The Arizona Court of Appeals recently confirmed a trial court’s ruling and granted defendant’s motion to set aside for noncompliance with Ariz. R. Civ. P. 55(a)(2)(D)— failure to provide notice to a company’s attorney.ⁱ

Plaintiff filed a lawsuit against defendant, her former employer, for wrongful termination. In filing her complaint, plaintiff served the statutory agent for defendant but failed to put defendant’s counsel on notice. After the statutory agent was served, defendant neither responded to plaintiff nor filed an answer.

Subsequently, plaintiff filed her application for default and mailed it to defendant’s statutory agent. Defendant did not respond to the application for a default in a timely manner. Plaintiff then filed a motion for entry of default judgment without hearing and mailed it to the statutory agent for defendant. The Superior Court then entered a default judgment against defendant. Approximately three weeks later, defendant moved to set aside the default judgment and entry of default because plaintiff did not comply with Ariz. R. Civ. P. Rule 55.

When defendant hired plaintiff, plaintiff signed an employment agreement. In this agreement, plaintiff was notified she was required to send notices and other communications in writing to defendant’s counsel. Plaintiff was promoted and at that point, signed a different employment agreement, which superseded the initial employment agreement. The second employment agreement contained the same notices clause. Despite agreeing to send notices and other communications to defendant’s counsel, plaintiff failed to properly put defendant’s counsel on notice.

Ariz. R. Civ. P. Rule 55(a)(2)(b) states an application for default must identify any attorney known to represent a party claimed to be in default. Further, Ariz. R. Civ. P. Rule 55(a)(2)(D) requires plaintiff to mail a copy of the notice of the default application to the attorney known to represent a party.

In this case, the Court found plaintiff had knowledge of defendant’s corporate counsel as she signed an employment agreement conspicuously stating who said counsel was. Further, plaintiff put defendant’s counsel on notice after default judgment had been entered which is additional evidence of her knowledge. Given this, the Court found plaintiff did not comply with Ariz. R. Civ. P. Rule 55 and set aside the default.

Takeaway

In an action where an insurance carrier has a duty to defend an insured in a lawsuit, sometimes an insurance carrier has difficulty contacting the insured. However, time is of the essence once a complaint is filed and served on defendant, as it begins the countdown to when an answer must be filed. If an answer is not filed timely to protect defendant, plaintiff may file an application for default, which may lead to an enforceable judgment against an insured. The goal is to prevent a judgment from becoming enforceable after an application for default.

There are a few options to best protect an insured if an application for default has been filed. These options include filing a motion to intervene or answer on behalf of defendant. It is important to note, however, that if a default judgment has been entered, additional litigation would be necessary to attempt to set aside the default.

While an application for default is pending but an insured cannot be found, defense counsel may file a motion for the insurance carrier to intervene on its own behalf to protect the insured. This would allow the insurance carrier to satisfy its obligations under the policy to defend the insured in a suit. This motion to intervene would include a proposed answer as an exhibit. The only way for defense counsel to do this however, is if defense counsel has notice of the default. As such, it is beneficial for an insurance carrier to always notify the claimant of who local defense counsel is to ensure any application for default is sent appropriately.

The other option, assuming an application for default has been filed and a judgement has been entered against the insured, is requesting the default be set aside. This option is difficult to accomplish. For the default to be set aside, it must be shown plaintiff made a mistake when filing the application for default or serving the application for default, and even then, it is not for certain that a default judgment would be set aside.

To prevent a default judgment from being entered, it is best that an insurance carrier notify a claimant of who defense counsel is as early as possible. This will preempt an application for default being entered against an insured without a defense counsel being provided notice first. Further, this does not prevent different defense counsel from later appearing and defending the matter, and it will protect both the insured and insurance carrier from unnecessary litigation to set aside a default.

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