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INSURER WHICH DEFENDED INSURED IN NEGLIGENT SHOOTING CASE, UNDER A RESERVATION OF RIGHTS, HELD NOT ESTOPPED FROM LATER LITIGATING ISSUE OF WHETHER SHOOTING WAS INTENTIONAL
The Virginia Supreme Court in Mabry considered the issue whether the trial court properly determined that an insurer was estopped from litigating whether it’s insured’s acts were negligent or intentional based on a judgment in a prior tort action in which the insurer provided the insured a defense under a reservation of rights. The Virginia Supreme Court reversed, holding that State Farm was not a party to the tort litigation nor was it in privity with the insured regarding the nature of his acts, and therefore collateral estoppel did not apply to preclude State Farm from litigating the issue of the shooter’s intent. In so holding, the Supreme Court disapproved dicta in a prior case, Norman v. Insurance Co. of North America, 218 Va. 718, 725, 239 S.E.2d 902, 906 (1978), which stated that a judgment entered in the tort litigation holding the insured’s actions to be intentional constitutes a collateral estoppel of the insured’s action against the insurer in which the insured asserted his actions were accidental. In Mabry, the insured had injured the claimant by shooting her four times, using two pistols. A claim was made against the insured’s homeowner’s policy. State Farm, which had issued the homeowner’s policy, issued a reservation of rights letter to both the insured and the claimant, asserting that insurance coverage might not be available due to the intentional act exclusion in the policy. State Farm later provided a defense in a suit in which the claimant alleged that the shootings were the result of negligence, and sent reservation of rights letters again to the insured and the claimant when the litigation was initiated.. While the tort suit was pending, State Farm filed a motion for declaratory judgment to determine whether the intentional act exclusion excluded coverage here. Prior to resolution of that, the insured and the claimant agreed to the entry of a consent judgment against the insured for $95,000. The trial court then held that State Farm was estopped from litigating whether the insured’s actions in shooting the claimant were negligent or intentional. The Virginia Supreme Court reversed that ruling, reasoning that collateral estoppel requires an element of privity; and privity requires that a party’s interest be "so identical" with another "that he represents the same legal right." By issuing a reservation of rights letter, State Farm established that its position diverged from that of its insured on this issue and that the interests of State Farm and the insured with regard to coverage were adverse, not identical. The Court also reasoned that State Farm never had its day in court in the tort proceeding. It was not a party. Although it was providing a defense, "[t]he attorney employed by the insurer to defend the insured ‘is bound by the same high standards which govern all attorneys, and owes the insured the same duty as if he were privately retained by the insured.’" Thus, the insured’s attorney in the tort litigation could not argue that the insured’s acts were intentional. The declaratory judgment proceeding thus was State Farm’s first opportunity to assert its coverage defense. |
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