Thursday, April 22, 2010

Res Judicata and Collateral Estoppel Not Applicable to Bar Relitigation of Rate Evasion-Based Voiding of Pennsylvania Auto Policy

Matter of AutoOne Ins. Co. v. Valentine
(2nd Dept., decided 4/20/2010)

On January 3, 2004, Valentine was involved in an automobile accident in Queens with a motor vehicle operated by Rodriguez. The petitioner, AutoOne Insurance Company, insured the Valentine vehicle.  Rutgers Casualty Insurance Company insured the Rodriguez vehicle.

In 2005, Rutgers commenced an action in Pennsylvania state court against, among others, Rodriguez and Valentine.  AutoOne was not a party to the Pennsylvania action. Rutgers' complaint alleged that Rodriguez had fraudulently represented on his application for insurance that he resided in Pennsylvania and that his vehicle was garaged there.  Rutgers sought to have Rodriguez's policy declared void ab initio.  The complaint also stated that "[a]ll other defendants named herein are so named FOR THE PURPOSE OF NOTICE ONLY," referring to Valentine and all of the defendants other than Rodriguez.

In 2006, the Pennsylvania state court declared Rodriguez's policy void ab initio upon the default of Rodriguez and granted Rutgers' request to discontinue the Pennsylvania action against all other defendants, including Valentine.

Valentine thereafter amended his supplementary uninsured motorists (SUM) coverage claim to AutoOne and demanded arbitration.  In 2008, AutoOne commenced this special proceeding and sought leave to join Rutgers and Rodriguez as proposed additional respondents and temporarily to stay arbitration of Valentine's claim for SUM benefits pending a hearing on the determination of coverage under Rodriguez's policy with Rutgers.

Queens Supreme Court (Rios, J.) granted AutoOne's petition and Rutgers appealed.  In AFFIRMING the order appealed from, the Second Department ruled:
  • the doctrine of res judicata did not apply to bar relitigation in this proceeding of the issue of insurance coverage for the Rodriguez vehicle under the Rutgers policy because the Pennsylvania court order was not a final judgment on the merits which would be entitled to res judicata effect in this proceeding;

  • because the discontinuance of Rutgers' Pennsylvania state court action as to Valentine did not state that it was granted with prejudice, it did not operate as an adjudication on the merits for purposes of res judicata application; and

  • the doctrine of collateral estoppel did not apply to bar relitigation in this proceeding of the insured status of the Rodriguez vehicle because that issue was not actually litigated and decided in the Pennsylvania action, since Rodriguez defaulted and the Pennsylvania court's order voiding his policy ab initio was issued on that basis.

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