Employers Mutual Casualty Company v. John H. Smith

IN THE COURT OF APPEALS OF IOWA

No. 18-1279
Filed July 3, 2019

EMPLOYERS MUTUAL CASUALTY COMPANY,
Plaintiff-Appellant,

vs.

JOHN H. SMITH,
Defendant-Appellee.
________________________________________________________________

Appeal from the Iowa District Court for Scott County, Marlita A. Greve,

Judge.

Employers Mutual Casualty Company appeals from the ruling granting John

H. Smith summary judgment in its breach-of-contract action. REVERSED AND

REMANDED.

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.

Heard by Vogel, C.J., Vaitheswaran, J., and Mahan, S.J.,* but decided by

Vaitheswaran, P.J., Mahan, S.J., and Vogel, S.J.*

*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2019).
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MAHAN, Senior Judge.

Employers Mutual Casualty Company (EMC) appeals from the ruling

granting John H. Smith summary judgment in its breach-of-contract action.

Because the district court erred in applying defensive issue preclusion, we reverse

and remand for further proceedings.

I. Background Facts and Proceedings.

The following facts are undisputed.

Smith suffered a work-related injury.

On February 19, 2013, Central Petroleum employee Smith was injured

while performing work when a motorist, Sandra Boyer, struck and pinned him

between the front of her vehicle and the rear of his work vehicle. Smith received

workers’ compensation payments from his employer’s workers’ compensation

insurer, EMC, subject to its right of subrogation under Iowa Code section 85.22

(2013).

On April 14, 2014, the legal assistant for 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 [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 [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
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remaining 2/3 ($47,966.32) out of the underinsurance settlement so
that our client can realize some money at this time as well.

Denman responded on April 17, “Yes, we are in agreement on the 1/3 fee.

I’m fine with what you have outlined.”

Smith’s suit against others.

Smith filed suit against Boyer; his own underinsured motorist (UIM) carrier,

Nationwide Agribusiness Insurance Company (Nationwide); and “EMC Insurance

Companies.” Smith alleged EMC Insurance Companies carried Central

Petroleum’s UIM coverage. Denman, counsel for EMC, informed Smith EMC

provided Central Petroleum’s workers’ compensation policy only—EMCASCO

Insurance Company carried Central Petroleum’s UIM coverage for its vehicles.

The petition was amended, naming as a defendant EMCASCO Insurance

Company, a/k/a EMC Insurance Companies.

On January 17, 2014, EMC filed a notice in the district court of a lien for

workers’ compensation benefits.

EMCASCO filed a pretrial brief on June 29, 2015, alleging: it was a separate

entity from the workers’ compensation insurer EMC; Smith had received

approximately $132,046.96 in workers’ compensation payments from EMC; and

EMC was entitled to a lien for that amount from Boyer. Smith had settled with

Boyer for the limits of her auto liability policy in the amount of $100,000. “Thus,

EMC was entitled to a $100,000 lien, minus a reasonable attorney’s fee.”

EMCASCO continued, “[Smith’s] counsel agreed, in writing, $47,966.32 would be

repaid by [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
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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 Smith. In addition, EMCASCO stated its UIM policy does not

provide coverage for the “same elements of loss” Smith “may claim under workers’

compensation law.” At trial, there was no evidence presented as to Smith’s past

medical expenses.

Trial was held July 6–9, 2015, resulting in an UIM verdict against

EMCASCO:

We, the Jury, find in favor of [Smith] and fix the amount of his
recovery against the Defendant [EMC] according to the following
elements of damage:
1. Past unreimbursed lost wages $44,437.00
2. Future loss of earning capacity $30,000.00
3. Past pain and suffering $35,000.00
4. Future pain and suffering $20,000.00
5. Past loss of function $ 5,000.00
6. Future loss of function $15,000.00
Total $149,437.00

EMCASCO filed a post-trial application, alleging it was entitled to a $47,966

set off. The district court ruled EMCASCO, as the UIM carrier, had a right to a

credit against the verdict for the $100,000 recovery from the tortfeasor but denied

EMCASCO’s request for further setoff.

EMCASCO did not appeal the ruling. It wrote a check to Smith in

satisfaction of the UIM judgment.

EMC’s suit for breach of contract.

On October 13, 2017, EMC filed this breach-of-contract action, alleging

Smith had failed to pay back the $47,966.32. Smith resisted, asserting he had

fulfilled his obligation to EMC as he had “provided a credit [to ‘EMCASCO, a related
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company to EMC’] in the underinsurance case in the exact amount which is now

being claimed.”

On May 1, 2018, Smith filed a motion for summary judgment alleging EMC’s

claim should be barred based upon equitable estoppel and issue preclusion. Smith

asserted 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 have the same home office, and that EMCASCO sought credit

for a lien owed to EMC.1

On July 2, the district court concluded Smith had failed to establish his claim

under a theory of equitable estoppel. However, the court granted Smith summary

judgment on the basis of defensive issue preclusion. EMC appeals.

II. Scope and Standard of Review.

“We review summary judgment rulings for correction of errors at law.” Baker

v. City of Iowa City, 867 N.W.2d 44, 51 (Iowa 2015). “We view the entire record in

the light most favorable to the nonmoving party, making every legitimate inference

that the evidence in the record will support in favor of the nonmoving party.” Bass

v. J.C. Penney Co., 880 N.W.2d 751, 755 (Iowa 2016).

III. Analysis.

Generally, issue preclusion, or collateral estoppel, “prevents parties to a

prior action in which judgment has been entered from relitigating in a subsequent

action issues raised and resolved in the previous action.” Hunter v. City of Des

Moines, 300 N.W.2d 121, 123 (Iowa 1981).

1
EMC filed a cross-motion for summary judgment on its breach-of-contract claim, which
the district court concluded was untimely.
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A party seeking to preclude an issue from being litigated by
one not a party to a prior litigation must satisfy four prerequisites:
(1) the issue concluded must be identical; (2) the issue
must have been raised and litigated in the prior action;
(3) the issue must have been material and relevant to
the disposition of the prior action; (4) the determination
made of the issue in the prior action must have been
necessary and essential to the resulting judgment.

Bandstra v. Covenant Reformed Church, 913 N.W.2d 19, 51 (Iowa 2018).

“One of the primary requirements for application of issue preclusion is an

identity of the issue decided in the prior litigation with the issue presented in the

current lawsuit.” Estate of Leonard, ex rel., Palmer v. Swift, 656 N.W.2d 132, 147

(Iowa 2003). “Similarity of issues is not sufficient; the issue must be ‘precisely the

same.’” Id. (citation omitted)).

Smith has not established the issue in the breach-of-contract action is

identical to the issue litigated in the UIM case against EMCASCO—nor did the

district court so find. The district court ruled, “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—is identical in principle to that litigated in

the UIM lawsuit and integral to that court’s post-trial ruling.” EMC argues, “[T]he

apportionment of insurance proceeds distributed to an injured worker” is “not even

remotely at issue in this breach-of-contract case.” While we do not necessarily

agree to this broad statement, we conclude that being “identical in principal” is not

sufficient to apply defensive issue preclusion.

It is undisputed that Smith agreed to reimburse EMC $47,966.32 out of the

UIM litigation. The UIM litigation resulted in a verdict for Smith in the amount of
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$149,437.00. The issue determined by the district court in the UIM litigation was

whether EMCASCO—a concededly separate entity from EMC—was entitled to a

setoff from the verdict awarded based on the evidence presented at that trial. The

district court observed insurance companies are entitled to setoffs from judgments

of liability to the extent that their policy language authorized them. See Greenfield

v. Cincinnati Ins. Co., 737 N.W.2d 112, 117 (Iowa 2007) (“While offsets are

permissive under Iowa Code section 516A.2(1), they are not mandatory. The

particular policy language at issue is controlling. Cincinnati, therefore, is entitled

to an offset of workers’ compensation benefits to avoid duplication only to the

extent that its reduction-of-benefits provision authorizes such offsets.”).

But the district court’s reasoning went further.

As opposed to Greenfield, where the insurance company
holding both the workers’ compensation and UIM policies was a
single business entity, here EMC holds the workers’ compensation
policy while EMCASCO holds the UIM policy. Yet, EMC and
EMCASCO are related companies under the same corporate
umbrella using the shared trade name of “EMC Insurance
Companies.” EMC and EMCASCO were so connected in interest in
this matter to be in privity and thus mutually bound by the outcome
in the Linn County UIM trial. EMC, an entity closely-related to
EMCASCO, had every motive and opportunity to litigate its interest
in the award of UIM benefits and the effect its subsidiary’s liability
would have on its rights under the statutory lien.

We are not convinced the evidence presented on summary judgment allows

a determination that EMC and EMCASCO are one entity. In any event, Smith did

not submit evidence of his medical expenses in the UIM litigation in an apparent

concession that EMCASCO’s UIM policy excluded recovery as duplicative of

workers’ compensation benefits. EMCASCO had no reason to submit such
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evidence because its UIM policy provided it did not cover medical expenses

covered by other carriers.

EMC had no reason to oppose EMCASCO’s position as it related to medical

expenses because EMC’s workers’ compensation policy covered and paid the

expense and EMC had Smith’s agreement that he would reimburse EMC when the

UIM litigation was concluded. This position is, in fact, supported by EMCASCO’s

argument in the UIM litigation. EMCASCO argued: “[Smith’s] counsel agreed, in

writing, $47,966.32 would be repaid by [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.” (Emphasis added.) EMCASCO did not receive an offset at trial and thus

it 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 district court erred in entering summary judgment for Smith because

there is no identity of issues that would warrant the application of defensive issue

preclusion. We reverse and remand for further proceedings.

REVERSED AND REMANDED.