The Rough Notes Company Inc.

Confusion over claim preclusion

On November 24, 2013, Emily Teske was driving a vehicle in which her mother, Julie, and two sisters, Katherine and Elle, were passengers. John Teske, Julie’s husband and the father of Emily, Katherine, and Elle, was not in the car. Julie, Emily, Katherine, and Elle were all seriously injured after their vehicle was rear-ended by a car driven by Sabrina Srock. The force of the collision propelled the Teskes’ car into the oncoming lane, where it struck a vehicle driven by Patrice Rog, who also was injured.

Srock had a policy with State Farm Mutual Automobile Insurance Company that carried limits of $100,000 per person and $300,000 per accident. The Teskes were insured by Wilson Mutual Insurance Company under a policy that contained underinsured motorist coverage with a limit of $500,000 per person, per accident. The Wilson policy also contained a “reducing clause” that “permits a setoff from the insured’s UIM coverage [in] the amount paid to the insured by the underinsured tortfeasor.”

 The accident resulted in two separate lawsuits. In the first action, Julie Teske brought a negligence claim against Srock and her insurer, State Farm. Katherine and Elle also were named as plaintiffs, although as minors they were represented by a guardian ad litem.

The parties settled the lawsuit and agreed on how the money from the insurers would be split. State Farm tendered its $300,000 policy limit, but the amount was insufficient to cover the full medical expenses incurred by Rog and the Teskes. The amount ultimately was split between the Teskes and Rog, with the Teskes receiving $255,000 and Rog receiving $45,000.

Applying the policy’s reducing clause, Wilson agreed to pay the Teskes $245,000. It arrived at this amount by beginning with its $500,000 UIM limit and subtracting the $255,000 the Teskes received from State Farm.

Each member of the Teske family received proceeds from the settlement as set forth in a minor settlement agreement. Specifically, Julie received $264,000, Katherine received $40,000, Elle and Emily received $35,000 each, and John received $20,000.

Under the minor settlement agreement, the Teskes released all of their claims against Srock and State Farm. The Teskes partially released Wilson to the extent of the $245,000 it paid. They explicitly “reserved the right to pursue further claims for UIM benefits against [Wilson] and [Wilson] has not waived any defenses to such future claims.” The minor settlement agreement was signed by each member of the Teske family as well as a representative of Wilson and was approved by the court.

Subsequent to the settlement, John, Julie, Katherine, and Elle brought a second lawsuit. They alleged that Emily, as the driver at the time of the accident, was negligent in the operation of the Teske vehicle. They sued Wilson directly as Emily’s insurer pursuant to Wisconsin’s direct action statute.

 Moving for summary judgment, Wilson argued that the Teskes’ negligence action was barred by the doctrine of claim preclusion. Focusing on the first two elements of claim preclusion, identity of parties and identity of causes of action, it asserted that identity existed between the parties in both lawsuits. It based this argument on the observation that Wilson, Julie, Katherine, and Elle were all named plaintiffs in the first action. Wilson also observed that although John was not formally named a party in the first action, he participated in and received proceeds from the minor settlement agreement.

Wilson also contended that identity existed between the causes of action in both lawsuits. Specifically, it argued that the actions arose from a single event—the November 24, 2013 accident.

The court agreed with Wilson and granted the motion for summary judgment. Additionally, the court concluded that an identity existed between the causes of action in the first and second lawsuits. Finally, it determined that a final judgment on the merits had been reached. Accordingly, the court concluded that claim preclusion barred the second action. The Teskes appealed, and the court of appeals reversed the lower court’s decision, determining that claim preclusion did not bar the second lawsuit. The Supreme Court of Wisconsin was asked to review the appellate court’s decision.

With regard to the claims made by Julie, Katherine, and Elle, the court stated that the identity of parties was distinctly present. They were named parties in both the first and second actions. Likewise, Wilson was a named party in both actions. Thus identity of parties existed.

With regard to John, the court affirmed the appellate court’s decision that allowed John’s claims to proceed.

With respect to the second element of claim preclusion, the court disagreed with the appellate court’s decision that although the claims in both lawsuits arose from the November 24, 2013, car accident, the requirement of identity of causes was not fulfilled. The high court determined that the causes of action in both lawsuits arose from a common nucleus of operative facts: namely, the accident. Although the court of appeals viewed the UIM issue in the first action as separate and distinct from the tort claim in the second action, the high court said, without an underlying tort there could be no UIM claim.

With regard to the third element of claim preclusion, a final judgment on the merits in a court of competent jurisdiction, the court noted that this element was satisfied by the extensive and exhaustive litigation of the claims. It therefore concluded that claim preclusion barred the claims brought by John, Katherine, and Elle in the second action. The court reversed the part of the appellate decision that allowed their claims to proceed, and it affirmed the court’s decision that allowed John’s claims to proceed.

Teske v. Wilson Mutual Insurance Company-Supreme Court of Wisconsin-June 4, 2019-No. 2017AP1269.