Weekes v. Atlantic National Ins. Co., 20245.

Decision Date20 December 1966
Docket NumberNo. 20245.,20245.
Citation370 F.2d 264
CourtU.S. Court of Appeals — Ninth Circuit

Robert G. Begam, of Langerman, Begam & Lewis, Phoenix, Ariz., for appellant and appellee Weekes.

John J. O'Connor, III, of Fennemore, Craig, Allen & McClennen, Phoenix, Ariz., for appellants and appellees California State Auto Ass'n Inter-Ins. Bureau and Samuel Rotanzi.

Mark Wilmer, of Snell & Wilmer, Phoenix, Ariz., for appellee and appellant Atlantic Nat. Ins. Co.

Before MERRILL, KOELSCH and DUNIWAY, Circuit Judges.

DUNIWAY, Circuit Judge:

In this action for declaratory relief, in which jurisdiction is based upon diversity of citizenship, there are three appeals. The action was begun by Atlantic National Insurance Co. (Atlantic). The defendants are California State Automobile Association Inter-Insurance Bureau (California), Samuel Rotanzi (Rotanzi) and Edgar T. Weekes and Catherine H. Weekes, husband and wife, (the Weekes). The facts are not disputed, and the court entered a summary judgment, from various parts of which the Weekes, California and Rotanzi, and Atlantic appeal.

The action arose out of an automobile accident occurring in Arizona. Rotanzi rented a car from Hertz Corporation. There was a collision between that car, driven by Rotanzi, and a car owned by the Weekes. For the purposes of this case, it is stipulated that at the time, Rotanzi was under the influence of intoxicating liquor. The accident occurred on April 20, 1961. On June 26, 1961, the Weekes filed an action in the federal district court claiming personal injury damages exceeding $160,000. In February, 1963, the parties agreed to hold that action in abeyance, to await the outcome of a declaratory judgment action to be filed thereafter. On March 22, 1963, Edgar Weekes filed suit in Arizona Superior Court against Rotanzi, claiming damage to his car; the present suit which is the declaratory judgment action that had been agreed upon, was filed by Atlantic about October 1, 1963, issue finally being joined upon the second amended complaint filed November 20, 1964. The car damage action was settled in October, 1963, and a stipulation was filed in that action on October 22, 1963. Pursuant to that stipulation, the car damage action was dismissed with prejudice upon payment to Weekes of $1,101.52, the exact amount prayed for in the complaint. The purpose of the present suit was to determine questions of insurance coverage. It was on file but had not come to issue when the property damage action was settled.

Atlantic had issued a policy of insurance to Hertz Corporation, affording liability insurance to persons leasing Hertz cars. In this action, in its second amended complaint, Atlantic claimed:

1. that the disposition of the car damage action makes it a bar to the personal injury action;

2. that the coverage issued by California to Rotanzi is primary and Atlantic's coverage, if any, is secondary, and

3. that coverage was not afforded to Rotanzi because the policy excludes coverage if the accident occurs "while the car is being operated * * * by any person under the influence of intoxicants * * *," or, alternatively, that this exclusionary clause should at least reduce Atlantic's liability to a maximum of $10,000 per person and $20,000 per accident. The policy limits are $100,000 and $300,000.

California had issued a policy of liability insurance to Rotanzi. Both California and Rotanzi asserted: (1) that the disposition of the car damage action makes it a bar to the personal injury action; (2) that Atlantic's coverage is primary, or, alternatively, that the two insurers should participate in proportion to the respective limits of their policies; and (3) that Atlantic's liability is neither excluded nor limited by its exclusionary clause.

The Weekes asserted that the disposition of the car damage case does not make it a bar to the personal injury action, that Atlantic's liability is neither excluded nor limited, that California is also liable for Rotanzi's conduct, and that both Atlantic and California should be required to pay the full amount, up to their full policy limits, of the Weekes' personal injury claims.

All parties moved for summary judgment. The court's judgment on these motions is to the following effect (the numbering follows the numbering in the judgment):

1. The disposition of the car damage action does not make it a bar to the personal injury action.

2. A. Coverage of Rotanzi by Atlantic's policy is not excluded.

B. The limits of Atlantic's coverage of Rotanzi are $10,000 for one injury, $20,000 for one accident.

C. Atlantic's coverage is primary.

D. California's coverage is excess.

The Weekes appeal from paragraph 2B: Atlantic appeals from paragraphs 1, 2A, 2C, and 2D; California and Rotanzi appeal from paragraphs 1 and 2B. We consider these appeals according to their subject matter.

1. The effect of the settlement of the car damage case.

An affidavit submitted in behalf of the Weekes, in support of their motion for summary judgment, shows that in February, 1963, about two years after the personal injury action was filed, the parties agreed that it be "held in abatement" pending disposition of a declaratory judgment action to be filed. In March, 1963, without the knowledge of the attorney who represented the Weekes in the personal injury action, Mr. Weekes, through another attorney, filed the car damage action. Counsel for Mr. Weekes in the car damage case was retained by Allstate Insurance Company. This was a "subrogation" action. Allstate, however, was not named as a plaintiff. The terms of its subrogation rights, if any, are not stated. It does not appear that Allstate paid for the damage to the car, or that Weekes assigned his car damage claim to Allstate, or whether the Allstate policy required that he do so. That policy is not in the record.

The present declaratory judgment action was filed October 1, 1963. Atlantic is represented by different counsel from counsel who were acting for it as Rotanzi's counsel in both the car damage and personal injury actions. During October, 1963, counsel for both sides in the car damage action agreed to settle and stipulated to its dismissal, with prejudice. An order to that effect was entered October 22, 1963. Not until October 26 did the attorney representing Weekes in the personal injury action learn of this stipulation and dismissal. He learned of it when Weekes brought him a settlement draft containing a full release. The attorney advised Weekes not to sign. After some correspondence with Atlantic's attorney and the attorney chosen by Allstate to represent Weekes in the car damage case, a new draft, not containing the release, was issued and Weekes' counsel in the personal injury case advised Weekes to accept it, which he did. Certain correspondence between Weekes' attorney in the car damage case, and Atlantic's attorney in that case and the personal injury case, is set out in the margin.1

Atlantic, California and Rotanzi all urge that the stipulated dismissal in the car damage case is res judicata here. Their argument is in substance as follows: Arizona adheres to the single cause of action rule.2 In negligence cases the cause of action lies in defendant's breach of duty, and where, as here, that breach causes both personal injury and property damage, there is still but one cause of action.3 The result of the rule is that if the injured party brings separate actions for personal injury and for property damage, and judgment is for the defendant in either of them, that judgment is res judicata as to the other action, and a bar to its further prosecution.4 The Arizona court has said that where two cases based on the same cause of action are filed, this result follows, regardless of which action was first commenced.5

Dismissal with prejudice is an adjudication on the merits, in favor of the defendant.6 Here, the property damage case was dismissed with prejudice by stipulation of the parties.7 This, say appellants, was an adjudication on the merits against Edgar Weekes,8 and is therefore res judicata in the personal injury case, which must be dismissed.9 This is particularly true here, they say, because the settlement was completed with full knowledge of the facts. The attorney for Atlantic, representing Rotanzi in both the car damage and the personal injury cases, expressly reserved whatever rights the dismissal might confer; the attorney for the Weekes in the personal injury case knew this and took his chances, based upon his own view of the law. He — and therefore his clients — are bound by the legal result of what he permitted them to do. No fraud was perpetrated.

So far as appears from this record, none of the foregoing applies to Mrs. Weekes. She was not a party to the property damage case. The only case in which any cause of action of hers is asserted is the personal injury case. Her rights in the personal injury case, therefore, have not been adjudicated.

As to Mr. Weekes, the result demanded by the appellants hardly squares with any conceivable notion of justice. The car damage case was brought by an attorney chosen by Allstate, using Weekes' name. His personal injury attorney did not even know that it had been filed, much less that it had been settled and dismissed, until after it was dismissed. At that point the matter was brought to his attention, and he objected to the release that Weekes was asked to sign. The release was then withdrawn by the attorney who represented both Rotanzi and Atlantic in both cases.10

It is quite true that if Arizona law compels the result sought by appellants we must follow it, leaving Mr. Weekes to whatever remedies he may have against those who led him,...

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