Hull v. Glewwe

Citations: 931 N.W.2d 266; 2019 WI App 27; 388 Wis. 2d 90Docket: Appeal No. 2017AP2485

Court: Court of Appeals of Wisconsin; May 14, 2019; Wisconsin; State Appellate Court

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Frank Hull's appeal involves a judgment that dismissed his negligence claim against John Glewwe and Glewwe's insurer, State Farm Fire and Casualty Company, following an accident during a roofing project at Hull's home. In a prior lawsuit (Glewwe I), Glewwe pursued damages against Hull's liability insurer, Unitrin Auto and Home Insurance Company, without Hull as a party. That case ended in a settlement wherein Glewwe released claims against Hull in exchange for a payment. Hull later filed a negligence claim against Glewwe and State Farm, which was dismissed by the circuit court, ruling that Hull should have asserted his claim in the earlier litigation.

The appeal addresses whether Hull's negligence claim is barred by claim preclusion and the compulsory counterclaim rule, given that the prior litigation was settled without his involvement. The court concluded that Hull is not precluded from pursuing his claim because he was not a party in the earlier case and could only be bound to its outcome if he was in privity with Unitrin. The court determined that sufficient alignment of interests necessary for privity was absent, as Hull's and Unitrin's interests diverged regarding Hull's affirmative claim for relief. Consequently, the court reversed the summary judgment and remanded the case for further proceedings.

The background highlights that the incident occurred on June 30, 2015, when Glewwe, a contractor, was installing roofing panels and asked Hull for assistance. Glewwe's inadequate securing of a support board led to both him and Hull falling from the roof and sustaining injuries. In May 2016, Glewwe initiated Glewwe I against Unitrin, where Hull, not being a party, only testified as a witness and did not counterclaim for his damages. Unitrin clarified that its defense duties did not extend to representing Hull's interests in potential claims against Glewwe.

The parties in Glewwe I reached a settlement, where Glewwe agreed to release Hull and Unitrin from liability for injuries sustained in an accident in exchange for a payment. The release specified that the payment was not an admission of liability and was a compromise of a disputed claim, addressing various uncertainties regarding liability and damages. The circuit court subsequently issued a judgment dismissing Glewwe's claims against Unitrin "with prejudice" and "on the merits."

Hull did not participate in the settlement process and was unaware of the settlement until after it occurred. Unitrin claimed it had the authority to settle without Hull's input. Shortly after the dismissal, Hull filed a negligence action. Glewwe and State Farm responded with a joint answer and motion for summary judgment, arguing that Hull's claims were barred by the doctrine of claim preclusion due to the prior settlement in Glewwe I and that Hull was in privity with Unitrin. They contended that the issues in Hull's action mirrored those resolved in Glewwe I, thus requiring Hull to have raised his claims as a counterclaim in that case.

The circuit court agreed with Glewwe, concluding that the elements of claim preclusion were met, as Hull stood in privity with Unitrin and the causes of action were identical. The court also held that a stipulated settlement dismissing a claim on its merits serves as a final judgment for claim preclusion purposes. Additionally, the court found that allowing Hull's action to proceed would violate Wisconsin's common law compulsory counterclaim rule, potentially exposing Glewwe to inconsistent obligations. Consequently, the court barred Hull from pursuing his negligence claim, suggesting he should have sought private counsel to join Glewwe I. Hull is now appealing the decision.

Summary Judgment is reviewed de novo, with the requirement that it be granted when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law, as per WIS. STAT. 802.08(2). In this case, the only legal question is whether Hull's negligence claim is barred by claim preclusion and the common law compulsory counterclaim rule. Glewwe argues Hull should have filed his negligence claim as a counterclaim in a prior lawsuit where comparative negligence was discussed, but Hull was not a party to that suit. Glewwe had sued Hull's insurer, Unitrin, under Wisconsin's direct action statute, making it established that Hull is not a necessary party in actions involving the insurer. Glewwe's position effectively seeks to create a new rule mandating intervention, beyond what was established in A.B.C.G. Enterprises v. First Bank Southeast, which involved A.B.C.G. suing First Bank for wrongful conduct after default judgments were entered against it. Understanding claim preclusion principles is key, as it dictates that a final judgment is conclusive in later actions between the same parties regarding matters litigated or that could have been litigated. The elements of claim preclusion include identity between parties, causes of action, and a final judgment on the merits. In A.B.C.G., it was argued that applying claim preclusion violated WIS. STAT. 802.07(1), which states counterclaims are generally permissive, allowing defendants to bring them in the original or a subsequent action. The prevailing belief is that fairness dictates defendants must be allowed to present their claims when they choose.

A.B.C.G. Enterprises created a narrow common law exception to the permissive counterclaim rule, indicating that a counterclaim is compulsory only if claim preclusion applies and a favorable judgment in a second action would nullify or impair rights established in the original action. As established in Menard, Inc., claim preclusion can prevent a plaintiff from raising claims in subsequent actions that could have been asserted in a prior action where they were a defendant. However, Hull was not a defendant in the prior action, and A.B.C.G. conceded the identity of parties between the two cases. The key issue is whether Hull is in privity with his insurer, Unitrin, which would allow him to be bound by the previous judgment. The burden of proof for claim preclusion lies with the party asserting it, and privity presents a legal question subject to de novo review. 

Privity is defined as when a person shares an identity of interest with a party in a former litigation, representing the same legal rights regarding the subject matter. Merely having a contractual relationship does not establish privity; rather, it requires a comparison of interests. The circuit court accepted that Hull and Unitrin were in privity based on Unitrin's derivative liability under the direct action statute, arguing that Unitrin had a vested interest in disputing Hull's liability. However, the court found that this general alignment of interests was insufficient for privity concerning Hull's affirmative claim. There is a contradiction in arguing that Hull’s interests were represented by Unitrin while also asserting that Hull needed to retain his own attorney and pursue his own claim, suggesting his interests were not adequately represented in the earlier action.

Glewwe concedes that Unitrin's insurance policy, like most liability policies, requires only the defense and indemnification of Hull for damages resulting from his negligence covered under the policy. Insurers typically maintain the right to control the defense, settle claims, and pay claims within policy limits, with the insured acting under the insurer's direction. However, these duties do not include prosecuting Hull's affirmative claim for relief, as Unitrin's interest was to resolve the litigation economically. Unitrin explicitly informed Hull that it was not interested in pursuing his negligence claim, limiting its role to defending against claims directed at it. Consequently, Hull did not participate in settlement negotiations and learned of the settlement only after it was finalized.

Hull aimed to maximize his recovery by proving that Glewwe was significantly at fault for his injuries. Under Wisconsin's comparative negligence principles, if Glewwe was found to be at least fifty-one percent at fault, Hull could potentially recover damages. Although both Hull and Unitrin may have used similar evidence to support their respective positions, their interests diverged significantly. Wisconsin case law recognizes the distinction between the insurer's duty to defend and the insured's right to pursue claims. For instance, in Towne Realty, Inc. v. Zurich Insurance Co., the Wisconsin Supreme Court ruled that an insurer's obligation is to defend against claims made against the insured, not to pursue recovery on the insured's behalf for personal injuries. Thus, a countersuit by the insured does not constitute seeking damages from the insured.

The Wisconsin Supreme Court examined the differing interests of insurers and insureds in Birkholz v. Cheese Makers Mutual Casualty Co., where Birkholz Brothers' liability insurer settled a claim with another driver, McNulty, obtaining a release that denied all liability on the part of Birkholz Brothers. Despite the lack of an explicit exclusion for Birkholz Brothers' potential claims against McNulty, the court ruled that Birkholz was not bound by the settlement, emphasizing that an insurer's authority to settle is limited to its own resources and does not extend to the insured's property or causes of action without their consent.

This decision built upon an earlier case, Wm. H. Heinemann Creameries, Inc. v. Milwaukee Automobile Insurance Co., where Heinemann's insurer settled a claim without admitting liability. The court ruled that Heinemann was not precluded from pursuing a separate claim for damages because he was not obligated to assert it as a counterclaim in the initial action. While Heinemann Creameries provided a robust argument for Hull, the court acknowledged that it conflicted with the later adoption of the compulsory counterclaim rule in A.B.C.G. Enterprises, which involved different factual circumstances. Unlike the previous cases where the insureds were active participants in the original lawsuits, Birkholz and the current case involved situations where the insureds were absent during settlements that impacted their derivative claims. Consequently, Birkholz serves as the more relevant precedent, illustrating the distinct interests of insurers defending claims and insureds pursuing affirmative relief.

Glewwe argues that the sufficiency of Unitrin's representation is supported by the principle of privity between an insurer and its insured regarding settlement, citing the case of Parsons. In Parsons, a minor plaintiff settled with a passenger's insurer and later added claims against that passenger's parents, despite them not being defendants at the time of the settlement. The court held that the settlement bound the parents due to privity with the insurer. However, this reasoning does not apply to Glewwe's situation, as Hull's interests in pursuing his own injury claim were not aligned with Unitrin's interests. Although both Hull and Unitrin had a shared interest in proving Glewwe's negligence, privity requires a complete identity of interests, which was not present here. The court referenced the Muchow case, where claim preclusion was not applicable because the parties involved were not in privity regarding a separate lawsuit, emphasizing that mere shared interests do not establish privity. Thus, even if an insurer concedes liability on behalf of an insured, such a concession does not bind the insurer in subsequent actions involving different tortfeasors.

A sufficiently close alignment of interests is necessary for parties to be considered in privity. In *Amber J.F.*, a mother and daughter were deemed not to be in privity regarding paternity proof because of the daughter's additional financial interests. Similarly, in *Pasko*, the Wisconsin Supreme Court found that individual police officers who had previously litigated a wage claim were not in privity with their collective bargaining agent, the Milwaukee Police Association, in a subsequent lawsuit. Their interests, while overlapping, were not identical; the officers sought personal relief while the Association sought broader determinations for all members.

Glewwe argues that it would be unjust for Hull not to be bound by Glewwe's settlement with Unitrin since Hull benefited from the release. However, the court finds no injustice, noting that Hull and Unitrin were in privity regarding the defense of Glewwe's claims but not concerning Hull's own injury claims. Glewwe could have included Hull as a defendant or secured Hull's agreement to the settlement. The terms of the release do not support Glewwe's claim of being unable to defend against Hull's current action, particularly since Hull allowed for a dispute over negligence in the ongoing lawsuit. The court emphasizes that claim preclusion should not deny a party a fair opportunity to resolve issues.

Glewwe also contends that allowing Hull's action to proceed contradicts the direct action statute, which aims to minimize litigation costs and expedite settlements. He claims Hull's position leads to duplicative litigation and jeopardizes settlement finality.

Glewwe's concerns regarding claim preclusion are deemed overstated, as significant policy reasons support not applying it in this case. The settlement agreement only released Glewwe's claims against Hull in exchange for a monetary payment, lacking a mutual release. Hull argues that his absence during the Glewwe I litigation would have complicated settlement discussions. Claim preclusion raises fairness issues since an insured may be unaware of a settlement against their insurer and the extent of their damages. Consequently, the first element of claim preclusion—identity of parties—is absent because Hull was not a party to the prior action and his interests were not adequately represented by his insurer. The settlement with Hull's insurer, Unitrin, does not bar Hull from pursuing his current claims for damages. The judgment is reversed, and the case is remanded for further proceedings. Additionally, Hull's health insurer was also involved in the lawsuit, and he retained independent legal representation. Glewwe and State Farm have aligned interests on appeal, henceforth referred to collectively as "Glewwe." Relevant statutes and case law are cited, particularly Wis. Stat. 632.24, which outlines the insurer's liability for negligence. The excerpt indicates uncertainty regarding whether McNulty initiated a formal action prior to the settlement with Birkholz Brothers' insurer, and evidence suggests Birkholz Brothers were uninformed about the settlement. Historical context is provided regarding the permissive counterclaim statute and its evolution through case law.

The parties are at odds over the necessary alignment of interests for establishing privity. Hull supports an "absolute identity" standard, referencing *Pasko v. City of Milwaukee*, while Glewwe argues for a more flexible approach that allows for privity based on "sufficiently close" interests, as seen in *Tice v. American Airlines, Inc.* Although Hull's standard aligns more closely with Wisconsin case law, even under Glewwe's approach, the disparity between Hull's interests and those of Unitrin is too significant to establish privity. Despite Glewwe's concerns about the settlement agreement's scope, he asserted an affirmative defense of non-negligence, which aligns with the settlement's terms that do not address comparative fault but instead release liability for various claims. Glewwe's worries regarding the direct action statute arise only when comparative negligence is a viable issue; the statute generally functions well when one party is clearly responsible for an incident. The resolution of this case hinges on the lack of privity between Hull and his insurer, making further discussions on claim preclusion unnecessary, as one decisive issue suffices to resolve the matter.