Safeway Ins. Co., Inc. v. Guerrero

SUPREME COURT OF ARIZONA
En Banc

SAFEWAY INSURANCE COMPANY, INC., ) Arizona Supreme Court
a foreign corporation, ) No. CV-04-0146-PR
)
Plaintiff-Appellant, ) Court of Appeals
) Division One
v. ) No. 1 CA-CV 02-0661
)
PETER A. GUERRERO, individually, ) Maricopa County
PETER A. GUERRERO, P.C., an ) Superior Court
Arizona professional ) No. CV 02-004495
corporation; CHARLES D. ROUSH, )
individually, CHARLES D. ROUSH, ) O P I N I O N
P.C., an Arizona professional )
corporation; and ROUSH, )
MCCRACKEN, GUERRERO & MILLER, )
ATTORNEYS AT LAW, a partnership )
of professional corporations, )
)
Defendants-Appellees. )
)
__________________________________)

Appeal from the Superior Court in Maricopa County
The Honorable Margaret H. Downie, Judge

AFFIRMED

Opinion of the Court of Appeals, Division One
207 Ariz. 82, 83 P.3d 560 (App. 2004)

VACATED

Parrillo, Weiss & O’Halloran Tempe
By: Ronald E. Huser
Attorneys for Plaintiff-Appellant

Turley, Swan & Childers, P.C. Phoenix
By: Kent E. Turley

and

Haralson, Miller, Pitt, Feldman & McAnally, P.L.C. Tucson
By: Stanley G. Feldman
Attorneys for Defendants-Appellees
Law Office of JoJene Mills, P.C. Tucson
By: JoJene E. Mills

and

Plattner Verderame, P.C. Phoenix
By: Richard S. Plattner
Attorneys for Amicus Curiae
Arizona Trial Lawyers Association

Law Offices of John L. Tully, P.C. Tucson
By: John L. Tully

and

Law Offices of James D’Antonio Tucson
By: James J. D’Antonio
Attorneys for Amicus Curiae
United Policyholders

H U R W I T Z, Justice

¶1 This case requires us once again to consider issues

arising out of a Morris agreement.1 The question presented is

1
The term “Morris agreement” is generally used to describe a
settlement agreement in which an insured defendant admits to
liability and assigns to a plaintiff his or her rights against
the liability insurer, including any cause of action for bad
faith, in exchange for a promise by the plaintiff not to execute
the judgment against the insured. See United Servs. Auto. Ass’n
v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987). Such an
agreement can be prompted by a number of circumstances. See,
e.g., id. at 115, 741 P.2d at 248 (involving an agreement
entered into after reservation of rights by insurer); Ariz.
Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 735 P.2d
451 (1987) (involving an agreement entered into after alleged
anticipatory breach of insurer’s duty to indemnify); Miel v.
State Farm Mut. Aut. Ins. Co., 185 Ariz. 104, 912 P.2d 1333
(App. 1995) (involving an agreement entered into after alleged
bad faith failure to settle by insurer). An agreement with
these same characteristics entered in response to an insurer’s
refusal to defend the insured is generally referred to as a
Damron agreement. See Damron v. Sledge, 105 Ariz. 151, 460 P.2d

2
whether attorneys who negotiate a Morris agreement on behalf of

a plaintiff in a personal injury action can be subjected to

liability to the defendant’s insurer for intentional

interference with contractual relations. We conclude that such

a claim does not lie in this case.

I.

¶2 This case arises out of an automobile accident in

which Holly Castano suffered catastrophic injuries.2 Castano’s

mother, Patricia Himes, was appointed as her conservator and

retained Peter A. Guerrero of the firm of Roush, McCracken &

Guerrero (collectively “Guerrero”), to handle Castano’s personal

injury claims. Steven Botma drove the car that caused the

accident. Safeway Insurance Company (“Safeway”) insured the

vehicle that Botma was driving. The insurance policy provided

coverage limits of $15,000 per person and $30,000 per accident.

997 (1969). We recognize that the cases sometimes use the terms
“Morris agreement” and “Damron agreement” interchangeably. See
Himes v. Safeway, 205 Ariz. 31, 34 n.2 ¶ 1, 66 P.3d 74, 77 (App.
2003). We refer to the agreement at issue in this case as a
“Morris agreement” because it does not involve a refusal to
defend.
2
As the court of appeals acknowledged, “Holly Castano’s
injuries were extremely severe.” Safeway Ins. Co. v. Guerrero, 207 Ariz. 82, 84 ¶ 6, 83 P.3d 560, 562 (App. 2004). She
“suffered a diffuse axonal injury to her brain which resulted in
spastic quadreparesis,” has “no use of her left arm or leg” and
only limited use of her right arm and leg, and suffers from long
term and short term memory problems. Id. The cost of her past
and projected medical care has been estimated at $7 million.
Id.

3
¶3 Guerrero made a settlement offer that included a

demand of the $15,000 policy limits. Guerrero later withdrew

the offer, and then sued Botma and General Motors, the

manufacturer of the car in which Castano was injured. Safeway

appointed counsel for Botma, who filed a counterclaim alleging

that Safeway had accepted the settlement offer before it was

withdrawn. That issue was tried to a jury, which found that no

settlement had been reached. The court of appeals affirmed in a

memorandum decision.

¶4 Shortly before the scheduled trial of the personal

injury lawsuit, Himes and Botma entered into a Morris agreement

under which Botma admitted liability in the amount of $12

million and assigned to Himes any claims that he had against his

original counsel3 and Safeway. Safeway intervened in superior

court to contest the amount of the settlement. The superior

court found the $12 million settlement reasonable.4

3
Himes later brought a malpractice suit against the first
counsel Safeway assigned to Botma’s case. The superior court
dismissed the complaint, holding that a legal malpractice claim
cannot be assigned, and the court of appeals affirmed. Botma v.
Huser, 202 Ariz. 14, 39 P.3d 538 (App. 2002).
4
Safeway appealed the reasonableness determination, and the
court of appeals reversed and remanded for further proceedings.
Himes v. Safeway Ins. Co., 205 Ariz. 31, 66 P.3d 74 (App. 2003).
On remand, the superior court once again found the settlement
reasonable. Safeway again appealed, and the court of appeals
affirmed that judgment in a memorandum decision.

4
¶5 After the Morris settlement, Safeway filed two

lawsuits. The first, filed in federal court, sought a

declaratory judgment that Botma had breached the cooperation

clause of the insurance contract by entering into the Morris

agreement.5 Himes and Botma counterclaimed, alleging that

Safeway had acted in bad faith by failing to accept the policy

limits settlement offer. The district court granted summary

judgment to Safeway, finding that the insurer had not acted in

bad faith and that Botma therefore breached the cooperation

clause of his insurance contract by signing the Morris

agreement. Safeway Ins. Co. v. Botma, No. CIV-00-553-PHX-RCB

(D. Ariz. Mar. 7, 2003) (order granting partial summary

judgment). An appeal of that judgment is pending in the Ninth

Circuit.

¶6 In the second suit, filed in superior court, Safeway

sued Guerrero for intentional interference with contractual

relations. The complaint alleged that Guerrero “devised a

scheme” to induce Botma to admit liability and assign his bad

faith claim against Safeway, in order to allow Guerrero to

“receive a much larger fee.” Safeway alleged that Guerrero

induced Botma’s breach of the cooperation clause by threatening

Botma with a multi-million dollar judgment, manufacturing a bad

5
The clause provided: “A person claiming any coverage of
this policy must . . . [c]ooperate with us and assist us in any
matter concerning a claim or suit.”

5
faith claim against Safeway through aborted settlement

negotiations, and misrepresenting to Botma what had occurred

during those negotiations.

¶7 Guerrero filed a motion for summary judgment. The

superior court granted the motion, holding that “on the

undisputed facts, plaintiff’s complaint fails as a matter of

law.”6 The court of appeals reversed, finding a genuine issue of

material fact as to whether Guerrero engaged in improper conduct

that could give rise to the intentional interference claim.

Safeway Ins. Co. v. Guerrero, 207 Ariz. 82, 95 ¶¶ 55-56, 83 P.3d

560, 573 (App. 2004) (“Safeway”).

¶8 We granted Guerrero’s petition for review because the

case presents an issue of statewide importance and first

impression. We have jurisdiction under Article 6, Section 5(3)

of the Arizona Constitution, and Arizona Revised Statutes

(“A.R.S.”) § 12-120.24 (2003).

6
Guerrero styled the motion as a “Motion to Dismiss, or in
the Alternative, Motion for Summary Judgment.” Safeway argues
here, as it did in the court of appeals, that the superior court
erred in treating the motion as one for summary judgment. See
Safeway Ins. Co. v. Guerrero, 207 Ariz. 82, 85 n.5 ¶ 11, 83 P.3d
560, 563 (App. 2004). The court of appeals found it unnecessary
to consider this procedural claim. Id. In light of Safeway’s
claim, we have considered in this opinion only the facts alleged
in Safeway’s complaint, facts established in the federal
litigation (which both Safeway and Guerrero requested be the
subject of judicial notice in the court of appeals), see id. at
83 ¶ 3, 83 P.3d at 561, and facts conceded by Safeway at oral
argument.

6
 II.

A.

¶9 Morris agreements are designed to reconcile the

“conflicting interests” of an insured and a liability insurer in

certain difficult situations. Parking Concepts v. Tenney, 207

Ariz. 19, 22 ¶ 12, 83 P.3d 19, 22 (2004) (quoting United Servs.

Auto. Ass’n v. Morris, 154 Ariz. 113, 117, 741 P.2d 246, 250

(1987)). One such situation occurs when an insurer defends an

insured against a claim by a third party but reserves the right

to dispute whether the claim is covered under the policy. While

an insurer with a good faith policy defense has a right to

dispute coverage, the insured is thereby placed in a “precarious

position.” Id. (quoting Morris, 154 Ariz. at 118, 741 P.2d at

251). Even though the insurer is providing a defense to the

claim, the insured faces the possibility that any judgment, even

one within policy limits, may not be covered by the policy. Id.

¶10 In order to allow insureds to protect themselves from

“the sharp thrust of personal liability,” Morris, 154 Ariz. at

118, 741 P.2d at 251, we held that the cooperation clause of the

insurance contract is not violated by a Morris agreement when

the insurer defends under a reservation of rights. Id. at 119,

741 P.2d at 252. To protect the insurer, we place the burden on

the insureds (or their assignees) to show that any Morris

agreement is free of “fraud or collusion,” Parking Concepts, 207

7
Ariz. at 22 ¶ 13, 83 P.3d at 22, and reasonable in amount, id.

at ¶ 15. If the insurer eventually succeeds in establishing

that the claim is not covered by the policy, the insurer is not

liable for any part of the settlement. Morris, 154 Ariz. at

121, 741 P.2d at 254.

¶11 A similar situation arises when an insured is

confronted with a claim that exceeds the limits of the insurance

policy, and the insurer fails to accept an offer to settle

within those limits. The insurer owes the insured an implied

contractual “duty to treat settlement proposals with equal

consideration” to its interests and those of an insured. Ariz.

Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 137, 735

P.2d 451, 459 (1987). Failure to give such “equal

consideration” is a breach of contract by the insurer that frees

the insured from the contractual prohibition on settlement

without the insurer’s approval. Id. But when an insurer fails

to settle a claim, the insured may be forced to proceed to trial

on the claim before a final determination can be made as to

whether the insurer acted in bad faith. Use of a Morris

agreement under such circumstances allows insureds to protect

themselves against personal liability, while reserving to the

insurer the ability to prove that its actions were not in bad

faith. If bad faith is not established, the Morris agreement

will be a breach of the cooperation clause and the insurer will

8
be excused from any duty to pay the stipulated judgment, no

matter how reasonable the amount. See State Farm Mut. Auto.

Ins. Co. v. Peaton, 168 Ariz. 184, 192-93, 812 P.2d 1002, 1010-

11 (App. 1990).

B.

¶12 This case involves a Morris agreement premised on

Safeway’s alleged bad faith failure to settle. However, the

federal district court has held that Safeway did not act in bad

faith in handling the Castano claim against Botma. Unless that

holding is overturned by the federal courts, it follows that

Botma breached his duty to cooperate with the insurer by

entering into the Morris agreement.

¶13 We have “long recognized” that a person who

intentionally interferes with contractual relationships between

other parties can be held liable under certain circumstances to

a party injured by the interference. Wells Fargo Bank v. Ariz.

Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust,

201 Ariz. 474, 493 ¶ 74, 38 P.3d 12, 31 (2002). Safeway’s

complaint alleges that Guerrero intentionally interfered with

Safeway’s contractual relationship with Botma by inducing Botma

to enter into the Morris agreement.

¶14 The tort of intentional interference with contractual

relations requires a plaintiff to prove:

9
 (1) existence of a valid contractual relationship, (2)
knowledge of the relationship on the part of the
interferor, (3) intentional interference inducing or
causing a breach, (4) resultant damage to the party
whose relationship has been disrupted, and (5) that
the defendant acted improperly.

Id. The opinion below focused solely on the fifth element,

whether Guerrero “acted improperly.” Safeway, 207 Ariz. at 92 ¶

41, 83 P.3d at 570. Because it found a genuine issue of

material fact as to this element, the court of appeals reversed

the superior court’s summary judgment and remanded for trial.

Id. at 95 ¶¶ 55-56, 83 P.3d at 573.

III.

A.

¶15 Guerrero argues that lawyers acting on behalf of their

clients hold a qualified privilege from liability for tortious

interference with contractual relations. In tortious

interference cases, however, this Court long ago rejected the

“formalistic privilege concept in favor of a requirement that an

interference be ‘improper’ for liability to attach.”

Wagenseller v. Scottsdale Mem’l Hosp., 147 Ariz. 370, 388, 710

P.2d 1025, 1043 (1985).7 This approach is consistent with the

general rule that lawyers have no special privilege against

7
Although Wagenseller rejected a “formalistic privilege”
approach, we subsequently noted that the requirement that the
defendant’s interference be improper “covers essentially the
same ground as ‘privilege.’” Snow v. W. Sav. & Loan Ass’n, 152
Ariz. 27, 34, 730 P.2d 204, 213 (1986).

10
civil suit. See Restatement (Third) of Law Governing Lawyers §

56 (2000) (stating that, with limited exceptions, “a lawyer is

subject to liability to a client or nonclient when a nonlawyer

would be in similar circumstances”).8 The court of appeals

therefore correctly focused on whether Guerrero “acted

improperly” and not on whether the lawyers were “privileged” to

interfere in the contractual relationship between Safeway and

Botma.

B.

¶16 In analyzing the “improper conduct” issue, the court

of appeals began from the premise that “[t]here is no such thing

as an unconditional, absolute right to a Damron/Morris

agreement.” Safeway, 207 Ariz. at 90 ¶ 34, 83 P.3d at 568.

Rather, it reasoned, “[b]efore such an agreement can be entered,

an insurer must have breached its duty to the insured.” Id.

If, as the district court found, Safeway did not breach any

contractual duty to Botma, then the Morris agreement in this

case was “outside the permitted parameters.” Id. at 91 ¶ 39, 83

8
Contrary to Guerrero’s assertions, recognition of such a
privilege is not necessary to promote unfettered advice from
counsel to client. Lawyers’ advice to their own clients to
breach a contract already lies outside the general scope of this
tort. See Restatement (Third) of Law Governing Lawyers § 57(3);
Am. Family Mut. Ins. Co. v. Zavala, 302 F. Supp. 2d 1108, 1121
(D. Ariz. 2003) (holding that attorney, as agent for a client,
generally cannot tortiously interfere with a contract to which
the client is a party).

11
P.3d at 569. The court of appeals concluded that counsel who

negotiate such agreements “do so at their peril.” Id.

¶17 To the extent that the opinion below suggests that the

“improper conduct” element of tortious interference can be

established simply by a finding that Safeway did not breach its

contractual duties to Botma, we disagree. A conclusion that

Safeway did not act in bad faith merely establishes that Botma

breached his contract with the insurer by entering into the

Morris agreement. This finding is quite relevant in proving the

third element of intentional interference – that the

interference induced or caused a breach of contract. It cannot,

however, also satisfy the fifth element – that the actor’s

conduct was improper.

¶18 Such a holding would largely negate the utility of

Morris agreements in cases of an alleged bad faith failure to

settle. If claimants’ counsel were exposed to tort liability

for intentional interference whenever the bad faith claim

against the insurer is ultimately unsuccessful, lawyers would be

unwilling to negotiate Morris agreements in failure-to-settle

cases any time there was a possibility that the bad faith claim

would fail. Insureds facing ruinous personal liability would

thus be deprived of this important means of protection.

¶19 The court of appeals also suggested that “improper

conduct” could be found from evidence that Guerrero negotiated

12
the Morris agreement knowing that the insurer had not breached

its duty to give equal consideration to Botma’s interests. See

id. at 94 ¶ 51, 83 P.3d at 572. But this is simply another way

of saying there was evidence that Guerrero knew that Botma would

breach his contract with Safeway by entering the Morris

agreement. Such a showing may be relevant to establishing that

Guerrero intended to induce the breach. See Snow v. W. Sav. &

Loan Ass’n, 152 Ariz. 27, 33, 730 P.2d 204, 211 (1986) (“The

tort is intentional in the sense that [the defendant] must have

intended to interfere with the [plaintiff’s] contract or have

known that this result was substantially certain to be produced

by its conduct.”) (citations omitted).9

¶20 However, proof that an actor intentionally induced a

breach of contract is not sufficient to establish that the

actor’s conduct was improper. Rather, “there is a requirement

that the interference be both intentional and improper.”

Restatement (Second) of Torts § 767 cmt. a (1979) (emphasis

9
Guerrero’s knowledge that Safeway had not acted in bad
faith might be relevant to a claim that a bad faith suit brought
against the insurer under a Morris assignment of claims was
wrongfully instituted. See Bradshaw v. State Farm Mut. Auto.
Ins. Co., 157 Ariz. 411, 417, 758 P.2d 1313, 1319 (1988)
(holding that inquiry into an individual’s subjective belief in
the merits of a claim is one of two prongs testing whether a
suit was brought “without probable cause” for purposes of a
claim of wrongful institution of civil proceedings); cf.
Wolfinger v. Cheche, 206 Ariz. 504, 509-10 ¶¶ 26-27, 80 P.3d
783, 788-89 (App. 2003) (applying modified Bradshaw test in
light of First Amendment concerns). Safeway, however, has not
raised such a claim.

13
added). “If the interferer is to be held liable for committing

a wrong, his liability must be based on more than the act of

interference alone. Thus, there is ordinarily no liability

absent a showing that defendant’s actions were improper as to

motive or means.” Wagenseller, 147 Ariz. at 388, 710 P.2d at

1043.

¶21 While the “intentional” element of tortious

interference focuses on the mental state of the actor, see Snow,

152 Ariz. at 33, 730 P.2d at 211, the “improper” element in

contrast “generally is determined by weighing the social

importance of the interest the defendant seeks to advance

against the interest invaded,” id. at 34, 730 P.2d at 212

(citations omitted). Our case law thus emphasizes that a

plaintiff must show more than the defendant’s knowledge that his

or her conduct would induce a breach to establish intentional

interference with contractual relations. See, e.g., id.

(stating that a defendant properly may interfere intentionally

with another’s contract by appropriate means to protect an

interest of the defendant) (citing Restatement (Second) of Torts

§ 773); Strojnik v. Gen. Ins. Co. of Am., 201 Ariz. 430, 437-38

¶¶ 28-30, 36 P.3d 1200, 1207-08 (App. 2001) (holding that

insurer did not improperly interfere with plaintiff’s

prospective contractual relationship with insured by entering a

defense and indemnification agreement to prevent insured from

14
entering a Morris agreement with plaintiff); cf. Middleton v.

Wallichs Music & Entm’t Co., 24 Ariz. App. 180, 183, 536 P.2d

1072, 1075 (1975) (stating that mere fact of prior knowledge by

new tenant of restrictive covenant in lessor’s lease with

existing tenant, which covenant was necessarily violated by

lessor’s lease with new tenant, did not make new tenant’s

signing of lease agreement with lessor an “improper inducement”

of lessor’s breach of contract with existing tenant).10

“Improper” conduct thus cannot be established in this case by

evidence that Guerrero knew Safeway had not acted in bad faith

in failing to reach a settlement.

C.

¶22 Our inquiry does not end here, however, because

Safeway also contends that Guerrero acted with an improper

10
Cases from other jurisdictions are in accord. See, e.g.,
Occusafe, Inc. v. EG&G Rocky Flats, Inc., 54 F.3d 618, 623 (10th
Cir. 1995) (finding that operator of nuclear weapons production
facility did not engage in “improper conduct” by intentionally
hiring away industrial hygienists from its subcontractor);
Conoco Inc. v. Inman Oil Co., 774 F.2d 895, 907 (8th Cir. 1985)
(rejecting tortious interference claim by distributor where
“[t]he interference was clearly intentional” but not improper;
interference resulted from oil supplier bidding low for the
conceded purpose of winning customer contract away from
distributor); Mason v. Wal-Mart Stores, Inc., 969 S.W.2d 160,
166 (Ark. 1998) (finding no “improper conduct” in retailer’s use
of economic pressure to persuade manufacturer to eliminate its
contract with independent representative and thus deal directly
with retailer); C.R. Bard, Inc. v. Wordtronics Corp., 561 A.2d
694, 697 (N.J. Super. Ct. Law Div. 1989) (“It is not improper to
give truthful information to a customer about someone else’s
product, and this is so even if the purpose is to interfere with
an existing or prospective contractual relationship.”).

15
motive and employed three types of improper means. The

purportedly improper motive was Guerrero’s desire to garner

increased attorneys’ fees. The allegedly improper means were

(1) offering to settle Himes’ claim and then withdrawing from

settlement negotiations to “manufacture[]” a bad faith claim

against Safeway, (2) threatening Botma with multi-million dollar

personal liability, and (3) misrepresenting facts to induce

Botma to sign the Morris agreement. To determine whether such

allegations constitute “improper conduct” for purposes of this

tort, we consider seven factors:

(a) the nature of the actor’s conduct, (b) the actor’s
motive, (c) the interests of the other with which the
actor’s conduct interferes, (d) the interest sought to
be advanced by the actor, (e) the social interests in
protecting the freedom of action of the actor and the
contractual interests of the other, (f) the proximity
or remoteness of the actor’s conduct to the
interference, and (g) the relations between the
parties.

Wells Fargo, 201 Ariz. at 494 ¶ 81, 38 P.3d at 32 (quoting

Restatement (Second) of Torts § 767). We give the greatest

weight to the first two factors, the nature of the defendant’s

conduct and the defendant’s motive. Id.

1.

¶23 We start with Guerrero’s alleged improper motive.

There is no dispute that Guerrero negotiated the Morris

agreement with Botma as part of an effort to pursue a larger

monetary award for Himes, and that such an award would in turn

16
result in a larger contingent fee to Guerrero. However, we

cannot conclude that lawyers have an improper motive simply

because they seek to increase their fees by maximizing an award

for a client. See Restatement (Third) of Law Governing Lawyers

§ 57 cmt. g (“So long as the lawyer acts or advises with the

purpose of promoting the client’s welfare, it is immaterial that

the lawyer hopes that the action will increase the lawyer’s fees

. . . .”); cf. Los Angeles Airways, Inc. v. Davis, 687 F.2d 321,

328 (9th Cir. 1982) (holding that attorney’s mixed motive to

benefit both his client and himself does not make attorney’s

intent “improper”). Otherwise, every lawyer working under a

contingency fee agreement would have an improper motive when

negotiating a Morris agreement. There is no allegation in this

case that Guerrero was motivated by a desire to injure Safeway

or vent “ill will” against the insurer. See Restatement

(Second) of Torts § 767 cmt. d. The lawyers’ profit motive

therefore cannot establish that their actions were “improper.”

2.

¶24 We turn next to Safeway’s allegation that Guerrero

acted improperly by withdrawing the settlement offer before the

insurer had rejected it, thus “manufacturing” a bad faith claim.

This argument necessarily rests on the premise that, once having

made the $15,000 settlement offer, Himes was obligated to settle

her multi-million dollar claim against Botma for this sum, and

17
that Guerrero’s subsequent decision to withdraw the offer was

thus somehow wrongful. But this position is simply untenable.

A jury has determined that Safeway did not accept the offer, and

in the absence of such an acceptance, Guerrero was free to

withdraw the offer for any reason, or for no reason at all.

3.

¶25 Nor did Guerrero act improperly by threatening Botma

with multi-million dollar liability in the personal injury

lawsuit. Given the serious injuries suffered by Castano and the

unchallenged evidence of Botma’s liability, Guerrero was

entitled to bring the case to trial, even if the suit would have

imposed ruinous financial liability on the defendant. The

threat of an adverse verdict and personal liability was

undoubtedly a critical factor motivating Botma to enter into the

Morris agreement. But Himes and her attorneys were perfectly

entitled to pursue that course of action, and the “threat” to do

so cannot be improper conduct.

¶26 As the Restatement explains, bringing a civil suit is

an improper inducement to breach a contract only when the suit

itself is brought in bad faith:

The use of these weapons of inducement (civil suits)
is ordinarily wrongful if the actor has no belief in
the merit of the litigation or if, though having some
belief in its merit, he nevertheless institutes or
threatens to institute the litigation in bad faith,
intending only to harass the third parties and not to
bring his claim to definitive adjudication.

18
Restatement (Second) of Torts § 767 cmt. c. Safeway does not

allege that Guerrero lacked belief in the merit of Himes’ claim

against Botma or that the lawyers sued Botma for any purpose

other than to bring the claim to definitive adjudication.

4.

¶27 Finally, Safeway alleges that Guerrero acted

improperly by misrepresenting to Botma facts regarding the

settlement negotiations with Safeway.11 Phrased differently,

Safeway alleges that Guerrero misled Botma into believing that

Safeway acted in bad faith in its failure to reach a settlement

to protect Botma from personal liability.12

11
Safeway’s complaint alleged that Guerrero falsely
represented to Botma that no settlement was reached between
Safeway and Himes and that Safeway had made “no reasonable
attempt” to settle Castano’s claim. While we assume the truth
of these allegations for purposes of this appeal, it is worth
noting that a superior court jury found that no settlement was
reached between Safeway and Himes, a judgment that was affirmed
on appeal. Moreover, the alleged statement that Safeway’s
settlement efforts were not “reasonable” is largely a legal
conclusion, as opposed to a pure statement of fact. Safeway also
alleged that Guerrero secreted documents from Botma concerning
the settlement negotiations. This allegation is analytically no
different than Safeway’s allegation that Guerrero made factual
misrepresentations to Botma’s counsel regarding Safeway’s
efforts to settle.
12
It may seriously be questioned whether any such acts caused
Botma to enter the Morris agreement. After Safeway failed to
settle the claim and refused to indemnify Botma for any judgment
in excess of the policy limits, he faced the likely potential of
personal liability for a multi-million dollar judgment. It is
difficult to believe that any statement by Guerrero about
Safeway’s willingness to settle would have had any effect on

19
¶28 Fraudulent misrepresentation or concealment can, under

certain circumstances, constitute “improper conduct” for

purposes of the intentional interference tort. See Restatement

(Second) of Torts § 767 cmt. c. But, as the Restatement

teaches, the propriety of the means employed by the interferer

is determined in light of the particular circumstances of the

case. Id. Even such means as “physical violence, fraudulent

misrepresentation and threats of illegal conduct” may not

constitute “improper conduct” for purposes of the intentional

interference tort in light of the particular “relation between

the actor and the person induced.” Id.

¶29 It is uncontested in this case that the negotiations

concerning the Morris agreement took place entirely between

Guerrero and Botma’s counsel. See id. (stating that the “manner

of presenting an inducement” may be a significant consideration

in determining whether conduct was wrongful).13 Botma was

represented at all times by lawyers appointed by Safeway. We

Botma’s desire to enter into an agreement protecting him against
personal liability to Himes. However, we assume arguendo, given
the procedural posture of this case, that Guerrero’s alleged
misrepresentations did induce Botma to sign the agreement.
13
“The question of who was the moving party in the
inducement” is also relevant. Restatement (Second) of Torts §
767 cmt. c. Although there is some dispute in this case about
who first raised the possibility of a Morris agreement, it is
not contested here that Botma’s lawyer made the ultimate
approach to Guerrero that resulted in the negotiation of the
Morris settlement.

20
have emphasized that “a special relationship exists between the

insurer and the counsel it assigns to represent its insured.”

Paradigm Ins. Co. v. Langerman Law Offices, P.A., 200 Ariz. 146,

154 ¶ 28, 24 P.3d 593, 601 (2001).

¶30 Given this “special relationship,” we cannot conclude

that an insurer may base a claim for tortious interference with

contract on misstatements of fact made by a claimant’s lawyer to

an insurer-appointed adverse counsel regarding actions of the

insurer itself during settlement negotiations.14 Guerrero’s

alleged misrepresentations were made to a lawyer who had been

hired by and presumably had regular contact with Safeway, and

who thus had ample ability and opportunity to inquire of the

insurer as to precisely what happened during the settlement

discussions. Indeed, an insurer must be given advance notice of

a proposed Morris agreement, Morris, 154 Ariz. at 119, 741 P.2d

at 252, and Safeway does not contest that it received

14
We have no occasion to consider today whether defense
counsel in this case owed a duty of care to Safeway. See
Paradigm Ins. Co., 200 Ariz. at 150 ¶ 16, 24 P.3d at 597
(recognizing that when conflict exists between client and the
insurer, counsel’s duty “is exclusively owed to the insured”).
We hold only that the relationship between the insurer and
defense counsel here was such that Guerrero’s alleged
misrepresentations to counsel about what occurred during
settlement negotiations between Guerrero and the insurer cannot
give rise to a claim for tortious interference with contract.

21
appropriate notice here.15 If Safeway wanted to dispel any false

impression by Botma that the insurer had acted in bad faith, it

had full opportunity to provide Botma and his counsel with

whatever facts or documents were necessary to do so.

¶31 A party to a lawsuit generally may not premise a fraud

claim on alleged misrepresentations by adverse counsel. See

Linder v. Brown & Herrick, 189 Ariz. 398, 405, 943 P.2d 758, 765

(App. 1997) (“[A]s a matter of law and common sense, they had no

right to rely on statements made by the attorneys opposing

them.”). It would make no sense to hold that the alleged

representations here nonetheless can subject Guerrero to

liability to an insurer who employed the lawyer to whom the

representations were made. Like Botma, Safeway could not have

reasonably relied on Guerrero to provide defense counsel with a

thorough or objective assessment of the reasonableness of

Safeway’s efforts to settle on behalf of its insured.

Therefore, any alleged misstatements by Guerrero in that context

15
Nearly three months before Botma signed the Morris
agreement, Botma’s Safeway-appointed attorney notified Safeway
that Botma would enter a Morris agreement if the insurer would
not promise to indemnify him for any judgment in excess of the
policy limits. Safeway refused. According to the defense
counsel’s deposition, a Safeway claims manager instead suggested
that Botma declare bankruptcy if a judgment were entered against
him.

22
are not the sort of improper conduct that can give rise to

liability for intentional interference with contract.16

D.

¶32 Safeway argues in its brief that if it is not allowed

to sue for intentional interference with contractual relations

under the facts of this case, “all attorneys will believe that

they can behave improperly and suffer absolutely no consequences

from their actions.” But our decision today does not condone

any alleged misbehavior by Guerrero; we merely hold that the

alleged behavior is not the sort of improper conduct that gives

rise to a suit for tortious interference with contractual

relations. Our holding that the defendants here are not liable

for this intentional tort does not provide an incentive for

16
Guerrero argues that the absolute privilege for defamatory
statements made during judicial proceedings should protect the
lawyers from liability here. See Green Acres Trust v. London, 141 Ariz. 609, 613, 688 P.2d 617, 621 (1984) (outlining the
privilege); Restatement (Third) of Law Governing Lawyers § 57
cmt. c (“The privilege is also a defense to other claims where
publication or communication is an element of the claim
. . . .”). The court of appeals declined to hold that the
privilege applies only to defamation claims, but nonetheless
rejected Guerrero’s argument, reasoning that it was the lawyers’
conduct, not their statements, that gave rise to the intentional
interference claim. Safeway, 207 Ariz. at 88-89 ¶¶ 27-30, 83
P.3d at 566-67. Because we find nothing improper in the
lawyers’ non-speech conduct, such a privilege might be relevant
to determining whether the lawyers acted “improperly” by
allegedly misrepresenting to Botma’s lawyer Safeway’s attempts
to settle the case. See supra note 7. However, because we
conclude that the communications in this case do not constitute
“improper conduct” for purposes of the intentional interference
tort, we need not explore the boundaries of the litigation-
defamation privilege.

23
improper conduct. To the contrary, existing law already

provides ample deterrence to lawyer misbehavior.

¶33 Lawyers face severe jeopardy for deceit in litigation.

Rule 11 of the Arizona Rules of Civil Procedure subjects lawyers

making false statements in litigation to sanctions such as

payment of an adversary’s expenses and fees. Lawyers who make

misrepresentations also face professional discipline. See Ariz.

R. Sup. Ct. 42, ER 3.3(a) (prohibiting a lawyer from making a

false statement of fact to a tribunal); id. R. 53(a) (providing

that violations of a rule of professional conduct are grounds

for discipline); id. R. 60 (providing for sanctions ranging from

censure to disbarment for professional misconduct by an

attorney).

¶34 The case law governing Morris agreements also provides

ample deterrence against “manufactured” bad faith claims. As

noted above, if there has been no reservation of rights or bad

faith by the insurer, the execution of the Morris agreement will

constitute a breach of contract by the insured, and thus will

relieve the insurer of any liability to indemnify the insured.

Plaintiff’s counsel therefore have every incentive to avoid

creating what the court of appeals called “Damron/Morris

agreements outside the permitted parameters.” Safeway, 207

Ariz. at 91 ¶ 39, 83 P.3d at 569. If counsel negotiate such

agreements, the result will be that their clients can collect

24
neither from the defendant (who will have received a covenant

not to execute) nor from the insurer.

¶35 Moreover, the law already provides powerful

disincentives against bringing suit on improperly “manufactured”

bad faith claims. Lawyers who pursue frivolous bad faith claims

not only face sanctions under Rule 11, but also may be required

to pay the insurer’s attorneys’ fees and expenses under A.R.S. §

12-349.17 Even when the bad faith action is not groundless, the

losing party faces the potential of a fee award under A.R.S. §

12-341.01. See Sparks v. Republic Nat’l Life Ins. Co., 132

Ariz. 529, 544, 647 P.2d 1127, 1142 (1982) (concluding that an

action alleging insurance bad faith is one “arising out of

contract” within the meaning of § 12-341.01(A)).18 Counsel who

bring bad faith claims without just cause are also exposed to

liability for wrongful institution of civil proceedings. See,

e.g., Lane v. Terry H. Pillinger, P.C., 189 Ariz. 152, 939 P.2d

430 (App. 1997) (involving suit for wrongful institution of

civil proceedings brought by officer of insurer against lawyer

who sued insurer and officers for bad faith). Lawyers who bring

frivolous claims also may be subject to professional discipline.

17
The federal analogue to A.R.S. § 12-349 is 28 U.S.C. §
1927. The district court rejected Safeway’s claim that Guerrero
should pay fees and costs under that provision.
18
Indeed, such an award was made against Himes in the federal
litigation.

25
See Ariz. R. Sup. Ct. 42, ER 3.1 (“A lawyer shall not bring or

defend a proceeding, or assert or controvert an issue therein,

unless there is a good faith basis in law and fact for doing so

that is not frivolous . . . .”); id. R. 53(a) (providing that

violations of a rule of professional conduct are grounds for

discipline); id. R. 60 (providing for sanctions for misconduct).

IV.

¶36 For the reasons above, we vacate the opinion of the

court of appeals and affirm the judgment of the superior court

dismissing Safeway’s complaint.

Andrew D. Hurwitz, Justice

CONCURRING:

_
Charles E. Jones, Chief Justice

______
Rebecca White Berch, Justice

_
Michael D. Ryan, Justice

_
John Pelander, Judge*

*
The Honorable Ruth V. McGregor recused herself; pursuant to
Article 6, Section 3 of the Arizona Constitution, the Honorable
John Pelander, Chief Judge of the Arizona Court of Appeals,
Division Two, was designated to sit in her stead.

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