COA: Arbitration Award Settling Dispute Between Insurers Does Not Bar Action By an Insured Who Was Not Involved In the Arbitration

Today the COA held that an prior arbitration award concluding that an insured was not negligent did not preclude Plaintiff's negligence action where the arbitration was between two insurance companies and Plaintiff was not involved in the arbitration. The case is Whitlock v. Triangle Grading Contractors Development, Inc..

Plaintiff was in a car accident with a truck owned by defendant Triangle Grading. Plaintiffs' insurance carrier, Liberty Mutual, filed a claim with Defendants' insurance carrier, Frankenmuth, requesting reimbursement for the funds it had paid plaintiff as a result of his insurance claim stemming from the car accident. Frankenmuth denied the claim and the dispute went to arbitration, with the panel returning a decision in favor of Frankenmuth, concluding that Frankenmuth's insured did not negligently cause the accident that injured Plaintiff. Defendants claimed they were entitled to summary judgment because the arbitration award in Frankenmuth's favor precluded Plaintiff's suit on res judicata grounds.

The COA held that nonparties to a prior arbitration may use an arbitration award to bind an adverse insured party in a subsequent proceeding if the adverse party or its privy was a party to the arbitration and had a full and fair opportunity to litigate the same issue in the earlier proceeding. The COA concluded that because Plaintiff was not a party to the arbitration agreement, did not seek to benefit directly from the arbitration, and did not actively participate in or control the arbitration, that Plaintiff's negligence action was not barred by the prior arbitration proceeding.