COA affirms denial of insurer’s motion to set aside default judgment

An insurance company failed to persuade the Indiana Court of Appeals to set aside a $400,000 default judgment against its insured defendants based on the argument that it had an interest in limiting future liability related to the underlying truck crash liability lawsuit.

Darnell Wright was injured in a collision with a vehicle driven by an employee of Riteway Trucking, Inc. and Riteway Transportation, Inc., among others. After Wright sued, Riteway failed to cooperate with its insurer, Prime Insurance Company. The trucking company defendants also failed to appear or present any defense in a subsequent lawsuit brought by Wright.

Prime filed an action in the Northern District Court seeking to be free of duty to defend Riteway or any other defendant in Wright’s state-court action. At the same time, Wright filed a motion for default judgment, and Prime was granted permission to intervene in that case. After all of the defendants failed to appear at a hearing on Wright’s motion for a default judgment, the trial court entered a $400,000 judgment for him. Although the other defendants were found to be in default, Prime was not.

Just days after the judgment was entered, Prime filed an answer and affirmative defenses, as well as a motion to obtain discovery, but Wright objected, asserting that judgment had already been entered against Riteway on liability and damages. The trial court denied Prime’s motion to set aside default judgment and obtain discovery, staying the case until Prime’s federal action was resolved.

Likewise, the federal court denied Prime’s request to issue discovery requests to Wright regarding the issues of liability and damages. Its final decision in the federal action concluded that Prime did not owe a duty to defend or indemnify Riteway, that Riteway had failed to meet its obligations under its insurance policy, and that Riteway and its alter egos should be liable to Prime for any payments made under an MCS-90 Endorsement to the insurance policy.

Yet the trial court denied Prime’s request to set aside default judgment against Riteway. In contrast with Prime’s assertions, the Indiana Court of Appeals found no abuse of discretion in the trial’s court’s decision in Prime Insurance Inc v. Darnell Wright, et al., 19A-CT-00353. It therefore agreed with Wright’s argument that Prime did not hold a legally cognizable interest in the underlying lawsuit.

“Notably, any interest Prime has in the underlying lawsuit stems from choices made by Prime,” Judge Cale Bradford wrote. Citing Cincinnati Insurance Co. v. Young, 852 N.E.2d 8, 13 (Ind. Ct. App. 2006), trans. denied, the appellate court noted that Prime’s continuing interest was, at most, a contingent interest. Thus, in applying its conclusion from Young regarding contingent interests, the appellate court concluded that Prime’s contingent interest did not warrant reversing the default judgment entered against Riteway.

“Prime admits that it is seeking to relitigate Riteway’s liability in an effort to limit a potential future financial obligation that it may have to Wright. Prime also admits that it has received a judicial determination that it has no duty to defend under its liability policy and has indicated that it plans to seek a similar judicial determination that the MCS-90 Endorsement does not apply to the facts of this case,” the panel wrote. “Prime cannot both deny its obligation to its insured and, at the same time, seek to litigate questions relating to liability and damages. To allow Prime to do so would effectively grant Prime a second bite at the apple in its attempt to escape a potential future financial obligation.”

It therefore concluded the trial court did not abuse its discretion in denying Prime’s motion to set aside default judgment entered against Riteway.

This article was first published by The Indiana Lawyer.

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