## Facts

- Robert Thompson was driving with passenger David Harness when Thompson’s car collided with a vehicle driven by Duane Fagnan; Thompson was killed, and Harness and Fagnan were injured.
- In an earlier action arising out of the same accident, Harness sued the administrator of Thompson’s estate.
- In that earlier case, Thompson’s estate asserted a third-party claim against Fagnan, placing Fagnan in the case as a party.
- Fagnan filed a cross-claim against the estate’s administrator for contribution related to the accident.
- The earlier case was settled without trial and dismissed; the dismissal operated as a judgment on the merits.
- After that dismissal, Fagnan filed a separate lawsuit in Wisconsin state court against Thompson’s liability insurer, Great Central Insurance Co., invoking Wisconsin’s direct action statute.
- Great Central removed the case to the U.S. District Court for the Western District of Wisconsin.
- After trial, the district court entered judgment for Fagnan against Great Central.
- Great Central appealed, arguing that the prior judgment involving Thompson’s estate foreclosed Fagnan’s later attempt to recover on the same underlying accident claim through a direct action against the insurer.

## Issues

1. Whether the dismissal on the merits in the earlier action involving Thompson’s estate precluded Fagnan from bringing a later Wisconsin direct action against Thompson’s insurer for the same underlying accident claim.
2. Whether a dismissal pursuant to settlement that operates as a judgment on the merits has preclusive effect in later litigation arising from the same accident.
3. Whether Wisconsin’s direct action statute allows a claimant to recover from an insurer when the claimant’s claim against the insured has already been terminated by a prior judgment on the merits.

## Decision

- The Seventh Circuit held that the earlier dismissal, operating as a judgment on the merits, barred Fagnan from maintaining a later action seeking recovery based on Thompson’s alleged liability from the same accident.
- The court rejected the argument that Wisconsin’s direct action statute permitted Fagnan to proceed against Great Central despite the prior judgment involving Thompson’s estate.
- Because the direct action claim sought to impose liability based on the insured’s responsibility for the accident, and that underlying claim had already been concluded by a judgment on the merits, the later suit could not proceed.
- The Seventh Circuit reversed the district court’s judgment for Fagnan.

## Legal Principles

- A judgment on the merits in a prior action between a claimant and an insured precludes later litigation by the claimant against the insurer that seeks recovery on the same underlying claim.
- A dismissal pursuant to settlement that operates as a judgment on the merits carries preclusive effect comparable to an adjudication after trial.
- A direct action statute permits suit against an insurer, but it does not permit a claimant to relitigate or revive an underlying claim that has already been terminated by a prior judgment on the merits.
- When the insured’s liability for a particular accident claim can no longer be pursued because of claim preclusion, an action against the insurer premised on that same liability is likewise barred.

## Conclusion

The Seventh Circuit held that because the earlier accident litigation ended in a dismissal that operated as a judgment on the merits, Fagnan could not bring a later Wisconsin direct action against Great Central to recover on the same underlying accident claim; the prior judgment barred the subsequent insurer suit.


Fagnan v. Great Central Insurance Co., 577 F.2d 418 (7th Cir. 1978)