AUGUST 2012 BAD FAITH CASES: COURT RULES THAT INSURED’S BAD FAITH AND BREACH OF CONTRACT CLAIMS ARE PRECLUDED BECAUSE DEFAULT JUDGMENT WAS PREVIOUSLY ENTERED IN UTAH COURT (Philadelphia Federal)

In Lara v. INEX, the court heard a carrier’s motion for summary judgment in opposition to bad faith and breach of contract claims filed by the insured’s assignee. The claim arose from an underlying suit stemming from a car accident in which the assignee was injured by a driver who left the insured’s nightclub visibly intoxicated. After receiving a $750,000 verdict against the nightclub, the victim was assigned all rights by the insured nightclub owners to pursue claims against the owners’ carrier.
However, the carrier had filed for declaratory judgment against the club owners in a Utah court, seeking a judgment that it owed no duty to defend the nightclub owners. The insureds never appeared and a default judgment was entered. As a result, the victim-assignee filed a collateral attack on the judgment in federal court in Philadelphia. The carrier responded by filing the instant motion for summary judgment.
First, the court held that it would enforce the Utah judgment because that court is entitled to full faith and credit and maintained personal jurisdiction over the litigants. Moreover, a forum-selection clause in the insureds’ policy was indicative of their amenability to suit in that court.
Second, the court addressed the victim-assignee’s claims for breach of contract and bad faith. Examining the doctrines of issue preclusion and claim preclusion, the court ruled that the victim-assignee’s claims were raised in the Utah action and decided. While issue preclusion did not apply to the victim-assignee’s suit, claim preclusion prevented the bad faith and breach of contract action from being re-litigated.
Therefore, the court granted the carrier’s motion for summary judgment and disposed of the case.
Date of Decision: July 11, 2012
Lara v. INEX, No. 11-cv-1663, 2012 U.S. Dist. LEXIS 95884, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. July 11, 2012) (Joyner, J.)