Opinion ID: 1655350
Heading Depth: 1
Heading Rank: 2

Heading: Virtual Representation

Text: Because Continental was not a named party at trial, there remains the issue of Continental's standing to continue the present appeal. As the court notes, a right of appeal is generally available only to parties of record. I submit, however, that Continental is entitled to pursue the present appeal under the equitable doctrine of virtual representation. It is undisputed that Continental, although not named as a party, provided and controlled the defense of its insured, SHWC. Continental and SHWC further share an identity of interest with regard to the liability of SHWC and the insurance fund created by the contract of insurance existing between them. Finally, we have previously recognized that an insurer who controls the defense of its insured is a real party in interest and as such is bound by the material issues determined in the action against its insured. Massachusetts Bonding & Insurance Co. v. Orkin Exterminating Co., 416 S.W.2d 396 (Tex.1967); American Indemnity Co. v. Fellbaum, 263 S.W. 908 (1924); American Fidelity & Casualty Co. v. Williams, 34 S.W.2d 396, 404 (Tex.Civ.App.-Amarillo 1930, writ ref'd). Although not mentioned by name in these cases, the doctrine of virtual representation is applied to bind the insurer to the liability findings against its insured. Application of the doctrine here is closely related to principles of res judicata, or more precisely, collateral estoppel. This relationship is explained as follows: The strict rule that a judgment is operative, under the doctrine of res judicata, only in regard to parties and privies, is sometimes expanded to include as parties, or privies, a person who is not technically a party to a judgment, or in privity with him, but who is, nevertheless, connected with it by his interest in the prior litigation and by his right to participate therein, at least where such right is actively exercised by prosecution of the action, employment of counsel, control of the defense, filing of an answer, payment of expenses or costs of the action, the taking of an appeal, or the doing of such other acts as are generally done by parties. 46 Am.Jur.2d, Judgments, § 535 (1969). As applicable here the doctrine is probably best explained in the Restatement (Second) of Judgments. It provides that a person who is not a party to an action but who nevertheless actually controls the presentation on behalf of a party is bound by a determination of issues decided as though he were a party. Restatement (Second) of Judgments § 39 (1982). Control means that the unnamed party has the effective choice as to the legal theories and proofs to be advanced in behalf of the party to the action and  the opportunity to obtain review.  Id. at comment c (emphasis supplied). Application of § 39 is further subject to the exceptions that govern issue preclusion as it applies to a party. Id. at comment b. The pertinent exception provides: Although an issue is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, relitigation of the issue in a subsequent action between the parties is not precluded in the following circumstances: (1) The party against whom preclusion is sought could not, as a matter of law, have obtained review of the judgment in the initial action; .... Restatement (Second) of Judgments § 28(1) (1982). If Continental does not have the right to appeal, it is not truly in control of the defense of its insured and cannot be bound to the issues found in favor of Huizar against the insured. American Indemnity Co. v. Fellbaum, 263 S.W.2d at 910; American Fidelity & Casualty Co. v. Williams, 34 S.W.2d at 404; Restatement (Second) of Judgments §§ 28, 39 (1982). It is, after all, Continental's exclusive control of the defense of its insured which is a predicate for the Stowers claim subsequently filed against Continental by SHWC and Huizar. It would be more economical and expeditious to simply recognize Continental as a real party in interest under the doctrine of virtual representation, as we have done before, and allow it to prosecute the appeal. If, however, Continental is a stranger to the appeal and has no standing, then relitigation of the liability issues in an action in which Continental is a named party will be necessary before the insurance company may be bound. For the above reasons, I would reverse the judgment of the court of appeals, and remand the cause to the court of appeals with directions to allow Continental's intervention for the purpose of consideration of the merits of the appeal. HILL, C.J., joins in this dissenting opinion.