The recent opinion of Gallegos v. Malco Enterprises of Nevada, dba Budget Rent A Car, 127 Nev. Adv. Op. 51 (Aug. 4, 2011) may be the most significant bad faith case issued by the Nevada Supreme Court in a decade. To understand the case, you’ve got to know the facts.
The driver of a Budget rental car injured Gallegos. Gallegos sued the driver who subsequently defaulted. The District Court entered a default judgment in favor of Gallegos for $400,000.00.
Gallegos unsuccessfully tried to collect. The driver did not appear for his judgment debtor’s examination. Gallegos then asked the District Court to assign the driver’s right to pursue a bad faith case against the rental car company and the insurance company to him. Like any other asset of the Judgment Debtor, Plaintiff would have to apply any recovery from that bad faith suit against the $400,000.00 default judgment. The Court, acting under NRS 21.320, granted the involuntary assignment the right of action to Gallegos.
Gallegos, having stepped into the shoes of the defaulting driver, brought a bad faith suit against the rental car company and the rental driver’s insurance company. However, the new judge in the bad faith suit didn’t see things the same way as the judge in the earlier third-party suit. The bad faith judge found that the right of action could not be legally assigned and granted the insurance company / rental car company’s Motion for Summary Judgment. Gallegos appealed to the Nevada Supreme Court.
The Court was asked to decide whether a District Court could assign the judgment debtor’s right to proceed in a bad faith suit (or in any suit for that matter) to a Plaintiff
In the past, it was thought that a Plaintiff could not step into the judgment debtor’s shoes and pursue the judgment debtor’s bad faith rights until the judgment debtor gave a voluntary assignment of the right to proceed. See Wilson v. Bristol West Ins. Group, No. 2:09-cv-00006-KJD-GWF, 2009 WL 3105602 (D. Nev. 2009) at *2. However, following the lead set in Denham v. Farmers Inc. Co., 262 Cal. Rptr. 146 (Ct. App 1989) and Kelly v. CSE Safeguard Ins. Co. No. 2:08-cv-00088-KJD-RJJ, 2010 WL 3843777 at 2 (D. Nev. Sept. 28, 2010), the Nevada Supreme Court found an involuntary post-judgment assignment, like the one obtained by Gallegos, to be equally as effective as a voluntary assignment to transfer the debtor’s rights against his own carrier to the Plaintiff. The basis for its decision was that the law subject to execution “must be liberally construed. See, Sportsco Enter. v. Morris, 112 Nev. 625, 630, 917 P.2d 934, 937 (1997). The court said:
In Denham, the court analyzed whether Nevada law permitted “a judgment creditor [to] execute upon a judgment debtor’s cause of action against its insurer,” and concluded that “Nevada law permits execution upon a cause of action.” 262 Cal. Rptr. at 149, 152. We approve of the Denham court’s reasoning and conclusion.
The impact of this case is monumental. In any case involving an excess verdict, there will be no question of how to coerce the judgment debtor to give a voluntary assignment of the bad faith rights. Plaintiff will simply file a post-judgment execution action in which the Plaintiff obtains the involuntary assignment. Automatically thereafter, Plaintiff will file the bad faith suit against the carrier’s insurance company based upon whatever theory Plaintiff can identify.
Will Gallegos prevail in the bad faith action he brought against the driver’s carrier and the rental car company? That is currently unknown. However, it is irrelevant to the effect that this case will have. The threat of such bad faith actions and the cost of defense of the same could be huge. With this case in play, an insurance company will have to think twice as to whether it wants to take a case to trial and thereby risk an excess verdict. However, it will want to think three times as decides whether it will just pay the excess verdict or fight the bad faith suit brought by the Plaintiff as he stands in the shoes of the insured.
Plaintiff is not going to go without challenges though. Plaintiff will have to prove that the judgment debtor is damaged somehow by the excess verdict. If the judgment debtor can’t be located or is judgment proof anyway, is that person significantly damaged by the verdict? This will be interesting as it all plays itself out in the future.
If you have a question about an excess verdict against one of your insureds, Mills & Associates will be glad to speak with you about the ramifications of the Gallegos opinion.
