Claim Preclusion Bars Indemnification Action, Supreme Court Rules
By org jforward wisbar Joe Forward, Legal Writer,
State Bar of Wisconsin
July 23, 2012
– Several parties settled federal claims based on a 2006 explosion
that killed two people in Door County. Recently, the Wisconsin Supreme
Court ruled that claim preclusion bars an insurance company from seeking
indemnification for damages paid in the settlement.
After one company installed a propane gas pipeline to the Cedar Grove
Resort in Door County, the Wisconsin Public Service Corporation (WPSC), which provides electricity to Wisconsin
residents, engaged New Berlin-based Arby Construction Inc. to
install underground electrical lines to the resort. During excavation,
Arby struck the unmarked gas pipeline. The
resulting leak caused a massive explosion, killing two people and
injuring several others.
The victims and the estates of those killed brought a tort suit in
federal court, naming Arby Construction and
WPSC as defendants. The suit also named
WPSC’s insurer, Associated Electric &
Gas Insurance Services Limited (AEGIS) as a defendant. Ultimately, the
AEGIS (and WPSC) filed a state action
against Arby Construction for indemnification of
damages paid to settle the federal claims. The circuit court dismissed
AEGIS’s claim based on claim preclusion. Specifically, the circuit
court ruled that the federal dismissal order from the U.S. District Court for the Eastern District of
Wisconsin disposed of AEGIS’s indemnification claim.
The court of appeals affirmed, concluding that AEGIS asserted Arby’s duty to indemnify as an
affirmative defense in the federal case. The affirmative defense was the
same as a cross-claim, it ruled, and the indemnification AEGIS now seeks
in state court is barred by claim preclusion.
v. Arby Construction Inc., 2012 WI 87
(July 11, 2012), a state supreme court majority affirmed on the same
grounds, concluding that AEGIS’s affirmative defense was
substantively similar to a cross-claim for purposes of claim preclusion.
Thus, the claims are barred.
The federal court’s dismissal order read in part, “[t]his
lawsuit, together with any and all claims set forth in the pleadings
… is dismissed on the merits, with prejudice.”
The order expressly dismissed WPSC’s
indemnification claim “without prejudice,” but not
“Because, like the court of appeals, we determine that the
substance of the ‘affirmative defense’ in AEGIS’s
answers was a cross-claim against Arby, we determine that
the dismissal with prejudice and on the merits … has claim
preclusive effect,” Justice David Prosser wrote.
The majority (five justices) rejected AEGIS’s argument that it
did not assert a “claim” for indemnification. That is, AEGIS
argued that an affirmative defense is different, and the elements
required for barring claims under claim preclusion – identity of
claims and parties that are the same in a previous action – were
not met. But the majority disagreed.
“If we were to give claim preclusive effect only to claims that
were formally-perfect in prior litigation, we would be re-injecting a
focus on formalism into modern civil procedure that has been soundly
rejected and is at odds with the entire tenor of the modern law,”
In a concurrence/dissent, Chief Justice Shirley Abrahamson (joined by Justice Ann Walsh
Bradley) agreed that parties can’t relitigate the
merits of a claim. But she disagreed that claim preclusion applies if
the parties’ “intent and understandings” allowed
AEGIS’s state claim.
“[A]t this stage in the present case, I am unable to determine
from the record before the court whether AEGIS is, in fact, attempting
to re-litigate or rekindle its claims, or if the parties
instead left the claim to be resolved in a subsequent action,” the
chief justice wrote.
In a footnote, Chief Justice Abrahamson
clarified that “the present case affects only cross-claims and
other claims that are permissive, as opposed to compulsory.”