In Allstate Insurance Co. v. Kenick,[1] the Supreme Court held that where a federal declaratory judgment determined the absence of a necessary element of a different state court claim, those bringing the state claim were precluded from relitigating the issue. After an automobile accident in which Angelina Trailov was injured as a passenger, she and her mother filed claims against the driver with the diver’s insurer, Allstate. For several months Allstate communicated with Trailov and her mother’s lawyer, attempted to gather information, and to settle the claim. Trailov and her mother won a state court suit against the driver which included assignment of the insured driver’s rights against Allstate. Allstate filed in federal court for a declaratory judgment that its attempt to settle the claim satisfied its obligation to the insured driver and that it was not liable for any amount of a judgment against the driver beyond the policy limits. The driver answered the declaratory judgment action, to which Trailov and her mother were not parties. Trailov and her mother, as assignees of the driver’s rights, sued Allstate in state court for negligent adjustment of their claims. Allstate moved to dismiss the state court case on the grounds that the issue had been decided in the federal proceedings, but the lower court found for Trailov and her mother and granted their motion for summary judgment on their negligent adjustment claim. However, on appeal, the Supreme Court found that issue preclusion did apply, reasoning that Trailov and her mother were in privity with the driver who was a party to the declaratory judgment, and that, because the jury instruction in the federal action indicated a determination of reasonableness, that decision foreclosed finding negligent adjustment. It reasoned that because a negligent adjustment claim requires that the adjuster violated her duty of reasonable or ordinary care it is inconsistent with the federal jury’s determination that Allstate, which had ratified its adjuster’s conduct, had acted reasonably. The Court found that despite the differences in the legal theories and elements of the federal and state claims, the evidence and arguments overlapped significantly. An issue of fact, the reasonableness of the insurance company’s behavior, was already litigated to conclusion on its merits in the federal declaratory action, rejecting Trailov and her mother’s contention that the issue had not been decided because the declaratory judgment was a contract claim and the state action was a tort claim. Vacating the jury’s judgment, reversing the lower court order, and remanding to the lower court, the Supreme Court held that where a federal declaratory judgment determined an issue of fact that was an essential element of a different claim in state court, the litigants were precluded from relitigating that issue.
[1] Allstate Insurance Co. v. Kenick, 435 P.3d 938 (Alaska 2019).
