Full Faith and Credit Act Controlled

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Posted on June 9, 2026 by Barry Zalma

Post number 5368

Posted on June 9, 2026 by Barry Zalma

In Prime Insurance Company, Inc. v. Medicab Transportation, LLC, Jason Rhodes, and Dale Johnson v. Prime Insurance Company, Inc and Prime Property & Casualty Insurance, Inc. No. 2:24-cv-421-SPC-KRH, United States District Court, M.D. Florida, Fort Myers Division (June 3, 2026) Medicab, a paratransit company, bought two policies in 2021: a Business Auto Policy from PPCI and a Commercial Liability Policy from Prime. Both policies, as originally written, appeared to cover injuries arising from loading and unloading patients from Medicab vans.

After a patient, Margaret St. Aubin, fell while being unloaded from a van and suffered injuries, her Estate made a $1 million demand. Prime and its claims administrator concluded that the Commercial Policy’s loading/unloading language had been included by mutual mistake, because the parties allegedly intended only the Auto Policy to cover such automobile-related risks.

Prime then amended the Commercial Policy and filed a declaratory action in Utah seeking reformation of the Commercial Policy. Medicab did not appear, and the Utah court entered a default judgment reforming the policy and declaring no Commercial Policy coverage.

Later, the Estate obtained a $412,440.71 judgment against Medicab and its employees in Florida, exceeding the Auto Policy’s $100,000 limit. Prime then filed this federal action in Florida, while Medicab counterclaimed for breach of contract, bad faith, fiduciary breach, and misrepresentation.

LAW

Under the Full Faith and Credit Act, 28 U.S.C. § 1738, a federal court must give a state-court judgment the same preclusive effect it would receive in the rendering state. Applying Utah preclusion law, the court distinguished between claim preclusion and issue preclusion (collateral estoppel). Issue preclusion applies when:

1. the issue is identical to one decided previously,
2. there was a final judgment on the merits,
3. the issue was fully and fairly litigated, and
4. the party to be estopped was a party or in privity with a party in the earlier action.

Utah law also recognizes that a default judgment counts as a judgment on the merits, and that an insurer-insured relationship may create fiduciary duties in the third-party insurance context. Fraudulent and negligent misrepresentation claims require falsity, reliance, causation, and damages.

For collateral estoppel to bar a subsequent claim, four elements must be satisfied: (1) the issue challenged must be identical in the previous action and in the present case; (2) the issue must have been decided in a final judgment on the merits in the previous action; (3) the issue must have been competently, fully, and fairly litigated in the previous action; and (4) the party against whom collateral estoppel is invoked in the current action must have been either a party or privy to a party in the previous action.

DISCUSSION

The court held that the Utah default judgment had substantial preclusive effect. Medicab was a party to the Utah action. That preclusion barred Medicab’s contract claims, declaratory claim, and good-faith claim, because the Utah judgment had already determined that the Commercial Policy must be reformed, provided no coverage for the accident, and imposed no duty on Prime to defend or indemnify.

Utah law clearly indicates that default judgment is a judgment on the merits.

ANALYSIS

The case turns almost entirely on issue preclusion. The Florida federal court treated the Utah default judgment as binding not only on Medicab, but also on Medicab’s employees, because their rights depended on the same policy language and coverage position. When federal courts are asked to give res judicata effect to a state court judgment, it must apply the res judicata principles of the law of the state whose decision is set up as a bar to further litigation.

The court was also careful to separate claims that truly overlapped with the Utah adjudication from those that did not.

CONCLUSION

The Court declined Medicab Defendants’ invitation to set aside the Utah judgment. The court held that the Utah judgment precluded Medicab from relitigating whether the Commercial Policy covered the accident or whether Prime had a duty to defend or indemnify. Accordingly, Medicab’s claims for breach of contract, breach of good faith, declaratory relief, and breach of fiduciary duty failed, and PPCI was dismissed entirely.

ZALMA OPINION

Allowing a court to enter a default judgment against a plaintiff is a serious error. Once the judgment is entered it becomes final and all other courts, including federal courts, must give credit to the judgment regardless of claims providing to the judgment. The claims of bad faith died because of the default judgment.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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