Present: All the Justices 

STATE FARM FIRE & CASUALTY COMPANY 

v. Record No. 971075 OPINION BY JUSTICE ELIZABETH B. LACY 

 February 27, 1998 

HERMOND MABRY, ET AL. 

FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND 

James B. Wilkinson, Judge 

In this appeal, we consider whether the trial court 

properly determined that an insurer was estopped from 

litigating whether its insured's acts were negligent or 

intentional based on a judgment in a prior tort action in 

which the insurer provided the insured a defense under a 

reservation of rights. 

 Helena M. Martin was injured when Hermond A. Mabry shot 

her four times using two pistols while the parties were at 

Mabry's residence. Martin notified State Farm Fire & Casualty 

Insurance Company (State Farm), Mabry's homeowner's insurance 

carrier, of the event. State Farm issued reservation of 

rights letters to Mabry and Martin, asserting that insurance 

coverage might not be available due to the intentional act 

exclusion in the homeowner's policy. 

 Martin filed a motion for judgment against Mabry seeking 

recovery of $125,000 for injuries resulting from the shooting. 

In her pleadings, Martin alleged that the shootings were the 

result of negligence on the part of Mabry. After Martin filed 
her lawsuit, State Farm sent a second reservation of rights 

letter to Mabry and a reservation of rights letter to counsel 

for Martin. State Farm retained an attorney to provide legal 

representation for Mabry. 

State Farm, represented by another attorney, filed a 

motion for declaratory judgment to determine whether the 

intentional act exclusion in Mabry's policy applied to exclude 

coverage for Mabry's acts. Prior to resolution of the 

declaratory judgment proceeding, Mabry, Martin, and their 

attorneys agreed to the entry of a consent judgment against 

Mabry for $95,000. 

Martin subsequently filed an answer in the declaratory 

judgment proceeding asserting that the doctrine of collateral 

estoppel precluded State Farm from litigating whether Mabry's 

acts were negligent or intentional. Martin maintained that 

entry of the consent order "on the pleadings," as recited in 

the order, established that Mabry's acts were negligent as 

alleged in the motion for judgment in the tort action. 

Following an ore tenus hearing and post-trial memoranda, 

the trial court issued an opinion letter in which it 

determined that State Farm was estopped from litigating 

whether Mabry's actions in shooting Martin were negligent or 

intentional. The trial court based its opinion on "the public 

policy grounds expressed by the Virginia Supreme Court in 

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State Farm v. Wright, 173 Va. 261 (1939), and the estoppel 

effect of a consent judgment expressed by the Virginia Supreme 

Court in Culpeper Nat'l Bank v. Morris, 168 Va. 379, 385 

(1937)." A final order was entered on February 26, 1997, 

declaring that Mabry was entitled to coverage under the State 

Farm Policy for the claims made against him by Martin, and 

that State Farm was obligated to pay the judgment rendered in 

the tort action in favor of Martin. We awarded State Farm an 

appeal. 

In its appeal, State Farm argues that the trial court's 

decision improperly applied the doctrine of collateral 

estoppel to preclude State Farm from arguing in the 

declaratory judgment action that Mabry's actions were 

intentional. Mabry and Martin reply that entry of the consent 

judgment "on the pleadings" collaterally estopped State Farm 

from relitigating whether Mabry negligently or intentionally 

fired the shots that injured Martin. 

We agree with State Farm that collateral estoppel is not 

applicable in this case. One of the elements of collateral 

estoppel is that the parties, or their privies, must be the 

same in both the prior and subsequent actions. Angstadt v. 

Atlantic Mut. Ins. Co., 249 Va. 444, 446, 457 S.E.2d 86, 87 

(1995). State Farm was not a party in the tort litigation; 

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therefore, this element of collateral estoppel could only be 

met if the requisite privity existed between it and Mabry. 

Privity requires that a party's interest be "so 

identical" with another "that he represents the same legal 

right." Nero v. Ferris, 222 Va. 807, 813, 284 S.E.2d 828, 831 

(1981). Whether privity exists "requires a careful 

examination of the circumstances of each case." Angstadt, 249 

Va. at 447, 457 S.E.2d at 87. In this case, State Farm 

reserved its right to challenge coverage under the policy 

based on the nature of Mabry's acts. By so doing, State Farm 

established that its position diverged from that of its 

insured on this issue and that the interests of State Farm and 

Mabry with regard to coverage were adverse, not identical. 

This result was foreshadowed by our discussion in Reisen 

v. Aetna Life and Casualty Co., 225 Va. 327, 302 S.E.2d 529 

(1983). In Reisen, we held that a declaratory judgment 

proceeding to determine coverage under an insurance policy 

could be brought by an insurer while the underlying tort 

litigation was pending, even if the ultimate factual issue in 

determining coverage was also at issue in the tort litigation. 

In the course of the opinion, we stated that "because of the 

likelihood that the insurer, after judgment in the tort 

action, would be entitled to litigate the very same coverage 

question it sought to raise before trial," the declaratory 

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judgment proceeding declaring the parties' rights in advance 

was proper. Id. at 336, 302 S.E.2d at 534. This statement 

would be in error if the insurer was collaterally estopped 

from raising the factual issue addressed in the tort 

litigation in the subsequent proceeding determining coverage. 

Accordingly, because State Farm was not a party to the 

tort litigation nor was it in privity with Mabry regarding the 

nature of Mabry's acts, we conclude collateral estoppel does 

not apply to preclude State Farm from litigating that issue.1 

Accord, Alabama Farm Bureau Mut. Cas. Ins. Co. v. Moore, 349 

So.2d 1113, 1115-17 (Ala. 1977); Farmers Ins. Co. of Arizona 

v. Vagnozzi, 675 P.2d 703, 708 (Ariz. 1983); Spears v. State 

Farm Fire and Cas. Ins., 725 S.W.2d 835, 837-38 (Ark. 1987); 

Kelly v. Cherokee Ins. Co., 574 S.W.2d 735, 737-39 (Tenn. 

1978). But see Miller v. United States Fidelity & Cas. Co., 

197 N.E. 75, 77 (Mass. 1935). See generally, Comment, The

Effect of Collateral Estoppel on the Assertion of Coverage 

Defenses, 69 Colum. L. Rev. 1459 (1969). 

 1 In Norman v. Insurance Co. of North America, 218 Va. 718, 

725, 239 S.E.2d 902, 906 (1978), we stated that the judgment 

entered in the tort litigation holding the insured's actions 

to be intentional "constitutes a collateral estoppel" of the 

insured's action against the insurer in which the insured 

asserted his actions were "accidental." However, we did not 

examine the elements of collateral estoppel and specifically 

did not discuss privity. Accordingly, Norman does not provide 

binding precedent for the principle that collateral estoppel 

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We also conclude that none of the other forms of estoppel 

noted by the trial court operate here to preclude State Farm 

from pursuing its declaratory judgment proceeding. Under 

principles of estoppel and waiver, providing the insured a 

legal defense generally makes the insurer liable for amounts 

recovered against the insured because the insurer's actions 

indicate that the policy coverage applies, and, therefore, the 

insurer is estopped from subsequently seeking to avoid 

liability under the policy. Cooper v. Employers Mut. 

Liability Ins. Co. of Wisconsin, 199 Va. 908, 916, 103 S.E.2d 

210, 216 (1958); 14 George J. Couch, Cyclopedia of Insurance 

Law § 51:239 (Mark S. Rhodes ed., 2d ed. 1982). 

If an insurer provides a reservation of rights, however, 

the insurer "is not deemed to have waived, nor be estopped to 

set up, the defense of lack of coverage" because of its 

participation in the tort litigation. Norman v. Ins. Co. of 

N. America, 218 Va. 718, 726, 239 S.E.2d 902, 907 (1978). As 

the trial court acknowledged, State Farm provided Mabry a 

defense under a reservation of its right to later assert its 

defenses to coverage under the policy, and, thus, these 

principles of estoppel and waiver are inapplicable. 

 

would apply to insurers in the circumstances of the instant 

case. 

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Finally, the trial court referred to an "estoppel" based 

on its view that actions taken by State Farm in the conduct of 

the tort litigation provided the insurer with "its day in 

court," and, therefore, State Farm was not entitled to another 

opportunity to try its case on the merits, citing State Farm 

Mutual Automobile Insurance Co. v. Wright, 173 Va. 261, 3 

S.E.2d 187 (1939). 

However, here State Farm did not have "its day in court" 

in the tort proceeding. See Farm Bureau Mut. Auto. Ins. Co. 

v. Hammer, 177 F.2d 793, 799-800 (4th Cir. 1949). State Farm 

was not a party to the tort litigation and, therefore, could 

not independently assert its position on the nature of Mabry's 

acts in that proceeding. Nor could it assert its position in 

conjunction with providing a defense to its insured. The 

attorney employed by the insurer to defend the insured "is 

bound by the same high standards which govern all attorneys, 

and owes the insured the same duty as if he were privately 

retained by the insured." Norman, 218 Va. at 727, 239 S.E.2d 

at 907. To comply with this duty in the tort litigation, 

Mabry's attorney could not argue that Mabry's acts were 

intentional because such an argument could expose Mabry to 

punitive damages and would not be in his best interest. Thus, 

the declaratory judgment proceeding to determine the issue of 

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policy coverage was State Farm's first opportunity to assert 

its coverage defense and to try its case on the merits. 

In the instant case, State Farm sent reservation of 

rights letters to its insured, Mabry, and to Martin when it 

was initially informed of Martin's claim. Reservation of 

rights letters were again sent to Mabry and to Martin's 

counsel when the tort litigation was initiated. Under these 

circumstances, neither waiver, estoppel, nor collateral 

estoppel precluded State Farm from raising its coverage 

defense, specifically the question whether Mabry shot Martin 

intentionally or negligently. 

Accordingly, we will reverse the judgment of the trial 

court and remand the case for further proceedings. 

Reversed and remanded. 

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