By: Paul T. McBride
On November 7, 2017, Judge David Brown of the Sacramento County Superior Court ruled that an intervenor insurance carrier may not file a cross-complaint in a construction defect lawsuit. While this ruling is not binding precedent, if upheld on appeal it will affect the rights of intervening insurance carriers, and so merits discussion.
Background- Effect of Corporate Suspension
California Revenue & Taxation Code §23301 provides for suspension of a California corporation's "rights, powers, and privileges" for nonpayment of taxes. Once it is suspended, a corporation is prohibited from taking any actions; it can neither prosecute nor defend lawsuits. Gar-Lo, Inc. v. Prudential Sav. & Loan Assn. (1974) 41 Cal.App.3d 242. Since it cannot defend a lawsuit, it is a comparatively simple matter to take a default judgment against a suspended corporation, provided it is properly served. Once a default judgment is entered against a suspended corporation, it may be enforced, i.e. collected, against its insurance carrier, pursuant to California Insurance Code §11580(b)(2), assuming the judgment creditor can prove the damages encompassed by the judgment are covered by the policy of insurance.