Title: CERMAK v. GREAT WEST CAS. CO.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

CERMAK v. GREAT WEST CAS. CO.2000 WY 1012 P.3d 1047Case Number: 99-168Decided: 04/24/2000Supreme Court of Wyoming
 
CHARLES CERMAK and KATHY 
CERMAK, individually and as natural parents and guardians, and on behalf of 
minor children, Christopher Cermak and Shane Cermak; MILPARK DRILLING FLUIDS, a 
Texas general partnership; BAKER HUGHES OILFIELD OPERATIONS, INC., a California 
corporation, on behalf of itself and as principal and/or successor in interest 
to Milpark Drilling, Appellants (Plaintiffs),v. GREAT WEST CASUALTY COMPANY, a Nebraska corporation, 
Appellee (Defendant).

Appeal from the District 
Court of Converse County Honorable Barton R. Voigt, 
Judge

Representing 
Appellants: Timothy W. Miller of 
Reeves & Miller, Casper, WY; C. John Cotton of Cotton Law Offices, Gillette, 
WY; and J. Stan Wolfe of the Law Firm of J. Stan Wolfe, Gillette, WY. Argument 
presented by Mr. Miller.Representing Appellees: Judith A. Studer of 
Schwartz, Bon, Walker & Studer, Casper, WY. Argument presented by Ms. 
Studer.

Before 
LEHMAN, C.J., and THOMAS, MACY, GOLDEN, and HILL, JJ.

HILL, 
Justice.

[¶1] Appellants 
seek review of the district court's summary judgment in favor of Appellee. We 
will affirm the summary judgment on the basis that the claim pursued by 
Appellants was res judicata.

ISSUES

[¶2] Appellants 
advance these issues:

A. Whether the summary 
judgment for appellee should be reversed.

1. Whether the trial 
court erred in holding that an insurance agent with express authority to bind 
appellee was not appellee's agent as a matter of law.

2. Whether the trial 
court erred in ruling that reformation was barred due to the named insured's 
alleged failure to read the insurance policy.

3. Whether the trial 
court erred in ruling that reformation was barred by 
laches.

B. Whether appellants' 
motion for summary judgment should have been granted.

1. Whether the insurance 
policy, as reformed, covers the claims in the underlying case as a matter of 
law. 

2. Whether the insurance 
policy, as reformed, covers the settlement payment at issue as a matter of 
law.

3. Whether the insurance 
policy, as reformed, covers the judgment in the underlying case as a matter of 
law.

[¶3] Great West 
reformulates the issues thus:

A. Did the trial court 
properly grant summary judgment to Great West based on the undisputed evidence 
that there was no mutual mistake?

1. Can a unilateral 
mistake be the basis of a claim for reformation of an unambiguous insurance 
policy that was accepted?

(a) Should the Court 
ignore the language of the agency agreement, Wyoming statutes and its own 
precedent, and find that the insured's agent could obligate Great West beyond 
its authority to do so as urged by the Appellants?

2. Can Appellants seek 
equity, despite the failure to request a copy of the policy; the failure to read 
the policy; the failure to give notice of Cermak's accident; the failure to give 
timely notice of Cermak's lawsuit; the attempt to set up Great West after Great 
West correctly declined coverage; the failure to pay a judgment despite having 
the assets to do so; the failure to obtain a complete settlement; the generation 
and prosecution of three separate lawsuits as part of their deal; and the taking 
of an inconsistent position in judicial proceedings and contrary to the 
underlying agreement?

Stated more succinctly, 
does the doctrine of laches bar Appellants' claim?

B. Whether the trial 
court properly denied Appellants' motion for summary 
judgment.

1. Even if the Court 
ignores Appellants' conduct and its own precedent to reform the policy, is there 
coverage? And, if so, should a settlement agreement characterized by collusion, 
bad faith and unreasonableness be enforced against Great 
West.

FACTS

[¶4] The facts 
in this matter are labyrinthine and have generated many issues. Perhaps, for 
that very reason, a fatal flaw in this appeal was not readily discernible. All 
parties to the instant action filed motions for summary judgment, and there is 
no dispute about the operative fact which we will set out in this portion of the 
opinion. The parties do disagree about how those facts interface with the legal 
principles applicable to the resolution of the various issues raised by the 
various parties.

[¶5] Charles 
Cermak was injured on March 2, 1993, while working on a drilling rig. His wife 
Kathy and his two minor children are parties for the reason that a claim for 
loss of consortium and care and services of Charles Cermak was filed in their 
names. For purpose of simplicity, we will refer to them as "Cermak." Kerr McGee 
was the operator of the oil field drilling site. Exeter Drilling contracted with 
Kerr McGee to provide drilling services. Cermak worked for Exeter. Cermak 
received worker's compensation benefits for his injuries through his 
employer.

[¶6] The waters 
begin to muddy as we relate that Kerr McGee contracted with Milpark Drilling 
Fluids (Milpark) to provide drilling fluids, or "mud," at the drilling site. 
Milpark, in turn, contracted with USA Trucking to operate its Casper warehouse, 
maintain its equipment, and deliver its products to drilling sites. USA Trucking 
is a major figure in this litigation, and we will refer to it as "USA." Another 
major player in this case is Baker Hughes Oil Field Operations and its 
predecessor in interest, Milpark. For purposes of simplicity and clarity, we 
will refer to Baker Hughes and Milpark as "BHM." BHM and USA entered into a 
contract called a Consigned Stock Agreement, which we will refer to as the 
"Agreement." Pursuant to the Agreement, BHM "consigned" its warehouse and the 
contents of that warehouse into the hands of USA to perform the functions 
previously performed by BHM employees. For purposes of this litigation, the 
germane provisions of the Agreement were that USA was: (1) To maintain BHM's 
equipment in serviceable condition; (2) provide additional insured coverage to 
BHM on USA's insurance policies (which included: motor truck cargo liability 
coverage, comprehensive general liability, and comprehensive auto liability); 
and, (3) to be an independent contractor and never to be considered an employee 
of BHM.

[¶7] USA 
obtained its insurance through an insurance agency called Freberg & Company 
of Wyoming, Inc., and we will refer to it as "Freberg." USA called Freberg and 
directed an agent to add BHM as an additional insured on its "policy." USA 
thought of its policy as "a policy," but, as it turned out, it was more in the 
nature of "policies." The insurer was Great West Casualty Company, and we will 
refer to it as "Great West." Freberg was authorized to bind insurance for Great 
West. Freberg forwarded USA's application to Great West. However, instead of 
issuing an "Additional Insured Endorsement" (AIE) which showed BHM as an 
additional insured on all policies, the AIE issued by Great West only showed BHM 
as an additional insured on USA's auto liability coverage. The record 
substantiates that Great West did not receive a copy of the Agreement between 
USA and BHM. The facts surrounding this insurance transaction generated BHM's 
contention that Freberg was an "agent" for Great West, and that a "mutual 
mistake" was made when Great West failed to add BHM to all of USA's "policies." 
That is, BHM contended that USA intended to have BHM added as an additional 
insured on all policies and Great West, acting through its agent Freberg, also 
intended that same result. Thus, BHM maintains there was a mutual mistake which 
is a circumstance which may permit reformation of a 
contract.

[¶8] Shortly 
before Cermak was injured at the drilling site, USA delivered a "barite hopper" 
and a supply of barite from the BHM warehouse in Casper, to the drilling site 
where Cermak worked. A "barite hopper" is a large bin about fifteen feet high 
into which barite is loaded. Barite is a heavy soil-like substance (commonly 
referred to as "mud") which, inter alia, adds weight to the drilling fluid 
column to prevent gas from rising to the surface and prevents drilling fluid 
from spilling out of the drill pipe as it is unscrewed during a trip out of the 
hole. When fully operative, the hopper is rigged to the well, and the rigging 
includes a walkway directly from the rig to the hopper. At the time of Cermak's 
accident, the hopper had not yet been attached to the rig. However, Exeter's 
operations required the use of some barite, so Cermak climbed an exterior ladder 
(which is an alternate method of gaining access to the hopper, if one is not 
able to gain access to it directly from the rig) in order to obtain a bucket of 
barite. Once atop the hopper, there is a railing which serves to prevent a 
worker from falling off the hopper. While performing that task, he lost his 
balance and needed to lean against the protective railing. The railing was not 
secure, and Cermak fell to a platform beneath the hopper, sustaining serious 
injuries. Midway in the instant proceedings it was established in a partial 
summary judgment entered by the district court that USA was responsible, under 
the agreement, for maintaining the hopper and was, hence, potentially liable for 
Cermak's injuries1.

[¶9] There were 
two actions filed in federal court before the instant case was filed in the 
state district court. On February 3, 1997, Cermak filed a civil suit in the 
United States District Court for the District of Wyoming seeking damages from 
BHM upon the theories of products liability and negligence. Neither USA nor 
Great West were made parties to that action, though the record does reflect that 
both had some notice of it, and a demand was made upon Great West to attend the 
settlement conference scheduled for that case in September 1997. That suit was 
"settled," though it has generated three additional lawsuits, as well as this 
appeal. The settlement agreement entered into by Cermak and BHM, without the 
presence or participation of USA or Great West, contained these recitations 
which are pertinent to this appeal:

1. Entry of Judgment. The 
parties [BHM and Cermak] shall stipulate to a Judgment in the form attached as 
Exhibit AA" hereto, (the `Judgment'). The Judgment is in the total amount of 
Nine Hundred Thousand Dollars ($900,000.00), which the parties agree reflects 
vicarious liability for damages caused by USA Trucking and its agents, 
representatives and/or employees, for which damage claims were made against 
Baker Hughes in the action.

[¶10] As will be 
subsequently set forth, Cermaks and Baker Hughes will jointly pursue USA 
Trucking and others for recovery of the $900,000.00. However, nothing in this 
Agreement is intended to in any way prohibit Cermaks or their agents, assigns or 
representatives from separately pursuing any claims they may have against any 
party other than Baker Hughes, its affiliates, officers, directors and employees 
(with the exception of USA Trucking and the assigned claims described herein) 
for damages in excess of $900,000.00, or for damages not actually recovered as a 
result of joint proceedings as set forth herein.

2. Payment to Cermaks. 
Upon execution of this Agreement, and in partial satisfaction of the Judgment, 
Baker Hughes shall pay the Cermaks the sum of Two Hundred and Fifty Thousand 
Dollars ($250,000.00) in cash or certified funds (the `payment'), of which 
$44,331.00 is attributed to lost wages.

3. Partial Assignment to 
Cermaks. Except as limited in this paragraph Baker Hughes hereby assigns to the 
Cermaks 650/900, or 72.22%, of any and all claims, rights, causes of action or 
proceeds therefrom, no matter how denominated, they may have or be entitled to 
recover against USA Trucking, Great Western [sic] or any other third party 
arising from or relating to (i) the accident, (ii) the subject matter, 
circumstances or settlement of the action, (iii) the Consignment Agreement, (iv) 
the Great Western [sic] policy and (v) any other liability policy issued to USA 
Trucking that provides coverage for the accident or the action, all of which are 
referred to collectively as the `assigned claims.' Baker Hughes reserves and 
retains all claims, rights, causes of action, portions thereof and proceeds 
therefrom that are not assigned herein (the `retained claims'). The retained 
claims include, but are not limited to, any claims or causes of action, no 
matter how denominated, Baker Hughes may have against USA Trucking, Great 
Western [sic] or any third party for reimbursement of attorneys' fees and costs 
incurred defending the action or pursuing future actions relating 
thereto.

4. Collection of 
Judgment. Upon receipt of the payment, the Cermaks hereby stipulate and agree 
that the Judgment shall only be satisfied through the prosecution of the 
assigned claims. Upon receipt of the payment, the Cermaks hereby stipulate and 
agree that they will never attempt to satisfy the Judgment by executing upon the 
assets of Baker Hughes, its affiliates, officers, directors and employees (with 
the exception of USA Trucking and the assigned claims as previously 
described).

5. Future Actions. The 
parties shall jointly prosecute an action or actions on the assigned claims and 
retained claims (the `future actions'). Baker Hughes shall bear the costs of the 
future actions; the parties hereto shall each bear their own attorney's fees in 
the future actions. The future actions shall only be settled upon mutual 
agreement of the parties hereto. Baker Hughes shall be entitled to 27.78% of any 
gross recovery in the future actions; the Cermaks shall be entitled to the 
balance of any such recovery.

[¶11] On 
December 19, 1997, BHM and Cermak filed a suit in the United States District 
Court for the District of Wyoming seeking damages from Great West upon the 
theories of breach of contract, bad faith claim denial, and bad faith claims 
handling. On June 23, 1998, the federal district court granted summary judgment 
in favor of Great West noting that, A[t]hough the materials on file in this case 
are extensive, they are largely irrelevant because this case simply involves the 
interpretation of an unambiguous contract between an insurer and an insured." By 
order entered on June 23, 1998, that court determined:

[¶12] The 
contract at issue . . . is unambiguous regarding who is an insured: USA is the 
only entity listed as an insured under the CGL [comprehensive general liability] 
policy provided by [Great West]; [BHM] is listed as an additional insured only 
under an endorsement to USA's commercial auto policy. There is no endorsement 
that adds [BHM] to the CGL policy. [BHM] relies upon a certificate provided by 
[Great West] implying that [BHM] was an additional insured under the CGL policy, 
however that certificate plainly states that it is for information purposes 
alone, and that it does not extend or create coverage or confer rights upon any 
entity. The certificate simply is not part of the agreement between the parties, 
not only because the certificate so states, but also because the agreement 
between USA and [Great West] antedates the certificate, and thus its terms 
cannot be modified by the certificate absent clear evidence of this intent and 
consideration for the modification. Further, it is clear that the terms of the 
contract do not allow the addition of an insured merely by the issuance of a 
certificate B instead, an endorsement is required. No such endorsement exists in 
this case.

[¶13] While 
[BHM] has attempted to confuse the issues by providing evidence of what [BHM] or 
USA believed their respective coverages to be, the terms of the contract are 
clear, and as such, those terms govern the contract's interpretation. See 
Intern. Surplus Lines v. Wyo. Coal Refining Systems, 52 F.3d 901, 903 (10th Cir. 
1995) (`The contract is to be interpreted by an objective standard, and, 
ordinarily, not by the parties' subjective rendition of the contract.'). The 
evidence and argument presented by [BHM] might have some bearing on a promissory 
estoppel or reliance claim, but [BHM] did not bring such claims, thus most of 
[BHM's] evidence and argument is simply irrelevant where the contract makes 
plain that [BHM] is an additional insured only under the commercial auto 
policy.

[¶14] Finally, 
the Court will deny [BHM's] Motion to Amend Complaint. The Court believes that 
amendment at this late date would be prejudicial to [Great West]. Further, the 
Court does not find that the interests of justice require amendment, because 
[BHM] merely seeks to add garden variety state law claims that may be pursued in 
state court, where [BHM] is currently pursuing a number of actions related to 
this case.

[¶15] To BHM's 
disadvantage, the record does not reflect much else about this claim. It is 
evident that the claim BHM was pursuing by means of that action was BHM's theory 
that the insurance contract between USA and Great West should be reformed to 
reflect what they intended the additional insured endorsement to cover, i.e., 
BHM's vicarious liability for USA's negligence. Again to BHM's disadvantage, the 
record does not clearly reflect why that aspect of the claim was not noticed in 
its initial complaint, or why BHM was unable to timely amend its complaint to 
include those issues. As we shall set out in more detail below, that aspect of 
BHM's theory of recovery could easily have been adjudicated as a part of its 
overall claim in federal court.

[¶16] On 
September 2, 1997, an action was filed by the State of Wyoming, Department of 
Employment, Workers' Compensation Division, ex rel. Charles Cermak, in the 
Wyoming district court (Converse County, Case No. 12516). The apparent purpose 
of that filing was for worker's compensation to fully recover any interest it 
had in judgments in favor of Cermak pursuant to Wyo. Stat. Ann. § 27-14-105 
(LEXIS 1999). That case is not affected by this appeal.

[¶17] On January 
30, 1998, while the federal case summarized above was pending, Cermak and BHM 
filed a suit in the Wyoming district court seeking to recover damages from USA 
and the owners of USA upon theories of indemnity and breach of contract to 
provide insurance (Converse County, Case No. 12611). In that case, USA filed a 
third party complaint against Freberg. On September 24, 1998, after resolution 
of Cermak's and BHM's federal case, Cermak and BHM filed an amended complaint 
adding Great West as a defendant in order to further pursue the issues not fully 
resolved in federal court. Those issues can be summarized as asking for 
reformation of the insurance contract entered into between USA and Great West. 
BHM's instant appeal is from that portion of the district court's summary 
judgment order denying relief to BHM on its theories of reformation of the 
insurance contract, as well as the district court's conclusion that Freberg was 
not Great West's agent as a matter of law (thus eliminating attribution of 
Freberg's mistake to Great West as an issue). Some additional facts will be 
included in our discussion of the issues.

DISCUSSION

[¶18] Although 
not directly raised by Great West in the district court or in this appeal, we 
will resolve the issues presented here by concluding that the claims asserted by 
Cermak and BHM in state district court were res judicata because of the second 
case litigated in federal court. Great West alludes to a portion of the concept 
of res judicata in its brief, but we are comfortable that it is our obligation 
to apply the principles of res judicata on our own motion to the extent the 
issue was not advanced by Great West. 18 Charles Alan Wright, Arthur R. Miller 
& Edward H. Cooper, Federal Practice and Procedure: Jurisdiction § 4405 
(1981; and 1999 Supp.). The district court referred to the proceedings in this 
case as a "miasma." The district court disposed of the issues quite ably and 
correctly based upon the merits of the claims asserted, but it is our view that 
the jurisprudence of this Court would not be advanced, indeed it might well 
suffer serious frustration, if we were to attempt to dispose of the issues as 
framed by Cermak and BHM, on this record.

[¶19] Complex 
litigation requires a certain flexibility in the application of the principles 
of res judicata. 18 Wright, Miller & Cooper § 4401. In evaluation of this 
case, we rely in part on our concern that the instant case was not so much 
complex litigation, as that it was irrational in conception and presentation to 
the various courts in which its adjudication was sought. We are also convinced 
that our disposition does not represent a change of course with respect to our 
res judicata jurisprudence, but rather it is an application of currently and 
widely accepted principles of res judicata that act as a deterrent to the 
multiple actions that were generated in this particular instance. The 
disposition of this case in federal court did not depend on any distinctive 
federal concerns. Indeed, its adjudication there relied entirely on state law 
principles, with the exception that the federal forum was available to these 
litigants because of diversity of citizenship (BHM is a California corporation). 
An alignment of Wyoming's jurisprudence regarding res judicata, with that of the 
federal model, is a natural fit because our procedural rules are modeled upon 
the federal scheme, and indeed are identical in most respects with the federal 
experience. See Id. at 5. A first step along this path is for this Court to 
fully embrace the substantial progress that has been made toward adoption of the 
convention that "the broad `res judicata' phrase refers to the distinctive 
effects of a judgment separately characterized as `claim preclusion' and `issue 
preclusion.'" Id. § 4402 at 6. That our discussion of this subject in previous 
decisions of this Court has not more carefully husbanded the distinctive 
vocabulary of res judicata, and the nuances and refinements that go with that 
vocabulary, is in part a function of the environment in which those matters have 
been presented to us, but, perhaps, as well because of an inattentiveness to the 
very refinements that, by design, make the Abroad res judicata phrase" a 
salutary tool in achieving repose of litigation. See e.g., Tenorio v. State ex 
rel. Wyoming Workers' Compensation Div., 931 P.2d 234, 238-40 (Wyo. 1997); and 
Livingston v. Vanderiet, 861 P.2d 549, 551-52 (Wyo. 1993).

[¶20] At this 
juncture, it is clear that in the instant case we are dealing with "claim 
preclusion," i.e., the effect of foreclosing any litigation of matters that 
never have been litigated because of a determination that they should have been 
advanced in an earlier suit. 18 Wright, Miller & Cooper § 4402 at 6. Just so 
that the path ahead will be apparent, our ultimate conclusion will be that the 
federal district court's order of June 23, 1998, granting summary judgment to 
Great West acts as a bar to any issues arising out of that claim, whether or not 
the federal district court actually resolved all issues on their merits and, 
indeed, despite the fact the federal district court actually referred the 
parties to state court to pursue some issues. Cermak and BHM could have raised 
those issues but failed to do so. In addition, Cermak's and BHM's remedy, if 
they felt aggrieved by the federal district court's decision, was to appeal that 
judgment. Having presented their claim in the federal court, the option of 
litigating it anew in state court was foreclosed by res judicata. Id. at 6-11; § 
4403 at 15-16; § 4404 at 22-27; and § 4468. Res judicata is not, as a general 
rule, defeated by error in the initial judgment. Id. § 4403 at 17-18; see Price 
v. Bonnifield, 2 Wyo. 80, 86 (1879).

[¶21] Claim 
preclusion principles of res judicata bar the relitigation of issues that were 
or could have been raised in the first action. Ten Mile Industrial Park v. 
Western Plains Service, 810 F.2d 1518, 1522-23 (10th Cir. 1987); Klein v. 
Zavaras, 80 F.3d 432, 434 (10th Cir. 1996); 18 Wright, Miller & Cooper § 
4406 at 43-48. In the instant case, it was readily discernible from the outset 
that all of the issues Cermak and BHM sought to raise were part of a single 
basic dispute - who was liable, in a legal sense, and in the context of products 
liability and negligence, to pay for Cermak's injuries, and, incidental to that, 
who was liable to indemnify BHM for its vicarious liability, if any existed. Id. 
§ 4407 at 48-56. The record establishes that BHM was aware of Cermak's injuries 
and the circumstances surrounding the accident at or very near the time it 
occurred.

[¶22] Because 
the effect of res judicata is harsh in some instances, there are exceptions to 
its application. One of its goals is to give, rather than to deny, justice. 18 
Wright, Miller & Cooper § 4415. As set out above, we have concluded that the 
issues which remain unresolved could have been advanced in BHM's initial action 
against Great West in federal court, and we do not perceive any injustice in its 
application to these circumstances. See Id. at 122. One recognized exception 
applies where, as here, a part of a single claim has been assigned or reserved. 
However, we do not look back to Cermak's original claim against BHM in applying 
res judicata in this instance. Rather, we apply it only to Cermak's and BHM's 
subsequent claim against Great West. See Id. at 122-24. Another exception, 
consent (agreement between the parties) may persuade a court to forego 
application of res judicata. Id. at 124. Such an agreement between the parties 
is not present here. Likewise, we do not perceive the existence of a tacit 
agreement between the parties to permit splitting of the claim - indeed, 
although somewhat unartful in its presentation, Great West did resist the second 
suit in state district court on grounds sounding in the principles of res 
judicata and, moreover, the federal suit and the state suit were not filed 
simultaneously. Rather, the issues to be disposed of in the state suit were only 
augmented once BHM had been unsuccessful in getting a full measure of relief in 
the federal court. Id. at 124-25. Ignorance of the full dimensions of the claim 
may supply another exception to the rigors of res judicata. Id. at 125-28. Here, 
we see no indication that an assertion of ignorance by BHM could be considered 
reasonable under the circumstances of this case. All of these parties were 
sophisticated business entities with very capable attorneys and considerable 
experience in litigation, especially litigation of this very sort. In addition, 
we do not discern any special circumstances, gross procedural defects, rights of 
vital public importance, or unwarranted injustice that would deter application 
of res judicata in this instance. Id. at 129-35. We hold that the issues 
asserted by Cermak and BHM are barred by res judicata.

[¶23] As we 
observed earlier in this opinion, we are also persuaded that the district 
court's resolution of the merits of these issues in its summary judgment order 
and decision letter was correct. What BHM failed to resolve in its federal suit 
was whether Freberg was Great West's agent in the sense that Great West would be 
bound by the mistake that Freberg made in communicating USA's request to make 
BHM an additional insured on all of USA's insurance policies. The district court 
resolved that issue in favor of Great West, discussing several levels of 
defenses relied upon by Great West. Any pronouncements by us in this regard are, 
of course, dicta. However, a thorough review of the law applicable to that issue 
convinces us that the district court's disposition on the merits was correct in 
all respects. See American Ref-Fuel Company v. Resource Recycling, Inc., 671 N.Y.S.2d 93, 96 (A.D. 2 Dept. 1998) (holding that an entity similarly situated 
to BHM, in virtually identical circumstances as those we address here, could not 
seek damages from an insurance broker because of a lack of duty running from the 
broker to the entity); and 2 Holmes's Appleman on Insurance 2d § 8.3, pp. 326-43 
(1996).

CONCLUSION

[¶24] For the 
reasons set out above, the summary judgment order of the district court is 
affirmed.

FOOTNOTES

1 The briefs inform us 
that all issues with respect to USA are now settled and this appeal, and our 
disposition of it, does not affect that settlement.