Condo Association are Birthplaces of Litigation
Barry Zalma
Jul 13, 2023
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Plaintiff, Nationwide Mutual Insurance Company (Nationwide), brought a declaratory judgment action against insureds, Beverly Glen Homeowners’ Association (Association) and members of the board of directors asking the court to declare that Nationwide had no duty to defend or indemnify defendants against claims made by the Association residents in a derivative suit. The trial court granted Nationwide’s motion for judgment on the pleadings, finding that res judicata and collateral estoppel barred defendants from seeking a defense in the derivative suit where judgment rendered in a prior case determined that Nationwide had no duty to defend.
In Nationwide Mutual Insurance Company v. Beverly Glen Homeowners’ Association, et al, No. 3-22-0089, 2023 IL App (3d) 220089-U, Court of Appeals of Illinois, Third District (July 7, 2023)
BACKGROUND
This lawsuit arises out of an ongoing dispute between defendants and Teresa and Katarzyna Jagiello, two Association residents.
On April 14, 2020, the trial court granted Nationwide’s motion. It held that “There are no material issues of fact in dispute and it is clear, as a matter of law, that the lack of cooperation on the part of the insured and its counsel has relieved Nationwide of its duties under its policy …. Nationwide’s insured failed to cooperate with Nationwide, relieving Nationwide of its duties under the policy, and Nationwide owes nothing to its insured… for any legal services. As such, Nationwide owes neither a duty to defend nor indemnify its insured in this matter.”
ANALYSIS
Res Judicata and Collateral Estoppel
The doctrine of res judicata serves to bar actions in which: (1) there was a final judgment on the merits rendered by a court of competent jurisdiction; (2) there is an identity of cause of action; and (3) there is an identity of parties or their privies in both actions. Res judicata prevents the relitigation of issues that could have been decided in the first action along with those issues that were actually decided.
The directors of a Condo Association act as the arms of the Association and for all intents and purposes are one and the same. In other words, there exists a legal relationship in which the directors, acting within their corporate authority, bind the Association.
When a valid and final judgment rendered in an action extinguishes the plaintiff’s clam the claim extinguished includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose.
Res judicata is an equitable doctrine that should be applied only as fairness and justice require. It is intended to be used as a shield, not a sword. Nationwide is asserting the doctrine in a declaratory judgment action to obtain a no-duty-to-defend ruling. It is, contrary to defendants’ argument, attempting to use the doctrine as a shield in the underlying derivative suit. Under the circumstances, applying the doctrine to deny defendants coverage in the derivative suit would not be unfair or unjust. Defendants have refused to produce documents, ignored settlement agreements and court orders requiring them to do so, and failed to cooperate with Nationwide counsel in defending their actions.
In continuing to dispute it should come as no surprise to defendants that Nationwide would have no duty to defend or indemnify their actions.
The trial court did not err in granting the motion for declaratory judgment on the pleadings in insurer’s favor based on doctrines of res judicata and collateral estoppel where order entered in the prior case, finding that the insurer had no duty to defend or indemnify insured, involved identical cause of action and parties were in privity with parties in the underlying dispute.
ZALMA OPINION
The basic covenant of good faith and fair dealing requires that neither party to the policy may do anything to deprive the other of the benefits of the policy. When the condo association failed or refused to cooperate in the investigation of a claim a court found the insurer owed neither defense nor indemnity to the association because of the breach by the association. When a new set of directors sought defense of the continuation of the same dispute res judicata applied because the association was the entity involved regardless of who sits on the Board of Directors.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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FACTUAL BACKGROUND
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FACTS
After Menchaca retained counsel HAIC advised that, under the terms of the policy, Menchaca was required to first invoke the appraisal process prior to filing suit, and that HAIC reserved the right to request that Menchaca and any adjuster hired on his behalf submit to an Examination Under Oath (“EUO”).
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Read the full article at https://lnkd.in/dNpKKcYx, see the full video at https://lnkd.in/dNgwRP8q and at https://lnkd.in/dA9dvd-D, and at https://zalma.com/blog plus more than 5150 posts.
Hurricane Damage to Dwelling Established by Appraisal Award
In Homeowners Of America Insurance Company v. Emilio Menchaca, No. 01-23-00633-CV, Court of Appeals of Texas, First District (July 31, 2025) after a hurricane Homeowners of America Insurance Company (“HAIC”) estimated that the cost of covered repair to Menchaca’s house was $3,688.54, which was less than his deductible, and therefore no payment would be made.
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After Menchaca retained counsel HAIC advised that, under the terms of the policy, Menchaca was required to first invoke the appraisal process prior to filing suit, and that HAIC reserved the right to request that Menchaca and any adjuster hired on his behalf submit to an Examination Under Oath (“EUO”).
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ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
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Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
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Professional Health Care Services Exclusion Effective
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Insurance Coverage Dispute:
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