In the Eastern District of Pennsylvania, applying the doctrine of collateral estoppel, a Magistrate Judge issued a Report and Recommendation granting an individual disability insurer summary judgment on an insured’s claims for breach of contract, breach of fiduciary duty and statutory bad faith, where the insured (plaintiff) based a total disability claim on a work injury that was held to have not occurred by a workers’ compensation court. See Hayes v. U.S. Life, et al., No. 09-2874, Docket Doc. No. 322 (ED Pa. 2014).

In the Third Circuit, the doctrine of collateral estoppel is appropriate where:

  • The issue decided in a prior action is identical to one presented in a later action
  • The prior action resulted in a final judgment on the merits
  • The party against whom collateral estoppel is asserted was a party to the prior action, or is in privity with a party to the prior action
  • The party against whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue in a prior action. Jones v. United Parcel Service, 214 F.3d 402, 406 (3d Cir. 2000) citing Rue v. K-Mart Corp., 713 A.2d 82, 84 (Pa. 1998); Medi-Tec of Egypt Corp. v. Bausch & Lomb Surgical, France, et al., 2004 Del. Ch. LEXIS 21 18 (2004); Pivnick v. Beck, 326 N.J. Super. 474, 485 (1999).

In Hayes, the plaintiff/insured filed a claim for total disability due to alleged disabling cervical and spinal conditions, which he alleged arose from a work incident where he was hit in the head with a swinging door by a coworker (the Work Accident). The plaintiff’s disability claim was initially approved by the disability insurer and he received benefits for a number of years before the insurer discontinued them after it was discovered that the plaintiff was working. After suit was filed by the plaintiff, the discovery process revealed that the Work Accident he alleged to have caused his disabling conditions was also the subject of a previously adjudicated workers’ compensation claim. In its adjudication of the case denying the plaintiff’s claim, the Workers’ Compensation judge reviewed and considered the record in its entirety, conducted two hearings, and gave the plaintiff opportunity to testify and to present witness testimony and documentary evidence in support of his position. Ultimately, however, the Workers’ Compensation judge found the plaintiff to not be credible and denied his claim, holding that the Work Accident never happened. This decision was upheld on appeal by the Workers’ Compensation Appeal Board, which in its affirmation “found no error” in the holding that the plaintiff failed to sustain his burden to show he sustained the Work Accident as alleged.

The insurer moved for summary judgment, asserting, among other things, that the doctrine of collateral estopped operated as a complete bar to all of the plaintiff’s claims since his disability claim and his complaint were based on the same alleged Work Accident, which had been adjudicated to have not occurred. In deciding whether collateral estoppel applied, the Magistrate Judge stated that:

It is not disputed that collateral estoppel elements two, three and four are satisfied here. The Workers’ Compensation matter resulted in a final judgment on the merits, Plaintiff was a party in the Workers’ Compensation action, and the Workers’ Compensation proceedings gave Plaintiff a full and fair opportunity to litigate the issue. That leaves only the first element, namely whether the issue decided in the prior Workers’ Compensation matter is identical to the one presented here.

The plaintiff argued that collateral estoppel did not apply because the “identical issue” element of the doctrine was not met. The plaintiff argued that the cause of the disabling condition (the Work Accident) was immaterial and should be ignored. Thus, he reasoned that the “issue” in the civil action was not identical to that in the Workers’ Compensation proceeding, as the civil action’s issue was whether the plaintiff was disabled, not whether the Work Accident occurred.

The Magistrate Judge, relying on Jones, determined that the issues were indeed identical. In Jones, the Third Circuit addressed whether a prior workers’ compensation proceeding, which held that the plaintiff had recovered from his work-related injury, had preclusive effect in his subsequent suit claiming failure to accommodate him under the Americans with Disabilities Act (ADA). See Jones, 214 F.3d at 406. The Third Circuit stated that  “a fact is a fact, regardless of public policy” (quoting Rue v. K-Mart Corp., 713 A.2d 82, 85 (Pa. 1998)). Therefore, the Third Circuit predicted that the Pennsylvania Supreme Court would apply the doctrine of collateral estoppel and held that the prior workers’ compensation factual finding that the employee had indeed fully recovered from his work injury precluded his subsequent ADA action. The Jones court compared the prior workers’ compensation issue with the pending action to determine that the party’s case rested on a disputed fact that was previously resolved against that party.

Applying the reasoning of Jones, the Magistrate Judge determined that the same was true in Hayes and rejected the plaintiff’s proposition that the cause of the condition be set aside, stating that:

Plaintiff’s position ignores the facts and history of his claims. If he were disabled for some reason other than the Work Accident, that would be contrary to his Insured’s Statement seeking disability benefits under the Policy, not to mention the testimony he gave under oath in the workers’ compensation hearing, and to his Complaint in this civil action. I cannot simply ignore the fact that Plaintiff seeks disability benefits in this action as a result of the Work Accident when a prior court has determined that the Work Accident never happened. Because the Work Accident formed the basis of both his Workers’ Compensation claim and his benefits under the Policy, I find that the final element of collateral estoppel is satisfied. A finding in this case that Plaintiff qualified for disability benefits would require a finding of fact directly contrary to facts found in the prior proceeding. Accordingly, I recommend that Plaintiff’s claims be dismissed by operation of this theory and determined that the cause of the alleged disability could not be set aside because both the disability claim and the complaint affirmatively maintained that the cause of the disability was the Work Accident.

Therefore, the Magistrate Judge recommended summary judgment in favor of the insurer and that plaintiff’s claims be barred in their entirety by application of the doctrine of collateral estoppel.