It is an all-too-common scenario: An insured tenders a claim to its insurance carrier, demanding defense and indemnity. The carrier, after review, identifies ortions of the claim that potentially fall outside of the scope of coverage, and reserves rights.
An adverse verdict is rendered against the insured, which then looks to the carrier to pay. This raises the question: Would it have been beneficial for the carrier to intervene in the underlying lawsuit in order to have the trier of fact answer certain questions that bear directly on coverage, or should those issues be re-litigated in the subsequent coverage action?
Faced with a verdict against its insured, the carrier will have a few options. For example, it could pay the judgment, and become subrogated to its insured’s potential, although likely inchoate, rights against any other tortfeasor, or it could decline to pay the judgment, invoking exclusions based on the general verdict. In any subsequent coverage litigation, however, the carrier could face an uphill battle, because the undifferentiated general verdict may be insufficient for the court hearing the coverage dispute to allocate liability between covered and uncovered claims. The result could be a lengthy, costly, and ultimately unsatisfying action for declaratory relief, as the insured and the carrier both attempt to rationalize the bases for the fact-finder’s decision.
Practitioners and courts faced with this scenario should remember that most U.S. jurisdictions have procedural rules that may, when used properly, significantly assist in the resolution of a coverage dispute. By taking advantage of the procedural intervention rules, a carrier may be able to forestall months or years of discovery, motion practice, and a possible retrial of the underlying lawsuit within the coverage action.
This article examines the use of intervention to assist in the resolution of insurance coverage issues. In the first section below, we address the procedural requirements of the intervention rule. In the second section, we examine additional considerations that should be borne in mind, based on caselaw. Finally, we consider cases where intervention to aid in the resolution of insurance coverage disputes has, and has not, been permitted.
The Intervention Rule
Generally, petitions for intervention in a pending suit fall into two categories: intervention as of right, and by leave of the court. The relevant federal procedural rule states:
Rule 24. Intervention
- Intervention of Right.
On timely motion, the court must permit anyone to intervene who:
- is given an unconditional right to intervene by a federal statute; or
- claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant’s ability to protect its intere unless existing parties adequately represent that interest.
- Permissive Intervention.
- In General. On timely motion, the court may permit anyone to intervene who:
- is given a conditional right to intervene by a federal statute; or
- has a claim or defense that shares with the main action a common question of law or fact.
* * *
- Delay or Prejudice. In exercising its discretion, the court must consider whether the tervention will unduly delay or prejudice the adjudication of the original parties’ rights.1
States that pattern their procedural rules on the federal ones tend to have a substantively identical intervention rule.2 Others have created their own statutes or rules for intervention.3
Judicial Construction of the Rule
Courts have generally adopted a liberal construction of the intervention rule, despite the fact that whether to allow intervention depends heavily upon the specific facts of the case.4 With respect to petitions based on claims of right pursuant to Rule 24(a), one court has stated that a proposed intervenor need make only four showings: (1) that her application is timely, (2) that she has an interest in the subject-matter of the suit, (3) that she is so situated that a resolution of the action may as a practical matter impede her ability to protect her interest, and (4) her interest is not already adequately represented by one of the parties.5 The burden of showing inadequate representation, and the other factors, lies on the movant, but is generally not onerous.6
Courts considering petitions for intervention as of right have tended to focus on concerns that the intervention not prejudice the existing parties – that is, that the intervention should not delay the prosecution of claims or defenses in the pending action.7 The rule calls for the court to use common sense and practicality, and not become bound up in “legalistic formalism” or “mechanical jurisprudence.”8 Courts, according to the general view, should not require “an elaborate legal minuet” but, rather, should support the efforts of litigants and other courts to ensure that litigation “moves sensibly and purposefully forward.”9 Accordingly, the benefit of the doubt should be given to the one seeking intervention as of right.10
The standards for permissive intervention under Rule 24(b) are generally more lenient than those for intervention as of right. So long as there is some common question of law or fact, the power to grant or deny the petition falls within the court’s broad discretion.11 Courts that have considered Rule 24 have written that it should be construed liberally, and doubts resolved in favor of the proposed intervenor.12
Intervention in the Insurance Coverage Context
One of the main questions that courts consider, when presented with petitions for intervention, is whether, as a practical matter, granting the intervenor’s request will speed the resolution of disputes. The majority of courts that have considered the matter in relation to insurance coverage disputes have concluded that inter¬vention in the underlying action, especially if carefully circumscribed, provides a net benefit to both carriers and policyholders.
In Plough v. International Flavors and Fragrances,13 one of the earlier reported cases to address the issue, the insurer moved to intervene in a case involving an underlying dispute between its insured and its insured’s customer. The insurer provided a defense under a reservation of rights, but then brought a separate action to declare coverage. The insurer later sought to intervene in the underlying case for the limited purposes of requesting that (i) if the action were tried, written questions and interrogatories be submitted to the jury, and (ii) if the action settled, the parties be required to allocate damages with specificity. Citing concerns about judicial economy, the court granted the carrier’s petition, even while it reserved judgment on whether to permit special interrogatories to go to the jury, and what effect (if any) to give to any special interrogatories that the jury might answer.
Similarly, in the later matter of Fidelity Bankers Life Insurance Company v. Wedco, Inc.,14 two errors and omissions carriers sought to intervene in a complex suit involving allegations of misconduct by two life insurance agents. The two carriers had reserved rights under their policies, and separately sought to have the court declare whether they had any coverage obligations. The carriers petitioned to intervene in the underlying action for the limited purposes of attending discovery proceedings, receiving discovery, and proposing special interrogatories and verdicts to the jury. As the court noted, the purpose of the proposed intervention would be to permit a division of money damages between claims for which the agents had errors-and-omissions coverage, and those for which they did not.
Although it denied the carriers’ petition to intervene as of right, the court found that the underlying and coverage actions featured common questions of fact with respect to whether the insured agents acted fraudulently or with malice, which simultaneously would bear on whether enhanced damages would be awarded in the underlying action and whether certain exclusions in the policies would apply. Concluding that the carriers’ proposed intervention could forestall later relitigation of the issue in the coverage action, the court, in the exercise of its discretion, granted the carriers’ petition under Rule 24(b). To limit any potentially adverse effects, however, the court limited the intervention solely to the purposes sought by the carriers in their petition.
Finally, in Thomas v. Henderson,15 the plaintiff’s claim arose out of his purchase of an aircraft that he alleged was unairworthy and unsafe. Old Republic Insurance Company, which had issued an airport liability insurance policy to two of the defendants, moved to intervene so that it could submit special interrogatories and a special verdict form to the jury. The carrier argued that the special verdict form would allow it to determine which components of any award against its insured would be covered by the policy, and which would not. Old Republic stressed that it would not participate in the trial, that the jury would not be informed of the intervention or the existence of the policy, that no additional discovery would be necessary, and that intervention would not delay the trial of the action.
The court concluded that the coverage dispute had questions of fact in common with the pending action, and that the application should be granted. The court noted that Old Republic had filed a separate action for declaratory judgment against its insureds, and that resolution of the coverage issues would be complicated considerably by the absence of an itemized jury verdict in the underlying action. In the court’s words, “the possibility that relitigation of the same issue may be avoided is a strong reason to permit the intervention.”16 Again, to avoid potential prejudice to the insured, the court limited the intervention to particular purposes.17
Because each petition for intervention turns on its facts, however, carriers should not assume that a court will simply grant a petition pursuant to its broad discretionary authority under Rule 24(b). In Restor-A-Dent Dental Laboratories, Inc. v. Certified Alloy Products,Inc.,18 for example, the carrier proposed to intervene for limited purposes, as in Plough. Finding that the carrier’s liability was contingent on an award against its insured, however, the trial court concluded that the carrier lacked an interest that was sufficiently direct to permit intervention, notwithstanding the court’s recognition of the fact that the precedents in support of its view were “less than overwhelming.” The Second Circuit upheld the trial court’s denial of the petition, noting that the lower court neither erred on the law nor abused its broad grant of discretion.19
For the insurance professional and her counsel, the point that these cases emphasize is that intervention in an underlying case is usually allowed when the carrier can show that its presence in the litigation will not result in prejudice to its insured, and will further the interests of judicial economy. Each case, however, turns on its specific facts, and the decision on whether to permit intervention ultimately rests with the court. Carriers should never assume that, just because a petition for intervention may be granted, it will be.
Used properly, intervention can be a useful tool to assist in the resolution of insurance coverage issues, particularly in cases where the underlying claim proceeds to verdict on a variety of legal theories, some of which fall outside the scope of the policy’s coverage. Intervening for the limited purpose of proposing special interrogatories to a jury, for instance, can provide the carrier, its insured, and the court with greater clarity concerning the basis for a particular verdict – and can significantly shorten the cost and duration of subsequent insurance coverage litigation. Each case is different, and the factors identified above will be weighed differently based on the circumstances; but judicial economy – to say nothing of the sensitivities to cost shown by all stakeholders in a particular matter – suggests that the use of intervention should at least be considered in appropriate cases.