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March 2010

Gray v. Begley ? Insurer Defending Under Reservation of Rights May Intervene to Contest Judgment

Insurer has "Sufficiently Immediate Interest" Justifying Intervention to Seek Revised Judgment Against Insured After Post-Judgment Settlement in which Insurer Did Not Participate

(March 23, 2010) ___Cal.App.4th__; 10 C.D.O.S. 3585

The California Court of Appeal, Second Appellate District, affirmed the trial court's ruling that an insurer can intervene to move to offset a judgment against its insured's employee where the employee settled with the claimant without the insurer's participation.  Even though the insurer defended subject to a reservation of rights, it was permitted to intervene where the insured attempts to settle the case to the potential detriment of the insurer.

Gray was injured in a collision with a car driven by Begley.  Gray sued Begley and his employer, Granite.  Granite was insured by Continental Casualty Company and Valley Forge Insurance Company (together, "CNA").  CNA denied coverage for Begley, but accepted the defense of Granite. 

CNA, along with Granite's excess insurer, reached an agreement with Gray on behalf of Granite, but not Begley, in which the insurers paid Gray approximately $8,000,000, in exchange for a release of Granite.

Gray proceeded against Begley.  CNA then reversed its prior denial of coverage and agreed to defend Begley under a reservation of rights.  Gray obtained a jury verdict of $4,500,000 against Begley.  Begley moved to vacate the judgment.  Gray opposed.  But, before the motion to vacate could be heard, Gray and Begley reached an agreement in which Begley agreed to assign his rights against CNA to Gray and to withdraw his motion to vacate.

CNA moved to intervene and to join in Begley's motion to vacate.  However, Begley withdrew his motion.  CNA then sought leave to file its own motion to offset the judgment by the prior settlement amounts.  CNA noted that its deadline to appeal the amended judgment was looming, and requested a shortened schedule for hearing the motions to intervene and for offset.  The trial court agreed.  CNA argued that the court should immediately vacate the judgment, to protect CNA's appellate rights.

The court granted CNA's motion to intervene and rejected Gray's argument that CNA did not have a sufficiently immediate interest in the case to justify intervention.  However, the court denied CNA's motion to vacate, finding insufficient evidence to justify vacating the judgment.  The court also denied CNA's motion for setoff, in part because Gray and Begley had a right to discovery on the issue, and therefore any hearing on the motion would necessarily fall after the deadline to appeal.  CNA appealed.

On appeal, Gray argued that CNA did not have standing because it was not an "aggrieved party."  The appellate court disagreed.  CNA was a party by virtue of the trial court's grant of its motion to intervene.  The trial court's denial of CNA's motion to vacate, which prevented CNA's motion for setoff from being heard on the merits, affected CNA's interests and rendered it an aggrieved party.

Gray next argued that CNA should not have been allowed to intervene because CNA defended Begley under a reservation of rights.  Accordingly, Begley argued that CNA's interest in the action was not direct and immediate but, instead, was contingent on a subsequent determination that CNA's policy afforded coverage for Begley.

The appellate court first noted that an insurer has a right to intervene when it admits coverage.  Conversely, an insurer has no such right when it denies coverage and refuses to provide a defense, having lost its right to control the litigation.  But, the key factor is whether the insurer provided a defense, not whether it denied coverage.  It follows, then, that an insurer that defends under a reservation of rights may intervene when the insured attempts to settle the case to the potential detriment of the insurer. 

Finally, the court rejected Gray's argument that CNA did not have a "sufficiently immediate interest" in the action to justify intervention.  Because the trial court still must determine the merits of CNA's offset motion, the appellate court reversed and remanded.

This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

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Christopher R. Wagner