Lomax v. Nationwide Mut. Ins. Co.

• Decision Date: 15 August 1991
• Docket Number: Civ. A. No. 88-300 LON.
• Citation: 776 F. Supp. 870
• Parties: Walter LOMAX, Sr., Administrator of the Estate of Walter Lomax, Jr., Plaintiff, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Delaware

776 F. Supp. 870

Walter LOMAX, Sr., Administrator of the Estate of Walter Lomax, Jr., Plaintiff, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant.

Civ. A. No. 88-300 LON.

United States District Court, D. Delaware.

August 15, 1991.

Eliot Alazraki and Gary S. Nitsche of Eliot Alazraki, P.A., Wilmington, Del., for plaintiff.

Mason E. Turner, Jr. of Prickett, Jones, Elliott, Kristol & Schnee, Wilmington, Del., for defendant.

OPINION

LONGOBARDI, Chief Judge.

This is a civil action based on diversity of citizenship brought by Plaintiff Walter Lomax, Sr., administrator of the Estate of Walter Lomax, Jr., against Defendant Nationwide Mutual Insurance Company ("Nationwide"). Plaintiff seeks damages for Defendant's alleged bad faith refusal to arbitrate on the reformed uninsured motorist policy of Kenneth E. Murrey. Plaintiff has moved for summary judgment claiming that no genuine issues of material fact exist and that the Plaintiff is entitled to judgment as a matter of law.

I. FACTS

On November 27, 1980, Walter Lomax, Jr. was injured and later died as a result of injuries sustained in an automobile accident while permissibly driving a friend's motor vehicle. Docket Item ("D.I.") 17 at 3. The friend, Kenneth E. Murrey, had purchased a Delaware automobile insurance policy from Defendant Nationwide which was in effect on the date of the accident. The policy provided $100,000 per person/$300,000 per accident bodily injury liability coverage and $10,000 per person/$20,000 per accident uninsured motorist ("UM") coverage. D.I. 17A, Exhibit A. Walter Lomax, Jr. was an additional insured for UM coverage as a permissive user under Murrey's policy with Defendant and thus had a claim for UM benefits under that policy.

On September 15, 1982, the administrator of the Estate of Walter Lomax, Jr. filed suit against Nationwide in Pennsylvania state court. D.I. 20 at 2. Nationwide removed the case to the United States District Court of the Eastern District of Pennsylvania which dismissed the suit and denied a motion by Murrey to intervene. Lomax v. Nationwide Insurance Co., C.A. No. 83-1621, Lord, J. (E.D.Pa. Jan. 30, 1985), D.I. 17A at A-19, aff'd, Lomax v. Nationwide Insurance Co., 779 F.2d 43 (3rd Cir.1985) (estate lacked standing to reform insurance contract). D.I. 17A at A-20. On June 23, 1986, Murrey filed suit in the United States District Court for the District of Delaware against Nationwide seeking to reform his insurance contract to provide increased uninsured motorist coverage.¹ D.I. 17 at 4.

The District Court held that, either under Delaware or Pennsylvania statutes of limitation, the reformation action was timely. Murrey v. Nationwide Ins. Co., 674 F.Supp. 154, 156-58 (D.Del.1987). The Court also found that Murrey had standing to reform his policy and was not collaterally estopped from asserting his right to reformation by the denial of his intervention motion in the Pennsylvania litigation. Id. at 160-61. On February 18, 1988, Nationwide made an offer of judgment to permit Murrey to retroactively increase the limits of his UM coverage from $10,000 per person/$20,000 per accident to $100,000 per person/$300,000 per accident.

On May 2, 1988, following Murrey's acceptance of Nationwide's offer of judgment, Plaintiff's counsel made a demand on Nationwide in behalf of the Estate for arbitration to obtain the reformed policy limits. D.I. 17 at 6. On June 1, 1988, Plaintiff filed suit against Nationwide in United States District Court for the District of Delaware seeking an order compelling arbitration and seeking damages for Nationwide's refusal to arbitrate. D.I. 1.

Plaintiff has filed a motion for partial summary judgment on the grounds that contrary to Nationwide's affirmative defense assertions, the present action is not barred by the applicable statute of limitations, collateral estoppel and/or res judicata. The Plaintiff also seeks partial summary judgment on the grounds that the Defendant is obligated to provide UM benefits to the Plaintiff based on the reformed Murrey policy and that Plaintiff is not prohibited from recovery by exclusionary language in the Murrey policy or by the operation of 12 Del.C. § 2102.

II. SUMMARY JUDGMENT

Summary judgment is appropriate under Federal Rule of Civil Procedure 56(c) when the moving party establishes that there is no genuine issue of material fact that can be resolved at trial and that the moving party is entitled to a judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Materiality is determined by the substantive law which governs the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). In this inquiry, "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id.

Following a determination that no disputes of material facts exist, the moving party must demonstrate that it is entitled to judgment as a matter of law. If the moving party bears the burden of proof at trial, then his burden on summary judgment is to make a showing sufficient to establish the existence of every element essential to his case. Celotex, 477 U.S. at 322, 106 S.Ct. at 2552.

Once the moving party has made and supported his motion, the "adverse party may not rest upon mere allegations or denials of the adverse party's pleading, but ... must set forth specific facts showing that there is a genuine issue for trial." Issues of fact will be resolved against the moving party and all inferences to be drawn from the material it submits will be viewed in the light most favorable to the party opposing the motion. Norfolk Southern Corp. v. Oberly, 632 F.Supp. 1225, 1231 (D.Del.1986) (citing Adickes v. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970)), aff'd 822 F.2d 388 (3rd Cir.1987). If the evidentiary record supports a reasonable inference that the ultimate facts may be drawn in favor of the responding party, then the moving party cannot obtain summary judgment. In re Japanese Electronic Products, 723 F.2d 238, 258 (3rd Cir.1983), rev'd on other grounds, 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

In analyzing the legal issues raised in this motion, the Court recognizes that a federal court sitting in a diversity action must apply the substantive law of the state in which it sits. Brown v. Caterpillar Tractor Co., 696 F.2d 246, 249 (3rd Cir.1982); Becker v. Interstate Properties, 569 F.2d 1203, 1204 (3rd Cir.1977), cert denied, 436 U.S. 906, 98 S.Ct. 2237, 56 L.Ed.2d 404 (1978). If there is no ruling by the state's highest court, then the federal court must "apply what they find to be the state law after giving `proper regard' to the relevant rulings of other courts of the state." Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1783, 18 L.Ed.2d 886 (1967); First Nat. State Bank of N.J. v. Comm. Federal Savings & Loan Assoc., 610 F.2d 164, 172 (3rd Cir.1979). When state law is unclear, the District Court must predict how the state's highest court would resolve the issue. Rabatin v. Columbus Lines, Inc., 790 F.2d 22, 24 (3rd Cir.1986); McGowan v. University of Scranton, 759 F.2d 287, 291 (3rd Cir.1985).

A. Collateral Estoppel and/or Res Judicata

1. Collateral Estoppel

Collateral estoppel or "issue preclusion"² involves foreclosing relitigation of a matter that has been litigated and decided. See Restatement (Second) of Judgments, Introductory Note to Chapter 3; 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4402 (1982). In Delaware, there are four requirements for a finding of issue preclusion: (1) the issue in the instant case must be identical to the issue concluded in the earlier action; (2) the issue must have been actually raised and fully litigated in the prior action; (3) the issue must have been material and relevant to the disposition of the prior action; and (4) the determination of the issue in the prior action must have been necessary and essential to the resulting judgment. See Neoplan USA Corp. v. Taylor, 604 F.Supp. 1540, 1546 (D.Del. 1985); In re Asbestos Litigation (Lee), Del.Super., 517 A.2d 288, 292-93 (1986); Chrysler Corp. v. New Castle County, Del.Super., 464 A.2d 75 (1983). See also Continental Cas. Co. v. Anne Arundel Com. College, 867 F.2d 800, 802-03 (4th Cir.1989) (discussing Delaware law).

In the present case, it is unnecessary to examine all of the factors as the issue of whether the Plaintiff was entitled to UM benefits was never "actually litigated and fully determined in the first proceeding." Auerbach v. Cities Service Company, Del.Super., 134 A.2d 846, 851 (1957). The prior action was dismissed by the District Court and then affirmed by the Third Circuit on the ground that, under Pennsylvania law, "one who is neither a party to an insurance contract nor in privity with such a party lacks standing to reform an insurance contract." Lomax v. Nationwide Insurance Co., 779 F.2d 43 (3rd Cir.1985). Because the prior action was dismissed prior to addressing and fully litigating the underlying substantive issues, it is clear that collateral estoppel is inapplicable in the present case. See Dofflemyer v. W.F. Hall Printing Co., 558 F.Supp. 372, 380 (D.Del.1983) (same issue of fact to be determined must have been previously litigated). Accordingly, Plaintiff's motion for partial summary judgment on the ground that collateral estoppel is inapplicable to the present action is granted.

2. Res Judicata

Res judicata or claim preclusion permits "a final judgment upon the merits rendered by a court of competent jurisdiction to be raised as an absolute bar to the maintenance of a second suit in a different court upon the same matter by the same party or his privies." Epstein v. Chatham Park, Inc., Del.Supr., 153 A.2d 180, 184 (1959); Brady v. C.F. Schwartz Motor Co., Inc., 723 F.Supp. 1045, 1047 (D.Del....