City of Bozemen v. Aiu Insurance Co

No. 95-062
IN THE SUPREMECOURT OF THE STATE OF MONTANA
1995
THE CITY OF BOZEMAN,
a Municipal Corporation,
Plaintiff and Appellant,
v.
AIU INSURANCE COMPANYand MARK STORY,
d/b/a MARK STORY CONSTRUCTION,
Defendants and Respondents.
APPEAL FROM: District Court of the Eighteenth Judicial District,
II-I and for the County of Gallatin,
The Honorable Larry W. Moran, Judge presiding.
COUNSELOF RECORD:
For Appellant:
Steve Reida and J. Robert Planalp; Landoe,
Brown, Planalp & Braaksma, Bozeman, Montana
For Respondents:
E. Lee LeVeque; Conklin, Nybo, LeVeque & Murphy,
Great Falls, Montana
Gregory Morgan, Attorney at Law, Bozeman, Montana
Submitted on Briefs: July 27, 1995
Decided: August 21, 1995
Filed:
Cleirk
Justice W. William Leaphart delivered the Opinion of the Court.
The City of Bozeman appeals from the granting of AIU Insurance
Company's motion for summary judgment on the basis of res judicata.
We affirm.
Background
This is the fourth appeal before this Court arising out of
Mark Story‘s suit against the City of Bozeman. The City appealed
Story's first jury verdict (Story I) and then, after remand,
appealed the second jury verdict (Story II) . Bozeman also
litigated the question of whether its insurer AIU had a duty to
defend the City against Story's claims. That matter was
successfully appealed by AIU in what is known as AIU I. The
background leading to the present appeal is as follows:
On July 12, 1985, AIU Insurance Company issued to the City of
Bozeman its comprehensive general liability insurance policy which
included a broad form comprehensive liability endorsement. The
policy and broad form endorsement were effective June 30, 1985
through June 1986.
In December of 1986, Mark Story, d/b/a Mark Story
Construction, sued the City of Bozeman requesting general, special
and punitive damages arising out of the alleged actions and
omissions of City personnel during the AIU policy period. In his
amended complaint, Story alleged breach of the covenant of good
faith and fair dealing and defamation amongst other claims.
AIU defended the City against Story's claims but reserved its
right to later deny coverage. The first trial of Story's claims
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against the City resulted in a jury verdict against the City in the
sum of $373,236 with no damages awarded on the defamation claim.
Judgment was entered and the City appealed. Since AIU took the
position that the defamation claim was the only basis for coverage
and since the jury did not award any damages for defamation, AIU
refused to continue defending the case. As a result of AIU's
withdrawal of its defense, the City filed an action against AIU
alleging that AIU breached its duty to defend. The City sought
attorney fees and costs incurred as a result of AIU's refusal to
represent the City in its appeal of the breach of contract
judgment. The City's original complaint in AIU I did not raise
issues of whether the City had coverage under the AIU policy.
On May 3, 1990, this Court reversed the judgment against the
City of Bozeman in Story I, Story v. Bozeman (1990), 242 Mont. 436,
791 P.2d 767, and remanded the case for retrial. AIU agreed to
resume the City's defense against Story's claims after remand. In
the second trial, the jury awarded $850,000 damages against the
City. As before, AIU took the position that Story's claim for
defamation was the only basis for coverage and since the trial
judge directed a verdict in the City's favor on the defamation
count, AIU advised the City that none of the award was covered by
its insurance policy and that it was again withdrawing from the
case.
After the jury verdict in Story II, the City, on January 7,
1992, moved to amend its complaint in AIU I to include coverage
issues arising from the Story II verdict. AIU objected to the
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City's motion to amend, contending that the City was seeking to
insert coverage issues which had nothing to do with the "duty to
defend" issues. The trial court agreed with AIU and held that the
coverage issues were separate and distinct and thus denied the
City's motion to amend the complaint. The trial court concluded
that AIU breached its duty to defend and entered judgment in favor
of the City in the amount of $17,739 for costs. AIU appealed that
decision. We reversed the judgment of the District Court in City
of Bozeman v. AIU Insurance Co. (1993), 262 Mont. 370, 865 P.2d 268
(AIL7 I).
The City appealed the second jury verdict in Story II. On
appeal, we affirmed in part and reversed in part, and remanded for
entry of judgment of $850,000 against the City, striking the
$100,000 award against defendant Neil Mann. Story v. City of
Bozeman (1993), 259 Mont. 207, 856 P.2d 202.
In February of 1993, the City filed the present suit seeking
a declaratory judgment that coverage existed under the AIU policy
for Story's claim against the City of Bozeman. On December 2, 1994
the District Court granted AIU's motion for summary judgment on the
basis that this Court's decision in AIU I barred the coverage issue
under the principles of res judicata. The City appeals from that
summary judgment.
Standard of Review
In reviewing the grant of summary judgment, this Court applies
the same standard as that utilized by the trial court. Contreraz
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v. Michelotti-Sawyers (Mont. 1995), 896 P.Zd 1118, 1120, 52 St.Rep.
454, 456.
Issue Presented
Does the doctrine of res judicata bar the City of Bozeman from
litigating issues of insurance coverage which were the subject of
a previous amended complaint disallowed by the District Court but
which were not appealed by the City in AIU I?
Discussion
In granting summary judgment for AIU on the City's claim for
coverage, the District Court reasoned that although AIU I purported
to address only the question of attorney fees and costs in the
context of the duty to defend, this Court, in concluding that there
was no duty to defend, premised that conclusion on its
determination that there was no coverage. Accordingly, the
District Court found that the City's present suit seeking coverage
was barred by res judicata. We reach the same result for
procedural rather than substantive reasons.
The City contends that it brought the present suit as a direct
result of the District Court's refusal to allow the City to amend
its complaint in AIU I so as to raise issues of insurance coverage
in addition to issues related to the duty to defend. The City
prevailed in District Court on the question of the duty to defend.
AIU appealed to this Court. The City, however, did not cross-
appeal the question of whether the District Court had erred in
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denying the City’s proposed amendment to its complaint. The
court's refusal of the motion to amend is a ruling which could
have been appealed by the City by way of a cross-appeal to this
court.
We recently discussed the principles of res judicata in State
ex rel. Harlem Irrigation District v. District Court (Mont. 1995),
894 P.2d 943, 52 St.Rep. 364 (Harlem Irrigation/Love II). The
doctrine of res judicata includes the following four elements: (1)
the subject matter of each action must be the same; (2) the parties
or their privies of each action must be the same; (3) the issues
must be the same and relate to the same subject matter; (4) the
capacities of the persons must be the same in reference to the
subject matter and to the issues between them. Harlem Irrigation/
Love II, 894 P.2d at 945.
As to the requirement that the parties be the same, the two
real parties in interest are the City of Bozeman and AIU; the same
two parties as in AIU I. The presence of Mark Story in the present
declaratory judgment action does not preclude res judicata. Story
was named because he had a potential financial interest in the
litigation. Story's judgment, however, has been paid and he has
not participated in the suit or the appeal. With regard to the
requirements of identity of subject matter and issues, the City
contends that the subject matter and issues in AIU I were not
identical to those in the present suit because, despite the City's
attempts to litigate coverage, the Court in AILJ I confined itself
to the issue of the duty to defend. We reject that contention. As
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in Harlem Irrigation/Love II, the identical issue being raised in
this appeal could have been litigated in a prior proceeding, that
is, in AIU I.
In Love I, the Loves first filed a complaint in 1983 in which
they alleged various claims against the Irrigation District and the
commissioners based upon their refusal to provide water to the
Loves. The district court granted summary judgment for the
Irrigation District and the commissioners based upon sovereign
immunity. This Court affirmed that holding in Love v. Harlem
Irrigation District (1990), 245 Mont. 443, 802 P.2d 611 (Love I).
After this Court's decision in Love I, the Loves filed a new
complaint again alleging a violation of statutory and contractual
rights as a result of the refusal to provide water. In addition,
the Loves alleged civil rights violations under 42 U.S.C. § 1983.
The Irrigation District moved for summary judgment based, in part,
upon res judicata. The district court denied the motion and the
Irrigation District sought a writ of supervisory control. We
accepted original jurisdiction and reversed. In Harlem Irrigation/
Love II, the Loves argued that res judicata did not bar their
second suit because they raised new theories of liability;
specifically violation of civil rights under § 1983. We held that
the doctrine of res judicata bars § 1983 claims in Montana's courts
when the constitutional claims could have been raised in an earlier
proceeding, but were not.
However, the doctrine of res judicata bars not only
issues that were actually litigated, but also those that
could have been litigated in a prior proceeding. Mills,
864 P.2d at 1267. A party should not be able to litigate
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a matter that the party already had the opportunity to
litigate; public policy dictates that there must be some
end to litigation. [Citations omitted.] Once a party
has had an opportunity to present a claim, the judgment
in a previous case is final as to the issues that were
raised, as well as those that could have been raised.
See Burgess v. Montana (1989), 237 Mont. 364, 366, 772
P.2d 1272, 1273. This notion arises from public policy
designed to prevent endless piecemeal attacks on previous
judgments. Wellman v. Wellman (1982), 198 Mont. 42, 46,
643 P.2d 573, 575. We conclude that the theories of
recovery alleged in this cause of action could have been
litigated in the prior proceeding.
Harlem Irrigation/Love II, 894 P.2d at 946.
In the present case, the City very candidly concedes that it
filed this declaratory judgment action to raise issues which it was
not permitted to raised in AIU I because the District Court denied
its motion to amend its complaint. The City, however, offers no
explanation as to why, after having attempted to amend the
complaint to include the coverage issue, it failed to pursue that
issue on appeal in AIU I. The issue of coverage was an issue which
not only could have been raised in AILJ I, but, in fact, was raised
by the City by way of the motion to amend the complaint. Under the
principles enunciated in Harlem Irrigation/Love II, the City had an
opportunity to appeal the coverage issue to this Court and chose
not to do so. Given that the City had the opportunity to appeal
the coverage issue, the judgment of this Court in AILJ I became
final "as to the issues that were raised, as well as those that
could have been raised." Harlem Irrigation/Love II, 894 P.2d at
946.
We hold that the coverage issue which the City of Bozeman now
seeks to litigate was an issue which the City sought to litigate by
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way of an amended complaint in AIU I. When the District court
denied the motion to amend, the City accepted that ruling and chose
not to appeal the coverage issue. The insurance coverage issue is
thus barred by the doctrine of res judicata.
Affirmed.
We concur:
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