Insurers May Intervene and Assert the Same Rights as Their Insured’s to Contest Both Liability and Damages

Under certain circumstances, an insurer has the right to intervene in a case against its insured to protect its own rights and to avoid harm to the insurer.  These circumstances usually involve cases where an insured is either prevented from appearing and defending, or simply chooses not to and a default is taken against the insured.  The recent case Western Heritage Insurance Company v. Superior Court, __ Cal. App. 4th __ (Oct. 11, 2011), addresses the second set of circumstances, and provides an examination of California intervention law and holds that an insurer has the right to intervene in a case and take over in litigation if an insured is not defending the action, and may contest both liability and damages while doing so.

In Western Heritage, the insurer Western Heritage defended its insured and its insured’s employee under a reservation of rights following the employee’s automobile accident during the course of employment.  It was revealed that the employee was not participating in her defense and that Western Heritage had filed an answer on her behalf without her participation or consent.  As a result, the answer was stricken and a default was entered.  Western Heritage therefore filed a complaint in intervention to protect its own interests.  The trial court granted the intervention, but ruled that Western Heritage could only dispute damages, not the liability of the employee.

Western Heritage filed a petition for writ of mandate and the court of appeals granted the requested writ relief and held that Western Heritage had “the right to assert, on its own behalf, all defenses that otherwise would be available to the insured parties whether as to liability or damages.”  The appellate court explained its reasoning for allowing an insurer to fully defend its own interests:

Indeed, there would be no purpose in allowing an insurer to intervene in order to protect its own interests but then limit the scope of the insurer’s defense to those issues to which its insured, because of the default, is limited to pursuing…. The entire purpose of the intervention is to permit the insurer to pursue its own interests, which necessarily include the litigation of defenses its insured is procedurally barred from pursuing.

Thus, an insurer has the right to intervene in a case when an insured elects to abandon his own defense of claims asserted against the insured, and may assert the same defenses to liability and damages as the insured.  With this holding, the court seems to indicate that an insurer retains the right to defend its own interests equal to its insured’s interests when defending its insured.  This may serve as a cautionary tale when an insured seeks to assert defenses that are not aligned with the interests of the insurer.

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