Fagnan v. Great Central Insurance Co

Brief Fact Summary.

Fagnan (Plaintiff) sued Great Central Insurance Co. (Defendant) after previous litigation involving the insured. Defendant claimed that the subsequent suit was barred for failure to raise it as a compulsory counterclaim in the previous litigation.

Synopsis of Rule of Law.

When Fed. R. Civ. P. 13(a) would bar an action if it were filed against an insured, it is also barred when filed against the insurer under a direct action statute.

Facts.

Thompson was driving a car and Harness was the passenger. Thompson collided with Plaintiff’s vehicle and was killed. Harness sued Thompson’s estate in federal court in Minnesota. The administrator of Thompson’s estate sued Plaintiff for contribution and Plaintiff countersued the estate for contribution. The case settled. Plaintiff then sued Defendant, Thompson’s insurer, in Wisconsin for medical expenses and child care expenses resulting from the accident. Defendant removed the case to federal court and a jury found for Plaintiff. Defendant appealed, arguing that Plaintiff’s claim was a compulsory counterclaim in the previous litigation with Thompson’s estate and that because it was now barred by Fed. R. Civ. P. 13(a) from being raised against Thompson’s estate, it was also barred from being raised against Defendant under a direct action statute.

Issue.

If an action against an insured would by barred by Fed. R. Civ. P. 13(a) for failure to raise it as a compulsory counterclaim in a previous litigation, is it also barred as an action against the insurer under a direct action statute?

Held.

(Tone, J.) Yes. When Fed. R. Civ. P. 13(a) would bar an action if it were filed against an insured, it is also barred when filed against the insurer under a direct action statute. A direct action statute allows a party to sue the insurer directly, whether the insured is also a party or not. This fact does not increase the insurance policy’s coverage or the insurer’s liability, however. Plaintiff’s only claim against Defendant is as derivative liability for the actions of Thompson. When Plaintiff did not raise this claim for liability in the Minnesota lawsuit, he waived it as against Thompson’s estate, and, consequently, Defendant. Affirmed in part; reversed in part. Each side will pay its own costs.

Discussion.

A compulsory counterclaim is one that a defendant has against another party to an action that arises out of the same transaction or occurrence as the cause of action. A compulsory counterclaim must be raised in that initial action or it is waived. Any other claims a party may have against another party, not arising out of the same transaction or occurrence as the cause of action is considered a permissive counterclaim and is not lost if not raised in the initial action.