August 16, 2011 Articles

How to Avoid an Insurance Carrier's Post Hoc Veto Power

By Randal L. Hutson

In Monterey Homes Arizona, Inc. v. Federated Mutual Insurance Co., 221 Ariz. 351, 212 P.3d 43 (Ariz. Ct. App. 2009), the Arizona Court of Appeals held that when an insured who was defended under a reservation of rights enters into a settlement that releases the subrogation rights of the insurer, the insurer may be entitled to intervene as a matter of right to contest notice, the reasonableness of the settlement, or both. The insurer may do this notwithstanding the fact that it has participated in mediation in which the agreement was discussed and executed. Because this decision is at odds with the major goal of mediation, which is to settle cases fully and finally, parties considering mediation should be aware of it.

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