Unreported / Non-Citable
Background
Infinity Select Insurance Company sued Juan Ruiz Del Castillo in the U.S. District Court for the Central District of California over an automobile insurance policy. Its First Amended Complaint, filed August 17, 2026, sought a declaration that it owed nothing on a default judgment entered against Del Castillo or, alternatively, owed no more than the policy's $25,000 per-person limit. Infinity filed its motion for default judgment on October 2, 2026.
The amended complaint relied on Del Castillo's alleged violation of the policy's notice-of-suit provision, which required the insured to forward legal papers promptly, and on a no-action provision requiring an insured's obligation to be finally determined by judgment after an actual trial. Magistrate Judge Karen E. Scott evaluated the motion under the Eitel factors, including the merits of Infinity's substantive claim and the sufficiency of its complaint.
On October 6, 2026, the court issued an Order to Show Cause Why Plaintiff's Motion for Default Judgment Should Not Be Denied. Rather than entering judgment or finally denying the motion, the order affirmatively directed Infinity to show cause in writing by October 20, 2026, why the motion should not be denied.
The Court’s Holding
The court explained that an insurer asserting inadequate notice ordinarily must show actual and substantial prejudice, including a substantial likelihood that timely notice would have produced a less expensive settlement or steps reducing or eliminating the insured's liability. That standard applies where the insurer lacked adequate notice and did not already have a duty to defend. Here, the FAC itself alleged that Infinity received a copy of the original Orange County Superior Court complaint, which the court said was likely enough to establish constructive notice even if Del Castillo failed to provide separate notification. Although the FAC asserted substantial prejudice, it supplied no supporting facts.
The court also rejected the premise that entry of default resolved Infinity's legal exposure. It would accept the FAC's factual allegations as true, but whether Infinity owed a duty to defend or could be held liable for the default judgment in excess of the policy limits were questions of law, not fact. California authority cited by the court permits excess liability when an insurer wrongfully refuses to defend, and a footnote explains that default-judgment hearings can satisfy no-action clauses requiring an actual trial.
The court therefore found that neither the motion nor the FAC established why Infinity is not liable to pay any amount of the default judgment or any amount in excess of the policy limits, and it ordered Infinity to show cause in writing by October 20, 2026, why the motion should not be denied for those reasons.
Key Takeaways
- Receiving a copy of the underlying complaint may give an insurer constructive notice even when its insured does not forward the suit papers.
- A conclusory allegation of substantial prejudice does not establish that an insurer lost an opportunity to settle for less or reduce the insured's liability.
- Entry of default establishes factual allegations, but it does not convert the duty to defend or liability above policy limits into admitted facts.
- The order identifies potential defects in both requested declarations without yet denying the default-judgment motion or deciding the coverage dispute.
- Infinity's written response is due October 20, 2026, and must address the reasons specified in the show-cause order.
Why It Matters
The decision separates factual admissions following default from the legal conclusions needed for insurance declaratory relief. It also shows why an insurer seeking a default judgment must confront its own complaint's allegations, particularly allegations showing that it received the underlying complaint and thus may have had an opportunity to investigate or participate in the defense.
The ruling leaves the coverage questions and the motion's ultimate disposition open. Its immediate consequence is procedural: Infinity must supplement the legal and factual justification for its requested declarations, while the court's analysis identifies constructive notice, prejudice, wrongful failure to defend, and the no-action clause as issues its response must address.