Intri-Plex incorporated a defective air filter system from Crest into its manufacturing plant where Intri-Plex made parts for computer disk drives. Parts made at the plant developed corrosion problems because of the defective air filter system, and Intri-Plex began receiving complaints from its customers.
Intri-Plex was insured by Atlantic, which paid for part of the losses and brought a subrogation action against Crest. Under the doctrine of subrogation, when an insurer pays money to its insured for a loss caused by a third party, the insurer succeeds to its insured's rights against the third party in the amount the insurer paid. Intri-Plex was aware of Atlantic's subrogation action but did not pursue its own claims for uninsured losses caused by Crest.
Atlantic settled its action against Crest. Intri-Plex then filed a separate action against Crest for damages caused by Crest that were not covered by Atlantic. On Crest's motion, the trial court dismissed the action.
On appeal, the Ninth Circuit first noted that the doctrine of res judicata bars parties or their privies from relitigating a cause of action that had been determined. Intri-Plex and Atlantic were privies by virtue of the insurance contract.
Then, the issue was whether Intri-Plex's lawsuit against Crest sought to vindicate the same "primary right" as Atlantic's subrogation action against Crest. The Ninth Circuit determined that as both actions sought redress from Crest for damage it allegedly caused Intri-Plex arising out of its defective air filter system, the same basic rights were at issue in both actions.
Noting Intri-Plex was aware of Atlantic's prior action but failed to intervene, the Ninth Circuit held that Intri-Plex's subsequent lawsuit impermissibly split the claim and Intri-Plex's action was properly dismissed.
If the situation had been reversed and Intri-Plex had sued Crest first, Atlantic would have been required to pursue its claims in that action. Therefore, when either a policyholder or insurer sues a third party for damages, each should consider whether to join in the suit to avoid being barred from recovering from that third party.