COURT OF APPEALS DECLARES CONFLICT IN ITS CASE LAW REGARDING WHETHER SETTLEMENT OF A LAWSUIT FOR PIP BENEFITS BARS A LATER LAWSUIT FOR UM/UIM BENEFITS UNDER THE DOCTRINE OF RES JUDICATA

Christian Huffman

Res judicata is a judicially created doctrine that bars a lawsuit where a prior lawsuit involving the same parties or their privies was decided on the merits (which includes voluntary dismissal with prejudice pursuant to a settlement).  In order for the doctrine to apply, the claims in the second lawsuit need not have actually been brought in the first lawsuit.  Instead, they need only be claims that the plaintiff could have brought in the first lawsuit if the plaintiff had exercised reasonable diligence.  In Adair v State of Michigan, 470 Mich 105 (2004), the Michigan Supreme Court adopted a broad approach to determining whether the claims in the second lawsuit could have, with reasonable diligence, been brought in the first lawsuit.  This approach, known as the “transactional test,” does not focus on the specific legal theories advanced by the plaintiff.  Nor is consideration of whether essentially the same evidence is required to litigate those theories alone dispositive.  Instead, the “transactional test” focuses primarily on whether the facts giving rise to the claims in the two lawsuits “are related in time, space, origin or motivation, [and] whether they form a convenient trial unit.”  Id. at 125.

Ever since the Supreme Court adopted the broad “transactional test” in Adair, the Court of Appeals has reached divergent conclusions as to whether the doctrine of res judicata applies to a situation all too common in the realm of no-fault litigation – a plaintiff who files a lawsuit for PIP benefits, settles with the insurer to resolve that lawsuit, and then later files a second lawsuit against the same insurer seeking recovery of UM or UIM benefits based upon the same accident.

In Graham v State Farm Mut Auto Ins Co, unpublished opinion per curiam of the Michigan Court of Appeals, decided Feb 18, 2014 (Docket No 313214), a panel of the Court of Appeals reasoned that “[a] PIP claim and a UM claim arising from the same collision and involving the same insurer and insured are . . . related in time, space, origin, and motivation” and, thus, that res judicata applies to bar a subsequent suit for UM benefits.  Id. at 2.

Just a few months later, however, a different panel of the Court of Appeals reached the opposite conclusion in Miles v State Farm Mut Auto Ins Co, unpublished opinion per curiam of the Michigan Court of Appeals, decided May 6, 2014 (Docket No 311699), holding that res judicata does not bar a subsequent suit for UM benefits.  The Miles panel reasoned that “a claim for PIP benefits differs fundamentally from a claim for uninsured motorist benefits both in the nature of the proofs and the motivation for the claim,” id. at 4, and that the doctrine’s application “would not promote fairness and would be inconsistent with the Legislature’s intent expressed through the no-fault act,” id. at 2, since the no-fault act “provides for the swift payment of no-fault PIP benefits” while at the same time “severely restrict[ing] the right to bring third-party tort claims that would form the basis for a UM contract claim,” id.

Because both Graham and Miles were unpublished, they were not binding on either the Court of Appeals or the lower courts.  And, because they reached completely opposite conclusions, they offered little guidance in the way of persuasive authority.

But, yet another panel of the Court of Appeals again considered the issue just over one year later, this time issuing a published, and therefore binding, decision in Adam v Bell, ___ Mich App ___ (2015).  In doing so, the Adam panel adopted the rationale of the Miles panel, and held that res judicata does not bar a subsequent suit for UM or UIM benefits because such claim “differs fundamentally” from the earlier claim for PIP benefits:

A person injured in an accident arising from the ownership, operation, or maintenance of a motor vehicle as a motor vehicle is immediately entitled to PIP benefits without the need to prove fault.  See MCL 500.3105(2); MCL 500.3107.  The PIP benefits are designed to ensure that the injured person receives timely payment of benefits so that he or she may be properly cared for during recovery.  Shavers v Attorney General, 402 Mich 554, 578-579 (1978).  Moreover, the injured person has a limited period within which to sue an insurer for wrongfully refusing to pay PIP benefits. See MCL 500.3145(1).  Because an injured person is immediately entitled to PIP benefits without regard to fault, requires those benefits for his or her immediate needs, and may lose the benefits if he or she does not timely sue to recover when those benefits are wrongfully withheld, the injured person has a strong incentive to bring PIP claims immediately after an insurer denies the injured person’s claim for PIP benefits.

In contrast to a claim for PIP benefits, in order to establish his or her right to uninsured motorist benefits, an injured person must—as provided in the insurance agreement—be able to prove fault: he or she must be able to establish that the uninsured motorist caused his or her injuries and would be liable in tort for the resulting damages.  See Auto Club Ins Ass’n v Hill, 431 Mich 449, 465-466 (1988).  Significantly, this means that the injured person must plead and be able to prove that he or she suffered a threshold injury.  Id. at 466, citing MCL 500.3135(1).  Except in accidents involving death or permanent serious disfigurement, an injured person will therefore be required to show that his or her injuries impaired an important body function that affects the injured person’s general ability to lead his or her normal life in order to meet the threshold.  MCL 500.3135(1) and (5).  This in turn will often require proof of the nature and extent of the injured person’s injuries, the injured person’s prognosis over time, and proof that the injuries have had an adverse effect on the injured person’s ability to lead his or her normal life. See McCormick v Carrier, 487 Mich 180, 200-209 (2010).  Thus, while an injured person will likely have all the facts necessary to make a meaningful decision to pursue a PIP claim within a relatively short time after an accident, the same cannot be said for the injured person’s ability to pursue a claim for uninsured motorist benefits.  Finally, an injured person’s claim for uninsured motorist benefits involves  compensation for past and future pain and suffering and other economic and noneconomic losses rather than compensation for immediate expenses related to the injured person’s care and recovery. See Dawe v Bar-Levav & Assocs (On Remand), 289 Mich App 380, 408-410 (2010) (discussing the nature of the economic and noneconomic damages that are awarded in negligence actions).  Consequently, a claim for PIP benefits differs fundamentally from a claim for uninsured motorist benefits both in the nature of the proofs and the motivation for the claim.  [Id., slip opn at 3, quoting Miles, supra at 3.]

The Adam panel went to note that MCL 500.3145(1) provides a base one-year statute of limitations for filing a lawsuit seeking PIP benefits, whereas the Office of Financial and Insurance Services has issued a regulatory Order stating that it is unreasonable for an insurance policy to contractually limit the period of limitations for the filing of a lawsuit seeking UM/UIM benefits to less than three years.  Because of this, the Adam panel “conclude[d] that a UM claim may not yet be ripe for litigation until after a PIP claim must be filed,” and therefore that “applying res judicata to essentially require mandatory joinder of a mere potential UM claim with a PIP claim would be inconsistent with the very divergent statutory treatment of these two very different types of no-fault claims.”  Adam, supra, slip opn at 4.

As occurred with Graham and Miles, a different panel of the Court of Appeals considered the issue yet again shortly after Adam was issued in the published case of Garrett v Washington, ___ Mich App ___ (2016).  Though it was constrained by MCR 7.215(J)(1) to follow Adam, the Garrett panel disagreed with the Adam panel’s rationale and the result that it dictated as applied to the facts of Garrett.  The Garrett Court stated:

[W]e disagree with the holding in Adam, and we would conclude that the claim for UM benefits in this case is barred by the doctrine of res judicata if we were we not bound to follow Adam. The two claims in this case arise from a single group of operative facts.  See Adair, 470 Mich at 124.  The PIP and UM claims stem from the same automobile accident and involve all of the same parties.  Furthermore, the claim for PIP benefits and the claim for UM benefits are related in time, space, origin, and motivation, and the combination of the two claims form a convenient trial unit since they involve the same parties, the same automobile accident, and the same body of law.  See id. at 125.  Furthermore, application of the doctrine of res judicata in this case would relieve the parties of the costs and vexation of multiple lawsuits involving the same parties and the same automobile accident, would conserve judicial resources, and would encourage the finality of litigation. See Bryan [v JPMorgan Chase Bank], 304 Mich App [708,] 715 [(2014)].  Accordingly, we would conclude that the two claims constitute the same transaction if we were not bound to follow Adam.  See Adair, 470 Mich at 124.

In addition, we are not persuaded that there are significant differences in the timing and motivation for asserting the claims that would prohibit the application of res judicata.  Plaintiff filed the UM benefits case approximately two months after settling the PIP benefits case and approximately two weeks before the final order was entered in the PIP benefits case. . . .  The fact that plaintiff filed the UM benefits case approximately two months after settling the PIP benefits case indicates that plaintiff could have sought to amend the complaint in the original action to include a claim for UM benefits . . . .  The timing of the two cases also undercuts plaintiff’s argument that he did not have all of the information necessary to bring a UM claim at the time of the original action since plaintiff brought the claim for UM benefits only two months after settling the PIP benefits case.  Although plaintiff argues that he could not have known the nature and extent of his injuries at the time he filed his PIP lawsuit, he fails to substantiate his argument.  Based on the timing of the filing of the two cases, we are not persuaded that plaintiff had insufficient information about his physical condition to warrant the filing of a UM benefits claim at the time of the PIP benefits claim.  See Adair, 470 Mich at 125.

We are also unpersuaded by plaintiff’s argument that the two claims differed in terms of the form of relief granted.  As the Michigan Supreme Court clarified in Adair, the same transaction test applies “regardless of the . . . variant forms of relief flowing from [the substantive] theories.”  Adair, 470 Mich at 124 (citation and quotation marks omitted).  Thus, it is clear that the fact that the PIP benefits claim and the UM benefits claim involved different forms of relief did not affect the analysis with regard to whether the two claims constituted the same transaction for res judicata purposes.  See id.  Plaintiff points out in his brief on appeal that he could not have known that he was entitled to UM benefits at the time he filed the original action and would not have been able to obtain the requisite proof to sustain a UM benefits case.  Plaintiff essentially argues that the doctrine of res judicata does not apply since the two claims involved different evidence. . . .   However, the “same evidence” test was rejected in favor of the “same transaction” test in Michigan. See id. at 124-125.  Under the “same transaction” test, the requirement is that a single group of operative facts gives rise to the claims of relief.  Id. at 124.  As discussed above, the PIP benefits claim and the UM benefits claim were part of the same transaction.  Consequently, under the broad approach to determining whether a claim is barred by res judicata, we conclude that the matter in the instant case could have been brought in the original action involving the PIP benefits claim.  See id. at 121.

Although it was bound by MCR 7.215(J)(1) to follow Adam, the Garrett panel did declare a conflict with Adam pursuant to MCR 7.215(J)(2).  This means that all 27 Court of Appeals Judges will now vote upon whether to convene a “special panel” to resolve the conflict.  If they do not vote to convene a special panel, Adam remains the controlling authority on the issue.  But if they do vote to convene a special panel, then seven Judges (none of whom sat on the Adam or Garrett panels) will be selected by lot to rehear Garrett and decide whether to overrule Adam.

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