Opinion ID: 2566097
Heading Depth: 5
Heading Rank: 3

Heading: Nationwide's Liability for the Default Judgment Against Hiatt

Text: ¶48 The trial court also held that the default judgment entered against Hiatt is not binding on Nationwide and that Nationwide is entitled to litigate anew the issue of Hiatt's liability for the accident. This is a legal conclusion that we review for correctness. ¶49 Nationwide argues that the facts established in a default judgment against one defendant in an action are not deemed admitted against other defendants in that action and that Nationwide is therefore entitled to dispute the facts established by the default judgment against Hiatt. While this may be true in a general sense, it is inapplicable in the context of a liability insurer who breaches a duty to defend an alleged tortfeasor. ¶50 The complaint filed by Speros and West American imposed a duty on Nationwide to defend Hiatt. A policy containing motor vehicle liability coverage imposes on the insurer the duty to defend, in good faith, any person insured under the policy against any claim or suit seeking damages which would be payable under the policy. Utah Code Ann. § 31A-22-303(5) (2003). It is well established that [a]n insurer's duty to defend is determined by reference to the allegations in the underlying complaint. When those allegations, if proved, could result in liability under the policy, then the insurer has a duty to defend. Nova Cas. Co. v. Able Constr., 1999 UT 69, ¶ 8, 983 P.2d 575 (citing Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 133 (Utah 1997); Deseret Fed. Sav. & Loan Ass'n v. United States Fid. & Guar. Co., 714 P.2d 1143, 1146 (Utah 1986)). ¶51 The complaint in this case alleged that Hiatt's negligent act of grabbing and turning the steering wheel caused the accident. It further alleged that Hiatt was an insured person under Nationwide's policy with Fricke. These allegations created a duty on the part of Nationwide to defend Hiatt. See United States Fire Ins. Co. v. United Serv. Auto. Ass'n, 772 S.W.2d 218, 221 (Tex. App. 1989) (holding that the insurer of the car owner and driver whose passenger grabbed and turned the steering wheel, causing an accident, had a duty to defend the passenger). Notwithstanding that duty, Nationwide responded to West American's complaint by filing a timely answer on behalf of only itself and Fricke. It failed to answer or defend on behalf of Hiatt, thus exposing Hiatt to the risk of a default judgment. When Nationwide exposed Hiatt to that risk in breach of its duty to defend, it also exposed itself to the risk that it could lose the ability to litigate the facts giving rise to Hiatt's alleged liability and that it could thereafter be held liable for the resulting judgment. ¶52 Despite the default judgment, Nationwide maintains that it must be provided a fair opportunity to litigate the underlying factual issues in the case. However, Nationwide was, in fact, provided that opportunity. We have held that as a general rule[,] when an insurer, whose policy requires it to defend its insured, receives notice of a suit against [the insured] and is allowed an opportunity to defend, but refuses, [the insurer] is bound by the findings and judgment therein. McCarty v. Parks, 564 P.2d 1122, 1123 (Utah 1977). ¶53 In this case, Nationwide had notice and an opportunity to defend when it was presented with the original complaint filed by West American. The original complaint alleged that Hiatt was liable for the accident and that Nationwide's policy covered Hiatt's actions. Nationwide therefore had notice from the inception of this action that Hiatt may have been insured under its policy with Fricke. When Nationwide chose not to defend Hiatt, it forfeited its opportunity to dispute the underlying facts of the accident. See McCarty, 564 P.2d at 1124 (It is undoubtedly true that where any substantial question as to coverage exists, it may involve some risk on the part of the insurance company to refuse to defend.). Nationwide cannot avoid the consequences of its failure to defend by asserting that it had no opportunity to refute the factual basis for the claims against Hiatt.