The First District Appellate Court has held that an automobile insurer was collaterally estopped from contesting a judgment in another case to which the insurer was not a party, rescinding the liability coverage of the tortfeasor and triggering the uninsured motorist coverage under the policy. The case is American Freedom Insurance Co. v. Garcia, 2021 IL App (1st) 200231.

Ramon Garcia was American's insured on a policy including uninsured motorist coverage. A collision occurred on September 23, 2013 between a vehicle owned and driven by Garcia and one owned and driven by Nancy Benitez-Yanez who was insured by Direct according to the police report.

A declaratory judgment action was filed by plaintiff-appellant American Freedom Insurance Company against defendants Garcia, Luis Flores-Jimenez, Benitez-Yanez and Direct Auto Insurance Company. American sought a judgment that Benitez-Yanez was covered by Direct at the time of the incident, so Garcia did not have an uninsured motorists claim against American. Direct responded by raising an earlier judgment which found that Benitez-Yanez and Flores-Jimenez were not Direct's insureds at the time of the incident. Garcia was a partier to that earlier judgment, but American was not. The trial court in the current case denied American's summary judgment motion and granted Direct's motion to dismiss.

On appeal, American argued that the court erred in granting the motion to dismiss for several reasons.

  1. American was not a party to the earlier judgment or in privity with a party
  2. the prior litigation did not determine whether Benitez-Yanez was an uninsured motorist or that Direct owed no coverage for the car wreck,
  3. American had a due process right to be heard on the issue of coverage for the 2013 wreck before the right to contest coverage was extinguished, because it was not joined as a party despite the fact that it was a necessary party to the earlier litigation,
  4. res judicata should bar Direct from litigating the coverage issue as it pertains to American,
  5. the earlier judgment was void because the parties failed to include American as a necessary party, and
  6. the earlier judgment was erroneous on the merits so Benitez-Yanez was covered by Direct at the time of the wreck.

Direct responded that the dismissal was proper because American was not a necessary party to the first action, Benitez-Yanez was an uninsured motorist at the time of the wreck so American's claim was affirmatively defeated, and collateral estoppel barred relitigation of the first action because American was in privity with Garcia, who was a party to the first action.

The court found that the absence of coverage had already been established by the earlier proceeding between American and Garcia, which was biding in this case, notwithstanding American's contention that its due process rights were violated by not being able to challenge that finding and by reason of the fact that it was a necessary party to the earlier litigation, but had not been included as a party nor was it in privity with any party such that it would be collaterally estopped by the outcome of the litigation.

Editor's Note: Although a necessary party has a due process right to be heard in this case the judge found in favor of Direct because American was not a necessary party to the prior litigation because the company was in privity with Garcia, who was a party that was involved with the litigation.