California Insurance - Non-Defending Insurer’s Motion To Intervene Following Insured’s Settlement Of Underlying Action Came Too Late
Noya v. A.W. Coulter Trucking, No. B187933 (Cal. Ct. App. October 15, 2006)
A non-defending insurer’s attempt to intervene in an underlying lawsuit following its insured’s settlement of the suit, but before judgment was entered, came too late according to a recent decision from California’s
Second Appellate District (Ventura). According to the court, the fact that the insurer might become liable for the sizable settlement was insufficient “good cause” to justify its intervention as a matter of right,
and did not outweigh the settling parties’ interests in resolving the underlying lawsuit.
In Noya, the California Department of Transportation (CalTrans) was sued by several plaintiffs for wrongful death and injuries arising form an accident that occurred on a state highway construction project. CalTrans
was an additional named insured under a Zurich policy issued to one of the project’s contractors. CalTrans tendered its defense to Zurich, and Zurich refused the tender.
After almost four years of litigation, CalTrans entered into a stipulated judgment settling with the plaintiffs for $29 million, paying them $1,250,000. In exchange for a covenant not to execute on the balance, CalTrans agreed
that plaintiffs’ counsel would represent it in any subsequent breach of contract and bad faith suit against Zurich and that any amounts recovered would be paid to the plaintiffs.
More than two months after the settlement agreement was reported to the court, but before the stipulated judgment was entered, Zurich filed an ex parte motion to intervene in the action and advised CalTrans
that it would assume its defense under a reservation of rights. The plaintiffs, but not CalTrans, filed an opposition to Zurich’s motion to intervene. The trial court denied Zurich’s motion to intervene
on the basis that it was untimely and that Zurich had not shown good cause for the delay. Zurich appealed.
The Court of Appeal affirmed, holding that under the circumstances it was not an abuse of the trial court’s discretion to refuse to allow Zurich to intervene in the lawsuit. While the court acknowledged that Zurich had
“a direct and immediate interest in the lawsuit,” it reasoned that Zurich was in no position to complain about potentially having to pay a substantial judgment against CalTrans based on its longstanding and consistent
denial of coverage to CalTrans. In particular, the court noted that it was only after the parties settled that Zurich offered a defense under a reservation of rights and attempted to intervene. According to the court,
“Zurich’s agreement to defend CalTrans under a reservation of rights was too little, too late, to justify its intervention as a matter of right,” and that its interests did not outweigh those of the settling
parties following years of litigation. While the court refused to allow Zurich to intervene, it noted that Zurich would not be deprived of an opportunity to contest the reasonableness of CalTrans’s settlement in subsequent
coverage litigation.