Camacho v. Gardner

• Citation: 104 Ariz. 555,456 P.2d 925
• Decision Date: 26 June 1969
• Docket Number: No. 9389--PR,9389--PR
• Parties: Jerry CAMACHO, a minor by his mother and best friend Helen Camacho, Appellant, v. Henry M. GARDNER and Jane Doe Gardner, husband and wife, and Ralph T. Badilla, Appellees.
• Court: Arizona Supreme Court

Page 925

456 P.2d 925

104 Ariz. 555

Jerry CAMACHO, a minor by his mother and best friend Helen Camacho, Appellant, v. Henry M. GARDNER and Jane Doe Gardner, husband and wife, and Ralph T. Badilla, Appellees.

No. 9389--PR.

Supreme Court of Arizona, In Banc.

June 26, 1969.

William Messing, Tucson, for appellant.

Chandler, Tullar, Udall & Richmond, David Pakula, Tucson, for appellees.

McFARLAND, Justice.

This case is before us on a petition for review of a decision of the Court of Appeals affirming an order of the superior court setting aside a judgment and a default. The opinion of the Court of Appeals is reported in 6 Ariz.App. 590, 435 P.2d 719, as modified by a supplemental opinion in 7 Ariz.App. 483, 441 P.2d 249.

Plaintiff, Jerry Camacho, was a passenger in an automobile driven by Ralph Badilla. That car collided with a truck driven by Henry Gardner, and plaintiff was injured. He filed suit against both drivers. Gardner and his wife (hereinafter referred to as defendants) were served, but Badilla could not be found. The Gardners were covered by a liability insurance policy with Farmers Insurance Exchange, but they neglected to notify the insurer that they had been served. A default and a default judgment for $50,000 were entered in favor of plaintiff. The insurer's attorney heard about the judgment, and, within seven days, filed a motion to vacate it. After a hearing, the trial court granted the motion, and plaintiff appealed.

The question presented is whether the lower court abused its discretion under the facts in the instant case.

On or about December 22, 1966, personal service was made upon Henry Gardner and his wife. At the time of service on the Gardners, the process server told defendants to give the papers to the insurance company. The defendants failed to take any action. The reasons given are set forth in the affidavit of defendant Henry M. Gardner. Omitting the formal parts, he stated:

'2. That on or about December 22, 1966, I was served at my apartment with Summonses and Complaints for myself and wife by a person who identified himself as a process server; that at the time service was made I was told by the process server that I should give these papers to my insurance company and that I then inquired of the process server why he, the process server, did not personally serve the papers upon the insurance company and was informed that his instructions were only to serve Mr. and Mrs. Gardner.

'3. That I placed these papers with other papers and did not inform my lawyer or insurance company of them and forgot them until Friday, January 13, 1967, when I was contacted by an adjuster from Farmers Insurance Exchange and then found the papers in a cupboard at my apartment.

'4. That prior to being served with the Summonses and Complaints, I received a letter from Attorney Messing informing me that he represented the plaintiff Camacho and advising me to refer the letter either to my attorney or my insurance company; that said letter was received sometime in November or December, but the exact date is not known and the letter is now lost; that upon receipt of the letter, I called my attorney David Pakula, who advised me that I might expect to be served with papers and when I was served I should deliver them to the Farmers Insurance Exchange and further advised me that he would contact the adjuster for Farmers Insurance Exchange and advise them of the receipt of this letter.'

Prior to the filing of this suit defendants had retained their own attorney, David L. Pakula, who negotiated and settled an uninsured motorist claim (Badilla was not insured) against defendants' insurance carrier, Farmers Insurance Exchange (hereinafter referred to as Farmers). About November 17, 1966, defendants received a letter from plaintiff's attorney advising them, among other things, to forward it to their insurance carrier. Mr. Gardner called his attorney, who told him that

'He would probably be sued and if he was served with papers he should immediately take them to the insurance company.'

Mr. Pakula then called Farmers, and notified them of receipt of the letter. He also called plaintiff's attorney, and stated to him that defendants were not at fault.

The affidavit of Farmers' adjuster, omitting the formal parts, stated:

'2. That on or about November 2, 1966, I was assigned the accident occurring October 30, 1966, involving our named insured Henry M. Gardner and Ralph T. Badilla; that I first attempted to determine if there was any insurance upon the Badilla vehicle and determined that this vehicle was uninsured; I personally informed Mr. Gardner of this fact and was advised that Mr. Gardner had employed Mr. David Pakula to represent his interests; that I contacted Mr. Pakula and by agreement obtained a recorded statement concerning the facts and his injuries from Mr. Gardner at Mr. Pakula's office on November 11, 1966; that I personally did not have any further contact with Mr. Gardner until Friday, January 13, 1967, when he was contacted at his home by Mr. Don McClure, the branch claims manager, and myself after receiving information that a default judgment had been rendered against him.

'3. That on or about November 21, 1966, I was informed by Mr. Pakula that Mr. Gardner had received a letter from Mr. Messing concerning his representation of Jerry Camacho; that following receipt of this information I did not have contact with Mr. Messing.'

To complete the background, we set forth the greater part of the affidavit of defendants' attorney, Mr. Pakula:

'2. That on or about November 3, 1966, your affiant was employed by Mr. Henry M. Gardner to represent his interests arising out of an automobile accident occurring October 31, 1966; that on or about November 7, 1966, he determined that the Badilla vehicle was uninsured and at that time informed Mr. Terry Wetmore of the Farmers Insurance Exchange which insured Mr. Gardner that I was presenting a claim under the uninsured-motorist coverage afforded Mr. Gardner; that negotiations commenced and a settlement of the uninsured-motorist claim was made on or about December 16, 1966.

'3. That prior to the settlement of the uninsured-motorist claim Mr. Gardner called and informed me that he had received a letter from William Messing, an attorney representing conversation I informed Mr. Gardner that he would probably be sued and if he was served with papers he should immediately take them to the insurance company and I told him that I would call the insurance company and inform them of the receipt of this letter; that on the same day, I called Mr. Wetmore at Farmers and informed him of the receipt of the letter by Mr. Gardner.

'4. That after the telephone conversation with Mr. Gardner I talked to Mr. Messing and told him that I represented Mr. Gardner and that Mr. Gardner had received his letter and that Mr. Gardner was not at fault in this accident.

'5. That on Friday, January 13, 1967, your affiant was informed by his partner Mr. Hirsch that Mr. Messing had informed him in the elevator that he had entered a default and taken a default judgment against Mr. Gardner; that this was the first knowledge I had that a lawsuit had been filed against Mr. Gardner; that I immediately called Farmers Insurance Exchange and informed Mr. Don McClure of this information.'

It is apparent that Farmers actively engaged in negotiation and settlement of an uninsured-motorist claim made by defendant under Farmers' policy, but took no action on the potential claim by the plaintiff under the liability clauses of its policy. However, Farmers was galvanized into immediate activity when, on January 13, 1967, they were advised by Mr. Pakula that the plaintiffs had taken a default, and a judgment thereon in the amount of $50,000 earlier that same day. Seven days later--on January 20, 1967--Farmers, on behalf of defendants, filed a motion under Rule 60(c), Rules of Civ.Proc., 16 A.R.S., seeking to set aside the default and the judgment. The Pima County Superior Court had a hearing on the motion on January 30, 1967, and that court entered an order the following day setting aside the default and default judgment and ordered a trial on the merits.

We are confronted with the question of whether an insurance company is entitled to have a default set aside under this set of facts. In Jenkins v. Mayflower, 93 Ariz. 287, 380 P.2d 145, we held that 'an omnibus clause is a part of every motor vehicle liability policy, by whatever name it may be called.'

In Sandoval v. Chenoweth, 102 Ariz. 241, 428 P.2d 98, in discussing the failure of the insured to notify the insurer of the filing of a suit against the insured as required by its policy, we stated:

'In Schecter v. Killingsworth, supra (93 Ariz. 273, 380 P.2d 136), we further stated that the primary purpose of the Financial Responsibility Act was 'the providing of security against uncompensated damages arising from operation of motor vehicles on our highways.' The foregoing statements were quoted and relied upon in Jenkins v. Mayflower, supra, and the two cases, when read in conjunction, fully express the public policy of this state in regard to judicial implementation of the Financial Responsibility Act. The holding of Jenkins v. Mayflower that a restrictive endorsement negating coverage could not be relied on by the insurer where it conflicted with the coverage required by the omnibus clause read into Every automobile liability policy by the Financial Responsibility Act, was reiterated by this court in Pacific Indemnity Co. v. Hamman Wholesale Lumber and Supply Co., Inc., 95 Ariz. 362, 390 P.2d 897.

'Financial contends, however, that the effect of this statute, when applied to the facts of the instant case, will result in a denial of due process violative of Art. II, § 4, of the Arizona Constitution, A.R.S., and of the Fourteenth Amendment of the Constitution of the United States of America. * * *

'It seems to be settled that after recovering a...