Prime Insurance Co. v. Darnell Wright ( 2019 )

FILED
Sep 26 2019, 8:32 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Siobhan M. Murphy DARNELL WRIGHT
Lewis Brisbois Bisgaard & Smith LLP David A. Singleton
Indianapolis, Indiana Chad E. Romey
Blackburn & Green
Scott B. Cockrum Fort Wayne, Indiana
Lewis Brisbois Bisgaard & Smith LLP
Schereville, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Prime Insurance Co., September 26, 2019
Appellant, Court of Appeals Case No.
19A-CT-353
v. Appeal from the Allen Superior
Court
Darnell Wright, et al., The Honorable Craig J. Bobay,
Appellees. Judge
Trial Court Cause No.
02D02-1503-CT-121
Bradford, Judge.
Court of Appeals of Indiana | Opinion 19A-CT-353 | September 26, 2019 Page 1 of 9
Case Summary
[1] The issue before us is whether an insurance company, which has been relieved
of all responsibility under its liability policy through judicial declaration, has an
adequate interest in the underlying liability-related lawsuit to warrant
participation in said lawsuit for the purpose of attempting to limit its potential
future liability stemming from the same events under an MCS-90 Endorsement.
Because the insurance company’s remaining interest in the lawsuit is
contingent, rather than cognizable, we conclude that it does not.
Facts and Procedural History 1
[2] On November 12, 2013, Darnell Wright was injured in a collision with a
vehicle driven by Decardo Humphrey. At the time of the collision, Humphrey
was acting as an agent for/in the scope of his employment with Ali Faruq,
Riteway Trucking, Inc. (“Riteway”), Riteway Transportation, Inc. (“RTI”),
and Prudential Trucking, Inc. (“PTI”). On March 27, 2015, Wright filed suit
against Humphrey, Faruq, Riteway, RTI, and PTI (collectively, “Defendants”).
For whatever reason, Riteway would not cooperate with its insurance provider,
Prime Insurance Co. (“Prime”), and failed to appear or present any defense in a
subsequent lawsuit brought against it by Wright.
1
We held oral argument in this case on September 12, 2019, in our courtroom in Indianapolis. We
commend counsel for the high quality of their arguments.
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[3] On or about May 1, 2015, Prime filed an action in the Northern District of
Indiana seeking a declaration that it had no duty to defend Riteway or any
other defendant in Wright’s state-court action. Meanwhile, back in the trial
court, on June 17, 2015, Wright filed a motion for a default judgment. In July
of 2015, Prime sought and was granted permission to intervene in Wright’s
state-court action.
[4] The trial court conducted a hearing on Wright’s motion for a default judgment
on August 19, 2015. Defendants and Prime failed to appear, despite each
having notice of the hearing.2 The next day, on August 20, 2015, the trial court
entered default judgment against Faruq, Riteway, RTI, and PTI, finding that
they were in default. The trial court did not enter default judgment against
Prime. The trial court entered judgment in favor of Wright for $400,000.
[5] Prime filed an answer and affirmative defenses on August 21, 2015, and a
motion to obtain discovery from Wright on November 4, 2015. Wright
objected to Prime’s discovery requests on the grounds that judgment had
already been entered against Riteway on liability and damages. In response to
Wright’s objection, on January 4, 2016, Prime filed motions to set aside the
default judgment and to obtain discovery. The trial court denied Prime’s
2
While the parties presented argument relating to Prime’s absence from the default judgment hearing, we
find Prime’s absence to be irrelevant to the question of whether Prime has an adequate interest in the
underlying lawsuit to warrant setting aside the default judgment entered against Riteway. The non-
appearance of Prime’s attorney at the default judgment hearing is therefore a non-factor.
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motion to obtain discovery and stayed the case until Prime’s federal action was
resolved.
[6] After its attempts to obtain discovery from Wright in the state-court action were
rejected, Prime requested permission to issue discovery requests to Wright
regarding the issues of liability and damages in the federal-court action. The
federal court denied Prime’s request, noting that the information sought was
irrelevant to the pending request for a declaratory judgment. The federal court
stated that it would not permit Prime “to subvert limitations on discovery in
another proceeding, by attempting to obtain discovery in [the federal] case that
has already been denied in the underlying Allen Superior Court action.”
Appellee’s App. Vol. II p. 76 (internal quotation omitted). On January 29,
2018, the federal court ordered that Prime did not owe a duty to defend or
indemnify Riteway, that Riteway had failed to meet its obligations under its
insurance policy, and that Riteway and its “alter egos” shall be liable to Prime
for any payments made under an MCS-90 Endorsement3 to the insurance
policy. Appellee’s App. Vol. II p. 58.
3
Federal law requires that a motor carrier maintain proof of financial responsibility. See 49 C.F.R. § 387.7.
The MCS-90 endorsement embodies a public financial responsibility in situations where a motor carrier is
responsible for an accident causing injury to a member of the public. Carolina Cas. Ins. Co. v. Yeates, 584 F.3d
868, 883 (10th Cir. 2009). “The MCS-90 endorsement is in effect, suretyship by the insurance carrier to
protect the public—a safety net, and not an ordinary insurance provision to protect the insured.” Travelers
Indem. Co. of Ill. v. W. Am. Specialized Trans. Servs., Inc., 409 F.3d 256, 260 (5th Cir. 2005) (internal quotation
omitted).
The endorsement does not extinguish the debt of the insured. The MCS-90 endorsement
instead grants the insurer the right to seek reimbursement from the insured party for any
payment made by the company on account of any accident, claim or suit involving a
breach of the terms of the policy, and for any payment that [the insurance company] would
not have been obligated to make under the provisions of the policy except for the
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[7] Following resolution of the federal-court action, the trial court held a hearing
on Prime’s motion to set aside the default judgment. On October 25, 2018, the
trial court issued an order denying Prime’s request to set aside the default
judgment against Riteway.4
Discussion and Decision
[8] Prime contends that the trial court abused its discretion by denying Prime’s
motion to set aside the default judgment entered against Riteway. Trial Rule
55(A) provides that “[w]hen a party against whom a judgment for affirmative
relief is sought has failed to plead or otherwise comply with these rules and that
fact is made to appear by affidavit or otherwise, the party may be defaulted by
the court.” “A judgment by default which has been entered may be set aside by
the court for the grounds and in accordance with the provisions of [Trial] Rule
60(B).” T.R. 55(C). Trial Rule 60(B) provides, in relevant part, that a trial
court may grant a request for a relief from a default judgment for “(1) mistake,
surprise, or excusable neglect” or “(8) any [other] reason justifying relief from
the operation of the judgment[.]”
[9] The decision whether to set aside a default judgment is given
substantial deference on appeal. Our standard of review is
agreement contained herein.… In sum, the MCS-90 endorsement creates an obligation
entirely separate from other obligations created by the policy to which it is attached. The
MCS-90 defines the insurer’s public financial responsibility obligation, while the underlying
policy defines the insurer’s insurance liability obligation.
Yeates, 584 F.3d at 884 (emphases omitted, internal quotations and citations omitted, brackets in original).
4
Wright’s remaining claims against Humphrey were dismissed without prejudice on January 14, 2019.
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limited to determining whether the trial court abused its
discretion. An abuse of discretion may occur if the trial court’s
decision is clearly against the logic and effect of the facts and
circumstances before the court, or if the court has misinterpreted
the law. We may affirm a general default judgment on any
theory supported by the evidence adduced at trial. The trial
court’s discretion is necessarily broad in this area because any
determination of excusable neglect, surprise, or mistake must
turn upon the unique factual background of each case.
Moreover, no fixed rules or standards have been established
because the circumstances of no two cases are alike.…
Furthermore, reviewing the decision of the trial court, we will not
reweigh the evidence or substitute our judgment for that of the
trial court. Upon a motion for relief from a default judgment, the
burden is on the movant to show sufficient grounds for relief
under Indiana Trial Rule 60(B).
Kmart Corp. v. Englebright, 719 N.E.2d 1249, 1253 (Ind. Ct. App. 1999) (internal
citations and quotation omitted).
[10] The nature of Prime’s interest in the underlying lawsuit is the crux of the issue
before us on appeal. In challenging the trial court’s default of its motion to set
aside the default judgment against Riteway, Prime claims that its continuing
interest in the issue of liability warranted setting aside the default judgment.
For his part, Wright argues that Prime does not hold a legally cognizable
interest in the underlying lawsuit. We agree with Wright.
[11] Notably, any interest Prime has in the underlying lawsuit stems from choices
made by Prime. After choosing to issue a liability policy to Riteway, Prime
made the additional choice to issue the MCS-90 Endorsement to Riteway. As
Prime acknowledged during oral argument, Prime was not required to do so.
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[12] It is undisputed that Prime successfully obtained a declaratory judgment
indicating that it did not have a duty to defend Riteway under the liability
policy and that its only remaining interest stems from the MCS-90
Endorsement. Prime has indicated that it plans to contest whether the MCS-90
Endorsement applies under the facts of this case, a determination that will have
to be made in subsequent legal proceedings. Prime’s continuing interest,
therefore, is contingent as it is subject to a subsequent legal determination
regarding applicability of the MCS-90 Endorsement.
[13] We have previously considered whether a contingent interest was sufficient to
warrant intervention by an insurance company into a lawsuit involving one of
its insureds. In Cincinnati Insurance Co. v. Young, we noted that under Indiana
law, intervention into a lawsuit is warranted if the intervening party
demonstrates “(1) an interest in the subject of the action, (2) disposition of the
action may as a practical matter impede the protection of that interest, and (3)
representation of the interest by existing parties is inadequate.” 852 N.E.2d 8,
13 (Ind. Ct. App. 2006), trans. denied.
[14] After the trial court allowed Cincinnati Insurance Co. (“Cincinnati”) to
intervene in a lawsuit involving one of its insureds, we were called upon to
determine whether Cincinnati, which had both contested coverage and sought
to intervene, had a sufficient interest in the underlying lawsuit to warrant
intervention. Id. at 13–17. Concluding that a contingent interest was not
sufficient to warrant intervention, we noted that “when an insurer attempts to
intervene in the action between its insured and the injured party but reserves the
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right to deny coverage, the insurer’s asserted interest is not cognizable but
rather contingent upon the acceptance of coverage before it becomes colorable
for the purposes of [intervention].” Id. at 15. Given that Cincinnati had both
contested coverage and sought to intervene, we found that its interest in the
lawsuit “was contingent and not direct.” Id. We further noted that although
Cincinnati assured us that it appealed “only” in its own name, it effectively
sought “to relitigate [its insured’s] liability.” Id.
Allowing Cincinnati to raise these issues while it is still
contesting its coverage under the insurance policies would grant
the insurer two bites at the proverbial apple in an attempt to
escape liability; once in this appeal on issues resulting from the
underlying trial and again during its pursuit of its declaratory
judgment action disputing coverage.
Id. As such, we concluded that the trial court had abused its discretion in
allowing Cincinnati to intervene. Id. at 17.
[15] We find our conclusion in Young to be instructive in this case. As we stated
above, Prime’s continuing interest is, at most, a contingent interest. Applying
our conclusion from Young regarding contingent interests to the facts of this
case, we conclude that Prime’s contingent interest does not warrant reversing
the default judgment that was entered against Riteway.
[16] Prime admits that it is seeking to relitigate Riteway’s liability in an effort to
limit a potential future financial obligation that it may have to Wright. Prime
also admits that it has received a judicial determination that it has no duty to
defend under its liability policy and has indicated that it plans to seek a similar
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judicial determination that the MCS-90 Endorsement does not apply to the
facts of this case. Prime cannot both deny its obligation to its insured and, at
the same time, seek to litigate questions relating to liability and damages. To
allow Prime to do so would effectively grant Prime a second bite at the apple in
its attempt to escape a potential future financial obligation. The trial court did
not abuse its discretion in denying Prime’s motion to set aside the default
judgment entered against Riteway.
[17] The judgment of the trial court is affirmed.
Vaidik, C.J., and Riley, J., concur.
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