The California Court of Appeal has held that a liability insurer that initially refused to defend its insured in a lawsuit could not later intervene in the lawsuit in an attempt to prevent the insured from settling with the plaintiff. ( Noya v. A.W. Coulter Trucking, 2006 WL 2830562)
Facts
The California Department of Transportation (CalTrans) hired Modern Continental Construction Company (Modern) to perform work on a highway modification project. Apparently pursuant to the contract, CalTrans was listed as an “additional insured” on Modern’s commercial general liability policy through Zurich American Insurance Company (Zurich).
During the course of the project, a runaway big rig truck collided with oncoming traffic in the construction zone, killing two people and injuring two others. The surviving heirs and injured parties filed suit against various parties, including Modern and CalTrans, alleging that the collision was partly caused by an inadequate median barrier in the construction zone. Modern (as named insured) and CalTrans (as additional insured) both tendered defense of the lawsuit to Zurich. Zurich agreed to defend Modern in the lawsuit, but refused to defend CalTrans.
After several years of litigation and numerous mediations, the plaintiffs reached separate settlements with all defendants, including CalTrans. The confidential settlement agreement between plaintiffs and CalTrans provided for a stipulated judgment totaling $29 million, with CalTrans agreeing to pay $1.25 million in partial satisfaction of the judgment and the plaintiffs agreeing not to execute on the remainder of the judgment against CalTrans. The settlement agreement further provided that plaintiffs’ counsel would represent CalTrans in a subsequent bad faith action against Zurich, and that CalTrans would pay any recovery against Zurich to the plaintiffs. At a final case management conference, the parties informed the trial court that settlements had been reached, subject to court approval.
About two months later (but before the trial court had formally approved the settlements), Zurich learned of CalTrans’ settlement with the plaintiffs. Shortly after learning of the settlement, Zurich informed CalTrans that Zurich would now defend CalTrans in the lawsuit under a reservation of rights. Zurich also filed an ex parte motion to intervene in the lawsuit.
The trial court denied Zurich’s motion to intervene on the ground that the case had already settled and Zurich had not shown good cause for the delay. After denying Zurich’s motion to intervene, the trial court entered the $29 million stipulated judgment against CalTrans and in favor of the plaintiffs. Zurich then appealed from the order denying its motion to intervene.
Holding
The Court of Appeal affirmed, finding that the trial court had not abused its discretion in denying Zurich’s motion to intervene. The appellate court noted that a trial court has discretion to permit a nonparty to intervene in litigation pending between others, as long as: (1) the nonparty has a direct and immediate interest in the action; (2) the intervention will not enlarge the issues in the litigation; and (3) the reasons for intervention outweigh any opposition by the parties presently in the action.
The appellate court concluded that while Zurich did have a direct and immediate interest in the outcome of the action, allowing Zurich to intervene might interject additional coverage issues into the litigation and could delay or jeopardize the settlement that CalTrans had reached with the plaintiffs after years of litigation. The appellate court emphasized that Zurich had refused to provide a defense to CalTrans until the “eleventh hour” and, in any event, Zurich could contest the reasonableness of the settlement amount in any subsequent action for bad faith.
Comment
A liability insurer is not normally a party to an action against its insured. However, in some circumstances a trial court may allow an insurer to intervene in an action against the insured (e.g., to prevent a default judgment against the insured for which the insurer might be liable). The decision whether to allow intervention rests with the discretion of the trial court and will not be disturbed on appeal absent a clear abuse of discretion.