Default Judgments - Time is of the Essence

Insurers are frequently caught out by default judgments often due to the strict time constraints and judgment may be entered in the absence of the defendant. This can be distressing for the policyholder in particular; but prompt action can avoid any adverse consequences for both insurers and defendants. 

 

Once proceedings are issued, a default judgment can be entered by the court if the defendant fails to either acknowledge service of the proceedings or file the defence within the time constraints set by the court rules.  It is a win-win situation for the claimant to make an application for default judgment. There are no court fees payable to make the application and if it is entered it makes for an early determination of the claim and the court will most likely award the total sum requested plus interest and costs.

 

If service has not been acknowledged then the claimant does not need to notify the defendant or the insurer about its application. The claimant can apply for default judgment to be entered and the defendant will be unaware of this until they receive a Court Order requiring them to make payment within 28 days.

 

A default judgment is binding which means that the claimant can take steps to enforce it. In this situation it is important to act quickly; it is advisable to either apply for the judgment to be set aside or pay it in full within the 28 days permitted.

 

Although it costs the claimant nothing in court fees to make an application for default judgment; a court fee is payable by the defendant to have the judgment set aside by consent.

 

Insurers are advised to act promptly in making an application for the default judgment to be set aside. The court must set the judgment aside if it has been wrongly obtained (for example, if an acknowledgement of service had, in fact, been filed at court).

 

Ultimately it is the courts discretion whether to set aside the judgment in other circumstances and the defendant must also show that it has a real prospect of successfully defending the claim.

 

Unless the Judgment is set aside, it will only be removed from the Register if it has been entered into in error; it has been paid in full within 28 days or if it had in fact already been paid before Proceedings were issued. However if the judgment is paid in full after the 28 day deadline, although it cannot be removed from the Register and instead, it will simply be marked as “satisfied”.

 

Default judgements can cause numerous difficulties for both policyholders and insurers.

 

They increase the length of time required to deal with the claim as an extra step has been added to the process. This extra step inevitably increases the overall legal bill for insurers, in terms of both own costs and third party costs.

 

Such judgments invariably lead to adverse credit ratings for policy holders and insurers can be affected too if the judgment has been made against them. This is because details of the judgment are entered onto a public register. A default judgment will be entered onto the register of Judgments, Orders and Fines for England and Wales. The information that will be registered includes the defendant’s name and address, the date and amount of the judgment. Details of the judgment will be sent to credit reference agencies and unless the judgment is set aside or cancelled it will remain on the register for 6 years.

 

This is a situation to avoid at all costs. It can lead to difficulties for policyholders in obtaining credit or a mortgage and a Company will also encounter similar difficulties. Suppliers can become aware of the Judgment and the automatic presumption is that the Company is in financial difficulties, leading to difficult situations, embarrassment and an effect on existing business relationships.

 

As the judgments are binding, this will prejudice the insurer’s position should it have an outlay to recover and similarly a policyholder’s uninsured loss can be affected. Furthermore, any claimants previously ‘in the background’ will be able to point to the judgment and seek payment of their claims in full.

 

 

Ensure that the deadline for the acknowledgement of service is identified and diarised immediately on receipt of file.

Ensure that the acknowledgement is filed straightaway, by fax if appropriate.

 

Even if the deadline for filing the acknowledgment of service has clearly lapsed, enquiries should be made directly with the Court – it may be that the claimant has overlooked applying for judgment meaning there is a window of opportunity to file an acknowledgment and protect the client’s position.

 

Keep a close eye on claims where insurers are the named defendant to ensure minimal risk of any default judgement being entered against such an organisation.

 

If default judgement has been entered, press for the claimant’s solicitors to consent obtain to set the judgment aside. This can save time and costs as there will be no need for a hearing. The initiative can be taken by sending a draft Order with the initial letter to the claimant.  

 

If efforts to secure the claimant’s consent are unsuccessful, an Application to the Court should always be made swiftly.