State Farm Ins. Co., v. Frias, 2009 NY Slip Op 07825 (2d Dept. 2009)
Dave Gottlieb at No-Fault Paradise posted on this case, and offered his thoughts. Here are the pertinent facts:
“Of the 10 defendants named in this action, only 3, Luccme, Urena, and Pedro Fernandez, answered the complaint, and the Supreme Court granted State Farm’s motion for leave to enter a default judgment against the other defendants… Supreme Court entered a judgment against the defaulting defendants. The judgment declared that State Farm was not required to provide insurance coverage to the defaulting defendants because the incident of January 24, 2002, resulted from an intentional act; that, by reason of no coverage and the failure of State Farm’s insured to cooperate, State Farm was not obligated to defend or indemnify Frias or Abreu in any current or future proceeding, including the underlying action; and that State Farm was not required to pay any damages, awards, or benefits to any of the other defaulting defendants in any current or future proceedings, including the underlying action.”
“Inasmuch as State Farm initially moved for leave to enter a default judgment against the defaulting defendants only, the resulting judgment binds only those defendants, and may not be given preclusive effect to deprive Luccme and Urena, who appeared in the action, of their right to litigate the issues pertaining to coverage”
In Frias, there was no privity between the defendants. Consequently, the Appellate Division was probably correct in its holding, when it declined to give collateral estoppel effect to the declaration of non-coverage that arose from the co-defendants’ default.
But, the real question this case raises – and one that I know will find its way to the Appellate Division soon – is whether a court would reach the same result if the non defaulting party was in privity with the defaulting party. Why is this question raised?
Well, assume that a no-fault claimant (hereinafter “injured person”) receives treatment from a medical provider and executes an assignment of benefits in favor of the medical provider. The injured person and the healthcare provider would be in privity of contact. Furthermore, assume that an insurance carrier has a coverage based defense against the injured person and commences a declaratory action against the injured person and the assignee healthcare providers.
Also, assume that the injured person in the above scenario defaults, while the medical provider interposes an answer. A default motion is then filed and a judgment is entered against the injured person, similar to that in Frias. Similar to Frias, assume that a summary judgment motion is made against the healthcare provider based upon the injured person’s default.
Would the result be similar to Frias?
I am not sure… I have my thoughts though…
