Title: Camacho v. Gardner

State: arizona

Issuer: Arizona Supreme Court

Document:

104 Ariz. 555 (1969) 456 P.2d 925 Jerry CAMACHO, a minor by his mother and best friend Helen Camacho, Appellant, v. Henry M. GARDNER and Jane Doe Gardner, husband and wife, and Ralph T. Badilla, Appellees. No. 9389-PR. Supreme Court of Arizona. In Banc. June 26, 1969. William Messing, Tucson, for appellant. Chandler, Tullar, Udall & Richmond, David Pakula, Tucson, for appellees. McFARLAND, Justice. This case is before us on a petition for review of a decision of the Court of Appeals affirming an order of the superior court setting aside a judgment and a default. The opinion of the Court of Appeals is reported in 6 Ariz. App. 590, 435 P.2d 719, as modified by a supplemental opinion in 7 Ariz. App. 483, 441 P.2d 249. Plaintiff, Jerry Camacho, was a passenger in an automobile driven by Ralph Badilla. That car collided with a truck driven by Henry Gardner, and plaintiff was injured. He filed suit against both drivers. Gardner and his wife (hereinafter referred to as defendants) were served, but Badilla could not be found. The Gardners were covered by a liability insurance policy with Farmers Insurance Exchange, but they neglected to notify the insurer that they had *556 been served. A default and a default judgment for $50,000 were entered in favor of plaintiff. The insurer's attorney heard about the judgment, and, within seven days, filed a motion to vacate it. After a hearing, the trial court granted the motion, and plaintiff appealed. The question presented is whether the lower court abused its discretion under the facts in the instant case. On or about December 22, 1966, personal service was made upon Henry Gardner and his wife. At the time of service on the Gardners, the process server told defendants to give the papers to the insurance company. The defendants failed to take any action. The reasons given are set forth in the affidavit of defendant Henry M. Gardner. Omitting the formal parts, he stated: Prior to the filing of this suit defendants had retained their own attorney, David L. Pakula, who negotiated and settled an uninsured motorist claim (Badilla was not insured) against defendants' insurance carrier, Farmers Insurance Exchange (hereinafter referred to as Farmers). About November 17, 1966, defendants received a letter from plaintiff's attorney advising them, among other things, to forward it to their insurance carrier. Mr. Gardner called his attorney, who told him that Mr. Pakula then called Farmers, and notified them of receipt of the letter. He also called plaintiff's attorney, and stated to him that defendants were not at fault. The affidavit of Farmers' adjuster, omitting the formal parts, stated: To complete the background, we set forth the greater part of the affidavit of defendants' attorney, Mr. Pakula: It is apparent that Farmers actively engaged in negotiation and settlement of an uninsured-motorist claim made by defendant under Farmers' policy, but took no action on the potential claim by the plaintiff under the liability clauses of its policy. However, Farmers was galvanized into immediate activity when, on January 13, 1967, they were advised by Mr. Pakula that the plaintiffs had taken a default, and a judgment thereon in the amount of $50,000 earlier that same day. Seven days later on January 20, 1967 Farmers, on behalf of defendants, filed a motion under Rule 60(c), Rules of Civ.Proc., 16 A.R.S., seeking to set aside the default and the judgment. The Pima County Superior Court had a hearing on the motion on January 30, 1967, and that court entered an order the following day setting aside the default and default judgment and ordered a trial on the merits. We are confronted with the question of whether an insurance company is entitled to have a default set aside under this set of facts. In Jenkins v. Mayflower, 93 Ariz. 287, 380 P.2d 145, we held that "an omnibus clause is a part of every motor vehicle liability policy, by whatever name it may be called." In Sandoval v. Chenoweth, 102 Ariz. 241, 428 P.2d 98, in discussing the failure of the insured to notify the insurer of the *558 filing of a suit against the insured as required by its policy, we stated: In making the omnibus clause a part of every motor vehicle policy, we pointed out that it was for the protection of the public. We must also see to it that equity is extended to the insurer. In interpreting the rules governing the setting aside of defaults on a motion of the insurer, we held in Sandoval that equity did not require the setting aside of the default because the insurer waited nine weeks to make the motion after being informed of the default judgment, and for this reason was not within a reasonable time. In Coconino Pulp and Paper Company v. Marvin, 83 Ariz. 117, 317 P.2d 550, we stated: The simultaneous attainment of these desiderata is obviously impossible. "Laudable as is the goal of remedying injustice, Rule 60(b) requires the courts to strike a balance between that goal and the desire to achieve finality in litigation." 3 Barron and Holtzoff Federal Practice and Procedure 396. Rule 55(c), Fed.Rules of Civ.Proc., 28 U.S.C.A., provides: Federal Rule 60(b) reads, in part: These rules must be read in the light of our holdings, in Hendrie Buick Company v. Mack, 88 Ariz. 248, 355 P.2d 892, that In other words, in order to uphold the sanctity of judgments, we require one seeking to open a default judgment to present a good excuse for having failed to appear and defend. At the same time, even though he may show a good excuse for not appearing, we refuse to permit him to open the judgment, unless he also shows that he has a good defense. Another applicable rule is that the motion must be filed promptly. Sandoval, supra. In applying these rules, one must also keep in mind two other principles: First, the facts must be examined in the strongest light possible in favor of the party prevailing in the trial court, Thomas v. Goettl Bros. Metal Products, 76 Ariz. 54, 258 P.2d 816, and, second, where the circumstances lead the court to hesitate upon the motion to open the default, the doubt should be resolved in favor of the motion. In Gray v. Dillon, 97 Ariz. 16, 396 P.2d 251, the Court said: In Patapoff v. Vollstedt's Inc., 267 F.2d 863 (9th Cir.), the Court said: As pointed out by this Court, after the motion in Sandoval, supra, to set aside the judgment, Rule 60(c) was amended to include "any other reason justifying relief from the operation of the judgment." Both the rules and the decision of this Court require the consideration of equity in the determination of a motion to set aside a default. This amendment permits an even more liberal holding in a case where an insurance company through no fault of its own has not had the opportunity of defending a suit on its merits. As we pointed out in Sandoval, supra, the motion to set aside a default must be made within a reasonable time. This was done in the instant case. It is also contended that the rule announced in Jenkins v. Mayflower Insurance Exchange, supra, as interpreted by Sandoval v. Chenoweth, supra, eliminates the policy-defense that the insured failed to give prompt notice to the company that he has been served with a summons. In Sandoval, supra, we stated that the provisions of the Financial Responsibility Law (A.R.S. § 28-1101 et seq.) are a part of every automobile liability policy, whether or not such policy is "certified". It is clear that Sandoval, supra, extended the principle of Mayflower, supra, to the policy violation of failure to give prompt notice of suit to one's insurance carrier. This is consistent with our holdings that lack of notice to an insurance company will not be a valid defense unless such lack prejudiced the company in some way. Lindus v. Northern Insurance Company of New York, 103 Ariz. 160, 438 P.2d 311. In Coconino Pulp and Paper Co. v. Marvin, supra, we held that the failure of a secretary in a large law firm to notify the attorney in accordance with the firm's established practice to furnish the calendar for the purpose of reminding attorneys of the time to prepare and file pleadings was sufficient grounds to set aside a default judgment against the client. In the instant case, the various conversations among the parties, prior to service of process, could very well have caused confusion, on the part of defendants, as to the necessity of notification to Farmers. And, on the other hand, the inactivity of Farmers could have been a reasonable reaction to the presence of personal counsel for defendants. The party who is bound to pay the judgment here is Farmers, In fact, if not in law, it stands in the place of defendants, Ash v. Farwell, D.C., 37 F.R.D. 553, 555, and the same equitable considerations as apply to a defaulting defendant also apply to the insurer. Skolsky v. Magna Distribution Corporation, 254 Cal. App. 2d 246, 62 Cal. Rptr. 91. The rule as to vacating *561 defaults should be liberally construed as to Farmers under the facts here presented. Defendants' personal attorney, David Pakula, had notified plaintiff's attorney that defendant had received a letter, and that defendant Gardner was not at fault in the accident. The plaintiff's attorney did not inform defendants' attorney that a lawsuit had been filed, or that service had been perfected until after the default judgment had been entered. The plaintiff's attorney was under no legal duty to inform the defendants' attorney that his client had been sued; on the other hand particularly where insurance is involved an attorney might better serve his client by an inquiry about insurance and if it were found that defendant had insurance notify the company. Long litigation could frequently be avoided by so doing. As to the presentation of a meritorious defense, defendant, by affidavit, set forth that the other vehicle had run a stop sign; that he believed it was being operated without headlights; and that his own view was obstructed by a hedge which prevented him from seeing the other vehicle in time to avoid the collision. The allegation of running the stop sign is sufficient support for the claim of a meritorious defense, even without the weak allegation, on belief, that the other car was being operated without headlights. Matters such as these must be decided on a case-to-case basis. Under the circumstances here, we are of the opinion that equity requires that we hold the trial court did not abuse its discretion in setting aside the default, and that justice and fair play require that the insurer in behalf of the Gardners be given a chance to try the case on its merits. This is a close question. In such cases equity requires that we lean toward the new trial. Insurance companies for their protection might well make inquiry in regard to suits and request notice if filed when they have knowledge that one of their clients has had an accident. They too might thereby avoid the expense of litigation and frequently payment of a default judgment, for, as we stated in Sandoval, supra, they must be prompt. They must also be diligent. Judgment of the Superior Court setting aside the default judgment is affirmed, and the decision of the Court of Appeals is vacated. UDALL, C.J., LOCKWOOD, V.C.J., and STRUCKMEYER and HAYS, JJ., concur.