Because insurance agents and brokers often are the firsts to receive notices of losses or claims, it is their responsibilities to immediately report those claims to the insurers. The California Dept. of Insurance requires brokers to immediately advise the insurer of the loss. But sometimes when the agent or broker fulfills the obligation, a claim falls through the cracks, such as in Fasuyi v. Permatex Inc. (167 Cal.App.4th 681, 84 Cal.Rptr.3d 351 [Cal.App. Dist.1 10/15/2008]). Although the insured, the insurer and the broker were protected by the court, the case teaches that the insurance agent or broker not only must provide immediate notice of the suit, but also must follow up with the insurer to ensure that responsive pleadings are filed in a timely fashion.

The California Court of Appeal in Fasuyi had to balance that the law favors resolution of cases on their merits with the need to protect the rule of law when a party fails to protect his or her rights.

In August 2004, Omotayo Fasuyi was working at his place of employment when a brake-cleaning product manufactured by Permatex Inc. dripped on him. In August 2006, some three weeks before the statute of limitations would expire, Fasuyi filed a complaint for personal injuries against Permatex. Permatex is a wholly owned subsidiary of Illinois Toll Workers (ITW), a manufacturer of advanced industrial technology.A paralegal at ITW promptly forwarded the summons and complaint to ITW's insurance broker, who promptly forwarded it to the appropriate insurers, who acknowledged receipt. Despite that, no response to the complaint was filed. Shortly after a response was due, Fasuyi's counsel filed a request for default, filed without any communication with anyone at ITW or anyone else. Thirteen days later, Fasuyi obtained a default judgment for $236,500. When Permatex learned of this, it quickly retained counsel, who requested Fasuyi's counsel to voluntarily set the default judgment aside. He refused. On March 23, 2007, 15 days after it learned of the judgment, Permatex filed a motion for relief from default. The motion was denied without explanation.The Court of Appeal reversed the trial court and concluded that the default judgment should not have been granted and that failure to set it aside was an abuse of discretion.The facts supporting its decision were based on the testimony of Elizabeth Ahlman, a paralegal at ITW who testified that CT Corp. "forwarded the Summons and Complaint to [ITW];" and that "on or about Dec. 12, 2006, [ITW] forwarded the summons and complaint to Permatex's insurance broker, Marsh USA," requesting it to forward the documents to Permatex's insurance carriers with instructions to provide a defense to the lawsuit on behalf of Permatex. Ahlman "believed that Permatex's insurance carriers would retain counsel to respond to the Complaint in a timely fashion."Jacqueline Sbarbono, an associate consultant for Marsh, confirmed that "on Dec. 12, 2006, Marsh received the summons and complaint … from [ITW] with instructions for Marsh to forward the complaint" to the insurers. The next day, Sbarbono forwarded the summons and complaint to the claims managers at two of the defendant's insurers via overnight mail. Sbarbono also provided the claims managers with the insured's contact information and requested written confirmation of receipt of the summons and complaint by noting the insurers' file numbers. Sbarbano also instructed the claims managers to directly contact Permatex confirming the same. Sbarbano received said written confirmation and was under the mistaken belief that Permatex's insurers would contact Permatex directly, file an answer to the complaint on Permatex's behalf and undertake Permatex's representation.No responsive pleading was filed.The trial court recognized that to obtain relief under California statutes, the moving party must show the requisite mistake, inadvertence or excusable neglect. The statutes also require that the party diligently seek relief "within a reasonable time, in no case exceeding 6 months, after the judgment, dismissal, order, or proceeding was taken."Permatex argues that it is entitled to relief under the discretionary provision because its failure to file a response to the complaint was the result of mistake, inadvertence or excusable neglect. Permatex demonstrated that paralegal Ahlman promptly forwarded the legal documents to the insurance broker. Permatex also demonstrated that its broker did what it was supposed to do, promptly forwarding the process to the insurers and instructing the claims managers to contact Permatex directly; and that the broker received written confirmation of that and was under the expectation that the insurer would retain counsel and appear on Permatex's behalf.The court rushed to judgment in granting the default and failed to apply legitimate judicial discretion when presented with a motion to set aside the default judgment.The court stated the public policy of California: "[T]he policy of the law is to have every litigated case tried upon its merits, and it looks with disfavor upon a party, who, regardless of the merits of the case, attempts to take advantage of the mistake, surprise, inadvertence or neglect of his adversary."The court also found that where a default is entered because the defendant has relied upon a co-defendant or other interested party to defend, the question is whether the defendant was reasonably justified under the circumstances in his reliance or whether his neglect to attend to the matter was inexcusable. This rule has been held applicable where an insured relied upon his insurer to defend.In this case, a legal department at ITW initially assisted Fasuyi's counsel in effecting service. Once that service was accomplished, the legal department immediately did what any good department would, forwarding the summons and complaint to its insurance broker for appropriate handling. The broker also did what any good broker should, and immediately forwarded the complaint to the appropriate insurers, received back the requested confirmation and believed that the matter would be tended to by the insurer. It was not.There was no lack of cooperation from the defense side. Indeed, the converse. No deception. No duplicitousness. No stonewalling. No evasion. And no disregard of any warning. In fact, there was no warning.The court pointed out to all lawyers in the state, "If you're representing plaintiff, and have had any contact with a lawyer representing defendant, don't even attempt to get a default entered without first giving such lawyer written notice of your intent to request entry of default, and a reasonable time within which defendant's pleading must be filed to prevent your doing so." The court reversed the judgment and the order with instructions that the trial court vacate the default and allow Permatex to file a responsive pleading.If you are an insurance broker who has forwarded a complaint to an insurer to defend your insured, make sure the insurer acknowledges receipt of the suit, advises you of the identity of the assigned defense counsel, and ask that defense counsel advise you and the insured of the filing of responsive pleadings.