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Insurance Carrier Not Permitted to Vacate Default Against Insured Entered Two Years After Notified of Lawsuit

By on October 10, 2014 in Blog with 0 Comments

In Marciante v. Huezo, 2014 N.J. Super. Unpub. LEXIS 2281 (App. Div. Sept. 19, 2014), ARI Mutual Insurance Co. (“ARI”) tried to vacate a default entered against its insured more than one year after a default judgment was entered against its insured and three years after the insured was served with the lawsuit. The plaintiff Shannon Marciante was seriously injured in a motor vehicle accident when she was struck by a truck driven by defendant Amado Huezo and owned by Rudery Marcia. Huezo was never served but Marcia was served on June 11, 2010 but never filed an answer to the complaint. Default was entered against him in July 2010 due to his failure to answer.

ARI insured UHU, a company that was supposed to have been leasing the vehicle at the time of the accident from Marcia and learned of the existence of the lawsuit in August 2010 when Great American Insurance Co. (“Great American”), which insured the cab, informed it of the suit. At that time, ARI hired an investigator to try to track down Marcia but was unsuccessful in locating him.

Both insurers initially denied coverage and declined to defend or indemnify Marcia. ARI denied because it was advised that UHU had not been leasing the vehicle at the time of the accident. Great American denied coverage based upon a business use exclusion.

In April 2012, a proof hearing was held and the trial court entered a judgment in the amount of $1.2 million for the plaintiff’s pain and suffering and $7800 for her lost wages. Thereafter, a default judgment was entered solely against Marcia for $1,207,800. While the plaintiff was not able to establish that it served the judgment upon Marcia, it did serve the judgment upon ARI and Great American.

Eight months later, Great American sent to ARI a copy of the lease between UHU and Marcia. That agreement showed that the vehicle had indeed been leased to UHU at the time of the accident. After receiving the lease agreement, ARI changed its position and decided to provide representation to Marcia under a reservation of rights. Although it was not successful in contacting Marcia, ARI hired defense counsel to try to vacate the default judgment.

While the motion was accompanied with a certification from ARI’s claim manager, it was not supported by a certification by Marcia. The trial judge chastised the two insurance companies for not acting sooner and denied the motion to vacate the judgment. This appeal followed.

A motion to vacate a default judgment based upon “mistake, inadvertence, surprise, or excusable neglect” under R. 4:50-1 had to be filed within one year of entry of the final judgment. Because the plaintiff could not prove that Marcia had been served with the judgment, the one year time period had not been violated. Nevertheless, the motion had to be filed “within a reasonable time.” The Appellate Division upheld the trial court’s determination that waiting to set aside a final judgment for more than one year did not qualify as a “reasonable time.”

However, the court did leave it open that, if Marcia himself provided an explanation by certification as to why he never answered or presented such other facts that could equitably justify relief from this judgment, that he could file such a motion and the trial court would have to consider the circumstances.

The bottom line is that if there is potential coverage, an insurance carrier must investigate promptly and make a determination as to whether it should afford a defense. Otherwise, if it decides not to defend or timely challenge a default judgment entered against its insured, and it turns out that there is coverage, it may be faced with rather dire adverse consequences. The carrier may be foreclosed from vacating that judgment and, potentially, be required to satisfy that judgment.

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About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 25 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020 and 2021, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

“Best Law Firms” is published by Best Lawyers in partnership with U.S. News & World Report. For a description of the selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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