Suing An Insurance Company A Second Time

Here is a situation not discussed before and one that rarely happens.  However, it does discuss law that may be relevant to insurance lawyers in other cases.   The case is from the Southern District of Texas, Houston Division.   It is styled, Randy Randel and Debra Randel v. Travelers Lloyds of Texas Insurance Company.

The Randels experienced a fire loss to their home and made a claim against their homeowners policy with Travelers.  Travelers paid on the claim but the Randels allege they were underpaid.  The Randels sought to have the claim appraised and Travelers refused, stating the case was closed.

The Randels filed a declaratory judgment action against Travelers seeking the Court to Order Travelers to appraise the claim.  Travelers agreed to appraisal and the Randels dismissed their lawsuit with Prejudice to refiling the claim.

The appraisal was never performed and the Randels filed this action against Travelers for breach of contract and breach of various insurance codes.  Travelers moved for judgment on the pleadings, arguing that Randels claims are barred by the res judicata doctrine.

Federal Rule of Civil Procedure 12(c) expressly provides that “after the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings.”  A motion brought pursuant to Rule 12(c) is designed to dispose of cases where the material facts are not in dispute and a judgment on the merits can be rendered by looking to the substance of the pleadings and any judicially noticed facts.  Such a motion is subject to the same standard as a motion to dismiss under Rule 12(b)(6).  To this end, the pleadings are to be construed liberally, and a judgment on the pleadings is appropriate only if there are no disputed issues of fact and only questions of law remain.

Claim preclusion or res judicata, bars the litigation of claims that either have been litigated or should have been raised in an earlier suit.  The elements of claim preclusion, or res judicata, are as follows:

(1) the parties in the subsequent action are identical to, or in privity with, the parties in the prior action; (2) the judgment in the prior case was rendered by a court of competent jurisdiction; (3) there has been a final judgment on the merits; and (4) the same claim or cause of action is involved in both suits.

If all four of these elements are present, claim preclusion prohibits a litigant from raising any claim or defense in the later action that was or could have been raised in support of or in opposition to the cause of action asserted in the prior action.

The crux of Travelers’ argument here is that because the Randels claim for declaratory relief was part of a prior lawsuit involving the same parties, the same claim, and arising out of the same nucleus of operative facts, the res judicata doctrine bars the Randels current lawsuit.  This Court does not agree.  Indeed, the Randels previously sought a declaratory judgment as to whether the Policy requires Travelers to proceed to appraisal and further requested that the state court compel Travelers to participate in the appraisal process in a prior state court lawsuit.  Travelers eventually conceded that issue, thereby obviating the need for adjudication.  Therefore, the Randels subsequent voluntary dismissal of their lawsuit pursuit to a Notice of Nonsuit with Prejudice does not bar the instant action, as their declaratory judgment action was not adjudicated.  The Fifth Circuit has reasoned that the rules of claim preclusion are difficult, if not impossible, to apply in the usual form when a declaratory judgment proceeding ends in a judgment that states no more than dismissed with prejudice.

For an issue to be barred under the usual rationale of issue preclusion, the issue must be one that was actually litigated and necessary to the judgment.  Given that the Randels prior lawsuit was more of a “run-of-the-mill” type declaratory judgment action that was resolved, at least in part, by agreement, such action may not now be used as a res judicata bar to preclude the Randels subsequent action for coercive relief premised upon the same contractual right, even though the latter arises out of the same nucleus of operative facts.  To permit such, would obfuscate the entire purpose for filing a declaratory judgment action in the first place.

Travelers motion was denied.

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