A California Appeals Court has upheld the right of an insurer to appeal a default judgment in a small class action claim against its policyholder. The case is Pac. Pioneer Ins. Co. v. Superior Court, 44 Cal. App. 5th 890 (2020).
Jonathan Johnson was sued in small claims court after a car accident in Orange County. He failed to appear for the small claims hearing, and the court entered a default judgment against him for $10,140. Johnson was insured by Pacific Pioneer Insurance Company (Pacific Pioneer) which appealed.
The trial court struck the notice of appeal on the grounds that the California Code of Civil Procedure 116.710(d), says that a no-show defendant cannot appeal a verdict, but is instead limited to bringing a motion to vacate the judgment in trial court. Section 116.710(c), though, says that "the insurer of the defendant may appeal the judgment to the superior court in the county in which the matter was heard if the judgment exceeds two thousand five hundred dollars ($2,500) and the insurer stipulates that its policy with the defendant covers the matter to which the judgment applies. Relying on subdivision (d) the trial court concluded that Pacific Pioneer was barred from appealing because the insured was a defendant who failed to appear.
Pacific Pioneer filed a writ petition which challenged the trial court's findings.
The appeals court disagreed with the lower court, stating that the plaintiff's position that the express grant of authority in subdivision (c) was nullified by subdivision (d), was improper. This argument conflated the terms in subdivision (c), "insurer of the defendant" and subdivision (d) "defendant who did not appear at the hearing." The court discussed how, where the Legislature uses different words in different parts of the same statute it must be presumed that the Legislature intended that the two words two different meetings.
The court also found the right to appeal to be supported by public policy, as a deterrent of the "inflation of judgments." The appeals court noted that plaintiffs may have a motive to seek an inflated damages claim, and defendants may not have incentive to fight such a claim if the judgment would be covered by his insurer. Allowing an insurer to appeal an initial judgment, despite no participation from the defendant, "curbs any temptation to collude."
The court issued a writ of mandate to reinstate Pacific Pioneer's notice of appeal for a decision on the merits of the case.
Editors Note: An argument made by the plaintiff here, was that insurers can protect themselves simply by sending reservation of rights letters to their insureds, stating that the insurer would refuse to pay any small claims judgments unless the insured appears. The court noted that a prudent insurer would not assume a form paragraph would solve the problem depicted in the case at hand. The court said "[a]t the very least, an insurer who receives notice of a small claims judgment against an insured would have to: (1) investigate its own records to make sure the insured never notified it of the small claims suit; and (2) contact the insured and investigate to make sure that the insured was properly served" before the insurer would issue a denial of representation based on a failure to appear.
Pacific Pioneer