No Occurrence, Defendants Not Insureds & Failure to Appear Require Default Judgment

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Failure to Respond to Complaint Served on Defendants Requires Judgment in Favor of Plaintiff

When an insurance company decides it has no coverage for defense and indemnity after a claim is made by individuals seeking defense and indemnity to a third party tort action, it is often wise to seek declaratory judgment from a US District Court rather than take a chance the decision to refuse defense might be wrong.

State Farm did so in State Farm Fire And Casualty Company, an Illinois company v.  Rika C. Palomares f/k/a Erika C. Pedroza, an individual; Mario Pedroza, Jr., an individual; Raul Pedroza, an individual; Karen Bartee, an individual, as wife and heir of Robert Burl Bartee and as Personal Representative of the Estate of Robert Bartee; and Helen Quintana, Cindy Strickland, Charles Ray Bartee and Barbara Bartee, all individuals and natural children and heirs of Robert Burl Bartee, Case No. 1:20-cv-00392-BLW, United States District Court For The District Of Idaho (March 1, 2021).

When the defendants seeking coverage failed to respond to the suit State Farm moved the USDC for default judgment against defendants Mario Pedroza, Jr. and Raul Pedroza who have not appeared or responded to the motion. Having considered the briefing and record, the Court will grant the motion.

BACKGROUND

State Farm sued the defendants seeking a declaratory judgment that it has no duty to defend or indemnify non-insureds Mario Pedroza, Jr. and Raul Pedroza in the Underlying Lawsuit titled Karen Bartee, Helen Quintana, Cindy Strickland, Charles Ray Bartee and Barbara Bartee v. Erika C. Pedroza, Mario Pedroza Jr., Raul Pedroza, Cesar Martinez-Botello and Does 1-5, case number CV20-20-00463, in the 4th District Idaho – Elmore County, State of Idaho.

State Farm established that Mario Pedroza, Jr. and Raul Pedroza were both properly served with a copy of Plaintiff’s Complaint and Summons in the above-captioned action in August 2020. More than 21 days elapsed since both Mario Pedroza Jr. and Raul Pedroza were served and neither Defendant made an appearance in the case.

State Farm’s Motion for Order of Default Against Defendants Mario Pedroza, Jr. and Raul Pedroza was filed on October 9, 2020 and the Clerk’s Entry of Default as to Defendants Mario Pedroza, Jr. and Raul Pedroza was entered on October 28, 2020

State Farm then requests that the Court grant its motion for default judgment as follows:

  1. That all claims against Mario Pedroza, Jr. and Raul Pedroza in the Complaint are determined to be the true facts in this matter, including, but not limited to the following:
    1. That Mario Pedroza, Jr. is not an “insured” under State Farm Homeowners Policy, number 12-BE-S580-4 (the “Policy”);
    2. That Raul Pedroza is not an “insured” under the Policy;
    3. That there was no “occurrence,” as defined by the Policy, alleged against Mario Pedroza, Jr. or Raul Pedroza in the underlying lawsuit;
    4. That the actual facts demonstrate that there was no “occurrence” in relation to any liability found against Mario Pedroza, Jr. or Raul Pedroza in the Underlying Lawsuit;
    5. That exclusion l.a.(3) in the Policy (the Expected Injury exclusion), precludes coverage for the allegations against Mario Pedroza, Jr. and Raul Pedroza in the Underlying Lawsuit and for the actual facts in relation to any liability found against Mario Pedroza, Jr. or Raul Pedroza in the Underlying Lawsuit;
    6. That exclusion 1.b. in the Policy (the Business Pursuits exclusion), precludes coverage for the allegations against Mario Pedroza, Jr. and Raul Pedroza in the Underlying Lawsuit and for the actual facts in relation to any liability found against Mario Pedroza, Jr. or Raul Pedroza in the Underlying Lawsuit;
    7. That exclusion 1.c. in the Policy (the Rental By Any Insured exclusion), precludes coverage for the allegations against Mario Pedroza, Jr. and Raul Pedroza in the Underlying Lawsuit and for the actual facts in relation to any liability found against Mario Pedroza, Jr. or Raul Pedroza in the Underlying Lawsuit; and
    8. That exclusion 1.e. in the Policy (the exclusion for Bodily Injury That Arises Out Of Premises That Is Not An Insured Location) precludes coverage for the allegations against Mario Pedroza, Jr. and Raul Pedroza in the Underlying Lawsuit and for the actual facts in relation to any liability found against Mario Pedroza, Jr. or Raul Pedroza in the Underlying Lawsuit.
  2. That based on the foregoing, State Farm owes no duty to defend Mario Pedroza, Jr. or Raul Pedroza under the Policy in the Underlying Lawsuit; and
  3. That based on the foregoing, State Farm owes no duty to indemnify Mario Pedroza, Jr. or Raul Pedroza for any potential liability in the Underlying Lawsuit under the Policy.

The grounds stated in the complaint were clear, unambiguous and required – since the failure to respond acts as an admission that the allegations are true – to grant judgment unless there are some mitigating factors against entry of judgment.

ANALYSIS

Defaults are available if there is prejudice to the Plaintiff if the Court wholly denied the motion and State Farm would be left in a state of limbo regarding its potential duty to represent and indemnify the Defendants.

By virtue of Defendants’ failure to appear, there was no evidence of a potential disputed material fact or meritorious defense, or that Defendants’ default was due to excusable neglect. In addition, the sufficiency and merits of Plaintiff’s claims, also favor a default judgment.

The Court, as required by precedent, reviewed the Complaint and was satisfied that it sets forth a viable claim that State Farm does not owe Defendants a duty to defend or indemnify for any potential liability in the Underlying Lawsuit. The Complaint specifically pleaded that State Farm had no duty to defend or indemnify “Mario and/or Raul under the Homeowners Policy for any potential liability in the Underlying Lawsuit because, among other reasons, neither qualifies as an ‘insured,’ there was no ‘occurrence’ and/or because one or more of the exclusions in the Homeowners Policy applies.”

Because these well-pleaded factual allegations are deemed admitted by virtue of Defendants’ default, the Court had no option but to find that the allegations in the Complaint adequately establish the merits of Plaintiff’s claims.

Regardless, the court considered two factors that weigh against default judgment. First, the Personal Liability (Each Occurrence) limit of liability on the Homeowners Policy in controversy is $300,000, which is a relatively large amount and the policy favoring decisions on the merits— weighs against default judgment.

However, because the Court concluded that Mario and Raul were not “insured” under the policy, these factors do not prevent entry of default judgment. The court, therefore granted the motion.

ZALMA OPINION

With $300,000 at issue the only reason to allow a default to be entered is if the defendants agreed with the allegations of the complaint for declaratory relief or were judgment proof or without funds to respond or were unwilling to respond pro se. Clearly, if they were not insureds there is no obligation on the part of State Farm to defend and it was simpl being cautious by filing a declaratory relief action where a simple denial of coverage would have sufficed.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant 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 practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts; and Read last two issues of ZIFL here.

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