Bremer Whyte Brown & O'Meara

On October 11, 2011, the California Court of Appeal, Second Appellate District, published the case of Western Heritage Insurance Company v. Superior Court (2011 DJDAR 15131)

In this case, Western Heritage provided a defense to its insured, a commercial provider of home healthcare services, in an action for damages arising out of an automobile accident.  The insured’s employee, in the course and scope of her employment, drove in an allegedly negligent manner, and plaintiff’s decedent and passenger were injured.  Other claims were made as well. Western Heritage provided a defense to its insured and its employee driver, under a reservation of rights.

During the litigation, the defendant driver refused to provide discovery responses and to appear for deposition, despite court orders to do so.  As it turned out, the defense counsel retained by Western Heritage for the driver answered the complaint against the driver, but never was in communication with her.  The plaintiff moved to strike the driver’s answer, which was granted.  A default was then entered against the driver.  Western Heritage moved to intervene, which was granted.  However, the trial court ruled that Western Heritage could only litigate the issue of damages, not liability.  The trial court reasoned that Western Heritage “stepped into the shoes” of its insured, and since the driver was in default, Western Heritage was stuck with a finding of liability.  This appeal ensued.

The Court of Appeal reversed the trial court, thus permitting Western Heritage to litigate all issues, including liability.  The Court rejected the notion that an insurer is bound by the procedural issues that befall their insured when the insurer intervenes.  But the Court of Appeal went further.  The Court of Appeal held that the carrier is permitted to intervene and litigate all issues, whether or not the default against its insured has been vacated.

This ruling is critical.  Carriers oftentimes are presented with claims after their insured has been defaulted, and plaintiff attorneys are quick to resist setting the default aside in order to keep strategic advantage.  No more.  Now carriers are free to simply intervene when confronted with troublesome plaintiff lawyers, and they are permitted to litigate all issues, including liability and damages.