Berschauer Phillips Constr. Co. v. Mut. of Enumclaw Ins. Co.

• Decision Date: 27 June 2013
• Docket Number: No. 68259–8–I.,68259–8–I.
• Citation: 175 Wash.App. 222,308 P.3d 681
• Parties: BERSCHAUER PHILLIPS CONSTRUCTION COMPANY, a Washington corporation, Appellant, v. MUTUAL OF ENUMCLAW INSURANCE COMPANY, an insurance company, Respondent.
• Court: Washington Court of Appeals

175 Wash.App. 222

308 P.3d 681

BERSCHAUER PHILLIPS CONSTRUCTION COMPANY, a Washington corporation, Appellant,

v.MUTUAL OF ENUMCLAW INSURANCE COMPANY, an insurance company, Respondent.

No. 68259–8–I.

Court of Appeals of Washington,

Division 1.

May 6, 2013.

Publication Ordered June 27, 2013.

Stephanie M.R. Bird, Cushman Law Offices PS, Olympia, WA, for Appellant.

Timothy R. Gosselin, Gosselin Law Office PLLC, Tacoma, WA, for Respondent.

VERELLEN, J.

[175 Wash.App. 224]¶ 1 Berschauer Phillips Construction Company (BP) appeals from the superior court order granting summary judgment dismissing its “direct action” claim against Mutual of Enumclaw Insurance Company (MOE). BP obtained a default judgment against an insured of MOE, unsuccessfully sought to recover from MOE on a “chose in action” theory in Thurston County, and also filed this direct action lawsuit against MOE in King County. BP assigns error to the superior court's determination that this direct action lawsuit was barred by the claim-splitting doctrine of res judicata. BP could have and should have raised its direct action claim against MOE in its previous lawsuit, which involved the identical subject matter and claim, included the same parties acting in the same capacities, and resulted in a final judgment in favor of MOE. Because the superior court correctly determined that res judicata barred BP's subsequent lawsuit against MOE, dismissal was proper. We affirm.

FACTS

¶ 2 In 2002, BP subcontracted with Concrete Sciences Services of Seattle (CSS) to stain concrete floors at Redmond Junior High School. The concrete floor did not properly absorb the stain. At the time, CSS, a Minnesota limited liability corporation (LLC), was insured under a comprehensive general liability insurance policy issued by MOE. In 2003, following completion of the project, CSS filed articles of termination, dissolving the Minnesota LLC.

¶ 3 In 2004, BP filed a lawsuit against CSS in King County seeking to recover damages for defective workmanship. CSS did not appear, and BP obtained a $318,611.97 default judgment. BP informed MOE of the default judgment and demanded payment. MOE moved to vacate the default judgment. The superior court denied the motion as untimely. This court affirmed (Appeal 1).¹

¶ 4 In 2008, BP filed a lawsuit against MOE in Thurston County, alleging it had “attached all available choses in action” CSS had against MOE.² BP asserted claims of negligence, breach of contract, bad faith, and breach of Washington's Consumer Protection Act, ch. 19.86 RCW. In December 2009, BP obtained writs of execution from King County Superior Court, directing the Thurston County sheriff to levy on CSS's claims against MOE. The King County court granted MOE's motion to quash on the grounds that CSS had no property on which to execute, and any property was not property capable of execution because it was “too uncertain.” ³ BP appealed; this court affirmed (Appeal 2).⁴

¶ 5 While Appeal 2 was pending, MOE moved for summary judgment in the Thurston County action. BP moved for a stay. The Thurston County court ordered a stay while awaiting this court's decision in Appeal 2.

¶ 6 MOE then sought discretionary review by this court of the Thurston County court's stay order. This court granted review and determined that: CSS was the real party in interest, not BP; the trial court lacked authority to stay the case; and BP had no standing at the time it filed the action, nor at the time the stay was issued (Appeal 3).⁵ The mandate issued August 5, 2011.

¶ 7 After the mandate issued, BP and MOE stipulated to an order of dismissal of the Thurston County lawsuit, “with prejudice.” ⁶ The dismissal order states, “[W]ith the dismissal of the claims against Mutual of Enumclaw all claims of all parties in this lawsuit are resolved and this order constitutes final judgment in this matter.” ⁷

¶ 8 In the meantime, BP filed this new lawsuit against MOE in King County. In the complaint, BP recited that: CSS was insured by MOE; BP had a default judgment against CSS; and BP “has standing to proceed against MOE on a direct action” to collect the judgment.⁸ BP asserted that it had recently discovered boilerplate language in MOE insurance policies of the type issued to CSS. According to BP, the CSS policy likely included the provision that “[a] person or organization may sue us to recover on an agreed settlement or on a final judgment against an insured obtained after an actual trial.” ⁹

¶ 9 MOE moved for summary dismissal, arguing that BP's direct action claims were barred under the doctrines of res judicata and collateral estoppel. The trial court concluded that BP's lawsuit was barred by res judicata, and granted MOE's motion for summary judgment.

¶ 10 BP appeals.

DISCUSSION

¶ 11 BP asserts that the trial court erred in dismissing its claims, arguing that res judicata does not bar its present lawsuit against MOE. We disagree.

¶ 12 Res judicata is an issue of law, subject to de novo review on appeal.¹⁰ The party raising res judicata must demonstrate that the action involves the same subject matter, cause of action, persons or parties, and quality of persons as a prior adjudication.¹¹ Res judicata applies both to points upon which the previous court was required to pronounce a judgment, and to every point “which the parties, exercising reasonable diligence,might have brought forward at the time.” ¹² The public policy favoring prevention of claim splitting applies to a party seeking to recover from an insurer based on various theories of recovery.¹³

¶ 13 Where, as here, the insured has not made an assignment of its claim against its insurer to an injured third party, a third party damaged by actions of the insured has options to recover from the insurer.¹⁴ Where the loss is covered by the liability policy, the insurer's most fundamental obligation to its insured is the duty to indemnify the insured by paying the third party.¹⁵

¶ 14 Understanding BP's theories of liability in each relevant lawsuit is critical to the application of res judicata in this appeal. BP's Thurston County lawsuit was based on its right to execute on its default judgment against CSS by levying on the choses in action held by CSS against MOE. BP contends that its subsequent King County lawsuit was based on its “direct” right to proceed against MOE, premised on a “boilerplate” no-action provision it suspects is in the policy issued by MOE to CSS.¹⁶ The no-action provision BP seeks to rely on purportedly states, in relevant part, that “[a] person or organization may sue us to recover on an agreed settlement or on a final judgment against an insured obtained after an actual trial.” ¹⁷

¶ 15 BP's efforts to distinguish between the subject matter and cause of action at issue in each of the two relevant lawsuits are not persuasive. Consideration of four factors provide an analytical tool for determining whether two causes of action are identical for purposes of res judicata: “(1) [w]hether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional nucleus of facts.” ¹⁸ The central issues in both of BP's lawsuits are the same: whether CSS is liable for a loss covered by the MOE policy, and whether MOE had a duty under its policy to indemnify CSS. Both the Thurston County and King County lawsuits depended entirely upon MOE's underlying duty to indemnify CSS. At oral argument, counsel for BP asserted some other duty is owed by the insurer to the third-party claimant. But BP provides no authority for this proposition, and we have found none. Moreover, the evidence necessary to each lawsuit is also the same. In both lawsuits, BP would need evidence that it held a default judgment against CSS, that the MOE policy covered the specific losses, and that CSS met its obligations under the policy.¹⁹ Neither lawsuit is independent of this same nucleus of facts, and the rights at issue in both lawsuits are fundamentally the same.²⁰

¶ 16 BP concedes that the identical persons or parties were present in both lawsuits, but argues that it was acting in a different capacity or “quality” in the lawsuits. The quality of persons or parties is relevant in situations where the parties to two lawsuits are the same, but one or the other acts in a different capacity in the two proceedings.²¹ The circumstances of this case do not support BP's argument that it acted in a different capacity or quality in the two lawsuits. BP acted in its own capacity against MOE and sought to advance and protect its own interests in both lawsuits. These considerations support the application of res judicata in these circumstances.

¶ 17 BP's arguments that application of res judicata results in injustice are not persuasive. BP fails to adequately explain why it could not have discovered the “boilerplate” MOE policy language prior to filing the Thurston County lawsuit by reviewing MOE's standard policies, the same method it used in this case.

¶ 18 Moreover, BP mistakenly contends that this court's determination in a previous appeal (Appeal 2) precluded BP from maintaining a garnishment action against MOE. This court concluded that BP failed to meet its burden of demonstratingthat CSS actually had acquired a property interest against MOE, not that CSS's right or interest did not exist.²² Had BP met its burden by establishing that CSS, a terminated Minnesota LLC, could have come into ownership of a claim against MOE, it could have pursued garnishment or execution on CSS's chose in action.

¶ 19 Finally, BP asserts that MOE “waived” its ability to assert the defense of res judicata in the King County proceeding because it was aware of the King County lawsuit at the time it stipulated to the dismissal with...