In Franklin Mutual Insurance Company v. Castle Restoration and Construction, Inc. and Falcon Engineering, Co., LLC, the Appellate Division for the Superior Court of New Jersey discussed whether the entire controversy doctrine precluded an insurance company from litigating settled claims.        

Sevastyan Ploshchansky owned a condominium unit in Harmon Cover Towers, and had homeowners insurance with Franklin Mutual Insurance Company.  In 2010, Harmon Cover Towers hired Falcon Engineering and Castle Restoration and Construction to perform waterproofing and exterior renovations.  Ploshchansky claimed water and structural damage due to the exterior renovations.  Franklin Mutual denied Ploshchansky’s request for coverage for the damage to his unit, so Ploshchansky sued Harmon Cover Towers.

Years later in 2014, Ploshchansky’s claims against Harmon Cover Towers were settled, as were Harmon Cover Towers’s third-party claims against Castle, and the matter was dismissed.  Subsequently, Franklin Mutual sued Falcon and Castle as subrogee Ploshchansky alleging it paid Ploshchansky for losses he sustained under the insurance policy. The court dismissed Franklin Mutual’s claims under the entire controversy doctrine.  Under the entire controversy doctrine, a party must “litigate all aspects of a controversy in a single legal proceeding.”  Further, causes of action which arise out of the same transaction  are considered duplicative if the ‘factual circumstances giving rise to the controversy itself’ are the same.”  Therefore, Franklin Mutual’s claims against Falcon (as Ploshchansky’s subrogee) were subject to all the defenses Falcon had against Ploshchansky, including the entire controversy doctrine.  Since the entire controversy doctrine barred Ploshchansky from filing any claims against Falcon for its role in causing damage to his condominium unit after the matter was settled, Franklin Mutual’s claims were also barred as Ploshchansky’s subrogee.  The court also noted that Franklin Mutual had ample opportunity to intervene and pursue different courses of action to be involved in the action.

Defense counsel and insurance companies should be alert to opportunities to protect its interest in the event an underlying settlement is made.  Defense counsel should also consider a motion to intervene to protect future subrogee rights.

Thanks to Ken Eng for his contribution to this post.