Massachusetts Appeals Court holds insured's bankruptcy estate barred by issue preclusion from bringing bad faith settlement claim against insurer after injured plaintiff lost on the same claim

Valerie Troiano injured Elsa Villanueva in a car accident.  After a jury trial a judgment of $414,500 entered for Villanueva.   Commerce, Troiano's insurer,  paid the $100,000 policy limit.  An execution against Troiano entered in the amount of $552,352.37 (which presumably included interest.)

Villanueva sued Commerce, alleging that it had engaged in unfair settlement practices when it initially failed to settle her claim for the $100,000 policy limit.  After trial a verdict entered in favor of Commerce on that claim. 

Troiano filed a petition for bankruptcy.  The bankruptcy trustee retained  the same attorney who had represented Villanueva in her unsuccessful claim against Commerce, to pursue a bad faith settlement claim against Commerce on behalf of the bankruptcy estate.  

In Cruickshank v. Mapfre U.S.A, __ N.E.3d __, 2019 WL 122947 (Mass. App. Ct.), the Massachusetts Appeals Court held that the lawsuit must be dismissed on the ground of issue preclusion. 

The doctrine of issue preclusion prevents relitigation of an issue decided in an earlier action between the same parties or their privies.  The question before the court was whether the the trustee of Troiano's bankruptcy estate was in privity with Villanueva, the plaintiff in the earlier unsuccessful claim against Commerce.


The court agreed with Commerce that the concept of "virtual representation" applied.  Under that theory, issue preclusion applies if the interests of the parties in the two suits are so closely aligned that the party in the first suit is the virtual representative of the party in the second suit.

The court noted that a trustee in bankruptcy is a fiduciary representing not only the bankruptcy estate but the creditors of the estate.  Therefore, the trustee of Troiano's bankruptcy estate was acting on behalf of Villanueva as a creditor of the estate.  Moreover, the benefit of any recovery on a claim of failure to settle would flow to Villanueva rather than Troiano. Thus, although the trustee (and trustee's attorney) nominally represented Troiano, that representation in the action against Commerce was for the sole benefit of Villanueva.   The doctrine of issue preclusion therefore applied.

Because the holding is based in large part on bankruptcy law, specifically the duties of the bankruptcy trustee, it may not have wider applicability to a situation where the defendant tortfeasor has not declared bankruptcy after a verdict in excess of the policy limit.  That circumstance does not arise very often.  Typically, the defendant will assign to the plaintiff her right to bring a bad faith settlement practices lawsuit against the insurer in exchange for the plaintiff releasing her rights against the defendant.  Few plaintiffs' attorneys see the point in forcing a defendant into bankruptcy, where their client's recovery will be minimal. 

A really bad week leads to decision on res judicata effect of arbitrator's award on related action

Anthony Liquori suffered personal injuries in an automobile accident with Zachary Wyman on September 24, 2004, and was injured again in an accident with Robert Pelley on September 27, 2004.

Liquori settled his claim against Wyman for Wyman's $20,000 policy limits. He then sought underinsured motorist coverage from his own insurer, Travelers. In an arbitration of the underinsured motorist claim he submitted medical bills totalling $10,716.10.

The arbitrator ruled that based on the materials submitted, it was impossible to determine which medical bills were solely attributable to the Wyman accident and not to the Pelley accident. She held that the Wyman accident was not responsible for more than one third of his nine percent impairment rating, and awarded $4,752.93.

Liquori's claim against Pelley continued. He submitted to the court the medical bills he had submitted in the Wyman arbitration, plus some addiditonal bills.

Pelley moved to exclude from evidence the medical records and bills that had been submitted to the Wyman arbitrator, on the ground that the arbitrator's award was res judicata as to Liquori's total damages.

In Liquori v. Pelley, 2010 WL 2010875 (Mass. App. Div.) the Massachusetts Appellate Division held that there was no issue preclusion, because there was no identity of issues between the Wyman arbitration and the Pelley trial. In the Pelley trial the issue was the amount of Liquori's damages for injuries caused by the Pelley accident. In the Wyman arbitration the issue was the amount of Liquori's damages caused by the Wyman accident. The Wyman arbitration did not determine Liquori's total damages from both accidents. Even if the arbitrator implicitly determined damages from the Pelley accident, such finding was not essential to the arbitrator's determination.

Massachusetts Appellate Division holds that insured may not recover against tortfeasor after receiving uninsured motorist coverage award

In Johnson v. Lapan, 2010 WL 1170254 (Mass. App. Div.), claimant Sylanda Johnson was injured when she was a passenger in a car that collided with a vehicle operated by Marc Lapan.

Johnson pursued two routes of recovery: she submitted a claim for uninsured motorist coverage to ELCO, the insurer of the vehicle in which she was a passenger, and she filed suit against the Lapans.

The uninsured motorist claim went to arbitration and Johnson was awarded $16,791.24 for pain and suffering and medical expenses.

The Massachusetts Appellate Division held that the doctrine of issue preclusion required that Johnson's claim against the Lapans be dismissed. The arbitrator had awarded to Johnson damages for her injuries, and that award fixed the damages in the suit against the Lapans arising from the same injuries. Johnson could recover such damages pursuant to an uninsured motorist policy (which she did) or from the tortfeasor, but not from both. Otherwise she would receive a double recovery.