New Nevada ruling says insurance companies must intervene before entry of default
December, 2008
Recently, the Nevada Supreme Court considered whether an insurer that had notice of a pending lawsuit, and also had notice of the plaintiffs' intent to seek a default judgment in that lawsuit, was bound by the entry of default. The Court concluded that an intervener insurer that wishes to assert defenses on behalf of a defendant must intervene before the entry of default--or, in the alternative, move to set aside the default.
In Estate of LoMastro v. American Family Insurance Group, the plaintiffs sought to recover damages for the death of their son, who was the driver in a single-vehicle rollover automobile accident. The vehicle's owner, who was a passenger in the vehicle at the time of the accident, did not maintain insurance on the vehicle. The plaintiffs sought to recover under the uninsured motorist provision of their American Family policy. The plaintiffs also filed a lawsuit against the uninsured motorist defendant. Following American Family's denial of the plaintiffs' insurance claim, the plaintiffs notified American Family of their lawsuit against the defendant. Two months later, the plaintiffs informed American Family that they had served the defendant with the complaint and intended to seek entry of default against him for his failure to respond.
After a default was entered, but before the court entered judgment, American Family moved to intervene. It sought to contest the defendant's liability, in an attempt to avoid being held liable for the defendant's actions under the driver's parents' uninsured motorist coverage. American Family did not move to set aside the entry of default. The district court allowed American Family to intervene, but determined that American Family could not contest the defendant's liability.
On appeal, the Nevada Supreme Court affirmed the district court's order that American Family was bound by the entry of default as to the liability of an uninsured motorist defendant, if it had notice of the lawsuit and the plaintiffs' intent to seek default, but it nonetheless failed to intervene. The Court noted that in Nevada, an intervening party is treated as if it had been a party from the beginning of a lawsuit, which means that it is bound by all prior orders of the Court. The Court ruled that, if an insurer wishes to assert defenses to liability on behalf of the original defendant, the insurer must intervene before any entry of default, or move to set aside the entry of default.
The LoMastro decision illustrates the importance of intervening early in litigation to prevent the possibility of losing otherwise viable defenses.