In Direct Auto Insurance Company v. Bahena, et al., 2019 IL App (1st) 172918, the Illinois Appellate Court sifted through a procedural nightmare in order to get to the very sensical conclusion that “It cannot be the case that one violates the necessary party doctrine, by knowingly and deliberately failing to add a necessary party, and then turns around and uses res judicata as a sword against the very party that it failed to add.”  Direct Auto made the tactical decision to move for summary judgment in an attempt to cut off its duty to defend and indemnify its insured without naming one of the injured parties.  Although it procured the order cutting off the insured’s rights, it filed a subsequent action naming one of the injured parties, contending that the first order should be used to bar the injured party’s rights against the insurer.  The trial court didn’t buy it; neither did the appellate court. The trial court’s order ruling that the insurer owed a duty to defend was affirmed on appeal.

The appellate court reviewed why Illinois follows the rule that “where an insurer brings a declaratory judgment action to determine coverage of a claim made against its insured, the injured person is a necessary party to the suit  [citations],  and  the  injured  person  may  appeal  from  a  judgment  that  there  is  no coverage.” Reagor v. Travelers Insurance Co., 92 Ill. App. 3d 99, 102 (1980); see also State Farm Fire & Casualty Co. v. Perez, 387 Ill. App. 3d 549, 552 (2008).

The court also was not reticent in commenting on the insurer’s inconsistent litigation arguments.  First, the insurer argued that the default judgment should not have been entered against it.  The court said, “In the case at bar, the trial court entered a default judgment at Direct Auto’s request.  A party cannot invite an error by the trial court and then use it as a basis for appeal….The trial court …  took exactly the action that Direct Auto had requested.  Direct Auto cannot be heard now to complain on appeal that the trial court erred by taking the requested action.”

Second, the court also commented on the “mend the hold” tactic, without actually calling it such.  “The irony is rich here. Direct Auto has been litigating this suit for years as a plaintiff, seeking a declaratory judgment that it now claims is premature and not ripe.  On November 3, 2014, the Bahenas were defaulted for failing to appear and answer.  Thus, Direct Auto was seeking a declaratory judgment solely against Noel Hernandez for over two years.  In addition, it is attempting to assert the preclusive effect of a prior judgment, which, according to its present argument, was, at least in part, not ripe for adjudication.”