After a default is entered against an insured, a liability insurer can intervene in the lawsuit in order to contest both liability and damages, even though the insured itself is procedurally barred from litigating those issues. ( Western Heritage Ins. Co. v. Superior Court (2011) WL 4791027)
Facts
George Parks (Parks) was an elderly man who hired Gratefull Home Care, Inc. (GHC) to provide Parks with home healthcare services. Later, one of GHC’s employees, Julia Reyes (Reyes), was driving a vehicle with Parks as a passenger when Reyes was involved in an accident in which Parks suffered fatal injuries. Parks’ heirs subsequently filed a wrongful death action against GHC and Reyes, alleging that Reyes had negligently operated the vehicle and that GHC was vicariously liable.
At the time of the accident, GHC was the named insured, and Reyes qualified as an additional insured, on a general liability policy issued by Western Heritage Insurance Company (Western Heritage). Western Heritage agreed to defend both GHC and Reyes against the wrongful death lawsuit filed by Parks’ heirs, subject to a reservation of rights.
After defense counsel entered an appearance for GHC and Reyes, Reyes apparently left the country, and thus she did not respond to discovery requests or appear for her deposition. As a result, the trial court struck Reyes’ answer and entered a default against her.
At that point, Western Heritage filed a motion to intervene in the lawsuit in order to protect its own interests. Western Heritage claimed that it had a direct and immediate interest in the outcome of the lawsuit, since in the event Parks’ heirs obtained a judgment against Reyes, Western Heritage could potentially be liable for the judgment under Insurance Code section 11580(b)(2). The trial court granted Western Heritage’s motion and allowed Western Heritage to intervene. However, later, the trial ruled that Western Heritage could not dispute whether Reyes was liable , but rather could only dispute the amount of damages allegedly suffered by Parks’ heirs. Western Heritage then sought appellate review of the trial court’s order preventing Western Heritage from contesting the issue of Reyes’ liability .
Holding
The Court of Appeal held that the trial court had erred in ruling that Western Heritage could not contest the issue of Reyes’ liability . Since Western was potentially liable under Insurance Code section 11580 for any judgment against Reyes, Western Heritage clearly had a stake in the outcome of the litigation. Further, although Western Heritage was aligned with Reyes, Reyes’ procedural default did not bar Western Heritage from raising defenses to protect Western Heritage’s own interests . Indeed, the entire purpose of intervention is to permit the insurer to pursue its own interests, which necessarily include the litigation of defenses its insured is procedurally barred from pursuing. Accordingly, Western Heritage was entitled to litigate both liability and damages issues.
Comment
In numerous prior cases, California appellate courts have held that a liability insurer may intervene in a third party action brought against the insured in order to protect the insurer’s own interests when the insured is unable to defend. However, none of those appellate courts had expressly considered whether the intervening insurer is then entitled to litigate liability and damages issues that the insured is barred from litigating. According to the Western Heritage case, the intervening insurer is in fact entitled to litigate those issues. Indeed, there would be no purpose in allowing an insurer to intervene in order to protect its own interests, but then limiting the insurer’s defense to issues that the defaulting insured is limited to pursuing.