Assignment of Right to Sue Insurer Proves Worthless
Barry Zalma, Esq., CFE
Insurance claims expert, consultant at Barry Zalma, Inc. and author/Publisher at ClaimSchool, Inc.
Posted on August 25, 2020 by Barry Zalma
Ninth Circuit Reads Full Policy and Finds No Coverage
Insurance policies are contracts. When a court is asked to interpret a policy of insurance it will read the full policy and make a decision based upon the clear and unambiguous language of the policy. When an insurer refuses to defend or indemnify an insured the plaintiff, faced with what is believed to be a judgment-proof defendant, will enter into an agreement to establish a judgment upon which the plaintiff promises not to execute in exchange for a the right to step in the defendant’s shoes and sue the insurer. This ploy often works unless the insurer has a good reason to refuse to pay.
In Wilshire Insurance Company v. Patrick Yager; Javier Lopez v. Girard Insurance Company; Ira Lee Girard; Mary Ann Girard, No. 18-17350, United States Court Of Appeals For The Ninth Circuit (August 14, 2020) the Ninth Circuit was asked to support or reject the decision of the District Court to rule in favor of the insurer.
FACTS
Alonso Pastor obtained commercial auto insurance coverage with Wilshire Insurance Company (Wilshire). Appellants Patrick Yager and Javier Lopez were involved in a motor vehicle accident during which Yager sustained injuries. The van owned and driven by Lopez was added as a covered auto under Pastor’s policy, but Lopez was not added as a named insured.
Following the accident, Yager initiated a state lawsuit against Lopez and Pastor. Months after Wilshire obtained counsel on Lopez’s behalf, Wilshire issued a reservation of rights on the basis that Lopez was not covered under the policy. The state action was dismissed as to Pastor, and Lopez assigned his rights against Wilshire to Yager, with the pair agreeing to a stipulated judgment of $1.5 million.
Wilshire initiated the underlying declaratory action in federal court, seeking a declaration that the insurance company had no duty to indemnify Lopez under the insurance policy. Yager and Lopez appealed the district court’s grant of summary judgment in favor of Wilshire.
DISCUSSION
The policy defined “insured” as Pastor “for any covered auto” and “[a]nyone else while using with [Pastor’s] permission a covered auto . . . own[ed], hire[d] or borrow[ed] except [t]he owner or anyone else from whom [Pastor] hire[d] or borrow[ed] a covered auto.” (emphasis added)
Wilshire had properly reserved its rights and was not estopped from raising coverage defenses, nor did Wilshire waive any coverage defenses. Waiver requires a clear expression of intent to relinquish a known right. Morever, Wilshire would only be estopped from asserting coverage defenses if an insured detrimentally relied on Wilshire’s actions.
Because Lopez produced no evidence of Wilshire’s intentional relinquishment of its right to deny coverage, or of Lopez’s detrimental reliance on any action taken by Wilshire, no material issue of fact was raised to preclude summary judgment.
Although the vehicle being operated by Lopez was insured, Lopez was not. Further, as the owner of the vehicle being operated, Lopez did not fit within the definition of a permissive driver.
Finally, because Lopez was not covered under the Wilshire policy, his claims for bad faith and breach of the covenant of good faith and fair dealing are not viable.
ZALMA OPINION
If Pastor or Lopez had any assets it would have been preferable to go to trial than accept the assignment and get nothing. If they had no assets other than the vehicle in the accident, it made sense to gamble on collecting the $1.5 million judgment. Of course, if the plaintiffs’ counsel had read the whole policy they would have not wasted the time of the District Court and the Ninth Circuit.
? 2020 – Barry Zalma
arry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at https://www.zalma.com and [email protected].
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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