Res Judicata and the Entire Controversy Doctrine: The Civil Law’s Double Jeapordy

Submitted by New Jersey Civil Law Attorney, Jeffrey Hark

Wadeer v. NJM decided February 18, 2014 by the N.J. Supreme Court is an import case for this blog because it allows us to examine the entire controversy doctrine, res judicata, and whether insurance companies have an incentive to settle in an uninsured motorist(UM) claim. Put simply, the entire controversy doctrine means that parties must litigate all related matters in a claim–not just the main controversy of the matter. Res judicata on the other hand is a doctrine that prevents a party from bringing a new claim substantially related to an already resolved claim when it could have been resolved in the first litigation.

In this case the plaintiff’s main claim was that the insurer, New Jersey Manufacturers Insurance Company, acted in bad faith by failing to settle UM claim. A jury verdict awarded the plaintiff $255, 175 and the trial court molded it to NJM’s $100,000 policy. The Appellate Division affirmed that molding an award to the policy limit was permissible, and affirmed the trial court’s finding of no bad faith. The plaintiff brought a separate claim of bad faith against NJM and the trial court granted NJM’s motion for summary judgment based on the entire controversy doctrine and res judicata since bad faith had been part of litigation 1. On appeal in litigation 2 the Appellate Division affirmed.

The N.J. Supreme Court affirmed here as well but based on res judicata, not the entire controversy doctrine. This was because the material facts surrounding the insurance company’s bad faith were identical and the additional claim based on bad faith would amount to relitigation of a fully litigated matter. However, the entire controversy doctrine was rejected as a basis for baring the claim because NJM’s bad faith “came to light during the course of the underlying litigation.”

Additionally, the Court noted that molding a monetary jury award is appropriate if done to conform with allocation of liability, but pointed out that the current Rule 4:58-2 doesn’t provide incentive for an insurance company to settle. Since the insurance company knows a jury award will be molded they have no reason to settle unless the insured plaintiff makes an offer of judgment that is unreasonably below policy limits. If anything less of a ridiculously low offer is on the table it makes more sense for the insurance company to take their chances litigating the case and possibly come out on top. Even if they lose they can make a fairly accurate prediction of the amount they will have to pay based on the policy limits. The Court in this case referred the rule to the Civil Practice Committee for reexamination. This blog will keep you updated on any forthcoming changes.

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