Home Owners Federal Sav. & Loan Ass'n v. Northwestern Fire & Marine Ins. Co.

Decision Date07 June 1968
Citation238 N.E.2d 55,354 Mass. 448
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

Brian J. Moran, Boston, for defendant.

Robert M. Morrison, Boston, (David A. Bakst, Boston, with him) for plaintiff.


REARDON, Justice.

In this action of contract the plaintiff, Home Owners Federal Savings & Loan Associations (Bank), seeks to recover under a so called 'Errors and Omissions' policy of insurance issued to it for a term of three years by the defendant Northwestern Fire & Marine Insurance Company (Northwestern). In its declaration the Bank alleges that the policy insured it against loss to its interest as a mortgagee arising by reason of error or accidental omission in the operation of its customary practice of maintaining valid insurance agaisnt the risk of fire on property in which it had a mortgage interest. A judge of the Superior Court entered a finding for the Bank in the amount of $7,301.21. Northwestern claims exceptions to certain rulings of the trial judge and to his action in denying certain requests and qualifying his allowance of others. Northwestern filed an outline bill of exceptions.

Before trial the parties filed a stipulation of certain facts from which it appears that on November 30, 1958, the Bank held a mortgage on real estate in Boston securing a note, the unpaid balance of which on that date was $11,395.22. In force from January 20, 1958, to January 20, 1961, was the 'Errors and Omissions' policy issued by Northwestern. On September 12, 1958, the Bank was mortgagee in three policies of fire insurance covering the real estate written by (1) the Home Insurance Company for $5,000; (2) Underwriters at Lloyd's (Lloyd's) for $10,000; and (3) Lloyd's for $5,000. The latter two policies contained a clause which bound the insurer on its warranty to the 'same terms and conditions as and to follow the settlements of Home Ins. Company.' Consonant with its declaration the Bank has argued throughout this case that these three policies were not in effect on November 30, 1958, its interest in all three having been released prior to that date. On or after October 2, 1958, the Bank was first mortgagee in a third policy written by Lloyd's, in the sum of $5,000, which ran from September 26, 1958, to September 26, 1959. On November 30, 1958, the property was heavily damaged by fire.

The trial judge made findings in which he incorporated the facts stipulated. In addition he found that through inadvertence in the Bank's insurance division on September 24, 1958, the Bank 'through its Assistant Treasurer, released its interest in the policy of the Home Insurance Company,' unmindful of the possible effect of this action upon the two outstanding Lloyd's policies. Thereafter the third Lloyd's policy was written to replace the Home Insurance Company policy. Following the fire the Bank was paid $4,094.01 on this third Lloyd's policy, leaving a balance of $7,301,31 due the Bank on its mortgage. Nothing was paid the Bank on the first two Lloyd's policies. The Bank then called on the agent of Northwestern for payment to it of the balance under the 'Errors and Omissions' policy. The agent informed the Bank that Northwestern's policy 'does not cover this loss.' The judge further found the Bank's loss was due to its error and omission and ordered payment of $7,301.21 to it.

We do not consider certain questions of the validity of the release by the Bank of its interest in the Home Insurance Company policy and its notice to Northwestern. Since it is dispositive of this case we consider only the denial of request No. 20. That request reads, 'As a matter of law the plaintiff is estopped from introducing evidence that the policies of insurance on the property in question were not in full force and effect on the date of the loss.'

Prior to the proceedings above described, on October 24, 1962, another judge of the Superior Court, sitting without jury, made findings in three cases arising from the same fire. In one of these the Bank, in an action against the Home Insurance Company, alleged that the policy of that company was in full force and effect on November 30, 1958, as were the two accompanying policies written by Lloyd's. That judge, after making detailed and lengthy findings of fact, summarizing a mass of evidence introduced on the issue by both parties, specifically found that the Home Insurance Company policy had not been cancelled or released and was in effect on the date of the loss. Prior to that judge's findings the Bank had in fact stipulated that the Lloyd's policies were in effect on the same date. Recovery in the action was denied to the Bank, however, for failure to file that notice of its loss which the Home Insurance Company policy required. Thus, the position of the Bank in that action with reference to the binding effect of the Home Insurance Company policy was exactly the reverse of its position in this case. An examination of the docket entries in the first case indicates that it has gone to judgment. G.L. c. 235, § 1. Rule 79 of the Superior Court (1954). Sullivan v. Jordan, 310 Mass. 12, 15, 36 N.E.2d 387, and cases cited. Higgins v. First Natl. Stores, Inc., 340 Mass. 618, 165 N.E.2d 882.

In these circumstances the precise question presented to us is this: Is the Bank as the plaintiff in this action against Northwestern estopped from alleging that the fire insurance policies were not in full force and effect on the day of the fire when in a prior action against the Home Insurance Company in which it was also the plaintiff the court on that issue, which clearly was treated as essential to the case by the party to be bound and by the court, specifically found the reverse?

The view which we take of this case was early foreshadowed in Cowley v. Patch, 120 Mass. 137, which 'was an action on an alleged liability of the defendant's testate and a third person jointly. The defendant was allowed the benefit of a decision in a prior action by the same plaintiff against the third person which held that the liability was not joint.' Giedrewicz v. Donovan, 277 Mass. 563, 568, 179 N.E. 246, 247. The broad justification for the application of collateral estoppel with which we deal is that 'since the plaintiff has had his day in court on the issue in a forum of his own choosing, litigation should come to an end.' Note, 65 Harv.L.Rev. 818, 863. It has been elsewhere stated that '(i)n a sense, the plaintiff who proceeds against one adversary and loses, only to try again against another, may be guilty of the same kind of trifling with the public interest against piecemeal litigation that gives rise to the rule against splitting a cause of action.' Currie, Mutuality of Collateral Estoppel: Limits of the Bernhard Doctrine, 9 Stan.L.Rev. 281, 301. See Bruszewski v. United States, 181 F.2d 419 (3d Cir.). There have been a number of full discussions of the doctrine of collateral estoppel over the years which have weighed the indefinite continuance of the concept that persons not parties or in privity with parties to an action are not affected by a judgment in that action--that where strangers are not bound by a judgment its benefit is not available to them. This has been referred to as the requirement of mutuality of estoppel. See Freeman, Judgments (5th ed.) § 428, and cases cited. However, as indicated in 65 Harv.L.Rev., supra, at p. 862, it has become increasingly apparent that continued devotion to the doctrine of mutuality tends to cut across the prime basis for res judicata which is that litigation be ended. 'Widespread, though not universal, dissatisfaction with mutuality as a guiding principle has led to its open repudiation by some courts and commentators.' James, Civil Procedure (1965), § 11.34. A series of decisions has opened the door to the exception which it seems to us should be the rule in this case.

In Coca Cola Co. v. Pepsi-Cola Co., 36 Del. 124, 172 A. 260, it was pleaded in defence that two prior cases had been pending in the Court of Chancery with a single plaintiff and two defendants, that a decree had entered dismissing the bills of complaint after hearing on the merits in the two cases, and that the issues in the case at bar were identical with the issues decided against the plaintiff in the earlier suit. The court in a thorough discussion pointed out the conflict which the case presented between two principles 'of requirement of mutuality of estoppel on the one hand, and, on the other, the basic principle of res judicata, viz., the limitation to a party to one full and free opportunity to try the merits of his case.' P. 132, 172 A. p. 263. Concluding its discussion, the court said, '(W)e are of the opinion that a plaintiff who deliberately selects his forum and there unsuccessfully presents his proofs, is bound by * * * (an) adverse judgment in a second suit involving all the identical issues already decided. The requirement of mutuality must yield to public policy. To hold otherwise would be to allow repeated litigation of identical questions, expressly adjudicated, and to allow a litigant having lost on a question of fact to reopen and re-try all the old issues each time he can obtain a new adversary not in privity with his former one.' P. 133, 172 A. p. 263.

There followed in 1942 the leading case of Bernhard v. Bank of America Natl. Trust & Sav. Assn., 19 Cal.2d 807, at page 812, 122 P.2d 892, at page 895, in which the present Chief Justice Traynor reviewed the literature on the subject, stating: 'No satisfactory rationalization has been advanced for the requirement of mutuality. Just why a party who was not bound by a previous action should be precluded from asserting it as res judicata agaisnt a party who was bound by it is difficult to comprehend.' The...

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