Insureds Under Title Insurance Can Settle Liability Claims When Defended Under a Reservation of Rights Letter

Fennemore Client Alert

Insureds Under Title Insurance Can Settle Liability Claims When Defended Under a Reservation of Rights Letter

A Morris agreement permits an insured to settle a third-party liability claim when the insurer defends the claim under a reservation of rights. United Services Automobile Ass’n v. Morris recognizes the inherent conflict between the insurer’s interest not to pay a third-party claim and the insured’s interest to protect itself from catastrophic financial ruin by creating a mechanism available to the insured to protect itself when the insurer, under a reservation of rights letter, has not accepted full responsibility. When a case is settled pursuant to a Morris agreement the inquiry focuses on whether that settlement was reasonable, made fairly with notice to the insurance carrier, and without fraud. Arizona law on whether Morris agreements were available in the title insurance context remained unsettled given that title insurance insures against risks different from third-party liability claims. Specifically, title insurance insures against losses or damages resulting from title defects, lost lien priority, and other similar title deficiencies. The Arizona Court of Appeals, Division One, held that the principles giving rise to Morris agreements apply equally to title insurance, and an insured under a title policy that is being defended under a reservation of rights does possess the right to settle a claim against itself without breaching its contractual obligations assuming it follows those same requirements of a Morris agreement in the first instance. Fidelity National Title Insurance Company v. Osborn III Partners LLC, 1 CA-CV 18-0040 (March 9, 2021). An insured under a title policy may now freely enter into a Morris agreement to resolve claims against itself.