Monday, December 31, 2007
C.A.: Lack of Notice to Insurer of Suit Not Always Fatal to Coverage
Div. One Rules That Carrier Must Show Actual Prejudice Resulting From Default
By KENNETH OFGANG, Staff Writer
An insured’s failure to notify the insurer of a suit until after a default judgment was entered does not render the judgment unenforceable against the insurer absent a showing of prejudice, beyond mere inability to defend, the Court of Appeal for this district ruled Friday.
Div. One reinstated a suit filed by Gary Belz against Clarendon National Insurance Company. Belz sued under the Insurance Code after Clarendon would not pay a $190,000 default judgment against its insured, general contractor Alan Namay.
Belz said that Namay was responsible for construction defects at Belz’ home. Belz sued Namay in December 2002 and obtained a default a month later. Judgment was entered in April 2004 after a motion to set aside the default was denied.
Belz sued Clarendon in June 2005. Los Angeles Superior Court Judge John S. Wiley granted summary judgment to Clarendon, citing undisputed evidence that Namay did not notify Clarendon of the suit.
The evidence showed that Clarendon was notified through the broker who sold the policy, in December 2001, that Belz was claiming damages under the policy, and that it investigated, but complained that Namay was not cooperating. Clarendon’s adjuster was told that Belz intended to sue, but the company apparently did not become aware of the suit’s actual existence until after the default was entered.
Clarendon then retained counsel, which unsuccessfully tried to have the default set aside. In support of a motion to reconsider the denial of its Code of Civil Procedure Sec. 473 motion, the company submitted Namay’s declaration saying he had gave the summons and complaint to a bankruptcy lawyer, although the lawyer was not retained until several months after the default was entered.
The bankruptcy lawyer declared that he did not notify the insurer because he was not retained to defend the suit.
The trial judge denied the motion to reconsider, and an appeal was dismissed as untimely.
Summary Judgment Granted
In granting summary judgment in favor of Clarendon, Wiley noted that the policy absolved the insurer of responsibility “for any default judgment entered against any insured... rendered or entered before notice to the Company,” ruling that there was no requirement that the insurer show prejudice.
But Acting Presiding Justice Robert Mallano, writing for the Court of Appeal, said the policy language was only a notice provision—not a cooperation clause or a “no voluntary payments” provision, and that the insurer must, under established law, show that the lack of notice caused prejudice.
Prejudice in this context, Mallano went on to say, means not only that judgment was entered against the insured, but also that there is a substantial likelihood that the insurer would have settled the claim for less than the amount of the judgment, or would have otherwise succeeded in reducing or eliminating the liability.
“In sum, because Namay breached a notice provision, and Clarendon did not make a showing that it suffered actual, substantial prejudice, the trial court erred in granting summary judgment,” Mallano wrote. “We express no view as to exactly what Clarendon must show to satisfy the prejudice requirement. Nor have we limited the defenses that Clarendon may assert against Belz.”
Attorneys on appeal were Ralph C. Loeb of Krane & Smith for the plaintiff and Karen-Denise Lee for Clarendon.
The case is Belz v. Clarendon America Insurance Company, 07 S.O.S. 7630.
Copyright 2007, Metropolitan News Company