KnightBrook Insurance Co. v. Payless Car Rental System Inc.
2017 U.S. App. LEXIS 8004
| 9th Cir. | 2017Background
- KnightBrook insured Payless under a master policy that allowed Payless to sell optional Supplemental Liability Insurance (SLI) to renters.
- Renter Michael Bovre did not pay for SLI, was involved in an accident injuring the McGills, and had $30,000 state-mandated and $500,000 personal coverage; KnightBrook denied SLI coverage.
- The McGills sued Bovre; Bovre settled via a Damron agreement assigning his claims against KnightBrook to the McGills in exchange for a stipulated $8 million judgment and a covenant not to execute against Bovre’s personal assets.
- The McGills sued KnightBrook and Payless; KnightBrook settled the McGills’ $970,000 demand and obtained an assignment of the McGills’ claims against Payless; KnightBrook then sued Payless seeking equitable indemnity among other claims.
- At bench trial the district court awarded KnightBrook $970,000 in equitable indemnity, relying on §§ 76 and 78 of the Restatement (First) of Restitution; Payless appealed.
- The Ninth Circuit panel concluded the appeal turns on two unsettled questions of Arizona law and certified those questions to the Arizona Supreme Court, then stayed proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Arizona equitable indemnity incorporates § 78 of the Restatement (First) of Restitution | KnightBrook: Arizona law recognizes § 78 and permits recovery where one pays a supposed obligation because the other had the primary duty and was at fault | Payless: Arizona has not adopted § 78; equitable indemnity requires different/specific showing | Panel: Question unsettled under Arizona law; certified to Arizona Supreme Court |
| Whether § 78 requires coextensive liability between indemnitee and indemnitor | KnightBrook: § 78 does not require identical/coextensive liability—recovery may cover payment made to discharge a greater obligation caused by the other’s fault | Payless: Equitable indemnity requires coextensive/identical obligations to the underlying plaintiff; KnightBrook’s exposure was larger (bad faith, Damron) so recovery improper | Panel: Unclear under Arizona law whether coextensiveness is required; certified to Arizona Supreme Court |
Key Cases Cited
- Damron v. Sledge, 460 P.2d 997 (Ariz. 1969) (approves stipulated judgment with covenant not to execute; used to create assignable claim following insurer refusal to defend)
- Webb v. Gittlen, 174 P.3d 275 (Ariz. 2008) (insurance agents not bound by Damron agreements to which they were not parties)
- Hatch Dev., LLC v. Solomon, 377 P.3d 368 (Ariz. Ct. App. 2016) (applied § 78 and recognized duty to indemnify can arise when defendant is at fault or plaintiff extinguished obligation)
- Herstam v. Deloitte & Touche, LLP, 919 P.2d 1381 (Ariz. Ct. App. 1996) (discusses indemnity as reimbursement for discharged common liability but does not resolve coextensiveness requirement)
- Denny's Inc. v. Avesta Enters., Ltd., 884 S.W.2d 281 (Mo. Ct. App. 1994) (holds implied indemnity inapplicable absent coextensive, identical duties)
- Nat'l Fruit Prod. Co. v. Balt. & Ohio R.R. Co., 329 S.E.2d 125 (W. Va. 1985) (collects authorities concluding lack of common/coextensive obligation forecloses implied indemnity)