Court Affirms Insurer’s Right to Appeal Default Judgment Against Insured in Small Claims Action

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In Pacific Pioneer Ins. Co. v. Superior Court (No. G057326; filed 1/30/20), a California appeals court upheld the right of an insurer to appeal a default judgment in a small claims action against its policyholder on the basis of statutory text, legislative intent and public policy.

Pacific Pioneer’s insured was sued in small claims court over an auto accident, but did not appear for the hearing. The small claims court entered a $10,140 default judgment against the insured and Pacific Pioneer appealed. However, the trial court struck the notice of appeal on the ground that Code of Civil Procedure section 116.710, which provides the authority for appeals of small claims judgments, states that “A defendant who did not appear at the hearing has no right to appeal,” but is instead limited to bringing a motion to vacate the judgment in the trial court.

The code section, found in the Civil Procedure chapter on organization and jurisdiction of small claims courts, provides that:

“(a) The plaintiff in a small claims action shall have no right to appeal the judgment on the plaintiff’s claim, but a plaintiff who did not appear at the hearing may file a motion to vacate the judgment….
(b) The defendant with respect to the plaintiff’s claim, and a plaintiff with respect to a claim of the defendant, may appeal the judgment to the superior court in the county in which the action was heard.
(c) With respect to the plaintiff’s claim, the insurer of the defendant may appeal the judgment to the superior court in the county in which the matter was heard if the judgment exceeds two thousand five hundred dollars ($2,500) and the insurer stipulates that its policy with the defendant covers the matter to which the judgment applies.
(d) A defendant who did not appear at the hearing has no right to appeal the judgment, but may file a motion to vacate the judgment….” (Code Civ. Proc., § 116.710.)

The trial court relied on subdivision (d) to conclude that Pacific Pioneer was barred from appealing because the insured was a defendant who had not appeared, and thus concluded that his insurer was not authorized to file a notice of appeal. The appeals court disagreed. The appeals court pointed out that the plaintiff-judgment creditor’s position that subdivision (d) applied to Pacific Pioneer improperly nullified the express grant of authority contained in subdivision (c). The court noted the rule of statutory construction that where the Legislature uses different words in different parts of the same statute, it must be presumed that the Legislature intended a different meaning. (Citing Campbell v. Zolin (1995) 33 Cal.App.4th 489, 497.)

The Pacific Pioneer court also found a clear statement of intent in the legislative history of subdivision (c), which was added specifically to afford insurers the right to appeal where insureds are unable or not motivated to defend a small claims action. And finally, the Pacific Pioneer court found the right to appeal supported by public policy, in deterring “inflation of judgments.”

The court posited that plaintiffs might have an incentive to seek, and insured defendants might have no incentive to fight, an inflated damages claim, knowing that the resulting judgment would be covered and binding on the defendant’s insurer. Thus, allowing insurers to appeal “curbs any temptation to collude.” The Pacific Pioneer court rejected an argument that the insurance policy’s cooperation clause serves that purpose, pointing out that the judgment creditor’s right of direct action under Insurance Code section 11580(b) would make sole reliance on a cooperation clause defense expensive and potentially perilous for the insurer.

Consequently, the Pacific Pioneer court issued a writ of mandate to reinstate the insurer’s notice of appeal, for a decision on the merits.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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