Great West Casualty Company, which insured the truck for Bad Habit, paid Bad Habit $85,000 for the loss of the truck in accordance with its insurance policy.

In November 2017, Butler Machinery sued Mr. Weinreis in small claims court for $9,100.94 for the unpaid service work. Mr. Weinreis counterclaimed in small claims court for the statutory maximum, $15,000, alleging loss of use of the truck, lost profits, cost to repair and replace the truck, and loss of personal property.

After a hearing, the court awarded Butler Machinery $8,041.57 for the unpaid service work and awarded Mr. Weinreis $15,000 for lost profits. Offsetting the recoveries resulted in a net award to Mr. Weinreis of $6,958.43.

In June 2018, Great West sued Butler Machinery in a North Dakota state court for $81,753.32 for the loss of the truck plus interest and costs.

Butler Machinery moved to dismiss, arguing that the case had been fully decided in small claims court when Mr. Weinreis sued Butler Machinery for loss of the truck.

The trial court granted Butler Machinery’s motion to dismiss, finding that the issue stemmed from the same transaction or occurrence and that Great West should have filed a claim for damages in the small claims action.

Great West moved to reconsider on the basis that Mr. Weinreis was the defendant in the small claims action, not Great West or Bad Habit. Great West argued that privity did not exist between Mr. Weinreis in his personal capacity and Great West as the insurance company for Bad Habit.

The trial court denied the motion to reconsider, and the dispute reached the Supreme Court of North Dakota.

There, Great West argued that the trial court had erred in granting Butler Machinery’s motion because Great West had not received an opportunity to assert a claim in the small claims action. For its part, Butler Machinery argued that the trial court had properly granted its motion and that privity existed between Great West and Mr. Weinreis.

The North Dakota Supreme Court’s Decision

The Supreme Court of North Dakota reversed.

In its decision, the court explained that Butler Machinery chose to pursue a small claims action against Mr. Weinreis in his personal capacity and did not sue Bad Habit for unpaid service work. The court added that Great West and Bad Habit were not parties in the small claims action; Great West did not participate in any aspects of the litigation; Great West did not control the defense, file answers, pay for costs, or take actions generally reserved for the parties; and Great West was unaware of the small claims action so that it could not have protected its interests by pressing for removal to the trial court to pursue monetary amounts exceeding the statutory limits set on small claims actions.

The court then ruled that privity did not exist between Great West and Mr. Weinreis. It pointed out although an insurance company and its insured often are privies, in this case the trial court made findings on a disputed fact when it extended privity from the insurance company through the insured limited liability corporation to a member of the corporation.

The appellate court concluded that a reasonable difference of opinion existed as to whether Great West and Mr. Weinreis were privies and, therefore, that the trial court should not have dismissed Great West’s claim.

The case is Great Western Casualty Co. v. Butler Machinery Co., No. 20180375 (N.D. July 30, 2019). Attorneys involved include: Laura C. Ringsak, Bismarck, ND, for plaintiff and appellant. Sean F. Marrin, Grand Forks, ND, for defendant and appellee.