{"id":465,"date":"2023-02-08T12:26:26","date_gmt":"2023-02-08T16:26:26","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/insurancelaw\/?p=465"},"modified":"2023-02-08T12:28:28","modified_gmt":"2023-02-08T16:28:28","slug":"jim-dobbas-to-the-rescue","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/insurancelaw\/2023\/02\/08\/jim-dobbas-to-the-rescue\/","title":{"rendered":"Jim Dobbas to the Rescue"},"content":{"rendered":"

By: William J. Baron<\/a><\/strong><\/p>\n

The Ninth Circuit has held that the California rule permitting insurers to intervene to defend suspended corporate insureds also applies under federal procedural rules.\u00a0 (See California Dept. of Toxic Substances Control v. Jim Dobbas, Inc. <\/em>(9th Cir. 2022) 54 F.4th 1078, 1082.)<\/p>\n

In Jim Dobbas<\/em>, the Department of Toxic Substances Control (DTSC) sought a default judgment against a bankrupt limited liability company (Collins), which formerly owned contaminated land in Elmira, California.\u00a0 The DTSC had obtained an order in Bankruptcy Court permitting it to sue Collins, but only to seek recovery from Collins\u2019 insurers.<\/p>\n

Upon receiving notice of the suit and the request for a default judgment, Collins\u2019 insurers filed a motion to intervene as of right under Federal Rule of Civil Procedure 24(a)(2) to defend the claims against Collins, and also moved to set aside the default that had been entered.\u00a0 (Id. <\/em>at 1083-1084.)\u00a0 The District Court denied the insurers\u2019 motions to intervene and declined to set aside the default.\u00a0 (Id. <\/em>at 1084-1085.)<\/p>\n

The Ninth Circuit reversed the first ruling, holding that the insurers were entitled to intervene as of right.\u00a0 (Id. <\/em>at 1082, 1090-1092.)\u00a0 The Court found that California law applied and that the insurers had a legally protectable interest in intervening to defend the action, based on California\u2019s direct action statute, Insurance Code section 11580.\u00a0 (Id. <\/em>at 1089-1093.)\u00a0 The opinion noted that California courts have \u201crepeatedly held that insurers have a protectable interest under \u00a7 11580 in preventing defaults by their insureds that are incapable of defending themselves or otherwise unwilling to do so,\u201d because this statute permits plaintiffs to seek recovery on judgments from the defendants\u2019 insurers.\u00a0 (Id. <\/em>at 1090 and 1090 fn. 14.)<\/p>\n

<\/p>\n

The Ninth Circuit also rejected the DTSC\u2019s argument that the insurers forfeited their interests under Section 11580 by declining to concede their policies covered the loss.\u00a0 (Jim Dobbas, supra, <\/em>54 F.4th at 1091.)\u00a0 The Court held that \u201cwhat is dispositive here is that the insurers timely sought to intervene to defend their helpless insured and prevent a default judgment.\u201d\u00a0 (Id.<\/em>)\u00a0 The Court added that an \u201cinsurer\u2019s coverage position is irrelevant under the direct action statute so long as the insurer timely acts to defend a helpless insured and prevent its\u00a0 default.\u201d\u00a0 (Id.<\/em>) Accordingly, the Court held that \u201cunder the California direct action statute, a primary or excess insurer that seeks to timely intervene in a tort action for the stated purpose of defending its insured that is either unwilling or incapable of defending itself has a protectable interest for purposes of Rule 24(a)(2), no matter what position, if any, the insurer has taken as to coverage.\u201d\u00a0 (Id. <\/em>at 1091-1092.)\u00a0\u00a0The Court noted that \u201cwe express no view on the coverage <\/em>implications, if any,\u201d of an intervening insurer\u2019s decision to decline coverage or to refrain from reserving its rights.\u00a0 (Id. <\/em>at 1092 fn. 17; emphasis in original.)<\/p>\n

Finally, the Court held that it did not have appellate jurisdiction concerning the District Court\u2019s order declining to set aside the default, because that is not an appealable order and an appeal would be premature before a default judgment was entered.\u00a0 (Id. <\/em>at 1092.)\u00a0 The Ninth Circuit suggested that the District Court might reconsider that ruling on remand.\u00a0 (Id<\/em> at 1092 fn. 18.)<\/p>\n

In sum, Jim Dobbas<\/em> makes clear that the California rule permitting insurers to intervene to defend claims against suspended or otherwise defunct insureds applies in federal court under Federal Rule of Civil Procedure 24(a).\u00a0 Jim Dobbas <\/em>also recognizes that an insurer that intervenes to defend claims against a defunct insured can do so while contesting coverage or reserving its rights.\u00a0 The decision illustrates that, when an insurer intervenes in an action to defend claims against a suspended corporate insured, the insurer may wish to advise both the plaintiff and the insured that the insurer is reserving its rights, to avoid arguments by the plaintiff that the insurer waived coverage defenses when it intervened.<\/p>\n","protected":false},"excerpt":{"rendered":"

By: William J. Baron The Ninth Circuit has held that the California rule permitting insurers to intervene to defend suspended corporate insureds also applies under federal procedural rules.\u00a0 (See California Dept. of Toxic Substances Control v. Jim Dobbas, Inc. (9th Cir. 2022) 54 F.4th 1078, 1082.) In Jim Dobbas, the Department of Toxic Substances Control … <\/p>\n

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