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In CRS Auto Parts, Inc. v. National Grange Mutual Insurance Company, Turley Insurance Agency, Inc.,  the insured brought suit against the insurer; but, subsequently the  insurer brought a third party claim for indemnification against an insurance agency it used, claiming that it was the agency’s bad faith and fraud that lead to insured’s harm, rather than the insurer’s own acts.

The insured initially brought an action against the insurer and other defendants for their alleged failure to honor their obligations under the purported policy of workers compensation insurance.  That failure purportedly exposed the insured to workers compensation and general liability claims by employees who were injured and killed, respectively, in a motor vehicle accident that occurred during the course of their employment with the insured.  The insurer filed a declaratory judgment action against the insured in federal court. The court determined in that action that the insured made no misrepresentations to the insurer and the insurance binder was in effect and provided coverage at the time of the accident. The court entered judgment in favor of the insured.  The insurer then filed an appeal which is currently pending.

The insured then filed a breach of contract, bad faith , and fraud claim  in the United States District Court for the Eastern District of Pennsylvania against the insurer. The insurer then filed a third party complaint against an insurance agency, Turley, who was authorized per an agency agreement, to solicit insurance policies on behalf of the insurer. The third party complaint sought indemnification on the grounds that the insurance agency and not the insurer engaged in fraud and/or misrepresentations during the placement of the insured’s insurance policies, asserted that the agency breached their agreement, and also sought contractual indemnity pursuant to the agency agreement between the insurer and the insurance agency.

The insurance agency filed a motion to dismiss this third party complaint. It argued that Counts I and II are barred by collateral estoppel and res judicata and that Count III is not ripe for judicial decision.

The Court found that the collateral estoppel did not apply. There were substantial differences in the issues in the declaratory judgment action and the current third party complaint; and that the third element of collateral estoppel, that the previous determination was necessary to the decision, was lacking. Most importantly the Court found that the insurer did not have a full and fair opportunity to litigate its claims against the insurance agency in the Declaratory Judgment action since they were not a party to the prior action.

The Court found that res judicata did not apply.  The mutuality requirement was not met since the insurance agency was not a party to the former action.  Also the agency’s absence from the original litigation did not prevent the court from awarding full and complete relief to the insured in the Declaratory Judgment action.

Finally the Court found that Count III was ripe for consideration because there were final judgments made in the declaratory action and the pending appeal of those decisions does not deprive them of their finality.  The motion to dismiss the third party complaint brought by the insurer against the insurance agency was denied in its entirety.

Date of Decision: October 7, 2008

CRS Auto Parts, Inc. v. Nat’l Grange Mut. Ins. Co., Civil Action No. 08-2022, 2008 U.S. Dist. LEXIS 78683 (E.D. Pa. Oct. 7, 2008)(Buckwalter, J.)