Vice Chief Justice PELANDER, opinion of the Court:

¶ 1 The United States Court of Appeals for the Ninth Circuit has certified the following question for our review:

Quihuis v. State Farm Mut. Auto. Ins. Co., 748 F.3d 911, 912 (9th Cir.2014).

¶ 2 We hold that the default judgment does not preclude litigation of whether coverage exists under the policy. Consistent with Morris, Wood, and the Restatement (Second) of Judgments ("Restatement") § 58 (1982), however, we also hold that an insurer in a coverage action may not, in the guise of a coverage defense, litigate what are essentially and solely liability issues resolved by the default judgment.

I.

¶ 3 The Ninth Circuit's certification order states the facts and procedural history:

Quihuis, 748 F.3d at 912-14 (footnotes omitted); see A.R.S. § 12-1863(2) (requiring certification order to state all facts relevant to certified question); Ariz. R. Sup.Ct. 27(a)(3)(B) (same).

II.

¶ 4 When a liability insurer refuses to defend its insured against a third party's tort claims, as State Farm did here, the insured and the claimant may enter into a Damron agreement "under which the insured stipulates to a judgment, assigns his rights against the insurer to the claimant, and receives in return a covenant from the claimant not to execute against the insured." Parking Concepts, Inc. v. Tenney, 207 Ariz. 19, 20 ¶ 3 n. 1, 83 P.3d 19, 20 n. 1 (2004); see Damron v. Sledge, 105 Ariz. 151, 152-53, 460 P.2d 997, 998-99 (1969). An insured may enter into a similar agreement if the insurer defends the third-party action but reserves its right to later dispute coverage. Morris, 154 Ariz. at 119, 741 P.2d at 252; see also Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, 153 Ariz. 129, 137-38, 735 P.2d 451, 459-60 (1987). We refer to this latter type of agreement as a "Morris agreement." See Parking Concepts, 207 Ariz. at 20 ¶ 3 n. 1, 83 P.3d at 20 n. 1.

¶ 5 After obtaining a judgment pursuant to a Damron or Morris agreement, the claimant then seeks payment of the judgment by the insurer based on the latter's indemnity obligation under the policy. 1 Allan D. Windt, Insurance Claims and Disputes: Representation of Insurance Companies and Insureds § 9.11 (6th ed.2013) [hereinafter "Windt Treatise"]. The insurer, in turn, generally may contest any duty to indemnify by asserting that its policy did not cover the accident or claim. See Morris, 154 Ariz. at 119, 741 P.2d at 252 (adopting "[t]he better result" that "permit[s] the insurer to raise the coverage defense, and also permit[s] an insured to protect himself from the risk of noncoverage or excess judgment" when insurer defends under a reservation of rights). Standing in the insured's shoes as assignee, the claimant may also sue the insurer on various claims, including breach of the insurance contract and bad faith. See Acosta v. Phx. Indem. Ins. Co., 214 Ariz. 380, 383 ¶ 13, 153 P.3d 401, 404 (App.2007) ("When an insurer allegedly acts in bad faith in its duty to indemnify or protect its insured against liability to third parties, ... [the bad faith] claim can be brought either by the insured or the insured's assignee.").

¶ 6 This case involves (1) a liability insurer's refusal to defend its insured against a third-party tort claim after the insurer determined its policy did not cover the accident; (2) a stipulated default judgment against the insured under a Damron agreement; and (3) a question of ownership, which is both an element of liability for the underlying negligent entrustment tort claim against the insured and a requirement of coverage under the insurance policy. The certified question turns on what issue-preclusion rules apply under these circumstances.3 As the Ninth Circuit observed, no Arizona case squarely resolves the question presented here. See Quihuis, 748 F.3d at 914.

¶ 7 State Farm argues that when the Quihuises served their complaint on the Coxes, "no insured-insurer relationship existed between State Farm and the Coxes" because the Coxes sold the Jeep before the accident. Accordingly, State Farm asserts, the general issue-preclusion rule set forth in Restatement § 27 governs. See Chaney Bldg. Co. v. City of Tucson, 148 Ariz. 571, 573, 716 P.2d 28, 30 (1986) (applying § 27). Issue preclusion under that section requires actual litigation of the issue of fact or law in question, and thus default judgments generally have no preclusive effect. Id.; see also Restatement § 27 cmt. e ("In the case of a judgment entered by ... default, none of the issues is actually litigated.").

¶ 8 The Quihuises, in contrast, contend that Restatement § 58, which specifically concerns indemnitors that have an independent duty to defend, provides the controlling rule. See Restatement § 58; Farmers Ins. Co. v. Vagnozzi, 138 Ariz. 443, 448, 675 P.2d 703, 708 (1983) (adopting Restatement § 58). We agree that § 58 applies and therefore analyze issue preclusion in this case under that section, applying other relevant principles established in case law.4

A.

¶ 9 Restatement § 58 provides:

¶ 10 In this case, § 58 applies because (1) the Coxes' insurance policy imposed on State Farm both an indemnity and a defense obligation; (2) the Quihuises' complaint involved a claim that "might be within the scope of [State Farm's] indemnity obligation"; (3) the Coxes gave State Farm reasonable notice of the Quihuises' lawsuit, thereby providing State Farm with "an opportunity to assume [the Coxes'] defense"; and (4) "a judgment" was entered in favor of the Quihuises and against the Coxes. See Restatement § 58(1). Thus, we must identify the issues that § 58 precludes State Farm from litigating in the DJA. Although we "incorporate[d]" Restatement § 58 in Vagnozzi, 138 Ariz. at 448, 675 P.2d at 708, we have not yet applied it in a case such as this.

B.

1.

¶ 11 Section 58(1)(a) precludes State Farm from disputing the "existence and extent" of the Coxes' liability to the Quihuises. Although § 58 does not define what "existence and extent" of liability means, Arizona case law provides insight.

¶ 12 In Morris, the insured settled with a third-party claimant and stipulated to a judgment after the insurer defended under a reservation of rights. 154 Ariz. at 115, 741 P.2d at 248. The claimant then sued the insurer for indemnification, and the insurer sought to litigate "all aspects of the liability case" in contesting its indemnity obligation. Id. at 120, 741 P.2d at 253. Rejecting that position, we found that the insurer was precluded from litigating "the fact []or amount of liability," if the insured's settlement with the claimant "was reasonable and prudent." Id. We concluded, however, that the insurer could later litigate whether there is coverage under the policy, stating that "any stipulation of facts essential to establishing coverage would be worthless." Id. We stressed that coverage must be open for later litigation because, otherwise, insureds might be able "to obtain coverage that the insured did not purchase" simply by entering into a Damron or Morris agreement. Id.

¶ 13 The Wood case illustrates the boundaries Morris set for insurers in contesting coverage. In Wood, after a default judgment was entered against the insured pursuant to a Morris agreement, the insurer argued that it could "fully litigate all liability and damage issues" — matters "bearing solely on the insureds' fault, causation, or the plaintiff's damages" — in the coverage action. Wood, 209 Ariz. at 149 ¶¶ 32, 34, 98 P.3d at 584. Applying Morris, the court of appeals precluded the insurer from litigating, "in the guise of a coverage defense," the existence and extent of the insured's liability. Id. at 150 ¶ 37, 98 P.3d at 585.

¶ 14 Wood represents a straightforward application of Restatement § 58(1)(a); it precludes an insurer from litigating not only the fact of liability, but also those issues that "relat[e] strictly to liability and damages [and not] coverage." Id. at 152 ¶ 47, 98 P.3d at 587; see also Ariz. Prop. & Cas. Ins. Guar. Fund v. Martin, 210 Ariz. 478, 481 ¶ 15, 113 P.3d 701, 704 (App.2005) (distinguishing Wood because the insurer in that case argued there was no liability and therefore no coverage, whereas the insurer in Martin sought to litigate "legitimate coverage issues in a [DJA] based on specific policy exclusions").

¶ 15 Although the facts of this case fall between the situations presented in Morris and Wood, those cases demonstrate that § 58(1)(a) does not preclude litigation of pure coverage issues in a DJA. State Farm is not seeking to litigate the existence or extent of the Coxes' liability, see Morris, 154 Ariz. at 120, 741 P.2d at 253, nor is it arguing that there is no coverage because the Coxes are not liable to the Quihuises, see Wood, 209 Ariz. at 150 ¶ 37, 98 P.3d at 585. Rather, the ownership issue here not only bears directly on liability, but also controls whether there is coverage under the policy, and neither § 58(1)(a) nor any Arizona case applying that section precludes an insurer from litigating this type of coverage issue. In sum, we have adopted Restatement § 58 with the limitation recognized in Morris — insurers generally are not precluded from litigating coverage issues.

2.

¶ 16 In addition to being precluded from challenging the "existence and extent" of the Coxes' liability under Restatement § 58(1)(a), State Farm is precluded under § 58(1)(b) from "relitigating" any issues that were "determined in the action" against the Coxes, unless there is a conflict of interest as defined in § 58(2). Section 58(1)(b) does not define or explain what "determined in the action" means, but the Restatement does provide two illustrations that assist in interpreting that phrase:

Restatement § 58 cmt. a, illus. 1-2. The first illustration corresponds with § 58(1)(a) and contains language that mirrors that subsection. The second illustration reflects principles presented in both § 58(1)(a) and (1)(b).

¶ 17 The contrast between the two illustrations sheds light on how § 58 applies in different contexts. In the first illustration, the only thing the insurer clearly "may not dispute" is "the existence and extent of B's liability to A." Neither that illustration nor § 58(1)(a) precludes the insurer from litigating the permission issue in a later coverage action to determine whether it must indemnify. Rather, the illustration states that "applicable law" will determine whether the insurer will "be estopped to deny its liability for indemnification." Restatement § 58 cmt. a, illus. 1. As discussed below, ¶¶ 24-37 infra, "applicable law" in Arizona does not preclude an insurer from later litigating coverage.

¶ 18 In contrast, the second illustration states that the insurer will generally be precluded from litigating the permission issue in arguing that the loss was not covered. The only significant factual difference between the first and second illustration is the process by which judgment was obtained: the first illustration involves a default judgment, while the second involves a judgment on the merits "[a]fter actual litigation." Only in the second situation is the insurer precluded from litigating an issue that was "determined in the action" between A and B. Restatement § 58(1)(b). Thus, the phrase "determined in the action" in § 58(1)(b) refers to a judicial determination of issues actually litigated.

¶ 19 This understanding of § 58's illustrations finds support in the language used in § 58(1)(b), which states that an insurer is precluded from "relitigating" issues, instead of just "litigating" issues. "Relitigation" implies that there was some prior litigation on the issue, which means that "determined in the action" refers to a judicial determination after some prior litigation.

¶ 20 Restatement § 57 uses similar language and also supports our interpretation. Under § 57, an indemnitor without an independent duty to defend is only "precluded from relitigating issues determined in the action against the indemnitee if ... the indemnitor defended the action ... or ... the indemnitee defended the action with due diligence and reasonable prudence." Restatement § 57(1)(b). Section 57 thus prohibits the indemnitor from relitigating only those issues determined after prior, actual litigation, as long as one of two conditions not applicable in this case is met. Section 58, on the other hand, does not impose the same conditions. Thus, while both sections refer to prior litigation, § 58 applies even if during the actual litigation, the insurer did not defend and the insured did not defend with due diligence or reasonable prudence. See Restatement § 58(1)(b).

¶ 21 Based on this analysis, we reject the Quihuises' assertion that issue preclusion "arises from the entry of a judgment against insureds whether after trial or by default." Section 58(1)(b) does not preclude State Farm from litigating the ownership issue in the DJA. That issue was not "determined in the action" because it was not actually litigated and decided by the trial court that entered the stipulated default judgment. This is not to say that the default judgment has no preclusive effect or is meaningless. It precludes State Farm from denying the "existence and extent" of the Coxes' liability — established by the default judgment — under § 58(1)(a), ¶¶ 11-15 supra, and it prevents State Farm from avoiding that result simply by crafting a coverage argument that, in essence, merely disputes the Coxes' tort liability. Wood, 209 Ariz. at 150 ¶ 37, 98 P.3d at 585.

¶ 22 The result does not change simply because the issue that determines coverage also happens to be an element of the liability claim against the Coxes. In Restatement § 58's illustrations discussed above, the permission issue was just as essential to B's liability as the ownership issue is to the Coxes' liability for negligent entrustment in this case. Yet it is only in the second illustration, which contemplates actual litigation, that the insurer is precluded from litigating the permission issue. These illustrations therefore support the principle that, even when a coverage requirement is also an essential element of the insured's liability, an insurer may later litigate that issue in disputing coverage as long as it was not "determined in the action" through actual litigation.

¶ 23 Because ownership was not actually litigated in the underlying tort case, § 58(1)(b) does not preclude State Farm from litigating that issue in the DJA, regardless of whether State Farm and the Coxes had a "conflict of interest" in the underlying case under § 58(2). We note, however, that an insurer generally may contest coverage even if the allegations in the tort action do not themselves create a conflict of interest within the meaning of § 58(2)'s definition. Cf. Vagnozzi, 138 Ariz. at 446, 448, 675 P.2d at 706, 708 (adopting Restatement § 58 but also observing that a "conflict of interest" arises "when investigation by the insurer reveals facts which tend to place the claim outside coverage of the policy, yet the question of coverage depends on facts to be litigated in the tort suit," and that "the better rule is to suspend the operation of collateral estoppel where there is an adversity of interests"). Although the allegations of a plaintiff's complaint generally trigger a liability insurer's duty to defend, see ¶ 27 infra, they should not dictate whether issue preclusion applies. Cf. Navajo Freight Lines, Inc. v. Liberty Mut. Ins. Co., 12 Ariz.App. 424, 430, 471 P.2d 309, 315 (1970) (holding that insurer's contractual obligation to defend or indemnify was not governed by allegations of complaint against alleged omnibus insured because the creation of such obligations "cannot be left to the imagination of the drafter of a complaint"). Just as a settlement agreement "should not be used to obtain coverage that the insured did not purchase," nor should the choice of allegations in a complaint. Morris, 154 Ariz. at 120, 741 P.2d at 253.

C.

¶ 24 The Quihuises, however, argue that the Restatement § 58's first illustration, ¶ 16 supra, is directly on point and supports their assertion that State Farm is precluded from litigating the ownership issue in the DJA. That illustration provides that, "under applicable law," the insurer might be precluded from contesting its liability for indemnification. The Quihuises contend that under Arizona law, State Farm is precluded from litigating the ownership issue because (1) it breached its duty to defend the Coxes; and (2) the Quihuises obtained a default judgment, like the injured party A in the first illustration.

¶ 25 The Quihuises' argument finds some support in the comment to § 58, which refers to rules in some jurisdictions that "creat[e] strong disincentives against default in performance of the duty [to defend]." Restatement § 58 cmt. a. Alluding to the "applicable law" some states have adopted, the comment states:

Id. Thus, the first illustration's statement that "applicable law" might preclude an insurer from "deny[ing] its liability for indemnification" merely refers to the approach some states have taken in this area. The question, then, is whether Arizona law precludes an insurer that refuses to defend its insured from denying its obligation to indemnify, even though § 58 does not itself call for such preclusion.

1.

¶ 26 We turn first to the Quihuises' argument that Arizona law precludes State Farm from litigating the ownership issue in the DJA because it breached its duty to defend. This case differs from Morris and Wood in that State Farm refused to defend the Coxes in the Quihuises' tort action, even under a reservation of rights. The Quihuises contend that "State Farm's choice not to defend its insured precludes it from collaterally attacking a default judgment against its insured." They presume that State Farm had and breached a duty to defend the Coxes.5

¶ 27 It is well settled that a liability insurer's duty to defend is separate from, and broader than, the duty to indemnify. See Morris, 154 Ariz. at 119, 741 P.2d at 252; see also Restatement § 58 cmt. a. A liability insurer's duty to defend generally arises "[i]f the complaint in the action ... upon its face alleges facts which come within the coverage of the liability policy." Kepner v. W. Fire Ins. Co., 109 Ariz. 329, 331, 509 P.2d 222, 224 (1973); see also Morris, 154 Ariz. at 117, 741 P.2d at 250 ("[T]he insurer must defend claims potentially not covered and those that are groundless, false, or fraudulent.").

¶ 28 Unlike in some states, in Arizona "there is no absolute duty to defend," especially when "the alleged facts [in the complaint] ostensibly bring the case within the policy coverage but other facts which are not reflected in the complaint plainly take the case outside the policy coverage." Kepner, 109 Ariz. at 331, 509 P.2d at 224. Although Kepner involved a policy exclusion rather than a coverage condition, its reasoning is pertinent here. The Quihuises' complaint alleged in conclusory fashion that the Coxes owned the Jeep at the time of the accident. State Farm's post-accident investigation, however, revealed facts outside the complaint — including Carol Cox's written sales agreement with, and transfer of the Jeep's only set of keys to, Norma Bojorquez two weeks before the accident — indicating the Coxes' lack of ownership and therefore lack of coverage for the Jeep. (The policy endorsement stated that "Your car does not include a vehicle that you no longer own.")

¶ 29 Contrary to the reasoning in Kepner, the proposition urged by the Quihuises would impose on insurers an absolute duty to defend in cases like this in order to avoid being precluded from denying coverage in a DJA, even if a policy clearly does not cover the underlying tort claim against the insured. For example, in this case, if before the accident the Coxes had executed a sales agreement with Bojorquez, received full payment for the Jeep, and transferred its title and all of the Jeep's keys to Bojorguez, one could not reasonably argue that the Coxes still owned the vehicle. But under the Quihuises' argument, the bare allegation of ownership in the complaint, State Farm's refusal to defend the Coxes, and the Quihuises' acquisition of a default judgment against the Coxes pursuant to a Damron agreement would preclude State Farm from litigating the ownership issue in a later coverage DJA. Such a result defies logic and law. Even had State Farm promptly filed a DJA to establish that the Jeep was not owned and therefore not covered, that scenario could engender the "`race to the court house'" that we disapproved of in Vagnozzi, 138 Ariz. at 447, 675 P.2d at 707.

¶ 30 We do not decide if State Farm had a duty to defend the Coxes. But even if State Farm had and breached that duty, that determination would not necessarily control the question of issue preclusion. See Windt Treatise § 4.37 ("The vast majority of cases have properly held that an insurer's unjustified refusal to defend does not estop it from later denying coverage under its duty to indemnify."); see also Flannery v. Allstate Ins. Co., 49 F.Supp.2d 1223, 1227-28 (D.Colo. 1999) ("The majority of jurisdictions ... do not preclude an insurer from contesting coverage because it breached its duty to defend.") (collecting cases). Although breaching the duty to defend will give rise to "liab[ility] for the damages that the insured thereby incurs, ... [t]he insurer's breach of contract should not ... be used as a method of obtaining coverage ... that the insured did not purchase." Windt Treatise § 4.37; cf. Morris, 154 Ariz. at 120, 741 P.2d at 253.

¶ 31 Citing Vagnozzi and Wood, in which the insurers defended under a reservation of rights, the Quihuises argue that "[w]hen an insurer refuses to defend, and no conflict of interest exists [under Restatement § 58], it is bound by the facts that are essential to the judgment of liability against its insured." Although dicta in Vagnozzi might support that assertion, 138 Ariz. at 445, 675 P.2d at 705, we find that case of limited help because its holding was confined to conflict of interest principles. Id. at 448, 675 P.2d at 708 (holding that "where there is a conflict of interest between an insured and his insurer, the parties will not be estopped from litigating in a subsequent proceeding those issues as to which there was a conflict of interest, whether or not the insurer defended in the original tort claim"). Nor did Vagnozzi address the meaning or application of Restatement § 58 in a situation like this.

¶ 32 Referring to "the interplay and confusion of the doctrine of collateral estoppel and the insurer's duty ... to defend an insured," the Court in Vagnozzi stated:

138 Ariz. at 445, 675 P.2d at 705 (citations omitted). Those statements do not support a finding of issue preclusion here, however, as there was no "trial" in which the ownership issue was actually litigated and determined. In addition, ownership of the Jeep was essential to the Coxes' liability for negligent entrustment only because the Quihuises chose to specifically allege and limit the claim to that element, which fell within the policy's coverage, rather than alleging negligent entrustment more generally or including an alternative element (control) that would not have been covered. See Acuna v. Kroack, 212 Ariz. 104, 110 ¶ 22, 128 P.3d 221, 227 (App.2006) (negligent entrustment claim may be based on defendant's ownership or control of a vehicle); Tissicino v. Peterson, 211 Ariz. 416, 419 ¶¶ 8-10, 121 P.3d 1286, 1289 (App. 2005) (same, citing cases); Restatement (Second) of Torts §§ 308, 390 (1965).

¶ 33 Moreover, applying issue preclusion to deprive an insurer of its coverage defense because the insurer allegedly breaches its duty to defend "subverts any meaningful distinction between the duty to defend and the separate duty to indemnify, and, in many cases, serves no more than to punish the insurer for the breach of a contractual duty." Sentinel Ins. Co. v. First Ins. Co. of Haw., 76 Haw. 277, 875 P.2d 894, 912 (1994). Because "the two duties are truly separate and distinct, ... an insurer's wrongful failure to defend should not result in a loss of an indemnity defense." Flannery, 49 F.Supp.2d at 1228 (internal quotation marks omitted). Thus, we reject the Quihuises' argument that State Farm is precluded from litigating the ownership issue in the DJA based solely on its refusal to defend the Coxes in the tort action.

2.

¶ 34 We turn next to the Quihuises' contention that because they obtained a default judgment, and thus had more than just a Damron agreement, State Farm should be precluded from litigating any coverage issues subsumed in that judgment. Our cases have not made this distinction, nor does Restatement § 58. In addition, the Quihuises have not shown why the preclusion rules should change depending on whether the injured party took the further step of having a judge reduce the Damron agreement to a stipulated default judgment, without any actual litigation or court finding on the facts that directly pertain to both liability and coverage. Cf. Morris, 154 Ariz. at 120, 741 P.2d at 253 ("`Plainly, the [stipulated] `judgment' does not purport to be an adjudication on the merits; it only reflects the settlement agreement.'") (alteration in Morris) (quoting Miller v. Shugart, 316 N.W.2d 729, 735 (Minn. 1982)). Our statements in Morris that "any stipulation of facts essential to establishing coverage would be worthless," and that "[a]n insured's settlement agreement should not be used to obtain coverage that the insured did not purchase," are just as apropos when a default judgment based on stipulated facts is entered pursuant to a Damron agreement. Id.

D.

¶ 35 The Quihuises also rely on Dairyland Insurance Co. v. Richards, 108 Ariz. 89, 492 P.2d 1196 (1972), in arguing that State Farm may not litigate the ownership issue in the DJA. We are not persuaded. The Court in Dairyland held that a default judgment entered in a third-party tort action against the insured, based on his negligent driving of a vehicle allegedly owned by another, precluded the insurer "from later questioning [in a garnishment action on coverage] the ownership of the vehicle [the insured] was operating." Id. at 91, 492 P.2d at 1198. Dairyland's continued authority is questionable, having been eroded by later case law.

¶ 36 First, after Dairyland this Court rejected the notion that an insurer has an "absolute duty" to defend its insured when, despite a complaint's factual allegations that would bring a claim within coverage, investigation reveals facts outside the complaint that clearly indicate a lack of coverage. Kepner, 109 Ariz. at 331, 509 P.2d at 224. At a minimum, Kepner qualifies any implication in Dairyland regarding the insurer's failure to defend the insured. 108 Ariz. at 90, 492 P.2d at 1197. Second, Dairyland blurs the distinction between issue and claim preclusion, and the Court's reliance on "res judicata," id. at 91, 492 P.2d at 1198, to support its conclusion conflicts with current Arizona law. See Cheney Bldg. Co., 148 Ariz. at 573, 716 P.2d at 30 (distinguishing claim preclusion from issue preclusion and finding the latter requires actual litigation under Restatement § 27). Third, and most importantly, Dairyland did not involve a Damron or Morris agreement and preceded Restatement § 58, Vagnozzi, and Morris, all of which reconfigured the applicable issue-preclusion principles.

¶ 37 In light of more recent case law and our interpretation and application of Restatement § 58 here, Dairyland's result would likely differ were that case decided today. Dairyland involved a default judgment obtained without actual litigation. 108 Ariz. at 90, 492 P.2d at 1197. At most, then, Restatement § 58(1)(a) would have prevented the insurer from litigating the existence and extent of the insured's liability. Section 58(1)(b), however, would not have precluded the insurer from litigating the ownership issue because that issue was not "determined in the action" between the insured and the claimant. For all these reasons, Dairyland is overruled.

E.

¶ 38 In sum, consistent with our prior cases, we hold that when an injured party obtains a default judgment against an insured pursuant to a Damron or Morris agreement, that judgment will bind the insurer in a coverage case as to the existence and extent of the insured's liability. With the limitation recognized in Morris and Wood, however, the judgment will not preclude the insurer from litigating its identified basis for contesting coverage, irrespective of any fault or damages assessed against the insured. More specifically, we conclude on the facts presented here that, having determined that coverage on the Jeep ceased to exist before the accident (and thus there was no coverage regardless of any fault or liability of the insureds), State Farm is not bound by the stipulation between the Coxes and the Quihuises as to a fact essential to establishing coverage, despite State Farm's refusal to defend and the entry of a default judgment pursuant to the Damron agreement.

¶ 39 We take this opportunity, however, to emphasize our prior admonition that when an insurer refuses to defend, as State Farm did here, it does so "at its peril," Kepner, 109 Ariz. at 332, 509 P.2d at 225, and if a court later finds coverage, the insurer must pay the damages awarded in the default judgment (at least up to the policy limits) unless it can prove fraud or collusion. Parking Concepts, Inc., 207 Ariz. at 22 ¶ 15 n. 3, 83 P.3d at 22 n. 3 ("[I]n cases where the insurer has refused to defend and the parties enter into a Damron agreement, the insurer has no right to contest the stipulated damages on the basis of reasonableness, but rather may contest the settlement only for fraud or collusion.").

¶ 40 An insurer that refuses to defend additionally opens itself up to the possibility of contract damages if it is found to have breached its duty to defend. See Vagnozzi, 138 Ariz. at 448, 675 P.2d at 708; see also Windt Treatise § 4.33. And, depending on whether reasonable grounds exist for refusing to defend and denying coverage, the insurer could also face bad faith tort claims. See Rawlings v. Apodaca, 151 Ariz. 149, 153-55, 160, 726 P.2d 565, 569-71, 576 (1986); Acosta, 214 Ariz. at 383 ¶ 13, 153 P.3d at 404; see also Windt Treatise § 9.15. Thus, in cases like this, the prudent practice is for an insurer to defend its insured under a reservation of rights and expeditiously pursue a determination on coverage. This opinion is based on the unique, limited facts presented here and should not be viewed as curtailing a liability insurer's broad duty to defend or permitting insurers to refuse to defend whenever coverage is denied or disputed.

III.

¶ 41 We answer the certified question by holding that State Farm is not precluded from litigating, for coverage purposes, who owned the Jeep at the time of the accident.