Opinion ID: 2516660
Heading Depth: 2
Heading Rank: 4

Heading: Parties in Privity

Text: Regarding privity, this court noted: As the preclusive effects of judgments have expanded to include nonparties in more and more situations[,] . . . it has come to be recognized that the privity label simply expresses a conclusion that preclusion is proper. As to privity, current decisions look directly to the reasons for holding a person bound by a judgment. Bush v. Watson, 81 Hawai`i 474, 480, 918 P.2d 1130, 1136, reconsideration denied, 81 Hawai`i 474, 918 P.2d 1130 (1996) (citation omitted). Under certain circumstances, an insurer and its insured may be deemed to be in privity for purposes of collateral estoppel based upon the obligations created by the insurance contract. See, e.g., Medeiros v. First Ins. Co., 50 Haw. 401, 403, 441 P.2d 341, 343-44, reh'g denied, 50 Haw. 468, 441 P.2d 341 (1968). Generally speaking, an insured and his or her insurer share a common interest, that is, to limit liability in a tort action to within the policy limits. The common interest diverges where liability exceeds the policy limits, thus, exposing the insured to personal liability. However, as we noted in Medeiros, factors other than the obligations created by the insurance contract may influence whether parties should be deemed in privity: We do not believe [holding that the insurer and the insured are in privity is] an unjust application of collateral estoppel in view of the alternative of embarrassment engendered by possible contradictory findings with respect to [the insured's] negligence in the tort suit against him and the one against the alleged insurer. . . . The Insurance Company is not a complete stranger to the relationship between the plaintiffs herein and [the insured]. Its liability, if any, would be vicarious in the sense that it would be held liable to the plaintiffs only if, in the first place, [the insured] is found liable to the plaintiffs, and secondly, only if the factual basis of this liability brings him within the coverage of the policy. Id. at 403-04, 441 P.2d at 344. Similarly, in Tradewind Insurance Co., Ltd. v. Stout, 85 Hawai`i 177, 938 P.2d 1196 (App.), cert. denied, 85 Hawai`i 81, 937 P.2d 922 (1997), the Intermediate Court of Appeals (ICA) considered the following equitable factors before precluding litigation based on collateral estoppel: [W]hether it would be generally unfair in the second case to use the result in the first case, whether assertion of the plea of estoppel by a stranger to the judgment would create [an] anomalous [result], whether the party adversely affected by the collateral estoppel offers a sound reason why he should not be bound by the judgment, and whether the first case was litigated strenuously or with vigor. Id. at 188, 938 P.2d at 1207 (citation omitted) (some brackets added). Under the circumstances of this case, I believe that it would not be generally unfair to adopt the arbitrator's finding regarding damages in the subsequent tort action. As indicated above, one of the purposes of collateral estoppel is to avoid the kind of anomalous and inconsistent results in the present case, that is, where the arbitrator found that Flores was entitled to compensation for the treatment of injuries resulting from the accident pursuant to the December 1993 Plan and the trial court found that Flores could not recover for the identical treatments. The record reflects that the arbitration award and the damages awarded at trial were well within the insurance policy's limits, demonstrating the shared common interest of Barretto and AIG. In light of Barretto's liability for the accident and AIG's obligation to indemnify Barretto for the civil judgment, AIG is the party ultimately liable for the judgment in the tort action. AIG, as a party to the arbitration, vigorously litigated and actively participated in pre-arbitration and arbitration proceedings, as well as submitted a post-arbitration brief. In light of the foregoing circumstances and the fact that AIG has not offered a sound reason why it should not be bound by the arbitrator's decision, I would hold that AIGas the party in the arbitration proceeding and as the party ultimately liable for the judgment in the tort actionis deemed in privity with Barretto. I would also hold that, as in both Medeiros and Tradewind, application of collateral estoppel does not lead to an unjust result in the present case. Based on the foregoing, I would hold that, under the facts of this case, collateral estoppel applies, and the trial court was bound by the arbitrator's decision.