Andrew ex rel. Pretner v. Century Surety Co.
134 F. Supp. 3d 1249
D. Nev.2015Background
- Pretner (plaintiff) suffered catastrophic injuries when struck by a truck driven by Vasquez, an employee of Blue Streak (the insured). Blue Streak was insured by Century Surety Company; Vasquez had a separate Progressive policy.
- Century refused to defend Blue Streak, asserting Vasquez was not acting in the scope of employment; Blue Streak and Vasquez defaulted in the state tort suit.
- Pretner, Vasquez, and Blue Streak executed a settlement: Blue Streak assigned its claims against Century to Pretner and Pretner gave a covenant not to execute against Vasquez/Blue Streak; Progressive tendered its $100,000 limits.
- A state court entered default judgment against Vasquez and Blue Streak for over $18 million (including a later $5.15 million attorney-fee component).
- Pretner (as assignee) sued Century for breach of contract and related claims. The court previously found Century breached its duty to defend as a matter of law; the present opinion addresses damages and preclusive effect of the default judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the default judgment is recoverable consequential damages from Century's breach to defend | Default judgment flowed naturally from Century’s refusal to defend and thus is foreseeable consequential damages | Century says damages should be limited to defense costs (none here) and policy indemnity limits | Court: Default judgment can be recoverable consequential damages if reasonably foreseeable and proximately caused by breach; triable issue on amount |
| Whether recoverable damages are capped at the $1M policy limit absent bad faith | Pretner: no cap; consequential damages from breach may exceed indemnity limits | Century: liability should be confined to policy limits absent bad faith | Court: Reconsiders prior ruling and rejects a per se cap; Nevada contract law permits foreseeable consequential damages beyond policy limits |
| Whether Century is bound by the underlying default judgment (issue/claim preclusion) | Pretner: Century had notice and opportunity to defend; insurer that refuses to defend may be estopped from relitigating facts necessary to judgment | Century: Pietrosh line limited to UM context; insurer should be able to litigate coverage and avoid being bound by default | Court: Predicts Nevada would extend binding rule beyond UM context; insurer is bound as to material facts necessary to liability absent unreasonableness, fraud, or collusion |
| Whether the state-court judgment (amount/settlement) is unreasonable, fraudulent, or collusive | Pretner: settlement and judge-determined default judgment were proper and not collusive | Century: judgment unreasonable (attorney fees lacked legal basis) and the settlement/default may have been collusive or fraudulent | Court: $5.15M attorney-fee portion was unreasonable and Century not bound by it; genuine fact issues exist about fraud/collusion and reasonableness of settlement — jury must decide |
Key Cases Cited
- Reyburn Lawn & Landscape Designers, Inc. v. Plaster Dev. Co., 255 P.3d 268 (Nev. 2011) (breach may give rise to reimbursement of defense costs)
- Hornwood v. Smith’s Food King No. 1, 807 P.2d 208 (Nev. 1991) (contract damages aim to place plaintiff in position if contract performed; foreseeability for consequential damages)
- Allstate Ins. Co. v. Pietrosh, 454 P.2d 106 (Nev. 1969) (insurer with notice that refuses to intervene may be bound by judgment in UM context)
- Estate of Lomastro v. American Family Ins. Group, 195 P.3d 339 (Nev. 2008) (default can bind insurer in UM context)
- Delatorre v. Safeway Ins. Co., 989 N.E.2d 268 (Ill. App. Ct. 2013) (default judgment was natural consequence of insurer’s breach; insurer liable for excess judgment)
- Maxwell v. Hartford Union High Sch. Dist., 814 N.W.2d 484 (Wis. 2012) (insurer liable for damages resulting from breach of duty to defend, including excess judgments)