Howe v. Nelson, 39649

• Decision Date: 04 June 1965
• Docket Number: No. 39649,39649
• Citation: 271 Minn. 296,135 N.W.2d 687
• Parties: Edwin HOWE, Respondent, v. Duane C. NELSON, Joseph Johnson and Great Northern Insurance Company,garnishee, Respondents, United Services Automobile Association, garnishee, Appellant.
• Court: Minnesota Supreme Court

Page 687

135 N.W.2d 687

271 Minn. 296

Edwin HOWE, Respondent, v.Duane C. NELSON, Joseph Johnson and Great Northern Insurance Company,garnishee, RespondentsUnited Services Automobile Association, garnishee, Appellant.

No. 39649.

Supreme Court of Minnesota.

June 4, 1965.

Syllabus by the Court

Where an insurer seeks to have insurance coverage of a personal injury adjudicated by construction of its policy and two other policies issued by another insurer in a declaratory judgment action in Federal district court, and that court fully adjudicates the legal relationship among all parties under the policies, finding the insurer liable, the declaratory judgment has the res judicata effect of estoppel by judgment to preclude the insurer from again contesting its liability by demanding further construction of the policies in subsequent proceedings in a state district court.

Mordaunt, Walstad, Cousineau & McGuire, Minneapolis, for appellant and also respondentDuane Nelson.

Dudley, Smith, Copeland & O'Connor, St. Paul, for Edwin Howe.

Howard S. Cox, Minneapolis, for Joseph Johnson.

Cragg & Barnett, Minneapolis, for Great Northern Ins. Co.

FRANK T. GALLAGHER, C.

This is an appeal by United Services Automobile Association(United Services) from a final order of the district court in garnishment proceedings supplemental to execution.The matter was heard before the court without a jury upon issues made by the supplemental complaint of Edwin Howe, the answer of Great Northern Insurance Company(Great Northern), and the answer and cross-calim against Great Northern of United Services.The conflict essentially is between the two insurance companies, each contending that the other is primarily liable to pay a judgment secured by Howe in a prior personal injury action against Joseph Johnson and Duane Nelson.The district court held the judgment of the Federal district court in a declaratory judgment action brought by United Services to determine coverage was res judicata as to the issues raised in the supplemental proceedings, and that therefore United Services is primarily liable to pay Howe's judgment.

The dispute reached its present posture through a complicated sequence of events.Duane Nelson, on October 28, 1960, borrowed Joseph Johnson's 1955 Packard automobile with Joseph's consent and was involved in an accident which injured Edwin Howe.At that time, Nelson carried an automobile liability policy with United Services on a car owned by him.One of the provisions of that policy stated that Nelson would be covered should he drive another car but that such coverage would be only excess coverage over any primary coverage afforded him by other liability insurance.The Packard had been acquired by Joseph in April 1960 and had been used by him in his hometown of Amboy, Minnesota, until he left during early summer to secure a job in the Twin Cities.When he departed, he left the car with his parents for their use, taking his other car, a Volkswagen.

During July 1960, Joseph's father, Russell Johnson, decided that the car should be insured since it had not been added to Joseph's policy on his volkswagen.Russell therefore approached his insurance agent, an agent for Great Northern, who had procured a policy for Joseph on his Volkswagen as well as one for Russell on his car, a Cadillac.On being told that Russell wanted the Packard insured, the Great Northern agent added coverage of the Packard to Russell's policy, representing on the endorsement that the car was Russell's although he had been told that it was Joseph's.Sometime in October, Joseph returned to Amboy, picked up the Packard, and returned to Minneapolis with it.Thereafter occurred Nelson's accident.

After Howe had commenced a personal injury action in the Minnesota district court against Nelson and both Johnsons, United Services brought a declaratory judgment action in Federal district court to determine coverage among the insurance policies issued to Nelson, Russell, and Joseph.In that action, in which all parties concerned were joined, United Services asked the court to 'enter a declaratory judgment construing the provisions of said policies of insurance so as to determine the respective rights and liabilities of the plaintiff and the defendants herein.'Specifically, United Services claimed that Russell Johnson had an insurable interest in the Packard and that his Great Northern policy provided coverage as if it had been owned by him.United Services further claimed that, because of this coverage, Great Northern was obligated to pay any judgment that might be rendered against Joseph Johnson or against Nelson, under Russell's ommibus insured clause.This clause would not come into effect unless the Packard were found to be an 'owned automobile' within the meaning of the policy.¹In the alternative should the court fail to grant those claims, United Services prayed the court to reform Joseph Johnson's policy to include the Packard.

The Federal court held in a memorandum opinion ² that Russell Johnson had an insurable interest in the Packard, notwithstanding his lack of a property interest in the car, and that Great Northern must defend him in the state court action.Following this judgment, United Services moved the court for amended conclusions of law and judgment.In its motion, United Services asked the court to expand its holding to say that Great Northern had primary coverage and United Services only excess coverage, and that Great Northern must satisfy any judgment against Russell Johnson, Joseph Johnson, or Duane Nelson.³The court denied this motion, and no appeal was taken within the allowed time.

After the appeal time had elapsed, United Services attempted to use the declaratory judgment implementing statute, 62 Stat. 964,28 U.S.C.A. § 2202, which provides for coercive or further declaratory relief based on a declaratory judgment, to support a further motion to amend the conclusions of law and thereby to prolong the time for appeal.In a 'MOTION FOR FURTHER NECESSARY OR PROPER RELIEF BASED UPON DECLARATORY JUDGMENT' United Services repeated the substance of its prior motion and added the request that Great Northern be 'estopped' from denying liability coverage for Joseph on Russell's policy in the state case.⁴In its memorandum and order denying the motion, the court noted that the relief requested did not differ from that requested in the earlier motion.It recognized this requested relief as an expansion of the original holding to include a conclusion that Joseph Johnson was covered as an omnibus insured under Russell's policy.This the court refused to grant because it found no knowledge by the insurance agent that Joseph would be using the car.Following this denial, United Services attempted to appeal from the judgment and the subsequent orders.The appeal was dismissed as taken out of time and being without merit.

Thereafter, the state court case came to trial and resulted in a verdict for Howe against Nelson and Joseph Johnson for $20,000, Russell Johnson having been dismissed as a defendant prior to trial.Nelson was also ordered to indemnify Joseph to the extent of the judgment.Great Northern's counsel represented Russell in those proceedings; Nelson was represented by United Services' counsel; and Joseph Johnson was represented by his own counsel.After Howe unsuccessfully attempted to satisfy his judgment from Nelson and Joseph, he instituted garnishment proceedings against Great Northern and United Services.Both companies disclosed that they owed nothing to Nelson and Joseph Johnson.Howe then began supplemental proceedings.

The state district court decided the issues in those proceedings in favor of Great Northern on the basis of the Federal and state court files in the two prior actions.The court viewed the Federal court decision that Great Northern must defend Russell Johnson and that Joseph Johnson's policy could not be reformed to include the Packard as res judicata as to the issues of coverage with which it was faced.Accordingly, it concluded that Great Northern had no policy under which liability attached, and that United Services therefore afforded primary coverage.

On this appeal, United Services contends that the Federal district court judgment is not res judicata as to two defenses it wishes to raise.The first is that Nelson and Joseph were omnibus insureds under Russell Johnson's policy and that therefore his policy affords primary coverage.The second, alternative defense is that Joseph Johnson's policy should be reformed to accurately reflect his ownership of the Packard so that it is insured in his name and he is afforded primary coverage.Under the view we take of the casewe need not reach or decide the merits of those defenses.

The doctrine of res judicata includes two different effects of a judgment as an estoppel--estoppel by judgment and estoppel by verdict or collateral estoppel.⁵Estoppel by judgment operates as an absolute bar to a subsequent suit on the same cause of action, concluding the parties and their privies not only as to every matter that was litigated but also as to any other claim or defense which might have been litigated.⁶Estoppel by verdict applies, in a subsequent suit on a different cause of action, only to issues litigated and necessarily decided in a prior suit and only against parties appearing in the same capacity as in the prior suit.⁷

Estoppel by verdict could be applied in in this case because of the similarity of the defenses raised in Federal court and on this appeal, notwithstanding differences of labeling and emphasis.We think, however, the analysis more appropriate and better calculated to produce future clarity is that of estoppel by judgment.

The res judicata effect of a judgment in a declaratory judgment action is essentially no different from the res judicata effect of any other judgment.⁸This effect has been recognized by...