State Farm Mut. Auto. Ins. Co. v. Avery

• Decision Date: 07 November 2002
• Docket Number: No. 20619-0-III.,20619-0-III.
• Citation: 114 Wash.App. 299,57 P.3d 300
• Court: Washington Court of Appeals
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent, v. Donald AVERY and Douglas Avery, Appellants.

57 P.3d 300

114 Wash.App. 299

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent, v. Donald AVERY and Douglas Avery, Appellants.

No. 20619-0-III.

Court of Appeals of Washington, Division 3, Panel Nine.

November 7, 2002.

Donald Avery, Lakeside, MT, for Appellants.

Steven M. Cronin, Mullin, Cronin, Casey & Blair, Spokane, WA, for Respondent.

SWEENEY, J.

This is a dispute between a third party claimant and an automobile insurance carrier over the meaning of the terms of a settlement agreement. The claimant signed a full liability release in exchange for $7,500 and continued payment of medical bills, in accordance with the policy's personal injury protection (PIP) clause up to the limits of $35,000. PIP payments were, however, made expressly subject to all policy limitations. And the policy limits medical payments to three years from the date of injury. We agree with the trial judge that, based on the plain language of the settlement agreement and the pertinent provisions of the insurance policy, State Farm was no longer liable for medical expenses beyond three years after the date of the accident. We therefore affirm the summary dismissal of the claim.

I. FACTS

State Farm Mutual Automobile Insurance Company's insured, Shannon McMillen, struck Douglas Avery, a pedestrian. Douglas was 14 years old. He was injured. Ms. McMillen's policy included personal injury protection. The PIP coverage required payment of reasonable and necessary medical expenses incurred within three years of the accident, up to $35,000. Douglas's father, Don Avery, hired a lawyer and sued Ms. McMillen for damages. State Farm paid for Ms. McMillen's defense pursuant to the policy.

Two years later, in December 1997, Mr. Avery signed an agreement releasing all of Douglas's claims in exchange for $7,500 cash plus continued medical coverage. The key language promises:

payment of all reasonable and necessary medical bills in accordance with the provisions of Shannon McMillen's personal injury protection policy, including all limitations and exclusions, up to the policy limits of Thirty-Five Thousand ($35,000.00) Dollars, in full payment of all claims of every kind and nature arising out of or associated with [the November 3, 1995 accident].

Clerk's Papers (CP) at 92. Mr. Avery was represented by counsel during negotiation and execution of the release. Also, Douglas's court-appointed guardian ad litem approved the settlement. The superior court approved the settlement. The three years for PIP expired on November 3, 1998. In June 1999, seven months after the three-year limit expired, Mr. Avery sued in small claims court to recover $158.07 for a medical bill State Farm had refused to pay. The court entered judgment in favor of Mr. Avery for $170.84, including costs; State Farm paid.

In August, Mr. Avery again sued State Farm in small claims court for another medical bill, this time for $2,301. This time, State Farm filed a complaint in superior court for a declaratory judgment that it had no obligation under the settlement agreement to pay any medical expenses after November 3, 1998. The action in small claims court was stayed. From this point forward, Mr. Avery appeared pro se. Mr. Avery responded that State Farm's claims had already been judicially determined by the first small claims action. And he counterclaimed for emotional distress and bad faith. He also objected to a Walla Walla County venue.

State Farm moved for summary judgment. Mr. Avery moved to dismiss the motion and filed a detailed response with exhibits. At first, the court denied summary judgment. The court noted Mr. Avery's defenses of improper venue, collateral estoppel, and bad faith. The court also found disputed issues of material fact as to the intended meaning of the settlement language. At Mr. Avery's request, the matter was set for jury trial.

In the course of a pretrial hearing on jury instructions, the court reversed its previous summary judgment ruling. It now ruled that no issue of fact remained for the jury and that State Farm was entitled to judgment as a matter of law. The court explained that the only issue was the interpretation of the settlement agreement, and that the language unambiguously relieved State Farm of liability for medical expenses after November 3, 1998.

Mr. Avery disputed this interpretation and directed the court's attention to the prior small claims judgment. The court ruled from the bench that the small claims judgment had no preclusive effect. The court entered summary judgment for State Farm.

II. DISCUSSION

A. PRECLUSIVE EFFECT OF SMALL CLAIMS JUDGMENT

1. Standard of Review. When reviewing an order granting summary judgment, we engage in the same inquiry as the trial court. Barr v. Day, 124 Wash.2d 318, 324, 879 P.2d 912 (1994) (collateral estoppel).

2. Collateral Estoppel. Collateral estoppel, also called issue preclusion, bars relitigation of any issue that was actually litigated in a prior lawsuit. Pederson v. Potter, 103 Wash.App. 62, 69, 11 P.3d 833 (2000) (citing Hanson v. City of Snohomish, 121 Wash.2d 552, 561, 852 P.2d 295 (1993)), review denied, 143 Wash.2d 1006, 25 P.3d 1020 (2001); Philip A. Trautman, Claim and Issue Preclusion in Civil Litigation in Washington, 60 WASH L.REV. 805, 812-13 (1985). One of the purposes of issue preclusion is to encourage respect for judicial decisions by ensuring finality. Trautman, supra, at 806. Collateral estoppel is an affirmative defense. The party asserting it has the burden of proof. Trautman, supra, at 823 (citing Meder v. CCME Corp., 7 Wash.App. 801, 807, 502 P.2d 1252 (1972)). The question is always whether the party to be estopped had a full and fair opportunity to litigate the issue. Nielson v. Spanaway Gen. Med. Clinic, Inc., 135 Wash.2d 255, 262, 956 P.2d 312 (1998). And that turns on four primary considerations: whether the identical issue was decided in a prior action; whether the first action resulted in a final judgment on the merits; whether the party against whom preclusion is asserted was a party to that action; and whether application of the doctrine will work an injustice. Hanson, 121 Wash.2d at 562, 852 P.2d 295; Trautman, supra, at 831. State Farm contends (a) that the collateral estoppel defense is precluded by statute; (b) that the small claims court did not adjudicate the issue of its liability under the settlement agreement, and (c) that preclusion under these facts would work an injustice. We address each challenge in order.

a. Does RCW 12.40.027 operate as an exemption to preclusion?

State Farm filed its declaratory judgment action pursuant to RCW 12.40.027. State Farm contends that this statute expressly immunizes its action in superior court from the defense of issue preclusion.

RCW 12.40.027 protects small claims plaintiffs by preventing the defendant from exploiting the limited jurisdiction of the court and forcing removal of the action to superior court simply by filing a counterclaim in excess of the jurisdictional amount. Instead, the defendant may proceed with a separate simultaneous action for relief in superior court. The small claims court retains jurisdiction of the original claim and proceeds with it. But any decision will not have preclusive effect on the separate superior court action (most likely heard at a later date). RCW 12.40.027.

But RCW 12.40.027 does not operate to bar the preclusion here. State Farm did not file a counterclaim in Mr. Avery's first small claims action. Neither did it file a separate action in superior court for other relief. Instead, State Farm appeared for trial and suffered an adverse final judgment on the merits. Only after Mr. Avery filed his second small claims action in August 1999 did State Farm file a separate action in superior court for a declaration of its rights. RCW 12.40.027, therefore, does not avoid the preclusive effect of the first judgment.

b. Was the contract issue essential to the first small claims judgment?

If the issue was essential to the first judgment, it most likely received the attention of the parties and the court. This justifies giving it preclusive effect. Trautman, supra, at 833; Dixon v. Fiat-Roosevelt Motors, Inc., 8 Wash.App. 689, 509 P.2d 86 (1973).

Mr. Avery contends that interpretation of the settlement agreement was essential to the first judgment and squarely addressed by the court. State Farm disputes this, but does not offer any suggestion as to how the court could have avoided considering the settlement agreement. Mr. Avery's complaint alleged that State Farm owed him money. No basis for this claim existed other than the settlement agreement. Adjudication of the issue was then manifestly essential to the first small claims judgment.

c. Should relitigation be allowed in the interests of justice?

We will, nonetheless, not bar relitigation of issues when to do so would work a manifest injustice. Trautman, supra, at 839. Indeed, relitigation is barred only if it does not work an injustice on the party against whom preclusion is to be applied. State ex rel. Dean v. Dean, 56 Wash.App. 377, 380, 783 P.2d 1099 (1989).

However, "injustice" means more than that the prior decision was wrong. When faced with a choice between achieving finality and correcting an erroneous result, we generally opt for finality. In re Marriage of Brown, 98 Wash.2d 46, 49, 653 P.2d 602 (1982); Bull v. Fenich, 34 Wash.App. 435, 438, 661 P.2d 1012 (1983).

In evaluating whether preclusion will serve the ends of justice, we consider the following factors:

i. Character of the Court. State Farm contends that the limited jurisdiction of the small claims court means that its judgments are never to be given preclusive effect in superior court. The nature of the prior forum may affect whether collateral estoppel is fair and consistent with public policy in a particular case. Trautman, supra, at 825. If the prerequisites are met, however, the judgment of any court at any level may preclude...