In L.A. Limousine, Inc. v. Liberty Mut. Ins. Co., 2008 WL 3824762 (D.Conn.), LA Limo purchased from Liberty Mutual a commercial fleet auto insurance policy that covered the period November 1, 2002, to November 1, 2003. On September 3, 2003, a vehicle owned by LA Limo was in an accident in New York with Howard Shim. On October 3, 2003, a second LA Limo vehicle was in an accident. LA Limo filed claims with Liberty Mutual under the policy.

 

Liberty Mutual disclaimed coverage on both accidents, claiming the policy was cancelled on June 12, 2003.

 

State Farm Mutual Automobile Insurance Company, as subrogee for Shim, filed suit against LA Limo in the New York Supreme Court for property damages resulting from the September 3 accident. Shim filed a separate action against LA Limo for personal injuries resulting from the accident. LA Limo filed third-party complaints against Liberty Mutual seeking indemnity in both actions.

 

LA Limo filed a complaint with the Connecticut Insurance Department regarding Liberty Mutual's disclaim of coverage. In response to the Connecticut Insurance Department's inquiry regarding LA Limo's complaint, Liberty Mutual represented that on April 11, 2003, it had mailed endorsement 14 to LA Limo notifying it that premium payments had increased. Having not received the additional premium payment, on May 8, 2003, Liberty Mutual issued a notice of cancellation effective June 12, 2003, if the delinquent payments were not made. Liberty Mutual did not include any documentary evidence of the existence of endorsement 14. LA Limo then filed a lawsuit against Liberty Mutual. The complaint alleged that Liberty breached the duty to indemnify, breached the covenant of good faith and fair dealing, violated the Connecticut Unfair Insurance Practices Act, and violated the Connecticut Unfair Trade Practices Act.

 

Meanwhile, LA Limo and Liberty Mutual filed cross-motions for summary judgment in the State Farm case. The motions for summary judgment debated whether endorsement 14 existed. LA Limo claimed that it never existed, was never sent by Liberty Mutual, and was never received by LA Limo, and it fully complied with its payment obligations under the policy. Liberty Mutual claimed LA Limo ignored endorsement 14 and the policy was rightfully cancelled.

 

The court in the State Farm case issued a preliminary ruling on the motions for summary judgment. Noting the absence of documentary evidence regarding the existence of endorsement 14, the court postponed final ruling on the motions to afford Liberty Mutual an opportunity to prove the endorsement had in fact been issued. Then the court granted LA Limo's motion for summary judgment in the State Farm case because Liberty Mutual's supplementary production of evidence failed to conclusively prove that endorsement 14 existed and was issued.

 

After this, the court hearing LA Limo's complaint against Liberty Mutual lifted a stay that had been in effect, and granted, in part, Liberty Mutual's motion to dismiss, dismissing the Connecticut Unfair Insurance Practices Act and Connecticut Unfair Trade Practices Act claims. LA Limo voluntarily withdrew its claims for breach of the duty to indemnify and a declaratory judgment regarding the rights and obligations under the policy.

Liberty Mutual moved for summary judgment on LA Limo's lone remaining claim for breach of the covenant of good faith and fair dealing because that claim is barred by the State Farm case under the doctrine of res judicata.

 

Applying New York's law of res judicata, the U.S. District Court of Connecticut found that LA Limo's claim for breach of the covenant of good faith and fair dealing was barred, noting that to constitute a breach of the implied covenant of good faith and fair dealing the acts by which a defendant allegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith.

The district court held that LA Limo's claim for breach of the covenant of good faith and fair dealing arose out of the same facts as its coverage dispute in the State Farm case, and merely asserted a different legal theory to obtain additional relief from Liberty Mutual for the same injuries. The court also rejected LA Limo's argument that its bad faith claim was based on facts unavailable at the time it filed the third-party complaint in the State Farm action, so res judicata did not apply. The court said this argument was contrary to the court's prior holdings on the matter, and also against the policy behind res judicata..

 

The court explained that LA Limo had a full and fair opportunity to litigate its contract based claims against Liberty Mutual in the State Farm case, so it could not now attempt to revisit the issue and pursue additional forms of relief. LA Limo could have, and should have, asserted its bad faith claim in the New York action. Its current claim for bad faith is therefore barred by res judicata. As there were no disputed issues of fact material to the application of the doctrine of res judicata, and that doctrine clearly precluded LA Limo's bad faith claim, the court granted Liberty Mutual's motion for summary judgment.