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Mutual Insurance Co. v. Bodnar5/31/1990
Thomas Bodnar, M.D., appeals from summary judgment in favor of his medical malpractice liability insurer, Mutual Insurance Company of Arizona (MICA). The trial court found that MICA had no duty to pay a $702,000 default judgment in favor of John Goglia and against Bodnar. We find that MICA's failure to cooperate in Bodnar's efforts to negotiate an agreement to set aside the default judgment bars it from asserting its policy defenses. Accordingly, we reverse the summary judgment and remand with directions to enter judgment in favor of Bodnar.
On December 11, 1984, Goglia served Bodnar with a complaint seeking $1 million in damages for alleged malpractice. The events giving rise to that litigation are set forth in Goglia v. Bodnar, 156 Ariz. 12, 749 P.2d 921 (App.1987). An answer to the complaint was due on December 31, 1984.
Bodnar forwarded the complaint, which identified Goglia as a Cigna patient, to Cigna Healthplan, Inc. for a defense and to provide liability coverage. Cigna returned the complaint to Bodnar on January 2, 1985, with a statement that Goglia was not a Cigna patient and Cigna would not provide a defense.
Bodnar was covered by a policy issued by MICA. However, he did not forward the complaint to MICA until March 1, 1985. By that date, default had been entered and a hearing on damages had taken place. The default judgment itself was not entered until March 8, 1985.
MICA, believing itself prejudiced by Bodnar's failure to notify it of the pending action in a timely manner, provided Bodnar with an attorney for his defense pursuant to a reservation of rights. Bodnar's attorney moved to set aside the default. MICA filed a motion through separate counsel requesting leave to intervene in the malpractice action "not as a named party but for the limited purpose of providing additional information." The trial judge ordered intervention without limitation. However, MICA did not file any pleadings requesting relief on its own behalf.
MICA took the position in the malpractice litigation that if the default judgment were not set aside, MICA was not obligated to provide coverage to Bodnar because of
his violation of the following policy provision:
If claim is made or suit is brought against You, You must immediately forward to MICA all materials related to the claim or suit. You must also take reasonable steps to prevent further injury or damages.
During the course of the proceedings to set aside the default, Bodnar's attorney filed a motion to stay the default judgment. This was granted on condition that Bodnar post a $100,000 bond. Bodnar personally provided a surety bond in that amount.
Bodnar's motion to set aside the default judgment was based on Rule 60(c)(1), Arizona Rules of Civil Procedure, 16 A.R.S., and urged that his actions constituted excusable neglect and that he had a meritorious defense. The trial court found that Bodnar's initial actions in forwarding the complaint to Cigna were reasonable, but that his failure to answer or forward the complaint to MICA until March 1, 1985, was inexcusable. Accordingly, the trial court denied the motion to set aside the default judgment. The trial court subsequently ordered that the $100,000 bond posted by Bodnar be applied to the judgment. Bodnar's attorney appealed from the order denying his motion to set aside the default judgment. MICA did not file a notice of appeal.
During the summer of 1985, Bodnar's attorney entered into negotiations with Goglia's attorney to have the default set aside by stipulation. Bod
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