover all liability, including covenant-not-to-execute amounts? | Dam Owners: indemnity text to cover all liability; thus includes covenant-not-to-execute amounts. | District: indemnity should be limited to amounts actually paid or not cover covenant-executed portions. | Indemnity covers all liability, including amounts subject to covenant not to execute. |
| When does the indemnity claim accrue for notice and timeliness purposes? | Dam Owners: accrual occurs at judgment against the indemnitee. | District: accrues at service of underlying complaints or earlier. | Accrual occurs on entry of judgment against the indemnitee; notices before accrual can be premature but not invalid if informational. |
| Did the superior court abuse its discretion in Rule 68 sanctions and expert fees? | Dam Owners: court should reimburse certain expert fees and apportion sanctions. | District: some expert fees lacked nexus to trial; sanctions should be allocated. | Court correctly denied certain expert fees; remand to allocate sanctions among parties; no error in limiting expert fees. |
| Is prejudgment interest owed on the Morris settlement and related attorney fees? | Dam Owners: prejudgment interest should accrue on Morris settlement from judgment date; attorneys’ fees may differ. | District: prejudgment interest limited or not applicable to attorney fees. | Dam Owners entitled to prejudgment interest on Morris settlement from judgment date; not on attorneys’ fees. |
| Was merger or geographic/temporal scope properly construed to preserve indemnity? | Dam Owners: indemnity extends beyond easement and pre-1991 acts. | District: merger and scope limitations should restrict indemnity. | Indemnity extends to Dam Owners’ liability for failure to maintain the dam beyond easement and merger doctrine does not extinguish indemnity. |
Key Cases Cited
- Hauskins v. McGillicuddy, 175 Ariz. 42 (App. 1992) (liability indemnity applies when liability is established even if payment not made)
- INA Ins. Co. v. Valley Forge Ins. Co., 150 Ariz. 248 (App. 1986) (indemnity against liability defined broadly; not limited to paid amounts)
- MT Builders, L.L.C. v. Fisher Roofing, Inc., 219 Ariz. 297 (App. 2008) (ambiguity in indemnity phrasing; ‘liability’ broad vs. ‘loss’)
- A Tumbling-T Ranches v. Flood Control Dist. of Maricopa Cnty. (A Tumbling-T III), 220 Ariz. 202 (App. 2008) (interpretation of indemnity scope in Morris/Damron context)
- Pioneer Roofing Co. v. Mardian Constr. Co., 152 Ariz. 455 (App. 1986) (indemnity scope; active negligence considerations)
- Estes Co. v. Aztec Constr., Inc., 139 Ariz. 166 (App. 1983) (indemnity contract interpretation principles)
- Barth v. Cochise County, 213 Ariz. 59 (App. 2006) (prematurity/notice issues in claims)
- Graber v. City of Peoria, 156 Ariz. 553 (App. 1988) (continuing nuisance damages and notice timing)
- Haab v. County of Maricopa, 219 Ariz. 9 (App. 2008) (prematurity vs. substantive sufficiency of notice of claim)
- Dooley v. O’Brien, 2008 Ariz. 149? (App. 2010) (finding on procedural rules; need for requested findings)