Default in Declaratory Relief Action Admission There is No Coverage
When a person desires that an insurer provide defense and indemnity the person must give the insurer notice of the suit against it, cooperate with the investigation of the insurer and if the insurer seeks declaratory relief that it owes no coverage the insured must defend. When an insured allows a default judgment to be entered against it in a declaratory relief action it admits the insurer is correct.
In Argonaut Insurance Company v. Mon Chong Loong Trading Corporation, United States District Court, E.D. New York Slip Copy (02/29/2016), 2016 WL 792410 plaintiff, Argonaut Insurance Company (“Argo” or “Plaintiff”), sued seeking a declaratory judgment that it is not obligated to defend or indemnify its insureds, Mon Chong Loong Trading Corporation and Wu Towers, II, LLC (collectively, “Insureds”), in a state court action brought by 133 Plus 24 Sanford Realty Corporation (“Sanford”) against Insureds for property damage (the “Second Sanford Action”). The Insureds failed to appear in this action, and a default judgment was entered against them, declaring that Argo “has no obligation to defend and/or indemnify [Insureds]” in the Second Sanford Action.
Argo has moved for summary judgment against Sanford, arguing that Argo is not liable to Sanford for Insureds’ alleged damage to Sanford’s property (the “Motion for Summary Judgment”).
The motion for summary judgment was referred to the magistrate judge who recommended that the motion be 1) granted to the extent that Argo seeks to disclaim liability to Sanford; and 2) denied as moot to the extent that Argo seeks to disclaim its liability to Insureds, in light of the default judgment order previously entered against the Insureds.
Sanford objected to the conclusions of the magistrate judge and contended, for the first time, that Argo cannot disclaim insurance coverage to the Insureds, because Argo has not established that it was prejudiced by the Insureds’ tardy notification of its claim to Argo. Sanford further alleges that: “Argo never divulged to this Court whether it was the carrier under any policy of insurance covering any period commencing prior to the date of the 2012-2013 Policy at issue herein, and since counsel appointed by Wu Towers II LLC’s insurance carrier was defending Wu Towers II LLC in the 2012 [New York] Supreme Court action, [Sanford] had no reason to file another notice of claim against any carrier under a later insurance policy and had no reason to suspect that there was a later policy under which another notice of claim had to be given.”
Sanford has not provided any reason for its failure to argue that Argo was not prejudiced in Sanford’s opposition to the Motion for Summary Judgment. As it failed to raise the issue before the magistrate judge, the Court refused, properly, to address Sanford’s newly raised argument.
Contrary to Sanford’s objection, Argo correctly asserts that the only insurance policy relevant in this action is the 2012-2013 Policy that it issued to Insureds. As Sanford has failed to raise any properly articulated objection to the Report, the Report was adopted in its entirety and Argo owes nothing.
When a party who was injured by an insured person seeks to obtain the benefits of the insured person’s insurance it must make a claim to the insured person, obtain an assignment of the rights of the insured person, and then seek coverage as if it were the insured. In this case the Insureds did not care, allowed judgment to be entered against it, and allowed the insurer avoid either defense or indemnity and caused the injured party to have no rights except against the assets of the Insureds who, one can guess, are judgment proof. The lesson: be prompt and thorough or lose.
Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.
Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972
Mr. Zalma’s new e-books “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;” “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;” “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm
Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.