IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION THREE
October 11, 2011
WESTERN HERITAGE INSURANCE COMPANY, PETITIONER,
SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES, RESPONDENT; WILLIAM PARKS ET AL., REAL PARTIES IN INTEREST.
(Los Angeles County Super. Ct. No. BC413551) ORIGINAL PROCEEDINGS in mandate. Michael C. Solner, Judge. Granted and remanded with directions.
The opinion of the court was delivered by: Croskey, J.
CERTIFIED FOR PUBLICATION
In this case, the petitioner, Western Heritage Insurance Company (Western Heritage) provided a defense to its insured, a commercial provider of home healthcare services, in an action for damages resulting from an automobile accident. The claim arose from an accident in which the insured's employee drove in an allegedly negligent manner and the plaintiffs' decedent, her passenger, was injured. In addition to allegations that the insured's employee negligently caused the accident, it is also claimed that she failed to seek or obtain medical treatment for the decedent following the accident and he later died from his injuries. The claim against the insured was based on the allegation that the employee had been acting in the course and scope of her employment. Thus, the insured's alleged liability was vicarious in nature.
Western Heritage provided a defense to not only the insured, but also to the employee. It did so under a reservation of rights to dispute coverage under the general liability policy that it had previously issued to the insured. (See fn. 7, post.) During pre-trial proceedings, the employee failed to provide verified discovery responses or appear for her deposition, all in violation of the trial court's orders. At this point, it was disclosed that Western Heritage had filed an answer on the employee's behalf without having been in contact with her. As a result, her answer was stricken and her default was entered. Western Heritage, in order to protect its own interests, timely moved to intervene in the action. The trial court granted that motion but, at the request of the plaintiffs, subsequently ordered that Western Heritage could only dispute damages, not the liability of the employee.*fn1
Western Heritage filed a petition for a writ of mandate. We issued an order to show cause and a stay of further trial court proceedings. After a review of the record and the relevant case law, we have concluded that the trial court's order was erroneous. Western Heritage, as an intervenor, has the right to assert, on its own behalf, all defenses that otherwise would be available to the insured parties whether as to liability or damages. We will therefore grant the requested writ relief.
FACTUAL AND PROCEDURAL BACKGROUND*fn2
This action was filed on May 11, 2009 by the plaintiffs (and real parties in interest herein), William Parks and Paula Parks (the Parks) and the Estate of George Brooks Parks (decedent).*fn3 The Parks are the adult children of decedent who died following an automobile accident which occurred on September 23, 2008. The decedent had been a passenger in a vehicle being driven by Julia Reyes (Reyes) which, due at least in part to her alleged negligence, collided with another vehicle. At the time of the accident, Reyes was acting in the course and scope of her employment by Gratefull Home Care, Inc. (GHC). Both Reyes and GHC were named as defendants in plaintiffs' complaint.*fn4 Plaintiffs filed their third amended complaint on or about November 12, 2009 and alleged seven causes of action, including (1) vehicular negligence - wrongful death and (2) general negligence - negligent hiring - wrongful death.*fn5
1. Allegations of Plaintiffs Complaint
On or about August 31, 2007, GHC and decedent entered into a contract pursuant to which GHC agreed to provide decedent with home healthcare services. In order to induce the execution of the healthcare agreement, GHC had made certain representations to the Parks as to the quality of the healthcare services that would be provided to the decedent as well as to the competence of the caregiver employee who would be assigned by GHC to provide those services to decedent.
On September 23, 2008, such agreement was in full force and effect and Reyes was the assigned caregiver. At 4:45 p.m. on that date, Reyes was acting in the course and scope of her employment by GHC and was driving her own vehicle in which decedent was a passenger. At the intersection of Wilshire Boulevard and Stanley Avenue in the City of Los Angeles, Reyes was attempting to make a left turn when her vehicle was struck by the Castellon vehicle. The collision was due to the negligence of both Reyes and the driver of the Castellon vehicle.
After the accident, decedent, who suffered from dementia, complained of head pain. Reyes did not seek or obtain medical treatment for him, but simply took him home, gave him his dementia medication, and put him to bed. The next morning, decedent was found dead. The cause of death was a brain injury that decedent had suffered as a result of the accident.
In addition to the alleged negligence of Reyes in operating her vehicle and failing to obtain medical care, plaintiffs also allege that GHC had represented that Reyes was an experienced and competent caregiver and that she had cleared a background check. Such representations were false and, in fact, GHC (1) had not even required Reyes to fill out an application for her employment as a caregiver, (2) had never verified her experience, (3) had never determined her level of competence and (4) had never completed a background check on her.*fn6
2. Western Heritage Provides a Defense
Western Heritage had issued a one-year general liability policy to GHC on January 26, 2008, which policy was in effect on the date of the accident. The defense of this action was tendered to Western Heritage on or about May 14, 2009, and the insurer agreed to provide a defense to both GHC and Reyes subject to a reservation of rights.*fn7 In discharge of such defense responsibility, Western Heritage retained counsel to represent GHC and Reyes. An answer to plaintiffs' complaint was timely filed on behalf of both.
3. Reyes's Default is Entered
Subsequent to the filing of Reyes's answer, plaintiffs made requests for discovery from Reyes. In addition, they noticed her deposition. Despite multiple court orders requiring her to do so, Reyes failed to provide verified responses to such discovery requests and failed to appear for her deposition.*fn8 On April 7, 2010, pursuant to the request of plaintiffs, Reyes's answer was stricken and her default was entered by the trial court clerk. However, no default judgment was ever requested or entered.
4. Western Heritage Is Permitted to Intervene
On June 14, 2010, Western Heritage filed an ex parte motion seeking leave to file a complaint in intervention in order to protect its own interests in light of the striking of Reyes's answer and the entering of her default. Western Heritage claimed that it had a direct and immediate interest in the litigation and its ultimate outcome in light of the provisions of Insurance Code, section 11580, subdivision (b)(2).*fn9 It expressly sought leave to intervene in order to dispute "the issues of liability and damages against  Reyes." (Italics added.) The trial court, on July 12, 2010, granted Western Heritage's intervention motion.
5. The Scope of Western Heritage's Role at Trial is Limited
At the time that Western Heritage filed its motion to intervene, plaintiffs' motions in limine were pending. One such motion sought to preclude defendants from disputing Reyes's liability "on her behalf because she is in default and she is not represented." The motion was granted; however, as the motion was made prior to Western Heritage's motion to intervene, Western Heritage never had an opportunity to oppose it. A dispute subsequently arose as to whether Western Heritage would be permitted to litigate the issue of Reyes's liability at trial.
On January 12, 2011, at a hearing intended to resolve the issue of how Western Heritage would be identified at trial,*fn10 plaintiffs' counsel argued that Western Heritage should be identified as an insurer for the defaulted Reyes, present only to dispute the amount of damages. Counsel for Apollo Couriers joined this argument, stating that because Reyes had defaulted, she could not contest her liability vis-a-vis the other driver, and that, as Western Heritage was stepping into her shoes, it could not do so either. The trial court agreed, and concluded that Western Heritage could litigate only damages.
Thereafter, Western Heritage filed a formal motion in limine, in an effort to persuade the trial court to change its ruling. On April 19, 2011, the trial court reaffirmed its earlier ruling and held that Western Heritage had no greater rights to litigate liability than its insured would have had. As its insured (Reyes) had defaulted, Western Heritage could not litigate liability.*fn11 The trial court expressly relied on the case of Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2006) 136 Cal.App.4th 212, 219 (Kaufman & Broad) as the basis for its ruling.
Western Heritage filed a timely petition for writ relief in this court. We issued an order to show cause and stayed further trial court proceedings.
Western Heritage argues that: (1) as an intervening party, its right to litigate all issues cannot be abridged; (2) denial of the right of an intervening insurer to contest liability of a defaulted insured as well as the issue of damages would undermine and defeat the whole purpose of the intervention right; and (3) an intervening insurer is not "subrogated" and thus limited to the rights of its insured, but rather has rights independent of the insured. In opposition, plaintiffs do not attempt to justify the trial court's ruling on the bases on which it was obtained. Instead, they argue, for the first time, that the trial court's ruling can be upheld due to the facts that: (4) Western Heritage never filed a formal motion to vacate Reyes's default; and (5) Western Heritage was providing a defense to GHC and Reyes under a reservation of rights.
As we explain, we believe that Western Heritage has the better of the argument. As an intervening insurer, its rights do not depend on, nor are they limited by, the rights of the defaulted insured. Thus, it is irrelevant that Western Heritage made no formal set aside motion; nor does it matter that it was providing a defense under a reservation of rights. We will therefore grant Western Heritage's petition for writ relief and will remand with directions.
1. General Principles Relating to Insurer Intervention in Third Party Action Against Its Insured
As already noted (see fn. 9, ante.), section 11580(b)(2) "provides insurance policies issued in California shall either contain the following provision or shall be construed as if this provision is in the policy: 'A provision that whenever judgment is secured against the insured or the executor or administrator of a deceased insured in an action based upon bodily injury, death, or property damage, then an action may be brought against the insurer on the policy and subject to its terms and limitations, by such judgment creditor to recover on the judgment.' Thus, a judgment creditor who has prevailed in a lawsuit against an insured party may bring a direct action against the insurer subject to the terms and limitations of the policy. [Citation.]" (Kaufman & Broad, supra, 136 Cal.App.4th at p. 223.)
This exposure to such direct liability has been repeatedly held sufficient to create a basis for insurer intervention in a third party action against the insured.*fn12 "Intervention may . . . be allowed in the insurance context, where third party claimants are involved, when the insurer is allowed to take over in litigation if its insured is not defending an action, to avoid harm to the insurer."*fn13 (Royal Indemnity Co. v. United Enterprises, Inc. (2008) 162 Cal.App.4th 194, 206.)
Thus, for example, insurers have been permitted to intervene when the third party has obtained a default against the insured. (Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 884-885 (Clemmer); Nasongkhla v. Gonzalez (1994) 29 Cal.App.4th Supp. 1, 3-4 (Nasongkhla).) Similarly, an insurer may intervene when its insured's answer has been stricken because its corporate status has been suspended. (Reliance Ins. Co. v. Superior Court (2000) 84 Cal.App.4th 383, 385-387 (Reliance).) As the Reliance court explained, "intervention by an insurer is permitted where the insurer remains liable for any default judgment against the insured, and it has no means other than intervention to litigate liability or damage issues." (Reliance, supra, 84 Cal.App.4th at p. 385.)
Thus, it is apparent that the trial court did not err in granting Western Heritage's motion to intervene. Western Heritage had provided a defense to its insured (GHC) and its insured's employee (Reyes). When that employee defaulted, there was a risk that Western Heritage could be liable for any judgment entered against Reyes under section 11580(b)(2). Therefore, Western Heritage had a sufficient interest to justify intervention.
2. The Trial Court Erroneously Limited Western Heritage's Intervention Rights to Damage Issues
There are three bases on which Western Heritage contends the trial court's limitation of its intervention right was erroneous: (a) the trial court misperceived the scope of intervention; (b) the entire purpose of allowing an insurer to intervene in an underlying action is to permit it to litigate liability and damages issues its insured is barred from litigating; and (c) the trial court erroneously treated Western Heritage as subrogated to, and thus limited by, Reyes's rights. We discuss each of these arguments separately.
a. An Intervening Party is Not Bound by Another Party's Procedural Defaults
" '[A]n intervenor becomes an actual party to the suit by virtue of the order authorizing him to intervene.' " (Deutschmann v. Sears, Roebuck & Co. (1982) 132 Cal.App.3d 912, 916 (Deutschmann).) Indeed, the complaint in intervention*fn14 should not only set forth the grounds upon which the intervention rests, it should also comply with the rules applicable to pleadings generally.*fn15 (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2011) ¶ 2:443, p. 2-73.)
An intervenor is not limited by every procedural decision made by a party with which it is aligned. (Deutschmann, supra, 132 Cal.App.3d at p. 916.) In Deutschmann, the court considered the situation of an insurer which intervened in an action brought by its insured against a third party for damages caused by a fire. The insurer had paid for repairs to the property and was subrogated in interest to its insured. After the insurer intervened, the trial court dismissed the complaint of the insured, on the basis that the insured failed to timely file proof of service of the summons. The trial court also dismissed the complaint in intervention of the insurer, on the basis that its interest was subrogated to that of the insured.*fn16 (Id. at pp. 914-915.) On appeal, the dismissal of the insurer's complaint in intervention was reversed, as the "lack of prosecution on the part of [the] plaintiff [did not] deprive [the] intervenor of [its] cause of action." (Id. at p. 917.)
Although, in Deutschmann, the insurer's claim was based on its right of subrogation, the court's reasoning has equal application in this case. Just as a plaintiff's procedural default does not bar the claim of an intervening party aligned with the plaintiff, a defendant's procedural default does not bar the defense of an intervening party aligned with the defendant. A party permitted to intervene is permitted to do so in order to pursue its own interests. Once permitted to intervene, it is a party to the action not bound by other parties' procedural defaults.
b. Cases Permitting Insurers to Intervene Do So in Order to Allow the Insurers to Litigate Liability and Damages Issues Their Insureds are Prevented from Litigating
As we discussed above, case authority is in agreement that insurers may intervene in third party actions brought against their insureds in order to protect their own interests when their insureds are unable to defend. While no case expressly considers whether the intervening insurers are then entitled to litigate liability and damages issues that their insureds are barred from litigating, this conclusion necessarily follows. Indeed, there would be no purpose in allowing an insurer to intervene in order to protect its own interests but then limit scope of the insurer's defense to those issues to which its insured, because of the default, is limited to pursuing.
This is reflected in the language of the cases. In Reliance, supra, 84 Cal.App.4th 383, the trial court denied the insurer permission to intervene to represent its own interests when its insured could not defend because its corporate status had been suspended. In reversing this order as an abuse of discretion, the Reliance court stated that intervention "will not enlarge the issues in the case, since [the insurer] almost certainly will assert the same defenses which would have been asserted by [its insured] if [its insured]'s corporate status had not been suspended." (Id. at p. 387.) Similarly, in Nasongkhla, the trial court erred in denying an insurer's motion to intervene in an action in which the insured's default had been entered. The reviewing court stated, "unless [the insurer] is allowed to intervene, it may have no other opportunity to litigate fault or damage issues in any action brought by plaintiff on its judgment under Insurance Code section 11580." (Nasongkhla, supra, 29 Cal.App.4th at p. Supp. 4.)
It is therefore apparent that an intervening insurer is not limited to those defenses to which its insured might be restricted due to the procedural default. The entire purpose of the 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.
c. Limitations Purportedly Imposed When An Insurer's Claim Is Based on Subrogation Have No Application In This Case
Using an argument they no longer pursue in this writ proceeding, plaintiffs convinced the trial court that Western Heritage must "stand in the [defaulted] shoes" of Reyes, by relying on language from Kaufman & Broad, which states that, "[i]n asserting a subrogation claim,[*fn17 ] the insurer stands in the shoes of its insured, and has no greater rights than its insured. [Citation.] Because the insured cannot pursue its rights in litigation, the insurer cannot do what its insured cannot do and is similarly barred." (Kaufman & Broad, supra, 136 Cal.App.4th at p. 219.) There are two reasons why this language is inapplicable to the instant case, and does not limit the arguments that Western Heritage may pursue.
First, Western Heritage is not here pursuing a subrogation claim. Western Heritage seeks to defend an action against its procedurally defaulted insured, in order to protect its own interests, which are implicated due to section 11580(b)(2). Thus, any law relating to subrogation simply does not apply.
Second, it is not true that insurers pursuing subrogation claims stand in the shoes of their insureds at all times. The language quoted from Kaufman & Broad stating that subrogated insurers stand in the shoes of their insureds was not part of its holding, but was part of its discussion of the law of an earlier case. (Truck, supra, 60 Cal.App.4th 342.) Truck, in turn, discussed subrogation only in dicta, as Truck was concerned with a claim for equitable contribution. In Truck, two insurers of a suspended corporation sued their insured to rescind their policies. As the insured was suspended, it could present no defense. A third insurer, which had a potential claim for equitable contribution against the two plaintiff insurers, sought to intervene on behalf of the common insured in order to oppose the plaintiff insurers' attempt to rescind their policies. (Id. at pp. 345-346.) The Truck court held that intervention was proper. The court, in dicta, distinguished the situation of an insurer pursuing a subrogation claim, rather than a claim in equitable contribution, on the basis that an insurer with a subrogation claim has no greater rights than its insured. (Id. at pp. 349-350.) The Kaufman & Broad court discussed this language from Truck because, subsequent to Truck, the Legislature amended the Revenue and Taxation Code in order to provide that, although a corporation suspended for nonpayment of taxes may not defend an action, the corporation's insurer may provide such a defense, and prosecute any related subrogation rights. (Kaufman & Broad, supra, 136 Cal.App.4th at p. 219.) Thereafter, the Kaufman & Broad court held that an insurer could not pursue these rights by simply litigating in the name of its suspended insured; if the insurer wanted to continue to defend the action against its suspended insured (and pursue its subrogation rights in that action), it was required to intervene. (Id. at pp. 221-222.) Moreover, while Kaufman & Broad concluded that the amended statute permitted intervention to pursue a subrogation claim with respect to a suspended corporate insured in certain circumstances, Deutschmann had previously concluded that an intervening insurer could pursue a subrogation claim on the part of a procedurally defaulted insured. (Deutschmann, supra, 132 Cal.App.3d at pp. 917-918.) Thus, while an insurer's subrogation claim would be bound by a decision on the merits in the insured's action, (id. at p. 916), certain procedural bars to the insured's action would not bar an insurer's subrogation claim. The language in Kaufman & Broad quoted out of context by plaintiffs simply does not support plaintiffs' argument.
3. Western Heritage Was Not Required to Vacate the Default Entered Against Reyes
Having concluded that the trial court's order cannot be upheld on any basis on which it was entered, we now turn to the arguments raised by plaintiffs for the first time in this writ proceeding. Plaintiffs' first such argument is that since Western Heritage did not seek to set aside the default entered against Reyes, it has no basis to complain about the trial court's intervention limitation order. We reject this argument.
The seeds of plaintiffs' argument were planted in Clemmer. In Clemmer, the third party obtained a default judgment against the insured, then brought a direct action against the insurer under section 11580(b)(2). (Clemmer, supra, 22 Cal.3d at pp. 871-872.) The insurer argued that it should not be bound by the amount of the default judgment because it did not have an opportunity to defend. (Id. at p. 884.) The Clemmer court disagreed, noting that, although the insurer might have received notice of the pendency of the action too late for it to bring a motion to intervene, it could have moved to set aside the default judgment entered against the insured. (Id. at pp. 884-885.) The Clemmer court held that an insurer which might be required to satisfy a default judgment against its insured had a sufficient interest to give it standing to bring a motion to set aside that default judgment. (Id. at p. 886.) Thus, Clemmer held that an insurer seeking to protect its interests when its insured could not defend could either intervene in the action or have the default judgment set aside. (Id. at pp. 884-885; Belz v. Clarendon America Ins. Co. (2007) 158 Cal.App.4th 615, 633; Reliance, supra, 84 Cal.App.4th at p. 387.)
As a general rule, the choice between whether to seek intervention or move to set the default judgment aside will be determined by the stage the proceedings have reached when the insurer seeks to become involved. An insurer can move to intervene prior to the entry of judgment, or move to set aside the default judgment if that judgment has already been entered.*fn18 (Reliance, supra, 84 Cal.App.4th at p. 387.)
Some confusion has entered the law as the result of a case in which an insurer sought permission to both intervene in an action and vacate the default judgment entered against its insured. (Jade K. v. Viguri (1989) 210 Cal.App.3d 1459 (Jade K.).)*fn19 The trial court granted permission to intervene, but denied the motion to vacate. (Id. at p. 1468.) The Court of Appeal reversed, concluding the trial court should have granted the insurer relief by vacating the default judgment. (Id. at p. 1470.)
Thereafter, the superior court appellate division cited Jade K. for the proposition that "[a]n insured may, in some circumstances, intervene and set aside a default against its insured as to itself." (Nasongkhla, supra, 29 Cal.App.4th at p. Supp. 3.) But Jade K. was not concerned with a default, but a default judgment.*fn20 Thus,the Jade K. court never considered whether an insurer that had become a party by intervention would, in the absence of a motion to vacate, nonetheless be bound by a default entered against its insured.
As discussed above, we have concluded that an intervening insurer is not bound by a default taken against its insured. " 'It is an established principle of law that admissions implied from the default of one defendant ordinarily are not binding upon a co-defendant who, by answering, expressly denies and places in issue the truth of the allegations thus admitted by the absent party.' "*fn21 (Taylor v. Socony Mobil Oil Co. (1966) 242 Cal.App.2d 832, 834; see also Morehouse v. Wanzo (1968) 266 Cal.App.2d 846, 852-853 [an employer liable under respondeat superior "may take advantage of any favorable elements of the judgment against the employee, but he is not bound by the issues resolved against the employee by the latter's default."].)
It makes no logical difference whether the non-defaulting co-defendant was originally named as a defendant or joined the action, as in this case, by subsequent intervention. A party's default does not bind non-defaulting co-defendants, even when the basis for the action against the co-defendants is vicarious liability arising from the acts of the defaulting defendant. Thus, an insurer intervening in an action to pursue its own interests after its insured has defaulted is not required to move to vacate the insured's default as to itself; the insured's default simply has no effect on the insurer.*fn22 To the extent the language in Nasongkhla impliedly states otherwise, we disagree and decline to follow it.
4. Western Heritage's Reservation of its Right to Dispute Coverage Has No Impact on the Scope of its Intervention Right
As their second and final argument in this proceeding, plaintiffs attempt to justify the trial court's order on the basis that Western Heritage was defending Reyes under a reservation of rights. Plaintiffs suggest that permitting Western Heritage to litigate the issue of Reyes's liability under these circumstances would "create an irreconcilable conflict." Plaintiffs are concerned that if Western Heritage litigates Reyes's liability, it may pursue a theory of the case that Reyes was, in fact, liable, but for conduct which falls within a policy exclusion.
We clearly held, in our recent decision in Gray v. Begley (2010) 182 Cal.App.4th 1509, 1523-1524, that an insurer's intervention right could be defeated only by a refusal to defend, not by the mere assertion of a right to later dispute coverage while a defense was, in the meantime, provided.*fn23
Plaintiffs' concern here is that if Western Heritage is permitted to litigate issues of liability, it may, in fact, seek to resolve those issues in a manner which will enable it to ultimately deny coverage. We disagree. Coverage issues are simply not at issue in this case (unless the parties stipulate otherwise). "A liability insurer normally cannot intervene in a tort action against its insured to contest whether the claim against the insured is covered under its policy. The judgment in the tort action collaterally estops the insurer only on issues necessarily adjudicated therein--i.e., the insured's liability and the amount of the injured party's damages. It does not bind the insurer on coverage issues. [Citation.]" (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2009) ¶ 2:430, p. 2-70.1) This case concerns only whether Reyes and GHC are liable for decedent's death and, if so, in what amount. Unless the parties so choose, the jury will not be asked to determine, for example, whether and/or to what degree decedent's death was the result of conduct falling within the policy's automobile exclusion. (See footnote 7, ante.) There is no irreconcilable conflict as coverage issues are simply not present in this case. These issues will be litigated, if ever, in a subsequent coverage action or in an action under section 11580(b)(2).
Western Heritage's petition for a writ of mandate is granted. Upon remand, the trial court shall vacate its order limiting Western Heritage's intervention right to the contest of damages issues and issue a new and different order directing that Western Heritage may litigate both liability and damages issues. Western Heritage shall recover its costs in this appellate writ proceeding. The stay previously issued shall be vacated upon the filing of the remittitur herein.
CERTIFIED FOR PUBLICATION
WE CONCUR: KLEIN, P. J. KITCHING, J.