FEDERAL COURT UPHOLDS JUDGMENT AGAINST INSURER AFTER ISSUING DEATH PENALTY SANCTIONS AGAINST INSURER’S ATTORNEY
Recently, a federal court in McAllen denied an insurer’s motion to vacate the court’s prior issuance of death penalty sanctions for conduct by the insurer’s attorney during litigation. Sylvia Perez v. Meridian Security Ins. Co., Civil Action No. 7:21-cv-00487, 2023 WL 2433978 (W.D. Tex.—McAllen March 9, 2023). Upon doing so, the court held that the insurer’s attorney’s conduct during litigation was attributable to the insurer.
During litigation, the insurer’s attorney did not properly respond to the Plaintiff’s discovery requests, file responsive pleadings, or comply with the court’s orders. As a result, the court struck the insurer’s answer and set a hearing to assess damages. At that hearing, the court issued a final judgment against the insurer, and the insurer filed a motion asking the court to vacate its judgment and reinstate its answer.
The insurer stated it had been in contact with its attorney during pre-suit investigations, settlement negotiations, and a pre-suit mediation, and after the Plaintiff filed suit, it communicated with its attorney about handling the litigation moving forward. The insurer was not aware of the discovery dispute that its attorney experienced with Plaintiff, and when the insurer’s representative requested an update from the attorney, the attorney pushed the phone call out for a few months. During this phone call, the attorney did not mention that the court had granted the Plaintiff’s motion to compel discovery and motion for sanctions striking the insurer’s answer. In a subsequent correspondence, the insurer’s attorney requested authorization from the insurer to travel for a hearing, but he did not inform the insurer what the hearing was about, and the insurer’s representative did not ask about the reason for the hearing. The hearing was to assess damages against the insurer, now that the court had struck its answer. It was not until after the final judgment against the insurer was issued that it found out about it.
In striking the insurer’s answer, the court stated that, in civil cases, clients are bound by the conduct of their attorneys, and it maintained that its holding was not erroneous or just, especially where the party is familiar with litigation, the discovery process, and the need to ensure effective representation of its own interests, such as with an insurance company.
The insurer argued that its attorney’s conduct constituted gross negligence, which several federal appellate courts have held may be an extraordinary circumstance warranting relief from a default judgment against a party. The court disagreed, stating that the insurer was also negligent due to its failure to manage the litigation process through its attorney properly. As the court emphasized, “when a litigation adjuster allows outside counsel to ignore him for months at a time, he does so at his own risk.” Because the Court did not find that it made a clear error or manifest injustice in striking the insurer’s answer, it denied the insurer’s motion to vacate the judgment and reinstate the insurer’s answer.