(Article from Insurance Law Alert, October 2019)
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A Michigan federal district court ruled that an injured party was not barred from suing an insurer by the doctrines of res judicata or collateral estoppel, notwithstanding that the insurer had prevailed in a suit brought by the assignee of the injured party. Massengale v. State Farm Mutual Auto. Ins. Co., 2019 WL 4640307 (E.D. Mich. Sept. 24, 2019).
After allegedly sustaining injuries in a car accident, Massengale sought treatment from Spine Rehab. She assigned Spine Rehab her rights to collect no fault personal injury protection (“PIP”) benefits for the treatments she received. Thereafter, Spine Rehab sued State Farm seeking payment for its chiropractic services. That action resulted in a finding of “no cause of action” in State Farm’s favor. On the verdict form, the jury answered “no” to the question “Did [ ] Massengale sustain an accidental bodily injury?” Following the verdict, State Farm moved to dismiss a pending lawsuit initiated by Massengale. State Farm argued that Massengale’s claims were barred by res judicata and collateral estoppel.
The court denied State Farm’s summary judgment motion, ruling that the judgment against Spine Rebab did not have preclusive effect in Massengale’s action. Under Michigan law, res judicata bars a subsequent action when (1) the first action was decided on the merits; (2) both actions involve the same parties or their privies; and (3) the matter in the second case was or could have been resolved in the first action.
The central issue before the court was whether Spine Rehab and Massengale were in privity. State Farm argued that the assignee relationship established “a clear substantial identity of interests, and a working functional relationship in which Massengale’s interests were presented and protected by Spine Rehab,” thereby satisfying the “privity” prong. The court disagreed, holding that an assignor/assignee relationship, standing alone, does not suffice to establish privity for res judicata purposes.
Further, the court explained that because Massengale assigned only a small portion of her benefits to Spine Rehab (her PIP benefits), there was no “substantial identity of interests” between them. More specifically, the court reasoned that at trial, Spine Rehab needed only to demonstrate a particular injury necessitating its chiropractic services in order to collect PIP benefits; it did not offer evidence relating to any other alleged injuries. Finally, the court noted that although State Farm may have fully litigated Massengale’s medical history in defending the Spine Rehab suit, the proper inquiry is whether Massengale, as a non-party to that action, had a “full and fair opportunity to litigate” in the first action. The court held that she did not. Applying the same reasoning, the court ruled that collateral estoppel did not bar Massengale’s suit against State Farm.