Centennial Insurance Company v. Miller

• Decision Date: 10 February 1967
• Docket Number: Civ. No. 9304.
• Citation: 264 F. Supp. 431
• Court: U.S. District Court — Eastern District of California
• Parties: CENTENNIAL INSURANCE COMPANY, Plaintiff, v. Robert C. MILLER and Anne K. Miller, and Quincy Carmen, Defendants.

264 F. Supp. 431

CENTENNIAL INSURANCE COMPANY, Plaintiff, v. Robert C. MILLER and Anne K. Miller, and Quincy Carmen, Defendants.

Civ. No. 9304.

United States District Court E. D. California.

February 10, 1967.

V. Barlow Goff of McDonough, Holland, Schwartz, Allen & Wahrhaftig, Sacramento, Cal., for plaintiff (Centennial Ins. Co.

Cavan Hardy of Bradford, Cross, Dahl & Hefner, Sacramento, Cal., for defendants Robert and Anne Miller.

Charles F. Fogerty, of Hughes, Maul, Fogerty & Dezzani, Placerville, Cal., for defendant Quincy Carmen.

MEMORANDUM AND ORDER

MacBRIDE, District Judge.

This is a declaratory judgment action brought by plaintiff Centennial Insurance Company to determine whether it is liable under a policy of insurance. Jurisdiction is founded upon diversity of citizenship.

The policy in question was issued to defendant Robert C. Miller in September, 1964. It protected Miller against claims for bodily injury or medical payments which he might become legally obligated to pay. The policy excluded claims based upon intentional or wilful acts of the insured, an exclusion which is codified in California Insurance Code § 533. In its initial complaint, Centennial alleged that an action was pending in the Superior Court of El Dorado County in which Quincy Carmen, also a defendant in this action, sought damages from Miller for injuries caused by a gunshot fired by Miller. Since the advent of this action, Carmen was awarded $75,000.00 in damages after a jury trial in the superior court. That judgment has become final. Miller was defended in the superior court action by attorneys retained by Centennial. The policy provided that the insurer would defend any actions covered by the policy. Since there was doubt as to whether Miller's acts were covered, Centennial entered into an agreement with him which provided that it would defend the suit by Carmen without prejudice to its rights to litigate the question of coverage The consideration recited was the desire of both parties to cooperate to reduce to a minimum any financial loss resulting from the shooting incident and to postpone the controversy over the policy until final determination of any claims arising from the incident. The agreement was signed by Miller and the attorney for Centennial and is a part of the record in this case.

Defendants contend that the issue of whether Miller acted intentionally and maliciously in shooting Carmen was presented in the superior court action. This assertion is based on the fact that in the state action Miller's attorneys identified in their pre-trial memorandum the issue of intentional conduct as one which would be presented in the case, and urged it as a ground to support a motion for judgment notwithstanding the verdict. In that motion Miller claimed the facts in the record would support only a verdict based on assault and battery, not on negligence. It is clear, however, that the only issue that was before the trier of fact and the only issue decided by the trier of fact was whether or not Miller was negligent as to Carmen. The pre-trial order of Judge Byrne, which is part of the record in this case, contains this order: "Plaintiff's motion to amend the complaint by interlineation to state only a cause of action for negligence is granted." No instruction regarding the possibility that Miller's actions might constitute an intentional tort was given for any purpose by Judge Roberts, who tried the case in superior court. Thus, the judgment in favor of Carmen was based solely on a finding that Miller was negligent.

Defendants have now moved for summary judgment on the ground that the state court judgment against Miller is res judicata or, in the alternative, collaterally estops plaintiff from litigating the issue of coverage in this court. Defendants urge that the finding of negligence in the superior court action precludes Centennial from now asserting that Miller's conduct was intentional.

Without delving into the nuances of res judicata and collateral estoppel, the basic differences between the two doctrines should be noted. In general, res judicata is the correct term to describe the conclusive effect in subsequent litigation of a prior final determination on the merits of the same cause of action, including all matters that might have been decided, involving the same parties and those in privity. The prior adjudication acts as a bar to the entire subsequent suit on the same cause of action. Collateral estoppel differs slightly, but significantly. The requirement of "sameness" as to parties or those in privity is identical to that in res judicata, but the suit need not involve the same cause of action. Where collateral estoppel is invoked, there is a suit on a different cause of action, and only facts which were actually determined from the adversary process in the prior action are conclusive upon the parties. The subsequent suit is not barred, but the parties are estopped from relitigating those facts previously put in issue. For an excellent discussion, replete with citations, see 1B Moore's Federal Practice, paragraphs 0.405, 0.441 (2d ed. 1965).

From these precepts, this action for declaratory judgment suggests a collateral estoppel situation, due to the difference in causes of action. In order to succeed in their motion for summary judgment then, defendants must show that the parties here are identical or in privity with those in the tort suit against the insured, and that the facts or issues determined in that suit are conclusive of the outcome here. In diversity actions, the forum state's rules on res judicata and collateral estoppel are controlling in the federal courts as an aspect of the doctrine of Erie R. R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Gramm v. Lincoln, 257 F.2d 250 (9th Cir. 1958); see Oklahoma Packing Co. v. Oklahoma Gas & Elec. Co., 308 U.S. 530, 309 U.S. 4, 60 S.Ct. 215, 84 L.Ed. 447 (1939); cf. Angel v. Bullington, 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832 (1947).

Some controversy exists as to whether the situation of an insurer seeking a declaratory judgment of non-coverage after its insured had been found negligent is barred or estopped by principles of res judicata. The two leading cases, each representing an opposite view, are Farm Bureau Mut. Auto. Ins. Co. v. Hammer, 177 F.2d 793 (4th Cir. 1949), cert. den., Beverage v. Farm Bureau Mut. Ins. Co., 339 U.S. 914, 70 S.Ct 575, 94 L.Ed. 1339 (1950), and Miller v. United States Fid. & Cas. Co., 291 Mass. 445, 197 N.E. 75 (1935).

In the Miller case, a judgment against an insured on a complaint which alleged injury due to negligence was held to preclude the insurer, who had refused to defend the insured in the negligence action, from defending against the insured's action on the policy on the ground that the tort was intentional. Hammer was decided by a divided panel of the fourth circuit. The case in essence involved a liability insurer which had initially undertaken defense of a wrongful death suit against its insured. The theory of the case was negligence. Subsequently, the insurer withdrew its defense after the insured was convicted of the murder of plaintiff's decedent. The reason for withdrawal was an exclusion in the policy of damages occasioned by the insured's intentional acts. The insured did not contest the wrongful death action, and the plaintiff recovered judgment on the theory of negligence. In the ensuing action for declaratory judgment on the issue of coverage, the district court rendered summary judgment against the insurer on the ground that the prior suit had decided that the insured's conduct was negligent. The fourth circuit reversed, saying that the insurer was not estopped because

it was not possible for the company * * * to defend the insured, and at the same time to protect its own interests. It could not exculpate itself by showing that the injurious acts of the insured were beyond the scope of the policy, for this showing would establish the liability of the insured to the injured parties to an even greater extent than that claimed in the complaints. 177 F.2d at 801.

The majority opinion in Hammer disagreed with the result in Miller, supra. In effect, it said that Miller was a perversion of the principle of collateral estoppel since the underlying rationale of the doctrine, identity of interests of the parties in both suits, was not served by its application in those circumstances. Chief Judge Parker in his dissent in Hammer called Miller "well settled law" and added:

The fact that the company could not assert in the original case that the injury was not negligent but intentional without prejudicing the defense of that case means merely that the defense which it had undertaken was difficult. It furnishes no ground for absolving the company from application of the well settled rule that the judgment rendered is binding upon it as to issues actually adjudicated; and there can be no question but that the judgment adjudicated that the injury in question resulted from insured's negligence. 177 F.2d at 802.

Professors Moore and Currier disagree with the Hammer approach, but recognize the insurer's dilemma entailed in the Miller rule:

Given notice and an opportunity to defend, the insurer is bound by the judgment on the negligence claim, whether or not he defends; and, if he does defend, he cannot contend that insured was guilty of intentional wrong-doing. But the insurer is not entirely without a remedy: a suit against the insured and the injured claimant for a declaratory judgment of non-coverage, prior to rendition of judgment in the suit against the insured, may be entertained at the discretion of an appropriate court. * * * Of course, the insurer cannot be certain that the declaratory judgment will precede the damage judgment against the insured, in point of time. 1A Moore's Federal Practice, paragraph 0.4116 n. 19 (2d ed. 1965).

On the other hand, there is respectable...