When an uninsured/underinsured (UM/UIM) carrier’s insured files a third party claim against an alleged tortfeasor, the adjudication of liability and damages will be binding on the same issues regarding the insured’s first party claim for UM/UIM benefits against his/her own carrier. In many cases, if the tortfeasor timely appears in the third party case, the UM/UIM carrier may not intervene because, presumably, the tortfeasor and/or his/her insurance carrier will be motivated to defend, liability and damages adequately. But, in third party cases where the UM/UIM carrier has concerns about the tortfeasor’s presentation of defenses to liability and damages (such as a case where the UM/UIM carrier’s insured’s alleged damages exceed the tortfeasor’s applicable insurance limits), it may intervene to protect its interests.

In Nevada, a UM/UIM carrier should always intervene in a third party lawsuit when it receives a Three Day Notice of Intent to Enter Default from its insured, based on a tortfeasor defendant’s failure to file a timely responsive pleading. If it does not intervene before its insured enters a default against the tortfeasor, under the Nevada Supreme Court’s decision in In Estate of Matthew LoMastro v. American Family Insurance Company,124 Nev. 1060 (2008), the UM/UIM carrier will be bound by the default judgment.

A Brief Review of the LoMastro Case

The LoMastro case arose from a single vehicle accident. Matthew LoMastro and two friends, Chad Leach and Matthew Sullivan, were drinking whiskey and beer outside a 7-Eleven store in Las Vegas. Mr. Leach permitted the inebriated LoMastro to drive his vehicle. LoMastro struck a barrier while driving the vehicle, causing it to flip. LoMastro was not wearing a seatbelt, was ejected from the vehicle, and died at the scene.

Leach did not have any insurance. LoMastro’s parents presented a first party uninsured motorist claim under their own auto insurance policy, issued by American Family Insurance Company. American Family denied LoMastro’s parents’ claim on the basis that its policy did not afford coverage for single vehicle accidents. LoMastro’s parents filed a third party lawsuit against Leach claiming negligent entrustment, and they notified American Family of the action. Leach did not answer the complaint. Before seeking entry of default, the LoMastros’ counsel provided American Family with a Three Day Notice of Intent to Enter Default, notifying American Family they intended to enter default against Leach. American Family elected not to intervene.

After entering default against Leach, LoMastros’ counsel again notified American Family of this development. American Family posited it would not be bound by the default entered against Leach because it did not insure him and because of an exclusion in the LoMastros’ policy that purported to prevent American Family from being bound by a judgment unless it consented to litigation. Finally, after the LoMastros provided American Family with a notice of a hearing for entry of default judgment, American Family filed a motion to intervene.

The trial court allowed intervention, but held the entry of default precluded the insurance carrier from contesting Leach’s liability. The LoMastros then amended their complaint to assert first party causes of action against American Family, including breach of the implied covenant of good faith and fair dealing. American Family moved for summary judgment , arguing its policy contained language providing uninsured motorist coverage does not apply to single-vehicle accidents. The trial court entered a default judgment for the LoMastros against Leach in the amount of $3 million dollars, but granted American Family’s motion for summary judgment regarding coverage. Cross-appeals followed.

Nevada Supreme Court Reverses Ruling

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The Nevada Supreme Court reversed the lower court’s decision granting summary judgment and held uninsured motorist coverage does apply to single-vehicle accidents. It clarified the “physical contact” requirement in Nevada Revised Statute 690B.020(3)(f)(l ) applies only to hit-and-run accidents or those involving unidentified motorists.

However, the Court affirmed the lower court’s conclusion that entry of default against Leach was sufficient to bind American Family. The Court noted entry of default acts as an admission by the defending party of all material claims made in the complaint, and therefore resolves the issues of liability and causation, and leaves open only the extent of damages.

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The Court explained, after receiving notice of the default, American Family took no action until it moved to intervene six month after the notice of default and without taking any action to set aside the default.

The Court explained,

In Nevada, an insurance company is bound by the result of an action between its insured and an uninsured motorist when the carrier has notice of the action but elects not to intervene. In this case, American Family intervened to argue that the LoMastros are not legally entitled to recover from Leach and therefore are not entitled to recover uninsured motorist benefits. Thus, American Family intervened to defend Leach and became a codefendant to the action, permitted to raise all defenses available to Leach. Generally, entry of default against one codefendant who fails to answer or whose answer is stricken does not preclude an answering codefendant from contesting liability. In fact, if the answering codefendant successfully contests the defendants’ joint liability, default judgment should not be granted against the defaulting codefendant. However, when an intervenor intervenes, it is bound by all prior orders and adjudications of fact and law as though [it] had been a party from the commencement of the suit. Prior decrees should only be set aside, on the motion of the intervenor, if such decrees would deprive the intervenor of substantial rights which [it] has not been remiss in pressing.

The Court elaborated regarding the distinction between entry of default and entry of default judgment:

A party may obtain entry of default against a party that fails to file a responsive pleading within the time mandated. Entry of default acts as an admission by the defending party of all material claims made in the complaint. Entry of default, therefore, generally resolves the issues of liability and causation and leaves open only the extent of damages.

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The Court held when an intervenor wishes to assert defenses to liability on behalf of the original defendant, it must intervene before entry of default or move to set aside the default. Because American Family intervened before entry of default judgment, the Court explained it was still able to contest damages (or attempt to move to set aside the default) but the default prevented American Family from presenting liability defenses. Given the facts regarding the accident, had American Family intervened before entry of default, it appeared Leach had a valid contributory negligence defense against the LoMastro’s claims.

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The Court also noted in previous cases it invalidated exclusionary language in an uninsured motorist policy that a judgment obtained against an uninsured motorist would not bind the insurer unless the insurer consented to the litigation in instances where the insurance company had received notice of the litigation.

Takeaway

The important principle articulated in LoMastro is if, or when, an insured provides his/her UM/UI M carrier with notice of the lawsuit against the tortfeasor and notice of any intent to default, the UM/UIM carrier must intervene before default is entered if it wishes to assert defenses to liability. If the insured cannot establish it provided notice to the UM/UIM carrier (generally via a Three Day Notice of Intent to Enter Default), the UM/UIM carrier will not be bound by the default and/or the default judgment.

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