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Res judicata no bar to bad-faith claim against Allstate

By PAUL THARP, Staff Writer

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An Allstate customer’s unfair-trade-practices and bad-faith claims have been reinstated by the N.C. Court of Appeals in an unpublished decision.

The case – Lee v. Allstate Insurance Company (Lawyers Weekly No. 10-16-0779 pp.) – may now go to trial in Cumberland County.

Brent Adams

An attorney representing the plaintiffs, Brenton D. Adams of Dunn, said he doesn’t anticipate a settlement in the case, which includes a claim for punitive damages.

“We feel good about trial. Allstate’s conduct was reprehensible, but it was consistent with their usual game plan,” Adams told Lawyers Weekly.

An attorney for Allstate said the company was considering its options and could not comment further.

The case involved a rear-end auto accident and two lawsuits. The first was brought against the driver of the vehicle who caused the accident, and the second was brought solely against Allstate based on its handling of an underinsured motorist claim.

“The big distinction here was between the third-party and the first-party insured,” Adams said. “The plaintiffs as a first-party insured had a contractual relationship with Allstate under the underinsured motorist policy, so Allstate had a higher duty to them than it would have if it was defending a negligence claim.”

Despite that, Adams said, “They treated their own insured mighty badly. This was a clear liability case with medical bills right at $100,000. Instead of paying the claim like they should have, they defended without any basis at all.”

Adams said Allstate presented no witnesses, no testimony and no evidence at an arbitration held in the case. The plaintiffs brought suit against Allstate, Adams said, when the company attempted to place conditions on payment of the arbitration award. Allstate then moved successfully for dismissal of the suit based on res judicata.

“We think the Court of Appeals did the right thing [in reversing the trial court],” Adams said. “The suit against Allstate was a separate and distinct action based on bad faith.”


Thomas Matuseski crashed into the rear of the plaintiffs’ vehicle, damaging the plaintiffs’ vehicle and injuring one of the plaintiffs. The plaintiffs’ vehicle was insured by Allstate under a policy providing $100,000 of UIM coverage. The policy mandated arbitration of disputed claims.

The plaintiffs filed a UIM claim with Allstate in early January 2007. They then filed a complaint for negligence against Matuseski and issued Allstate a summons as an unnamed defendant.

Matuseski’s insurer, Nationwide, paid the limit of his coverage, $30,000, to the plaintiffs in September 2007.

The plaintiffs filed a motion to compel arbitration with Allstate. The trial court granted the motion, and arbitrators awarded the injured plaintiff $125,000.

The plaintiffs then moved for entry of judgment upon the arbitration award. The trial court ordered Allstate to pay the plaintiffs $70,000 – the difference between the UIM coverage limit and the $30,000 the plaintiffs had already received.

When the plaintiffs received the $70,000 check from Allstate, conditioned on signing a dismissal, they returned it and refused to execute the dismissal. In the meantime they filed suit against Allstate alleging breach of contract, unfair trade and claim settlement practices and willful and wanton breach of the covenant of good faith and fair dealing. The plaintiffs requested punitive damages.

Allstate moved to dismiss the plaintiffs’ complaint under Rule 12(b)(6), and the trial court dismissed the case on the basis of res judicata.

The plaintiffs appealed.


On appeal the plaintiffs argued that the claims in the suit against Matuseski were not the same as the claims against Allstate, and the unfair-settlement-and-trade-practices claims “did not exist prior to the time the plaintiffs’ suit against Matuseski was filed.”

Dismissal of a claim based on res judicata requires proof of “(1) a final judgment on the merits in an earlier suit, (2) an identity of the causes of action in both the earlier and the later suit, and (3) an identity of the parties or their privies in the two suits.” Moody v. Able Outdoor, Inc., 169 N.C. App. 80 (2005).

The only issue in the plaintiffs’ appeal was whether there was an identity of the causes of action in the suit against Matuseski and the suit against Allstate.

The court observed that in Country Club of Johnston County, Inc. v. U.S. Fidelity and Guarantee, Co., 150 N.C. App. 231 (2002),we held that a prior judgment concerning insurance coverage did not bar a subsequent action for claims of bad faith and unfair and deceptive practices against the insurer in the handling of the claim.”

Logic and common sense, the court wrote, “require the conclusion that the [insured] cannot be required to have brought a claim of which it could not have reasonably known at the time of the first action.”

The plaintiffs’ initial claim against Matuseski “involved issues of coverage … and not the issues presented [against Allstate], namely, bad faith and unfair and deceptive practices.”

Most of the conduct giving rise to the plaintiffs’ claims against Allstate “occurred after they filed [suit against Matuseski].

The doctrine of res judicata did not bar the plaintiffs’ unfair-trade-practices and breach-of-the-covenant-of-good-faith-and-fair-dealing claims against Allstate.

Accordingly, the Court of Appeals reversed the trial court’s Rule 12(b)(6) dismissal and remanded the case for further proceedings on those two claims.

Opinion Brief

Case name: Lee v. Allstate Insurance Company

Court: North Carolina Court of Appeals

Judges: Judge Wanda G. Bryant. Chief Judge John C. Martin and Judge Rick Elmore, concurring.

Date: Aug. 3, 2010

Platintiff-appellant’s attorneys: James M. Johnson (Dunn) and Brenton D. Adams of Brent Adams & Associates (Dunn).

Defendant-appellee’s attorney: John P. Barringer and Jennifer M. Arno, both of McAngus, Goudelock & Courie (Charlotte).

Issue: Did the trial court err by granting the defendant’s Rule 12(b)(6) motion to dismiss on the basis of res judicata?

Holding: Yes. The plaintiffs’ initial claim against an alleged negligent driver and Allstate involved issues of coverage, and not the issues presented against Allstate in the later suit, namely bad faith and unfair and deceptive practices.

Noteworthy: An insurer’s handling of a claim lands it in a second suit in same case.

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