The Supreme Court of Alabama has held that a liability insurer does not have standing to set aside a default judgment entered against its insured where the insurer is not the insured's legal representative or a party to the suit. In re Overton, 2007 WL 3318049 (Ala. Nov. 9, 2007).
A bank sued the insured and its employees, alleging that the insured made misrepresentations to the bank in order to obtain financing for purchasers of a mobile home. The insured was covered by a CGL policy, and the insured sought a defense from its CGL insurer, which denied coverage. The insured subsequently filed a third-party complaint against the purchasers of the mobile home, and they filed a counterclaim against the insured and its employees, claiming fraud and breach of contract. They subsequently obtained a default judgment against the insured and its employees. The insured and one of its employees later filed for bankruptcy, which prompted the purchasers to file a garnishment proceeding against the insurer. The insurer responded that it had no contractual liability to the insured or its employees, and filed a motion to set aside the default judgment, which was granted. The purchasers filed a petition for a writ of mandamus and an appeal with the Alabama Supreme Court.
The Supreme Court vacated the trial court's order setting aside the default judgment. The Supreme Court held that as a garnishee, the insurer was neither a party nor its insured's legal representative for the purposes of seeking relief from the default judgment. The Supreme Court noted, however, that the insurer could seek relief in other ways, such as a declaratory judgment action seeking a declaration that there is no coverage for the claims of the purchasers.
