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Current Developments in the Commercial Divisions of the
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Posted: March 18, 2014

Defaulting Defendant’s Insurer Has Standing To Intervene

On March 6, 2014, Justice Friedman of the New York County Commercial Division issued a decision in CMS Life Insurance Opportunity Fund, L.P. v. Progressive Capital Solutions, LLC, 2014 NY Slip Op. 30592(U), granting a defendant’s insurer’s motion to intervene.

In CMS Life Insurance Opportunity Fund, the plaintiffs filed their second amended complaint against Progressive Capital Solutions, LLC (“Progressive”) and a number of other defendants alleging, with respect to Progressive, that it had negligently supervised a co-defendant, Puglisi. In February 2013, Progressive and Puglisi’s attorney moved to withdraw. He answered on behalf of Puglisi but not Progressive. Once the motion to withdraw was granted, the plaintiffs moved for a default judgment against Progressive on liability. Progressive failed to appear by counsel even after the thirty-day stay, as well as additional time provided to oppose the motion, had expired, and the default motion was granted in June 2013.

Non-party intervenor Ironshore Speciality Insurance Company (“Ironshore”) provided coverage for Progressive. Ironshore had disclaimed coverage regarding the initial complaint, and had not been notified of the second amended complaint or asked to defend by Progressive.  Ironshore apparently became aware of the default in June 2013, when the plaintiffs sent two letters notifying Ironshore that the default motion was pending and had been granted. Ironshore then attempted to contact Progressive, without success. In August 2013, Ironshore asked plaintiffs to consent to Ironshore’s intervention and vacatur of the default, but they refused. Ironshore moved to intervene in August 2013.

The court granted Ironshore’s motion to intervene (as well as its motion to vacate the default). The court found that Ironshore’s motion was timely under CPLR § 1013, because only two months had elapsed between Ironshore becoming aware of counsel’s withdrawal and Progressive’s default, and that time was spent attempting to contact Progressive and to vacate the default on consent. The court also noted that the case was “far from its ultimate resolution.” Intervening to vacate a default did not amount to prejudice to plaintiffs where the inquest on damages had not been held and discovery was ongoing with regard to the other defendants.

On the second part of the test for permissive intervention, whether the intervenor has “a bona fide interest,” the court is almost silent, stating merely that “it cannot seriously be argued that Ironshore is not an interested party.” The opinion never discusses any potential waiver of coverage by Progressive. Indeed, in its discussion of Ironshore’s motion to vacate, the court notes that plaintiffs had entered into an agreement with Progressive’s former Managing Member “that any judgment they obtain against him will be paid from applicable liability insurance proceeds.”

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