ON PETITION FOR WRIT OF CERTIORARI DATE OF JUDGMENT: 08/15/95 TRIAL JUDGE: HON. JOHN LESLIE HATCHER COURT FROM WHICH APPEALED: BOLIVAR COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANT: MICHAEL T. LEWIS PAULINE S. LEWIS ATTORNEY FOR APPELLEES: WILLIAM G. WILLARD, JR. NATURE OF THE CASE: CIVIL - INSURANCE DISPOSITION REVERSED AND REMANDED - 1/29/98 MOTION FOR REHEARING FILED: MANDATE ISSUED:
The opinion of the court was delivered by: Banks, Justice, For The Court:
1. This case is before the Court on a Petition for Writ of Certiorari. The issue presented is whether a declaratory judgment favorable to the insurer in an action to determine coverage between an automobile liability insurer and the insured, as a matter of res judicata, precludes the injured person who was not a party to the declaratory judgment action from litigating the question of coverage in a subsequent action or proceeding instituted by her against the insurer. It is an issue of first impression in this Court. We conclude that there is no res judicata bar.
2. Brothers Rogers and Claude McKinney owned JEH Enterprises as equal partners. Their company had a U.S. Government contract to deliver mail between Greenville and Rena Lara. The company used a van, titled in Rogers McKinney's name, to deliver the mail. JEH paid the note on the van. Rogers purchased automobile insurance for the van from Mississippi Farm Bureau Insurance Company (Farm Bureau). On or about June 23, 1992, Farm Bureau notified Rogers that they would not renew the insurance policy. After shopping for other insurance, Rogers and his brother Claude entered into a "handshake deal" whereby Rogers transferred ownership of the van to Claude, and Claude agreed to insure the van. Rogers never actually transferred the van's title to Claude or JEH Enterprises.
3. On June 24, 1992, Claude applied for insurance with Farm Bureau. On the application for insurance, Claude listed himself and his wife, Omelia, as those who would drive the van. Farm Bureau issued an insurance policy to Claude. Claude testified in his deposition that he informed the Farm Bureau agent that JEH would continue to use the van for the same purposes as when Rogers had the insurance. Claude further stated that the agent understood that Rogers would continue to share the driving responsibilities.
4. On December 18, 1992, Rogers McKinney, while driving the van, collided with Evelene Coleman. Shortly thereafter, a claim was filed with Farm Bureau. Following receipt of the claim, Farm Bureau contacted the McKinneys, and made an investigation of the accident. When Farm Bureau investigated the accident, it determined that information provided by Claude on the insurance application was false. On March 26, 1993, Farm Bureau filed an action in chancery court, asking the court for a declaration that the policy was void ab initio since Claude obtained the insurance by putting false information on the insurance application. Specifically, Farm Bureau alleged that Claude McKinney falsely identified himself as the van's owner and failed to identify Rogers McKinney as a potential driver. Farm Bureau also refunded the insurance premium that Claude had advanced.
5. On April 1, 1993, four months after the accident, Coleman requested information from Farm Bureau regarding the van's insurance. Farm Bureau never answered her request for information, and did not inform her about the declaratory suit it had filed, although Farm Bureau had actual knowledge that Coleman was seeking insurance coverage applicable to her automobile collision. Coleman was not named a party in the declaratory action nor was she served notice that such an action had been filed. On May 7, 1993, Coleman filed a suit in Bolivar County Circuit Court for damages against Rogers McKinney and JEH Enterprises alleging $500,000 in compensatory damages. On June 9, 1993, the chancery court declared the policy in question void ab initio. The chancery court heard no evidence in reaching its decision; the Chancellor merely signed a judgment which counsel for Farm Bureau had prepared.
6. On May 7, 1993, Coleman filed a complaint in the Circuit Court of Bolivar County against Rogers McKinney and JEH. Farm Bureau received notice of Coleman's lawsuit on January 3, 1994 and immediately declined to defend the McKinneys. On November 2, 1994, the Circuit Court of Bolivar County entered an agreed judgment providing for a $750,000 judgment in favor of Coleman-the bodily injury limit under the Farm Bureau policy. On November 18, 1994, Coleman filed a garnishment action against Farm Bureau to obtain the judgment amount under the Farm Bureau policy. Farm Bureau moved for summary judgment against Coleman's garnishment writ. Farm Bureau's motion was based upon res judicata and specifically upon the June 9, 1993 chancery court finding that declared the McKinneys' insurance policy void ab initio. The circuit court granted summary judgment based upon garnishment principles, and did not address the issue of res judicata. Thus, summary judgment was granted in favor of Farm Bureau by the chancery court declaring the policy in issue void ab initio, without notice given to Coleman or her attorney, and without her knowledge or presence. This summary judgment was followed by another summary judgment granted in favor of Farm Bureau by the circuit court based on the prior summary judgment in the chancery court. The Court of Appeals affirmed the circuit court in a per curiam affirmance memorandum opinion attaching the order issued by the Circuit Court of Bolivar County, which was based upon garnishment principles, and did not address the issue of res judicata or notice.
7. Coleman initially argues that the chancery court's judgment declaring the insurance policy in issue void ab initio does not bar her garnishment action under the principles of res judicata and collateral estoppel. Although Farm Bureau based it motion for summary judgment on the principle of res judicata, the trial court granted summary judgment on the basis of garnishment principles and garnishment law; the order entered by the circuit court never uses the terms res judicata or collateral estoppel. The order cites to Jones v. Southern Marine & Aviation Underwriters, Inc., 739 F. Supp. 315, 318 (S.D. Miss. 1988), aff'd, 888 F. 2d 358 (5th Cir. 1989) ("It is beyond cavil that judgment creditors. . .seeking to garnish insurance policy proceeds, enjoy no greater rights than the insured party. Thus, all defenses available to the insurer against its insured are available against third parties seeking coverage under the policy."). The circuit court held:
If Farm Bureau were Claude McKinney's debtor, there is no doubt that Coleman, as a judgment creditor, would succeed in the garnishment action. However, the chancery court has already deemed the insurance contract between Farm Bureau and Claude McKinney void ab initio. Claude McKinney may not assert a claim against Farm Bureau on a void policy. Since Claude cannot assert a claim against Farm Bureau, it follows that Coleman, as a judgment creditor cannot. Coleman's assertion that the underlying chancery decree is defective is best addressed in the chancery court. Farm Bureau, therefore, is entitled to judgment as a matter of law.
8. Although this is a correct statement of law as to garnishment principles, the question raised by Coleman, and which must first be addressed, is whether Farm Bureau, knowing of an outstanding claim for which it could be liable, is required to join the claimant in any action seeking to declare its rights with respect to the policy and that claim. Put another way, the issue is whether the chancery court's order is ...