Butcher

Insureds, facing suit for malicious prosecution, turned to their insurer for a defense, having years before instructed the insurer’s agent to duplicate the. coverage of a policy containing that protection. When the defense was denied, because the coverage was not in the policy that was issued and later renewed, the insureds sued. Insureds produced evidence that the insurer’s agent misled them into believing he had delivered a policy duplicating the coverages (including coverage for malicious prosecution) of an insurer whose policy was not being renewed. The trial court granted summary judgment in favor of the insurance company and its agent, on the basis that a prior judgment in an action in federal court between insureds and the insurer issuing the prior policy precluded insureds’ claim. This appeal presents three basic issues.

1. What is the preclusive effect in this action of a prior federal court judgment in a coverage action between the insurer whose policy was not being renewed and these insureds? In the prior action a federal district court based its judgment on two grounds: first, the policy’s malicious prosecution provision did not cover the malicious…