Webb v. Gittlen

SUPREME COURT OF ARIZONA
En Banc

D. JERE' WEBB, through ) Arizona Supreme Court
assignment granted by Gail Susan ) No. CV-07-0127-PR
Berliant and Neal Berliant (dba )
The Liquor Vault, Inc. and ) Court of Appeals
Berliant, LLC), ) Division One
) No. 1 CA-CV 06-0300
Plaintiff-Appellant, )
) Maricopa County
v. ) Superior Court
) No. CV2005-093597
VICTORIA GITTLEN; G&G INSURANCE )
SERVICE, INC., an Arizona )
corporation; CDS INSURANCE )
AGENCY LLC, a limited liability ) O P I N I O N
company doing business in )
Arizona, )
)
Defendants-Appellees. )
)
_________________________________)

Appeal from the Superior Court in Maricopa County
The Honorable Helene F. Abrams, Judge

REVERSED AND REMANDED
________________________________________________________________

Memorandum Decision of the Court of Appeals, Division One
Filed Mar. 8, 2007

REVERSED
________________________________________________________________

MATTHEW L. RIGGS, P.C. Mesa
By Matthew L. Riggs
Attorney for D. Jere' Webb

LEWIS, BRISBOIS, BISGAARD & SMITH, L.L.P. Phoenix
By Greg S. Como
Rob A. Justman
Attorneys for Victoria Gittlen, G&G Insurance
Service Inc., and CDS Insurance Agency, L.L.C.
THE HASSETT LAW FIRM, P.L.C. Phoenix
By Myles P. Hassett
Lucas N. Frank
Attorneys for Amicus Curiae Independent Insurance Agents
and Brokers of Arizona
________________________________________________________________

B A L E S, Justice

¶1 Under Arizona law, an insurance agent’s clients may

assert claims for professional negligence against the agent. We

hold that clients may assign such claims to third parties.

I.

¶2 In 2000, Neal and Gail Berliant bought a liquor store

called The Liquor Vault. To insure themselves, they purchased a

business and umbrella liability policy from Victoria Gittlen, a

licensed insurance agent. Gittlen then worked for G&G Insurance

Service; she later moved to CDS Insurance Agency. The Berliants

allege that Gittlen did not advise them that they could also

purchase liquor liability coverage.

¶3 In 2001, The Liquor Vault sold beer to a minor who

gave it to another. The second youth drove his car into a

cement barrier, killing his passenger. The passenger’s father,

D. Jere’ Webb, filed a wrongful death claim against the

Berliants and The Liquor Vault. The Berliants tendered the

claim to their insurance company, which refused to defend

because the Berliants lacked liquor liability coverage.

2
¶ 4 To settle the wrongful death claim, the Berliants

stipulated to the entry of a $3 million judgment; Webb agreed

not to execute on the judgment and, in exchange, the Berliants

assigned to Webb their rights to sue both their insurer and

their insurance agent and her employers. Webb then sued

Gittlen, G&G, and CDS, alleging negligence and breach of

fiduciary duty. The trial court dismissed these claims, citing

Premium Cigars International Ltd. v. Farmer-Butler-Leavitt

Insurance Agency, which held that claims against an insurance

agent for professional negligence are not assignable. 208 Ariz.

557, 96 P.3d 555 (App. 2004).1

¶5 The court of appeals affirmed in a memorandum decision

that also relied upon Premium Cigars. We granted review to

consider whether insureds may assign claims against their

insurance agent. This Court has jurisdiction pursuant to

Article 6, Section 5(3) of the Arizona Constitution, Arizona

Revised Statutes (“A.R.S.”) § 12-120.24 (2003), and Arizona Rule

of Civil Appellate Procedure 23(c)(3).

II.

¶6 Arizona case law generally allows the assignment of

unliquidated legal claims except those involving personal

injury. This distinction reflects the evolution of the common

1
Webb also sued the insurance company. Those claims are not at
issue here.

3
law, which once held that “choses in action” could not be

assigned, except to the crown. Welch v. Mandeville, 14 U.S. (1

Wheat.) 233, 237 n.a (1816). A legal claim is one type of

“chose in action,” but the concept also encompasses “debts of

all kinds” and “rights to recover ownership or possession of

real or personal property.” Restatement (Second) of Contracts §

316 cmt. a (1981); see also W.S. Holdsworth, The History of the

Treatment of Choses in Action by the Common Law, 33 Harv. L.

Rev. 997 (1920) (tracing the term’s evolution).

¶7 The broad prohibition on assignment exemplified the

common law view that litigation was vexatious or otherwise

socially undesirable. Max Radin, Maintenance by Champerty, 24

Cal. L. Rev. 48, 57-58 (1935). Illustrative is Lord Coke’s

statement:

And first was observed the great wisdom and policy of
the sages and founders of our law, who have provided
that no possibility, right, title, nor thing in
action, shall be granted or assigned to strangers, for
that would be the occasion of multiplying of
contentions and suits, of great oppression of the
people.

Lampet’s Case, (1613) 77 Eng. Rep. 994, 997 (K.B.).

¶8 As courts became more accessible and litigation a more

accepted means for resolving disputes, the prohibition on

assignment gradually became the exception rather than the rule.

By the end of the 17th century, the English equity courts

permitted assignees to recover debts. The common law courts

4
later followed suit, although they sometimes required the action

to be filed in the name of the assignor for the benefit of the

assignee. Welch, 14 U.S. at 237 n.a; Walter Wheeler Cook, The

Alienability of Choses in Action, 29 Harv. L. Rev. 816, 821-22

(1916). American courts have long allowed the assignment of

various choses in action, including many unliquidated legal

claims. See Welch, 14 U.S. at 236-37 (upholding assignment and

denying preclusive effect to a collusive judgment reached by

assignor and debtor); Deatsch v. Fairfield, 27 Ariz. 387, 397-

98, 233 P. 887, 891 (1925) (allowing assignment of breach of

contract claim); Rice v. Stone, 83 Mass. (1 Allen) 566, 568

(1861) (noting that property claims and property tort claims

could be assigned).

¶9 One class of unliquidated claims was excluded from the

emerging rule of assignability: personal injury claims.

Restatement (First) of Contracts § 547 (1932). Since Roman

times, such claims were considered “personal” to the claimant

and could not be asserted by others. Holdsworth, supra ¶ 6, at

1002-03, 1022-24. Consistent with this perspective, absent a

statute allowing for survival, a deceased claimant’s personal

injury claim could not be asserted by heirs or an estate. See

McClure v. Johnson, 50 Ariz. 76, 81, 69 P.2d 573, 575 (1937).

Many courts concluded that whether a claim would survive the

claimant’s death should also determine whether it could be

5
assigned during the claimant’s life and applied this test to

both personal injury and other claims. See, e.g., Comegys v.

Vasse, 26 U.S. (1 Pet.) 193, 213 (1828) (dicta noting that “mere

personal torts, which die with the party, and do not survive to

his personal representatives, are not capable of passing by

assignment.”); United Verde Extension Mining Co. v. Ralston, 37

Ariz. 554, 559-60, 296 P. 262, 264 (1931) (holding that claims

for property damage would survive and thus were assignable).

¶10 This “survivability” test did not itself survive in

Arizona after 1955, when the legislature enacted a statute

providing for the survival of most causes of action, including

personal injury claims. See Harleysville Mut. Ins. Co. v. Lea,

2 Ariz. App. 538, 540-41, 410 P.2d 495, 497-98 (1966) (quoting

A.R.S. § 14-477 (1955)).2 Although this statute undermined one

rationale for refusing to allow the assignment of personal

injury claims, courts did not abolish the rule. Instead, they

resurrected the common law public policy rationale – fear of

vexatious litigation. In Harleysville, the first decision to

embrace this approach, the court of appeals concluded that

allowing assignment of personal injury claims would be “fraught

with possibilities” and noted that many early writers “objected

2
Under the modern survivability statute, the only claims that do
not survive are those for damages for breach of promise to
marry, seduction, libel, slander, maintenance, alimony, loss of
consortium, and invasion of privacy. A.R.S. § 14-3110 (2005).

6
to ... assignability because they felt that unscrupulous people

would purchase causes of action and thereby traffic in law suits

for pain and suffering.” Harleysville, 2 Ariz. App. at 541-42,

410 P.2d at 498-99.

¶11 This Court subsequently endorsed Harleysville and

expressly relied on public policy considerations in reaffirming

the rule against assignment of personal injury claims. State

Farm Fire & Cas. Co. v. Knapp, 107 Ariz. 184, 185, 484 P.2d 180,

181 (1971). Both Harleysville and Knapp, however, noted that

the legislature could specify whether certain claims are

assignable. Id.; Harleysville, 2 Ariz. App. at 542, 410 P.2d at

499; see also K.W. Dart Truck Co. v. Noble, 116 Ariz. 9, 11, 567

P.2d 325, 327 (1977) (holding that the legislature could

statutorily assign an injured worker’s claim to his employer’s

insurer in certain circumstances).

¶12 Public policy considerations have also guided courts

in determining the assignability of claims not involving

personal injury. For example, the court of appeals has held

that legal malpractice claims cannot be assigned, although the

principal policy consideration offered has been deference to the

attorney-client relationship, not fears about trafficking in

lawsuits. See Botma v. Huser, 202 Ariz. 14, 17 ¶ 11, 39 P.3d

538, 541 (App. 2002) (citing Schroeder v. Hudgins, 142 Ariz.

395, 399, 690 P.2d 114, 118 (App. 1984), abrogation on other

7
grounds recognized by Franko v. Mitchell, 158 Ariz. 391, 399

n.1, 762 P.2d 1345, 1353 n.1 (App. 1988)).

¶13 The current principles under Arizona law for

determining if an unliquidated claim may be assigned can be

summarized as follows: (1) claims generally are assignable

except those involving personal injury; (2) the legislature may

specify whether particular claims are assignable; and (3) absent

legislative direction, public policy considerations should guide

courts in determining whether to depart from the general rule.

Cf. Restatement (Second) of Contracts § 178 (1981) (stating that

contracts are unenforceable where legislation so provides or

where public policy clearly outweighs contractual terms).3

III.

¶14 Against this background, Gittlen argues that claims

against insurance agents for professional negligence cannot be

assigned because (1) claims against lawyers for legal

3
Despite the common law prohibition on assigning personal injury
claims, the law allows a claimholder to release a claim as part
of a settlement and a tortfeasor to purchase an insurer’s
agreement to defend prospective claims. Although neither of
these scenarios involves assertion of a claim by a third-party
assignee, they can be regarded as variations of an “assignment”
of rights to assert or defend a personal injury claim. See
Michael Abramowicz, On the Alienability of Legal Claims, 114
Yale L.J. 697, 710 (2005). Some commentators advocate allowing
assignment of all tort claims. See Isaac Marcushamer, Note,
Selling Your Torts: Creating a Market for Tort Claims and
Liability, 33 Hofstra L. Rev. 1543 (2005); Patrick T. Morgan,
Note, Unbundling Our Tort Rights: Assignability for Personal
Injury and Wrongful Death Claims: Lingel v. Olbin, 66 Mo. L.
Rev. 683 (2001).

8
malpractice are not assignable; (2) the court of appeals in

Premium Cigars correctly extended this rule to insurance agents,

as their relationship with clients is analogous to the attorney-

client relationship; and (3) although the legislature has not

addressed the assignment of claims against insurance agents,

allowing such assignment would violate public policy.

A.

¶15 In contending that legal malpractice claims may not be

assigned, Gittlen presumes this Court has embraced such a rule.

Although the court of appeals has done so, this Court has not

yet decided this issue. Some, but not all, states prohibit the

assignment of such claims. Compare Greene v. Leasing Assocs.,

Inc., 935 So.2d 21, 24 (Fla. Ct. App. 2006); Joos v. Drillock,

338 N.W.2d 736, 739 (Mich. Ct. App. 1983); Godley v. Wank &

Wank, Inc., 133 Cal. Rptr. 83, 87 (App. 1976), with N.H. Ins.

Co. v. McCann, 707 N.E.2d 332, 336-37 (Mass. 1999) (permitting

assignment). We need not decide today whether legal malpractice

claims are assignable, but assume for analytical purposes that

they are not.

B.

¶16 Gittlen argues that professional negligence claims

against insurance agents are sufficiently analogous to legal

malpractice claims to justify extending the prohibition on

assignment. We disagree.

9
 1.

¶17 The cases prohibiting assignment of legal malpractice

claims do so because of the “uniquely personal” relationship

between attorney and client, which gives rise to a “fiduciary

relation of the very highest character.” Botma, 202 Ariz. at 17

¶ 11, 39 P.3d at 541 (quoting Schroeder, 142 Ariz. at 399, 690

P.2d at 118). Therefore, “considerations of public policy

require that actions arising out of [the] relationship not be

relegated to the market place and converted to a commodity to be

exploited and transferred to economic bidders.” Id. Rather,

the cases conclude that malpractice claims should be asserted

only by the wronged client to whom the attorney owes fiduciary

duties. Schroeder, 142 Ariz. at 399, 690 P.2d at 118.

¶18 In Premium Cigars, the court of appeals extended this

rationale to professional negligence claims against insurance

agents. It held that such claims may not be assigned because

the relationship of insurance agent and client is similar to

that of attorney and client. Premium Cigars, 208 Ariz. at 566

¶¶ 25-26, 96 P.3d at 564. An insurance transaction, the court

said, “is not simply a commercial transaction but a transaction

personal in nature for the benefit of the client.” Id. at ¶ 24.

Furthermore, like attorneys, agents owe a “duty to the insured

to exercise reasonable care, skill and diligence” in carrying

out the duty to procure insurance. Id. at 566 ¶ 22, 96 P.3d at

10
564 (quoting Darner Motor Sales, Inc. v. Universal Underwriters

Ins. Co., 140 Ariz. 383, 397, 682 P.2d 388, 402 (1984) (holding

that such a duty exists)). Like the courts in the legal

malpractice cases, the court in Premium Cigars expressed concern

that negligence claims against insurance agents could become

“bargaining chips” in settlement negotiations. Id. at 566 ¶ 26,

96 P.3d at 564.

2.

¶19 We reject the Premium Cigars rationale. The

relationship between an insurance agent and client, while

certainly important, differs from that between an attorney and

client in several critical respects.

¶20 Attorneys are fiduciaries with duties of loyalty,

care, and obedience, whose relationship with the client must be

one of “utmost trust.” In re Piatt, 191 Ariz. 24, 26, 951 P.2d

889, 891 (1997). By contrast, insurance agents generally are

not fiduciaries, but instead owe only a duty of “reasonable

care, skill, and diligence” in dealing with clients. Darner,

140 Ariz. at 397, 682 P.2d at 402; see also Sw. Auto Painting &

Body Repair, Inc. v. Binsfield, 183 Ariz. 444, 448, 904 P.2d

1268, 1272 (App. 1995) (holding that it was a question of

breach, not duty, whether an agent’s failure to advise a client

about additional insurance gave rise to liability). Furthermore,

duties of reasonable care similar to insurance agents’ arise in

11
many other contexts that do not give rise to non-assignability,

such as auditor-client, and even in some cases that give rise to

fiduciary relationships, such as trustee-beneficiary. See

Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 17, 945

P.2d 317, 328 (App. 1996) (auditors); Forest Guardians v. Wells,

201 Ariz. 255, 260 ¶ 13, 34 P.3d 364, 369 (2001) (trustees).

¶21 Similarly, although clients share personal information

with both their insurance agents and attorneys, they typically

share much less with their agents. While clients often inform

their agents about their medical history, financial information,

prior claim history, and personal habits, they provide their

attorneys more extensive or sensitive information about their

private and public conduct, including activities that may expose

them to civil or criminal liability.

¶22 Furthermore, attorney-client confidentiality protects

broader interests than does insurance agent-client

confidentiality. It protects the public interest in accessible

legal advice by allowing people to consult their attorneys

without fear of retribution. It also ensures that clients are

effectively represented, which in criminal cases is essential to

defendants’ constitutional right to assistance of counsel.

Ariz. R. Sup. Ct. 42, ER 1.6 cmt. 2; cf. McClure v. Thompson,

323 F.3d 1233, 1242-47 (9th Cir. 2003) (evaluating whether

disclosure of client confidences constituted ineffective

12
assistance of counsel). By contrast, insurance agent-client

confidentiality appears to protect only the client’s privacy, an

interest that, while important, has fewer societal ramifications

than do the interests protected by the attorney-client

relationship.

¶23 Once attorneys receive information, they are also

bound by stricter confidentiality duties than are insurance

agents. Attorneys may disclose information only to prevent

client crimes, Ariz. R. Sup. Ct. 42, ER 1.6(b), (d)(1), or in a

few other limited circumstances, id. at (d)(3)-(4) (also

allowing disclosure to secure legal advice about compliance with

the rules and to defend against suits brought by the client).

Insurance agents, by contrast, are statutorily allowed to

disclose client information in seventeen different

circumstances, including when an affiliate seeks the information

for marketing purposes. A.R.S. § 20-2113 (2002 & Supp. 2007)

(also allowing disclosure connected with proposed sales of the

insurance institution or requests for verification of benefits

from hospitals or doctors).

¶24 Considered together, these distinctions demonstrate

that the relationship between insurance agents and their

clients, while perhaps personal, is not “uniquely personal” in a

sense comparable to an attorney-client relationship. The

13
differences are substantial and the similarities do not justify

holding that claims against agents cannot be assigned.

C.

¶25 Gittlen also advances four public policy reasons for

prohibiting the assignment of professional negligence claims

against insurance agents.

1.

¶26 Gittlen first suggests that allowing assignment would

undermine the personal relationship between agent and client by

allowing professional negligence claims to become a “bargaining

chip” that may be “commercializ[ed].”

¶27 This argument is unpersuasive. Although the agent-

client relationship has personal dimensions, it arises from a

commercial transaction – the purchase of insurance. It is

therefore odd to suggest that it should not be commercialized.

At any rate, to the extent that the relationship contains

personal elements, they exist for the client’s benefit. Clients

are best positioned and should be empowered to decide whether to

value that relationship above the benefits they could obtain

from assigning a professional negligence claim.

2.

¶28 Gittlen also contends that allowing assignment

conflicts with this Court’s decision in Napier v. Bertram, which

held that a taxicab company’s insurance agent did not owe a

14
passenger the duty to secure uninsured motorist insurance for

the company. 191 Ariz. 238, 244 ¶¶ 20-21, 954 P.2d 1389, 1395

(1998). She argues that because Napier holds that insurance

agents owe no duties to non-clients, it would be inconsistent to

allow an assignee to sue an insurance agent. To do so, she

contends, would improperly recognize that people who are not

parties to an insurance contract may still benefit from the

insurance agent-client relationship.

¶29 This argument misconstrues the scope of Napier and the

nature of a claim asserted by an assignee. Napier holds that

agents generally owe duties to their clients only, but it does

not address whether claims for a breach of these duties may be

assigned. Assignees do not seek to expand insurance agents’

duties beyond those owed to the client. Instead, they merely

seek to assert the client’s claim. Allowing them to do so does

not improperly increase the beneficiaries of an insurance agent-

client relationship, because even though the insurance agent’s

duties do not extend beyond the client, Napier recognizes that

such duties “are discharged for the benefit of the non-client.”

191 Ariz. at 243 ¶ 19, 954 P.2d at 1394.

3.

¶30 Gittlen and her amici next argue that allowing

assignment of professional negligence claims will result in

“collusive” stipulated judgments that will bind insurance agents

15
who had no chance to contest them. This argument rests on a

faulty premise. Such judgments would not bind the agent.

¶31 This Court has recognized that, in some circumstances,

an insurer may be bound by a stipulated judgment entered

pursuant to a settlement between an insured and a plaintiff.

This typically occurs after the insurer has either reserved its

rights to contest coverage or declined to defend or indemnify

the insured. See United Servs. Auto. Ass’n v. Morris, 154 Ariz.

113, 120, 741 P.2d 246, 253 (1987). Under such settlements,

generally referred to as Morris or Damron agreements, the

insured admits liability and assigns to the plaintiff the

insured’s rights against the liability insurer in exchange for

the plaintiff’s promise not to execute the judgment against the

insured. See Safeway Ins. Co. v. Guerrero, 210 Ariz. 5, 7 ¶ 1

n.1, 106 P.3d 1020, 1022 n.1 (2005) (discussing differences

between Morris and Damron agreements). If the insurer is

ultimately found to be required to afford coverage or to have

breached its duties, the insurer may be barred from disputing

the insured’s liability as specified in the stipulated judgment.

See Morris, 154 Ariz. at 120, 741 P.2d at 253.

¶32 The rule that a stipulated judgment may bind the

insurer arises from the insurer’s contractual obligations to

defend and indemnify its insured. Id. When the insurer

breaches these obligations or reserves the right to deny

16
coverage, insureds are allowed to protect themselves from “the

sharp thrust of personal liability,” id. at 118, 741 P.2d at

251, by entering into Morris or Damron agreements. Such

agreements would offer no benefit to the plaintiff if they could

not conclusively determine the settling insured’s liability.

Id. at 120, 741 P.2d at 253. At the same time, they would pose

a danger if the insurer could be bound by inflated settlements.

Balancing these concerns, this Court held that the insurer may

be bound by the insured’s agreement only if the insurer has

declined an opportunity to defend and the insured establishes

that the settlement was reasonable and prudent. Id.

¶33 In contrast, an insurance agent generally has no

contractual duty to defend and indemnify the client. Our prior

holdings that an insurer may be bound in certain circumstances

by a judgment entered against the insured arose out of, and are

limited to, the insurer-insured relationship. Absent such a

relationship, we do not perceive, and Gittlen has not suggested,

any basis for concluding that insurance agents would be bound by

stipulated judgments to which they were not parties. Indeed,

principles of issue preclusion suggest the opposite conclusion.

Under those principles, the insurance agent would be barred from

re-litigating an issue only if, among other things, the agent or

her privy was a party in a prior action in which the issue was

actually litigated. See Maricopa-Stanfield Irrigation &

17
Drainage Dist. v. Robertson, 211 Ariz. 485, 491-92 ¶ 39, 123

P.3d 1122, 1128-29 (2005).

4.

¶34 Finally, Gittlen argues that allowing assignment would

flood courts with unwarranted litigation. We think this

unlikely. Although allowing assignment may lead to an increase

in the number of professional negligence claims that are

actually pursued, this is not necessarily a bad result. Insofar

as the claims are meritorious, they will serve the goals of

affording compensation for the clients who are victims of

professional negligence (who benefit from the consideration they

receive for assigning their claims), increasing the likelihood

that the victims of the underlying tort are compensated (insofar

as they can recover on the assigned claim against the agent),

and deterring negligence on the part of insurance agents. See

Michael Abramowicz, On the Alienability of Legal Claims, 114

Yale L.J. 697, 741 (2005). To the extent that allowing

assignment might foster non-meritorious claims, we believe they

will be better deterred by specifically targeted rules, such as

Arizona Rule of Civil Procedure 11, rather than an absolute bar

on assignment. Cf. Guerrero, 210 Ariz. at 15 ¶ 35, 106 P.3d at

1030 (discussing deterrents to the filing of frivolous claims).

18
¶ 35 In short, the policy concerns identified by Gittlen do

not support a rule generally barring the assignment of

professional negligence claims against insurance agents.

IV.

¶36 Because we hold that the Berliants may assign to Webb

their claims for professional negligence, we reverse the

decision of the court of appeals and the judgment of the trial

court and remand this case for further proceedings.

_______________________________________
W. Scott Bales, Justice

CONCURRING:

_______________________________________
Ruth V. McGregor, Chief Justice

_______________________________________
Rebecca White Berch, Vice Chief Justice

_______________________________________
Michael D. Ryan, Justice

_______________________________________
Andrew D. Hurwitz, Justice

19