On April 14, 2014, the legal assistant for Mr. Smith’s attorney wrote to counsel for EMC:

Ms. Denman,

As you know, we represent Mr. John Smith for injuries received on or about February 19, 2013.

The tortfeasor’s [Ms. Boyer’s] insurance carrier has offered to pay the $100,000 policy limits. According to your last correspondence dated March 26, 2014, your work comp lien totals $107,924.21. Mr. Bush [Mr. Smith’s counsel] is requesting the following:

1. Mr. Bush’s normal practice and procedure is to request you take a reduction of 1/3 of the lien amount making the total lien $71,949.48. Please let me know If you are agreeable to this arrangement?

2. Mr. Smith has a $1,000,000.00 underinsurance policy. With that being said, we are asking that at this time Mr. Smith pay 1/3 of the lien now ($23,983.16) out of the $100,000 and pay the remaining 2/3 ($47,966.32) out of the underinsurance settlement so that our client can realize some money at this time as well.

Ms. Denman responded on April 17, “Yes, we are in agreement on the 1/3 fee. I’m fine with what you have outlined.”

Mr. Smith sued Ms. Boyer; his own underinsured motorist (“UIM”) carrier, Nationwide Agribusiness Insurance Company; and EMCASCO Insurance Company, which carried Central Petroleum’s UIM coverage for its vehicles.

EMC filed a notice in the trial court of a lien for workers’ compensation benefits.

Thereafter, EMCASCO filed a pretrial brief alleging that it was a separate entity from the workers’ compensation insurer EMC; Mr. Smith had received approximately $132,046.96 in workers’ compensation payments from EMC; EMC was entitled to a lien for that amount from Ms. Boyer; and that because Mr. Smith had settled with Ms. Boyer for the limits of her auto liability policy in the amount of $100,000, “EMC was entitled to a $100,000 lien, minus a reasonable attorney’s fee.” EMCASCO continued, “[Mr. Smith’s] counsel agreed, in writing, $47,966.32 would be repaid by [Mr. Smith] out of his underinsurance recovery. Thus, EMCASCO is either entitled to an offset at trial for $47,966.32 (which will be internally paid to EMC), or EMC will need to be repaid $47,966.32 from any jury award.” EMCASCO also asserted it was entitled to an offset of $50,000 as a result of Nationwide’s settlement with Mr. Smith. In addition, EMCASCO stated its UIM policy did not provide coverage for the “same elements of loss” Mr. Smith “may claim under workers’ compensation law.”

A trial resulted in a UIM verdict against EMCASCO. EMCASCO filed a post-trial application, alleging it was entitled to a $47,966 set off. The trial court ruled that EMCASCO, as the UIM carrier, had a right to a credit against the verdict for the $100,000 recovery from Ms. Boyer but denied EMCASCO’s request for further setoff. EMCASCO wrote a check to Mr. Smith in satisfaction of the UIM judgment.

Thereafter, EMC filed a breach-of-contract action against Mr. Smith, alleging that he had not paid back the $47,966.32.

Mr. Smith moved for summary judgment, alleging that EMC’s claim should be barred based on issue preclusion. He asserted that EMC and EMCASCO held themselves out as operating as a single unit generally and for purposes of the UIM case, noting they operated under the same trade name, they had the same home office, and that EMCASCO sought credit for a lien owed to EMC.

The trial court granted Mr. Smith summary judgment on the basis of defensive issue preclusion, and EMC appealed.

The Appellate Court’s Decision

The appellate court reversed, holding that the trial court should not have applied defensive issue preclusion.

In its decision, the appellate court found that Mr. Smith had not established that the issue in the breach-of-contract action was identical to the issue litigated in the UIM case against EMCASCO – and that the trial court did not find that it was. The appellate court pointed out that the trial court stated, “The nature of the issue in this case – the apportionment of insurance proceeds distributed to an injured worker under a scheme of multiple insurance sources and whether Smith had been fully compensated for his workplace injury – was identical in principle to that litigated in the UIM lawsuit and integral to that court’s post-trial ruling.”

The appellate court ruled, however, that being “identical in principle” was not sufficient to apply defensive issue preclusion. It added that it was “not convinced” that the evidence presented on summary judgment allowed a determination that EMC and EMCASCO were one entity.

Moreover, the appellate court continued, EMCASCO did not receive an offset at trial and did not “internally” pay EMC. Consequently, under the position argued by EMCASCO in the prior litigation, “EMC will need to be repaid $47,966.32 from any jury award.”

The appellate court concluded that the trial court had erred in entering summary judgment for Mr. Smith because there was no identity of issues that warranted the application of defensive issue preclusion.

The case is Employers Mutual Casualty Co. v. Smith, No. 18-1279 (Iowa Ct. App. July 3, 2019). Attorneys involved include: Stephanie L. Hinz and Matthew G. Novak of Pickens, Barnes & Abernathy, Cedar Rapids, for appellant. William J. Bribriesco of Bribriesco Law Firm, P.L.L.C., Bettendorf, for appellee.