Smith, J.
An insurer who refused to defend a village sued in negligence argues here that the resolution of an issue litigated in that action won by the injured party is not binding on the insurer when the village later sues the insurer for breach of contract. That issue is whether the village had waived its [218]*218sovereign immunity by purchasing liability insurance which covered the injured person’s property. 29 V.S.A. § 1403.
Arthur Wells obtained a judgment against Orleans Village for damages for the destruction of certain snow removal equipment. The judgment was affirmed by this Court on appeal. Wells v. Village of Orleans, Inc., 132 Vt. 216, 315 A.2d 463 (1974). The village hired its own counsel after the insurer, Union Mutual, refused to defend, basing its refusal on an exclusionary provision in the liability insurance policy. Specifically, this provision excluded damage to “property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control.” Union Mutual concluded that the allegation in Wells’ complaint that he (not the equipment) was under the direction and control of the village’s agent removed the claim from policy coverage.
The village paid Wells and brought this breach of contract action against Union Mutual. The trial court denied the insurer an opportunity to relitigate the applicability of the policy’s exclusionary provision. It took judicial notice of the record in Wells v. Village of Orleans, Inc., supra. In Wells v. Village of Orleans, Inc., the trial court found that a liability insurance policy was in force and that the destroyed equipment was at all times owned, operated, and controlled by the plaintiff Wells. Therefore, the lower court in the instant case directed a verdict for the village, from which Union Mutual now appeals.
The pertinent part of 29 V.S.A. § 1403 provides that “when a municipal corporation purchases a policy of liability insurance under section 1092 of Title 24 ... it waives its sovereign immunity from liability to the extent of the coverage of the policy and consents to be sued.” This statute introduces a few additional problems into the ordinary relationship between injured party, potential insured, and insurer. Ordinarily, an injured party may obtain a judgment against the potential insured regardless of the existence of insurance coverage on the defendant’s conduct. The existence of insurance eases practical financial recovery problems for the plaintiff; it is irrelevant to the defendant’s liability. Policy coverage is not a central issue; in fact, the very mention of the subject can be so prejudicial as to bring about a mistrial. See Duval v. Diamondstone, 132 Vt. 176, 179, 315 A.2d 498 (1974).
[219]*219When 29 V.S.A. § 1403 is involved, the issue of coverage is crucial, and the first trial court could not have found for Wells if the exclusionary provision of the policy precluded coverage. The village pleaded the issue of sovereign immunity, and the insurance policy was an exhibit. A judgment for Wells would have been as inconsistent with an effective policy exclusionary provision as it would have been with findings of assumption of risk or contributory negligence. Wells v. Village of Orleans, Inc., supra, 132 Vt. at 222, 223.
Where a liability insurer refuses to defend an insured after timely notice, the judgment in the prior case “is binding upon the insurer as to issues which were or might have been litigated therein, when the insurer is later sued by the injured person.” 44 Am.Jur.2d Insurance § 1587, at 476; Annot., 27 A.L.R.3rd 350, 354 (1969). The concluding adverbial clause is descriptive of the usual alignment of the parties rather than a limitation, for the annotation contains cases endorsing conclusiveness where the second suit is brought by the insured rather than the injured person. See Renschler v. Pizano, 329 Pa. 249, 198 A. 33, 35 (1938). However, the fact that the village rather than Wells brought this second action merits, and will receive infra, further discussion.
Union Mutual argues that it has been deprived of the day in court to which it is entitled. B. & E. Co. v. Bessery, 130 Vt. 597, 601, 298 A.2d 544 (1972). It cannot be gainsaid that this Court has long evidenced concern that each man have his day in court. Trapeni v. Walker, 120 Vt. 510, 144 A.2d 831 (1958); Gilman v. Gilman, 115 Vt. 49, 51 A.2d 46 (1947).
But these cases should not, and in the majority of jurisdictions considering the issue have not, been applied to the potential insured/insurer relationship. For there the general rule is that an insurer who refuses to defend is bound by issues actually or necessarily litigated in the first trial. Annot., supra, at 354. “[I]t would be anomalous for a court to find a critical fact one way in the tort action and the opposite way in the proceeding against the insurer.” Id.
Union Mutual argues that the better reasoned cases depart from the general rule and allow the insurer to litigate the coverage issue even where it has been considered in the first action. See e.g., Farm Bureau Mutual Automobile Ins. Co. v. [220]*220Hammer, 177 F.2d 793 (4th Cir. 1949); The Effect of Collateral Estoppel on the Assertion of Coverage Defenses, 1969 Colum. L. Rev. 1459. The departure is explained by the fact that, in certain factual situations, if the insurer protects its own interests in the first action, its argument will be prejudicial to the insured. For example, liability for intentional injury rather than for negligence could result where an insurer asserts an intentional injury exclusionary provision.
The inapplicability of this reasoning to the instant case is obvious. A finding that the village was not negligent or one that it was not covered by insurance will preclude liability for both the village and Union Mutual. To this extent, the interests of the insured and the insurer are identical. The insurer could not protect its interest to the prejudice of the insured.
Union points to the fact that it was not given notice that the village would rely on sovereign immunity. But an insurer who refuses to defend after timely demand is made upon it to do so cannot control the defense or expect advance notice of the refused party’s trial strategy. 44 Am.Jur.2d Insurance § 1549, at 431-32; 49 A.L.R.2d 694, 700 (1956). Union Mutual cannot complain that the village did not notify it of the amended pleadings raising the issue of sovereign immunity. It could reasonably expect the village to so plead. Had it had second thoughts about its refusal to defend or been concerned about the insured’s ability to conduct a defense, various steps were available to it. A declaratory judgment proceeding is the most apparent.
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Smith, J.
An insurer who refused to defend a village sued in negligence argues here that the resolution of an issue litigated in that action won by the injured party is not binding on the insurer when the village later sues the insurer for breach of contract. That issue is whether the village had waived its [218]*218sovereign immunity by purchasing liability insurance which covered the injured person’s property. 29 V.S.A. § 1403.
Arthur Wells obtained a judgment against Orleans Village for damages for the destruction of certain snow removal equipment. The judgment was affirmed by this Court on appeal. Wells v. Village of Orleans, Inc., 132 Vt. 216, 315 A.2d 463 (1974). The village hired its own counsel after the insurer, Union Mutual, refused to defend, basing its refusal on an exclusionary provision in the liability insurance policy. Specifically, this provision excluded damage to “property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control.” Union Mutual concluded that the allegation in Wells’ complaint that he (not the equipment) was under the direction and control of the village’s agent removed the claim from policy coverage.
The village paid Wells and brought this breach of contract action against Union Mutual. The trial court denied the insurer an opportunity to relitigate the applicability of the policy’s exclusionary provision. It took judicial notice of the record in Wells v. Village of Orleans, Inc., supra. In Wells v. Village of Orleans, Inc., the trial court found that a liability insurance policy was in force and that the destroyed equipment was at all times owned, operated, and controlled by the plaintiff Wells. Therefore, the lower court in the instant case directed a verdict for the village, from which Union Mutual now appeals.
The pertinent part of 29 V.S.A. § 1403 provides that “when a municipal corporation purchases a policy of liability insurance under section 1092 of Title 24 ... it waives its sovereign immunity from liability to the extent of the coverage of the policy and consents to be sued.” This statute introduces a few additional problems into the ordinary relationship between injured party, potential insured, and insurer. Ordinarily, an injured party may obtain a judgment against the potential insured regardless of the existence of insurance coverage on the defendant’s conduct. The existence of insurance eases practical financial recovery problems for the plaintiff; it is irrelevant to the defendant’s liability. Policy coverage is not a central issue; in fact, the very mention of the subject can be so prejudicial as to bring about a mistrial. See Duval v. Diamondstone, 132 Vt. 176, 179, 315 A.2d 498 (1974).
[219]*219When 29 V.S.A. § 1403 is involved, the issue of coverage is crucial, and the first trial court could not have found for Wells if the exclusionary provision of the policy precluded coverage. The village pleaded the issue of sovereign immunity, and the insurance policy was an exhibit. A judgment for Wells would have been as inconsistent with an effective policy exclusionary provision as it would have been with findings of assumption of risk or contributory negligence. Wells v. Village of Orleans, Inc., supra, 132 Vt. at 222, 223.
Where a liability insurer refuses to defend an insured after timely notice, the judgment in the prior case “is binding upon the insurer as to issues which were or might have been litigated therein, when the insurer is later sued by the injured person.” 44 Am.Jur.2d Insurance § 1587, at 476; Annot., 27 A.L.R.3rd 350, 354 (1969). The concluding adverbial clause is descriptive of the usual alignment of the parties rather than a limitation, for the annotation contains cases endorsing conclusiveness where the second suit is brought by the insured rather than the injured person. See Renschler v. Pizano, 329 Pa. 249, 198 A. 33, 35 (1938). However, the fact that the village rather than Wells brought this second action merits, and will receive infra, further discussion.
Union Mutual argues that it has been deprived of the day in court to which it is entitled. B. & E. Co. v. Bessery, 130 Vt. 597, 601, 298 A.2d 544 (1972). It cannot be gainsaid that this Court has long evidenced concern that each man have his day in court. Trapeni v. Walker, 120 Vt. 510, 144 A.2d 831 (1958); Gilman v. Gilman, 115 Vt. 49, 51 A.2d 46 (1947).
But these cases should not, and in the majority of jurisdictions considering the issue have not, been applied to the potential insured/insurer relationship. For there the general rule is that an insurer who refuses to defend is bound by issues actually or necessarily litigated in the first trial. Annot., supra, at 354. “[I]t would be anomalous for a court to find a critical fact one way in the tort action and the opposite way in the proceeding against the insurer.” Id.
Union Mutual argues that the better reasoned cases depart from the general rule and allow the insurer to litigate the coverage issue even where it has been considered in the first action. See e.g., Farm Bureau Mutual Automobile Ins. Co. v. [220]*220Hammer, 177 F.2d 793 (4th Cir. 1949); The Effect of Collateral Estoppel on the Assertion of Coverage Defenses, 1969 Colum. L. Rev. 1459. The departure is explained by the fact that, in certain factual situations, if the insurer protects its own interests in the first action, its argument will be prejudicial to the insured. For example, liability for intentional injury rather than for negligence could result where an insurer asserts an intentional injury exclusionary provision.
The inapplicability of this reasoning to the instant case is obvious. A finding that the village was not negligent or one that it was not covered by insurance will preclude liability for both the village and Union Mutual. To this extent, the interests of the insured and the insurer are identical. The insurer could not protect its interest to the prejudice of the insured.
Union points to the fact that it was not given notice that the village would rely on sovereign immunity. But an insurer who refuses to defend after timely demand is made upon it to do so cannot control the defense or expect advance notice of the refused party’s trial strategy. 44 Am.Jur.2d Insurance § 1549, at 431-32; 49 A.L.R.2d 694, 700 (1956). Union Mutual cannot complain that the village did not notify it of the amended pleadings raising the issue of sovereign immunity. It could reasonably expect the village to so plead. Had it had second thoughts about its refusal to defend or been concerned about the insured’s ability to conduct a defense, various steps were available to it. A declaratory judgment proceeding is the most apparent.
While Union Mutual did not do so below, it contends here that the village was impartial as between being found not negligent and being found negligent with the insurer footing the bill, and therefore did not vigorously assert its defense on the coverage issue. This argument is speculative and assumes that the village overlooked the possibility of increased rates should it seek to renew its policy after suffering a judgment. While Union Mutual might now believe that its counsel could have done a better job on the coverage issue, it unjustly turned down its opportunity to act on this belief. The paragraph in Well’s complaint on which it based its refusal to defend was ambiguous and did not, on its face, bring the action within the [221]*221exclusionary provision. See Town of South Burlington v. American Fidelity Co., 125 Vt. 348, 350, 215 A.2d 508 (1965). A purchaser of liability insurance has a right to expect not only indemnification at the end but also a shield against liability claims at the outset. American Fidelity Co. v. North British & Mercantile Ins. Co., 124 Vt. 271, 274, 204 A.2d 110 (1964). A much more persuasive showing of fraud or collusion must be made before a trial court before relitigation of an issue once decided will be allowed. The insured did not protect its interest to the prejudice of the insurer.
We are aware that our decision here allows a party to utilize an issue upon which he went down to defeat as a sword against the insurer. We stated as a general rule in Fletcher v. Perry, 104 Vt. 229, 232, 158 A. 679 (1932), that “no person can claim the benefit of a judgment as an estoppel upon his adversary unless he would have been prejudiced by a contrary decision of the case.” The village would have been benefited rather than prejudiced by a contrary decision. However, the quotation from Fletcher v. Perry, supra, is one way of expressing the recently oft-questioned mutuality of estoppel rule. Annot., 31 A.L.R.3rd 1044, 1060 (1970). Liability insurance was in no way involved in Fletcher, and the relationship among injured party, potential insured, and insurer has been considered by many courts to be a traditional exception to the mutuality of estoppel rule. Annot., supra, at 1065. Therefore its applicability here is rejected prior to consideration of the unique aspects of 29 V.S.A. § 1403 that we feel mandate the disposition of this case.
Judgment affirmed.