Legal Restraint | Zalma on insurance

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Jacob E. Godlove, Sr., and Kayla Kelley, on behalf of themselves and the estate of Jacob Godlove, Jr. (jointly, appellants), appealed the district court’s decision denying their motion to intervene in an insurance coverage dispute. IN County Hall Insurance Company, Inc. v. Mountain View Transportation, LLC; John R. Humes, Jacob E. Godlove; Kayla Kelley; Estate of Jacob Godlove, Jr., No. 22-2397, United States Court of Appeals, Third Circuit (June 16, 2023) Third Circuit addresses changed circumstances.

FACTS

Godlove and Kelley, who at the time were pregnant with Godlove, Jr., were in a motor vehicle accident involving a tractor-trailer owned by Mountain View Transportation, LLC and driven by John R. Humes. Godlove and Kelley, on behalf of themselves and the Estate, sued Mountain View and the Humes in state court for the resulting damages, including the death of Godlove, Jr., which occurred two months after the accident.

Mountain View’s insurer, County Hall Insurance Company, Inc., argued that its policy did not cover the accident because Humes was not on the relevant schedule of drivers. The letter also informed Mountain View that County Hall would defend the state court tort action subject to reservation of rights.

County Hall filed a federal court case against Mountain View and the Humes, seeking a declaration that the insurance did not cover the accident. After Mountain View and Humes failed to respond, the court clerk entered a default judgment against them at County Hall’s request.

After the appellants filed the declaratory judgment in state court, County Hall moved the District Court for default judgment in this federal action. On the same day, the appellants decided to intervene in this action and to suspend the payment.

The district court rejected the request for intervention and the request for a strike.

During the pendency of the appeal, appellants settled the underlying tort action against Mountain View and Humes, who were represented by counsel under County Hall’s reservation of rights. Appellant obtained a $1,000,000 judgment against Mountain View and Humes and an assignment of rights under all policies.

Shortly thereafter, the plaintiffs again sought a declaration in state court that the insurance covered the accident — this time standing in Mountain View’s and Hume’s shoes. That action remains pending.

When the district court gave its decision to reject the motion to intervene, the appellants were only “plaintiffs who have[d] asserted a claim for damages against the insured.” In the words of the district court, they were “strangers to [the] insurance contract.” That is no longer the case.

ANALYSIS

First, appellants now have a judgment against Mountain View and Humes. Second, they have an alleged assignment of rights under Mountain View’s policy and have sued County Hall in state court on that basis.

The Third Circuit concluded that because the district court could reach a different conclusion on the motion to intervene given the changed circumstances; or the purported assignment of rights may require or permit a change of party by the Federal Rules of Civil Procedure; and since no declaratory judgment has been entered, it may be appropriate for the district court to stay this action pending disposition of the state court’s declaratory judgment.

The Third Circuit therefore exercised judicial restraint and declined to express any opinion on the appropriateness of the stated possibilities. For that reason, the Third Circuit decided to avoid making a decision and let the district court in first instance evaluate the changed circumstances.

In accordance with that principle, the Third Circuit reversed the district court’s decision and remanded the case to the district court for further proceedings.

When the facts change after a district court ruling on an insurance coverage issue, it is inappropriate for an appellate court to trample on the court’s jurisdiction. Noting that the changed facts could have resulted in several different resolutions the Third Circuit exercised called for judicial restraint and required the trial court to decide the issues by considering the changed facts exercising the wisdom given to King Solomon.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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