Opinion
2 CA-CV 2021-0116
06-28-2022
Travelers Casualty and Surety Company of America, as Assignee of Western Alliance Bank, Plaintiff/Appellee, v. Alan L. Levin and Janice F. Levin, husband and wife, Defendants/Appellants.
Jennings Haug Keleher McLeod LLP, Phoenix By Chad L. Schexnayder, Matthew H. Sloan, and Alana L. Porrazzo Counsel for Plaintiff/Appellee Slutes, Sakrison & Rogers P.C., Tucson By Tom Slutes and Goldsmith & Mendoza PLLC, Tucson By Eugene N. Goldsmith and Maria del Pilar Mendoza Counsel for Defendants/Appellants
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Pima County No. C20175169 The Honorable Kellie Johnson, Judge
Jennings Haug Keleher McLeod LLP, Phoenix By Chad L. Schexnayder, Matthew H. Sloan, and Alana L. Porrazzo Counsel for Plaintiff/Appellee
Slutes, Sakrison & Rogers P.C., Tucson By Tom Slutes and Goldsmith & Mendoza PLLC, Tucson By Eugene N. Goldsmith and Maria del Pilar Mendoza Counsel for Defendants/Appellants
Presiding Judge Eckerstrom authored the decision of the Court, in which Chief Judge Vásquez and Judge Espinosa concurred.
MEMORANDUM DECISION
ECKERSTROM, PRESIDING JUDGE
¶1 Alan and Janice Levin appeal from the trial court's entry of summary judgment against them and in favor of Travelers Casualty and Surety Company of America ("Travelers"), as assignee of Western Alliance Bank ("WAB"). The court ruled that an indemnification agreement obligates the Levins to reimburse Travelers for costs incurred in providing coverage to WAB for claims made by DermSpectra LLC ("DermSpectra"), DermSpectra's CEO, and DermSpectra Development Inc. ("DDI") (collectively the "DermSpectra Parties") in a separate lawsuit. We agree and therefore affirm.
Factual and Procedural Background
¶2 We view the facts, which are largely undisputed, in the light most favorable to the Levins, the parties who opposed the summary judgment motion granted below. Underwood v. Wilczynski, 252 Ariz. 405, ¶ 2 (App. 2021). In 2012, Alan Levin-as trustee of the Alan and Janice Levin Exempt Trust (the "Levin Trust") - invested $4 million in DermSpectra, a startup company developing imaging machines for dermatologists and hospitals. By 2015, having spent most of the $4 million, DermSpectra was consistently operating at a loss and needed a loan.
The WAB Loan to DermSpectra
¶3 In January 2015, WAB approved a $500,000 loan to DermSpectra. The Levins, personally and as trustees of the Levin Trust-together with others, including DermSpectra's CEO and DDI-were required to execute commercial guarantees in favor of WAB by which they unconditionally guaranteed the repayment of the loan. The Levins were also required to approve the loan agreement, and Alan Levin signed it as one of DermSpectra's managers.
¶4 The loan agreement stated, in capitalized and partially bolded text, that DermSpectra would be required to maintain a debt service coverage ratio ("DSCR") of 1.25 to 1.00 at all times during the loan, to be assessed annually. WAB's underwriting department had internally approved the loan using a global DSCR, which considers sources of cash flow beyond the borrower's ability to service debt, including guarantor financials. However, WAB completed the loan agreement using a borrower-only DSCR, i.e., a DSCR based only on DermSpectra's income.
A DSCR is a lender condition that requires a borrower to maintain a specific cash flow to avoid default on a loan. A borrower may be timely on loan payments and still be in default if it does not meet the required DSCR.
¶5 In early March 2016, after the loan agreement had been executed and was in place, certain employees of WAB became aware of the discrepancy between WAB's internal underwriting and the express terms of the final loan agreement as signed by WAB and DermSpectra's managers, including Alan Levin. WAB chose to proceed with the loan agreement as written and executed rather than as initially underwritten, "per legal," as it was the integrated, signed loan agreement that was "binding upon the signers thereof" and "legally enforceable in accordance with" its terms.
¶6 In early 2016, WAB conducted its annual review of DermSpectra's compliance with the loan agreement's DSCR covenant for the preceding year. The review revealed that DermSpectra had failed to meet its 2015 financial projections and had suffered a loss of approximately $1.2 million. DermSpectra failed the borrower-only DSCR test provided by the terms of the loan agreement as executed, as well as the global DSCR analysis by which WAB had internally approved the loan.
¶7 From March 10 to December 15, 2016, WAB served four demand letters, notifying DermSpectra, the Levins, and the other guarantors that DermSpectra had defaulted on the loan, including by failing to maintain the required DSCR, and demanding repayment. Then, on December 16, WAB filed a lawsuit against the DermSpectra Parties, the Levins (both individually and as trustees of the Levin Trust), and other guarantors, alleging breach of contract through default on the loan agreement and breach of guaranty (the "DermSpectra Lawsuit").
The Loan Sale Agreement
¶8 On December 27, after several days of negotiations between their respective counsel, the Levins and WAB entered into a non-recourse loan sale agreement (the "LSA"), whereby the Levins purchased the DermSpectra loan from WAB for its face value plus default interest. According to the Levins, they did so because they believed they were the only defendants in the DermSpectra lawsuit with the financial ability to repay the loan and thus did so to stop the accrual of attorney fees and costs chargeable against them as guarantors.
¶9 Section 9.6 of the LSA contains the indemnification clause that is at the center of this appeal. It obligates the Levins to "indemnify, protect, and defend" WAB against, and hold WAB harmless from, "any Claims,"
The LSA defines the term "Claims" broadly to mean "any obligation, liability, claim (including any claim for damage to property or injury to or death of any persons), lien or encumbrance, loss, damage, cost, or expense, including reasonable attorneys' fees."
whether arising prior to and/or after the Closing Date, including, but not limited to, any Claims based upon, arising out of, appertaining to, or in connection with the matters set forth in this Agreement, the Loan, the Loan Documents, . . . the servicing of the Loan, the enforcement of any rights and remedies of [WAB] in respect of the Loan . . ., any obligations of [DermSpectra] to [WAB], the lending arrangements between [WAB] and [DermSpectra], . . . any Claim asserted by [DermSpectra] or Guarantor [including DermSpectra's CEO and DDI] as the result of any actions undertaken by or on behalf of [WAB] in connection with its Due Diligence and any and all matters related to any of the foregoing.
The indemnification clause then outlines the process for invoking it and the consequences of a failure to defend pursuant to the clause, as follows:
(a) [WAB] shall notify [the Levins] of any Claim against [WAB] within forty-five (45) days after it has notice of such Claim, but failure to
notify [the Levins] shall in no case prejudice the rights of [WAB] under this Agreement unless [the Levins] shall be prejudiced by such failure and then only to the extent of such prejudice. Should [the Levins] fail to discharge or undertake to defend [WAB] against such liability (with counsel selected and approved by [WAB] in its sole and absolute discretion), within twenty (20) days after [WAB] gives [the Levins] written notice of the same, then [WAB] may settle such Claim, and [the Levins'] liability to [WAB] shall be conclusively established by such settlement, the amount of such liability to include both the settlement consideration and the reasonable costs and expenses, including attorneys' fees, incurred by [WAB] in effecting such settlement.
¶10 At the time the LSA was signed, WAB was aware of but did not disclose to the Levins the existence of the DSCR discrepancy or that the DermSpectra Parties had objected to the sale of the loan to the Levins and threatened litigation. And, when responding to DermSpectra's objection, WAB did not disclose that the Levins had already purchased the loan. However, the Levins do not on appeal contest the enforceability of the LSA in general, the language of which-including that of the indemnification clause-they have conceded "is clear."
The DermSpectra Lawsuit
¶11 In January 2017-after the sale of the loan had closed-the Levins took WAB's place as plaintiffs in the ongoing DermSpectra Lawsuit and filed their first amended complaint. The Levins sought repayment from DermSpectra.
In May 2017, the Levins dismissed their claims against DermSpectra by stipulation after DermSpectra reimbursed the Levins for the loan, interest, fees, and costs.
¶12 On March 13, 2017, the DermSpectra Parties filed a counterclaim against the Levins and an equivalent third-party claim against WAB for intentional interference with a contractual business relationship.
They also filed contribution claims against the Levin Trust and the Levins individually, arguing that they, as guarantors, owed the DermSpectra Parties "a pro-rata amount of contribution for any and all liabilities owed pursuant to the guaranties."
The bases of these claims were that the Levins and WAB had "creat[ed] a false reason" to declare the DermSpectra loan in default, initiated a meritless lawsuit, and sold the loan and related security interests to the Levins "in a non-arm's length, secret transaction," all to assist the Levins in taking control of DermSpectra and its assets.
¶13 Four days later, WAB sent the Levins a letter invoking the indemnification clause of the LSA, advising that WAB had chosen to retain certain counsel, and demanding payment of WAB's attorney fees and defense costs. The Levins have acknowledged that DermSpectra's claims against WAB were "false" and that they expressed to WAB that they did "not believe that the bank did anything wrong in any respect with regard to the loan it made to Dermspectra for its actions of selling the note to Mr. Levin." However, they declined to provide WAB a defense on the ground that the claim against WAB was "based upon alleged wrongdoing of the bank." As the Levins' counsel explained, because the DermSpectra Parties were "claiming that the bank committed wrongful acts giving rise to [the DermSpectra Parties'] counterclaim and third party claim, we do not believe that we have [a] duty to indemnify the bank."
¶14 In June 2017, WAB responded in writing, disputing the Levins' interpretation of the LSA, reiterating its demand for indemnification, and attaching a summary of invoices for defense fees already incurred. WAB also reserved its rights to settle with the DermSpectra Parties, noting that- under the terms of the LSA- the Levins' liability to WAB would be "conclusively established" to include settlement payments and reasonable costs and expenses incurred by WAB in reaching such settlement, including attorney fees. In August, the Levins again rejected WAB's claim for indemnity on the ground that a party is "not entitled to indemnity for its own wrongful conduct unless the indemnity agreement specifically states that." They argued that Alan Levin had done "nothing wrong" and had "not influence[d] the bank to call the loan, which was the precipitating factor in starting the alleged liability chain."
¶15 In October 2017 and January 2018, WAB sent additional demand letters to the Levins, attaching updated invoice summaries for its defense fees. It warned that, if the Levins did not "honor their contract" with WAB and provide the requested reimbursement, WAB planned to sue them for breach of the duty to indemnify established in the LSA. WAB also repeated the possibility of a settlement with the DermSpectra Parties, reiterating that the LSA's indemnification clause entitled the bank- due to the Levins' failure to indemnify within twenty days of having received WAB's written demand - to seek recovery of "any settlement amount" paid in the DermSpectra Lawsuit, plus related attorney fees and costs.
¶16 Then, on January 17, 2018, WAB produced documents revealing the DSCR discrepancy. As a result, in May 2018 and again in September 2018, the DermSpectra Parties amended their pleading to add additional claims against WAB and the Levins. They alleged WAB and the Levins had concealed information, created false reasons to call the loan by taking advantage of the DSCR discrepancy, and devised a plan to do so, initiate the lawsuit, and convey the loan to the Levins, all for Alan Levins' benefit due to WAB's deference to him as an important bank client. All the new third-party claims against WAB-two breach of contract counts, two counts for breach of the implied duty of good faith and fair dealing, one count of negligent misrepresentation, and two counts of fraud - still related to the loan, the decision to call the loan, the filing of the lawsuit, or the sale of the loan through the LSA. According to the Levins, no evidence supported the claims of a conspiracy. As they have stated on appeal, the Levins "did not believe the DermSpectra Parties' claims against WAB had merit."
¶17 Having previously sent four demand letters, WAB sent no more to the Levins after the DermSpectra Parties' two amendments to their third-party complaint against WAB. Ultimately, WAB defended against the DermSpectra Parties' claims for over two years, incurring $938,426 in attorney fees and $133,943 in defense costs.
¶18 In March 2019, the DermSpectra Parties stipulated to the dismissal of its negligent misrepresentation claim against WAB. All remaining counts were based entirely on alleged intentional and fraudulent acts by WAB and the Levins. For these counts, the DermSpectra Parties sought $40 million in damages, $270 million in lost profits, and other damages, including punitive damages. All parties then filed motions for summary judgment. WAB also filed a motion, joined by the Levins, to exclude the DermSpectra Parties' damages expert.
¶19 In April 2019 - on the day set for the hearing on the motions for summary judgment and to exclude DermSpectra's expert-WAB agreed to settle with the DermSpectra Parties for $3.625 million. This settlement, to which Travelers consented, resulted in WAB's dismissal with prejudice from the DermSpectra Lawsuit. Travelers then reimbursed WAB for the settlement amount and attorney fees, for a total of $3,681,613.
This figure represents the sum of the $3,477,433 Travelers paid to WAB to fund and/or reimburse the DermSpectra Lawsuit settlement and $204,180-the defense fees, costs, and expenses WAB incurred in the DermSpectra Lawsuit less the applicable $1 million retention required by the Travelers policy.
This Indemnity Action
¶20 In October 2017, after warning of its intent to do so in the third demand letter, WAB filed against the Levins the indemnity action underlying this appeal. The trial court stayed proceedings pending resolution of the DermSpectra Lawsuit. The indemnity action was reinstated in August 2019, with Travelers taking WAB's place as plaintiff by virtue of its status as assignee of and subrogee to WAB's rights and claims.
¶21 Travelers and the Levins filed cross-motions for summary judgment. In March 2021, after a hearing, the trial court granted partial summary judgment in favor of Travelers and denied the Levins' cross-motion. In particular, the court found the Levins had breached their duties to both defend and indemnify WAB on claims alleged against WAB concerning the loan agreement, and further found them liable to Travelers for the settlement payment. However, finding a genuine dispute as to the reasonableness of the attorney fees and costs WAB had incurred in the DermSpectra Lawsuit, the court denied that aspect of Travelers' motion for summary judgment. To avoid a trial on that remaining issue, the parties stipulated to reasonable fees and costs. The trial court entered final judgment, and the Levins appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(1).
Discussion
¶22 We review de novo a trial court's grant of summary judgment and issues of contract interpretation. Andrews v. Blake, 205 Ariz. 236, ¶ 12 (2003). "We will affirm if there are no disputed issues of material fact and the prevailing party is entitled to judgment as a matter of law, viewing the facts in the light most favorable to the party against whom summary judgment was entered." Green Cross Med., Inc. v. Gally, 242 Ariz. 293, ¶ 5 (App. 2017); see also Ariz. R. Civ. P. 56(a).
Duty to Defend
¶23 The Levins challenge the trial court's conclusion that they had a duty to defend WAB. They contend the DermSpectra Parties' claims against WAB "were not covered by the LSA's indemnity provision," such that the Levins had "no duty" to defend WAB against those claims. In particular, they argue "the claims upon which WAB paid were all claims based on WAB's intentional wrongdoing" and "all of the allegations in the Third Amended Counterclaim (even prior to dismissal of the negligence count), were based upon WAB's wrongdoing." This, they argue, "precluded the duty to defend."
¶24 Travelers counters that, under the plain language of the LSA, the Levins bore a duty to defend WAB against the DermSpectra Parties' claims, all of which were "based upon, arising out of, appertaining to, or in connection with the matters set forth in [the LSA], the Loan, the Loan Documents [or] the lending arrangements between [WAB] and [DermSpectra]." Travelers urges that "the Levins were legally incorrect in their decision to treat the bank's unproven 'wrongdoing' as sufficient to preclude their defense obligation." We, like the trial court, agree.
¶25 When there is an express agreement between the parties, the existence of a duty to defend must be determined from the language of the agreement. See MT Builders, L.L.C. v. Fisher Roofing, Inc., 219 Ariz. 297, ¶ 19 (App. 2008); see also Lennar Corp. v. Auto-Owners Ins. Co., 214 Ariz. 255, ¶ 11 (App. 2007) (language of insurance policy controls scope and extent of duty to defend). "[W]hen parties bind themselves by a lawful contract the terms of which are clear and unambiguous, a court must give effect to the contract as written." Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C, 213 Ariz. 83, ¶ 12 (App. 2006).
See A Tumbling-T Ranches v. Flood Control Dist. of Maricopa Cnty., 220 Ariz. 202, ¶¶ 10-12 (App. 2008) (applying insurance principles of defense and indemnity in non-insurance, commercial context).
¶26 In the LSA, the Levins "covenanted] and agree[d] to indemnify, protect, and defend" WAB against "any Claims" related to the LSA or the DermSpectra loan, "whether arising prior to and/or after" the Levins' purchase of the loan was final. (Emphasis added.) Compare with MT Builders, 219 Ariz. 297, ¶¶ 20, 25, 27 (finding no "immediate, up-front duty to defend" when subcontract agreement did not include word "defend" and court was thus "not dealing with an indemnity provision that requires the indemnitor to defend its indemnitee"). This duty extended to claims in any way relating to the LSA, the loan, the loan agreement, "the enforcement of any rights and remedies of [WAB] in respect of the Loan," or the lending arrangements between WAB and DermSpectra. It also expressly included "any Claim" asserted by any of the DermSpectra Parties "as the result of any actions undertaken by" WAB in connection with its due diligence "and any and all matters related to any of the foregoing."
¶27 Nothing in this language excluded from the duty to defend loan- or LSA-related claims involving alleged intentional or wrongful conduct by WAB. The Levins acknowledge as much on appeal. This is one key distinction between the present case and those cited by the Levins, many of which involved express policy exclusions clearly triggered by either the factual allegations of the complaint or by other facts, such that insurance coverage was clearly excluded. See Transamerica Ins. Grp. v. Meere, 143 Ariz. at 354, 360 (1984) (no duty to defend if uncontested facts "plainly take the case outside policy coverage" due to express intentional injury exclusion); Kepner v. W. Fire Ins. Co., 109 Ariz. 329, 330 (1973) (no duty to defend where insured concedes that language of homeowner's insurance policy "specifically excluded" business activities from coverage and that injury in question stemmed from excluded business activity); Hagen v. U.S. Fid. & Guar. Ins. Co., 138 Ariz. 521, 523-24 (App. 1983) (no duty to defend when injured party has admitted that express "course of employment" clause in employer's automobile liability policy is valid and bars liability coverage for his injuries); Granite State Ins. Corp. v. Mountain States Tel. & Tel. Co., 117 Ariz. 432, 437-38 (App. 1977) (existence of duty to defend dependent on whether injury occurred before or after contractor completed work, due to express policy exclusion); see also U.S. Liab. Ins. Co. v. Xiangnan Gong, 413 F.Supp.3d 987, 990-93 (D. Ariz. 2019) (no duty to defend wrongful death lawsuit when all claims in complaint "specifically excluded" by "plain terms" of absolute professional liability exclusion and products-completed operations hazard exception in commercial general liability policy, resulting in "no potential for liability that arguably comes within the scope of the insurance coverage"). In this case, as the Levins themselves argue, "no policy exclusions are at issue." Rather, the all-encompassing, exclusion-free language of the LSA's indemnification clause created, as the trial court put it, "a broad duty to defend any claim that related to [the] original Dermspectra Loan."
¶28 Still, based on their contention that they had no duty to indemnify WAB for its own wrongdoing, fault, or intentional conduct, the Levins contend they had no duty to defend. This argument ignores the fundamental difference between the duty to defend and the duty to indemnify. See, e.g., Regal Homes, Inc. v. CNA Ins., 217 Ariz. 159, ¶ 19 (App. 2007) ("[A] distinction should be drawn between the duty to defend and the duty to indemnify."). Most importantly, the duty to defend is broader in scope. As the Levins concede, it extends not only to claims that-viewed when the action is initiated-"are" or "reasonably appear to be" within the scope of the indemnity obligation, but also to claims that "arguably are" or "might be found to be" within that scope. Restatement (Second) of Judgments § 58 cmt. a (1982). Indeed, the duty of providing a defense to the indemnitee may exist "even when it appears possible or likely that the injured person's claim lies outside the scope of the indemnity obligation." Id.; see also United Servs. Auto. Ass'n v. Morris, 154 Ariz. 113, 117 (1987) (insurer "expressly obligates itself to defend any claim potentially covered by the policy," requiring it to "defend claims potentially not covered and those that are groundless, false, or fraudulent"); Transamerica, 143 Ariz. at 360 (if complaint "alleges facts which may be within the policy coverage, the insurer is obligated to assume the defense" (emphasis added)). This is because the very purpose of creating a duty to defend "is not to provide indemnity against loss by the injured person, but to provide insurance against the risk of being sued." Restatement § 58 cmt. a.
¶29 There is no dispute that all of the third-party claims against WAB in the DermSpectra Lawsuit concerned the loan, WAB's calling of the loan and related filing of suit, or the sale of the loan to the Levins via the LSA. Most importantly, the DermSpectra Parties' initial third-party claim against WAB-which survived essentially unmodified (although incorporating additional alleged facts) in both subsequent amended third-party complaints - claimed that WAB had, "[i]n conjunction with, and at the request" of Alan Levin, intentionally interfered with contractual business relationships by "creating a false reason to call [DermSpectra's] promissory note; initiating suit to enforce such with the related loan documents; and conveying the note and loan documents in a non-arm's length transaction" to Alan Levin individually. Plainly, this claim was "based upon, arising out of, appertaining to, or in connection with" the LSA, the loan and related documents, enforcement of WAB's rights regarding the loan, and "the lending arrangements" between WAB and DermSpectra. And it was, by definition, a "Claim asserted by [the DermSpectra Parties] as the result of any actions undertaken by or on behalf of [WAB] in connection with its Due Diligence," or - at minimum - a matter "related to any of the foregoing," "any and all" of which were expressly covered by the LSA's indemnification clause.
¶30 We need not decide whether each of the other claims ultimately advanced by the DermSpectra Parties against WAB would likewise have triggered the duty to defend because, by that point, the duty had already been triggered by the initial third-party claim, which was still part of the case. As we have explained, the duty to defend "arises at the earliest stages of litigation and generally exists regardless of whether the insured is ultimately found liable." Regal Homes, 217 Ariz. 159, ¶ 19 (quoting INA Ins. Co. of N. Am. v. Valley Forge Ins. Co., 150 Ariz. 248, 255 (App. 1986)). And, if any claim triggers the duty to defend, the entire suit must be defended. See Teufel v. Am. Fam. Mut. Ins. Co., 244 Ariz. 383, ¶ 11 (2018) ("if any claims fall within policy coverage, the insurer must defend against all claims, including 'claims potentially not covered and those that are groundless, false, or fraudulent'" (quoting Morris, 154 Ariz. at 117)); see also Lennar, 214 Ariz. 255, ¶ 15 ("In Arizona, 'if any claim alleged in the complaint is within the policy's coverage, the insurer has a duty to defend the entire suit, because it is impossible to determine the basis upon which the plaintiff will recover (if any) until the action is completed.'" (quoting W. Cas. & Sur. Co. v. Int'l Spas of Ariz., Inc., 130 Ariz. 76, 79 (App. 1981))).
¶31The Levins' position cannot be squared with these established principles. As the trial court explained, under the Levins' interpretation, "the duty to defend would not accrue until the facts proved the conduct was covered under the Indemnification Clause." But "[a] claim must be defended and litigated before it is decided." See MT Builders, 219 Ariz. 297, ¶ 20. Thus, the Levins' interpretation would render meaningless the LSA's requirement that the Levins "defend" WAB for loan- and LSA-related claims, as well as the provisions setting forth the consequences "should [the Levins] fail to discharge or undertake to defend [WAB] against such liability" within twenty days of receiving notice of a claim. "It is a cardinal rule of contract interpretation that we do not construe one term of a contract to essentially render meaningless another term." Aztar Corp. v. U.S. Fire Ins. Co., 223 Ariz. 463, ¶ 56 (App. 2010).
Notice of Claims
¶32 As explained above, the LSA sets forth the procedure for WAB to invoke the indemnification clause, as well as the consequences if the Levins breached the duty to defend. Section 9.6(a) required WAB to notify the Levins of any claim against the bank "within forty-five (45) days after it has notice of such Claim." There is no dispute that WAB satisfied this notice requirement by mailing a demand letter four days after DermSpectra filed its first third-party claim against the bank in March 2017 Nor is there any dispute that the Levins failed to provide reimbursement for WAB's defense within twenty days of that notice, or anytime thereafter, including after WAB's three additional notice letters. Clearly, as the trial court concluded, "the Levins were given notice of the claim and the opportunity to be involved in the defense of the claim but failed to do so."
In their reply brief, the Levins argue: "[E]ven as to the First Counterclaim, WAB never truly tendered the defense. It simply sent a series of four letters requesting payment of attorneys' fees. It never analyzed the basis for the tender or demand that the Levins accept defense." Having failed to raise this argument in their opening brief, the Levins have waived it, and we will not address it further. Dawson v. Withycombe, 216 Ariz. 84, ¶ 91 (App. 2007) ("We will not consider arguments made for the first time in a reply brief.").
¶33 The Levins argue, however, that because WAB sent no additional notice letters after the DermSpectra Parties amended their claims in May and September 2018, § 9.6(a) of the LSA was not triggered to establish the Levins' liability for WAB's settlement with the DermSpectra Parties. They claim this is clear from the plain language of the indemnification clause. But immediately after establishing the notice requirement, the indemnification clause states: "failure to notify [the Levins] shall in no case prejudice the rights of [WAB] under this Agreement unless [the Levins] shall be prejudiced by such failure and then only to the extent of such prejudice."
¶34 Here, the Levins were parties in the case in which the DermSpectra Parties filed their amended third-party complaints against WAB in May and September 2018, and copies of those pleadings were mailed to the Levins' counsel. The September pleading added a counterclaim against Alan Levin himself. And the Levins concede on appeal that they did, in fact, know of the new claims asserted by the DermSpectra Parties. Moreover, WAB had already filed the underlying indemnity action against the Levins by the time the DermSpectra Parties filed their amended third-party complaints in the other lawsuit, and the Levins were therefore on notice that WAB intended to invoke- and had, in fact, invoked-the LSA's indemnification clause in court. Thus, the Levins have not established that they suffered actual prejudice as a result of WAB not sending a fifth letter to notify them of new claims contained in pleadings they also received because of their own interest and involvement in the lawsuit. Compare with Salvatierra v. Natl Indem. Co., 133 Ariz. 16, 19-20 (App. 1982) (insurer "did not know of any facts or claims against its insured" imposing duty to defend and insured never notified insurer and instead entered into agreements leading to judgment for claims "never alleged and never disclosed" to insurer).
Liability "Conclusively Established"
¶35 Under the plain terms of the LSA's indemnification clause, because the Levins "fail[ed] to discharge or undertake to defend" WAB in the DermSpectra Lawsuit after receiving WAB's notice letters and actual notice of subsequent third-party complaints, WAB was permitted to settle the claims against it, just as WAB had warned the Levins as early as June 2017 might occur. And the LSA makes plain that, if and when that occurs, the Levins' liability to WAB "shall be conclusively established by such settlement, the amount of such liability to include both the settlement consideration and the reasonable costs and expenses, including attorneys' fees, incurred by [WAB] in effecting such settlement." Given these plain terms, to which the Levins agreed, they refused to provide a defense- even under a reservation of rights - at their peril. And, as the trial court correctly concluded, they "are liable to Travelers for the settlement payment," as well as related costs and expenses, including attorney fees, they have since stipulated were reasonable.
¶36 The Levins contend the settlement was unreasonable or, at minimum, that a triable issue of fact remained regarding the reasonableness of the settlement. They point to cases establishing that, even when an indemnitor does not defend, an indemnitee must act reasonably in settling. See Cunningham v. Goettl Air Conditioning, Inc., 194 Ariz. 236, ¶¶ 21-22 (1999); A Tumbling-T Ranches, 220 Ariz. 202, ¶ 19; MT Builders, 219 Ariz. 297, ¶¶ 34-35. But those cases did not involve contractual terms establishing that, if the indemnitor failed to defend within twenty days after written notice and the indemnitee proceeded to settle, the indemnitor's liability to the indemnitee "shall be conclusively established by such settlement." Here, the trial court correctly concluded that this express contractual language "relieve[d] WAB of an obligation to prove the reasonableness of the settlement." Cf. Cunningham, 194 Ariz. 236, ¶ 27 (language of indemnity agreement determines extent of indemnitor's liability to indemnitee); A Tumbling-T Ranches, 220 Ariz. 202, ¶ 28 ("wide variety of commercial agreements" may be drafted, and court must determine whether "language of the indemnity agreement in [the particular] case includes the amounts at issue"). Because the Levins made the conscious choice to refuse WAB a defense for loan- and LSA-related claims of which they indisputably had notice, their liability was "conclusively established" by the settlement. As the trial court explained, "[allowing the Levins to dispute the reasonableness of the settlement would ignore the plain language of the contract" and "give no effect to the express contractual provisions governing a failure of the Levins to defend under the agreement."
¶37 The Levins also contend there was an "inherent conflict" between them and WAB, such that they should not be estopped from disputing the reasonableness of the settlement and attorney fees. In particular, they argue that "[t]he parties' interests were, on their face, adverse given that the Levins could potentially defend the matter by blaming WAB." The trial court rejected this argument, in part on the ground that "the record suggests the Levins and WAB were aligned regarding the claims." Indeed, the record of the DermSpectra Lawsuit reflects that, at least at times, the Levins argued in support of WAB, rather than blaming the bank. They also joined WAB's motion to exclude the DermSpectra Parties' damages expert. We are therefore disinclined to second-guess the trial court's conclusion that there was no inherent conflict of interest between the Levins and WAB. See Armiros v. Rohr, 243 Ariz. 600, ¶ 21 (App. 2018) (appellate court defers to trial court's superior position to weigh evidence, make credibility determinations, and resolve conflicts in facts and finding will be upheld if supported by sufficient evidence). Regardless, as the court also noted in rejecting the Levins' "inherent conflict" argument, the parties chose to enter into a contract providing that liability would be "conclusively established" by the settlement amount, which is undisputed and certain.
¶38 Because we conclude that the trial court correctly granted summary judgment based on the Levins' breach of their duty to defend and the resulting liability that was conclusively established under the plain terms of the LSA, we need not address the Levins' separate arguments regarding the duty to indemnify.
Attorney Fees and Costs
¶39 Travelers requests its attorney fees and costs on appeal, pursuant to A.R.S. §§ 12-341.01 and 12-341, as well as § 14.2 of the LSA. That provision of the LSA establishes:
The prevailing party in any action or proceeding to interpret or enforce this Agreement, or any of its terms, shall be entitled, in addition to any judgment or award upon such action or proceeding, to an award for all costs and expenses (including costs of all legal . . . proceedings or hearings and attorneys' fees) incurred by such prevailing party . . . including, without limitation, all attorneys' fees and related costs of enforcement of any such judgment or award and upon any appeal relating thereto.
It is well settled in Arizona that a contractual provision for payment of attorney fees must be enforced in accordance with the terms of the contract. Bennett Blum, M.D., Inc. v. Cowan, 235 Ariz. 204, ¶ 8 (App. 2014). We therefore lack the discretion to refuse to award Travelers its appellate attorney fees under the foregoing provision, as well as its costs on appeal. Id.; § 12-341 (recovery of costs mandatory for successful party to civil action). We therefore grant Travelers' request. We reject the Levins' request for attorney fees and costs.
Disposition
¶40 For the foregoing reasons, we affirm the judgment of the trial court and award Travelers its reasonable attorney fees and costs on appeal, upon its compliance with Rule 21(b), Ariz. R. Civ. App. P.