Medina County Courthouse

Wednesday, March 24, 2010

Ohio Supreme Court Rules that No Contest Plea Cannot be Used In Declaratory Judgment Action

Where Insurer Seeks Judgment That Insured’s Illegal Acts Caused His Loss

2009-0321. Elevators Mut. Ins. Co. v. J. Patrick O’Flaherty’s, Inc., Slip Opinion No. 2010-Ohio-1043.
Sandusky App. No. S-08-006, 180 Ohio App.3d 315, 2008-Ohio-6946. Judgment of the court of appeals affirmed.
Moyer, C.J., and Pfeifer, O'Connor, Lanzinger, and Cupp, JJ., concur.
O'Donnell, J., concurs in judgment only.
Lundberg Stratton, J., concurs in part and dissents in part.

(March 24, 2010) The Supreme Court of Ohio ruled today that Ohio rules of evidence and criminal procedure prohibit the use of a policyholder’s criminal convictions based on no-contest pleas in a civil action in which an insurer seeks a declaratory judgment denying coverage under its policy.

The Court’s 6-1 decision, authored by Justice Judith Ann Lanzinger, affirmed a decision of the 6th District Court of Appeals.

Ohio Criminal Rule11(B)(2) states that a defendant’s plea of no contest to a criminal charge “shall not be used against the defendant in any subsequent civil or criminal proceeding.” Similarly, Ohio Evidence Rule 410 specifies that a plea of no contest entered in a criminal case “is not admissible in any civil or criminal proceeding against the defendant who made the plea.”

In this case, the Elevators Mutual insurance Company issued a commercial fire insurance policy in the name of J. Patrick O’Flaherty’s Inc., an Ohio corporation that owned a restaurant by the same name in Fremont. The officers and sole shareholders of O’Flaherty’s, spouses Richard and Jan Heyman, were not named as insureds in the policy but were identified as loss payees.

O’Flaherty’s was damaged by a fire in February 2001. The company submitted a claim to Elevators Mutual to recover insurance proceeds for its loss. Elevators Mutual advanced O’Flaherty’s $30,000 on the claim subject to a reservation of rights pending the completion of its fire investigation. Following the investigation, Elevators Mutual concluded that Richard Heyman had intentionally started the fire and denied the claim based on a policy exclusion for loss or damage caused by an insured’s dishonest or criminal act.

Elevators Mutual filed suit against O’Flaherty’s, and Richard and Jan Heyman individually, seeking a declaratory judgment that it owed no coverage under its policy and to recover damages and the $30,000 it had advanced to them. The defendants filed a counterclaim for breach of contract, bad faith, fraud, and spoliation of evidence. Less than a month after the complaint was filed, Richard and Jan Heyman were indicted on charges of aggravated arson, arson, and insurance fraud in relation to the fire. The trial court stayed the civil case until the criminal charges were resolved. Richard Heyman pleaded no contest to the charges of arson and insurance fraud and was convicted. The charges against Jan Heyman were dismissed.

Both sides afterwards filed motions for summary judgment in the declaratory judgment action. In its motion, Elevators Mutual asked the trial court to rule that because Richard Heyman had entered no contest pleas to criminal charges of arson and insurance fraud in connection with the fire at O’Flaherty’s, he was estopped (legally barred) from disputing in the civil action that his own illegal acts had caused the damage for which he was seeking coverage. The court denied both summary judgment motions, holding that use of Heyman’s no contest pleas in a criminal case to limit his rights in a subsequent civil action would violate the purpose of Evid.R.410.

In later pretrial proceedings, Elevators Mutual sought an order permitting it to introduce Heyman’s criminal convictions, rather than his pleas, as substantive evidence of arson and insurance fraud. The trial court granted the motion. In light of its ruling, the court reconsidered Elevators Mutual’s previous motion for summary judgment. This time, the court granted summary judgment in favor of Elevators Mutual on the basis that Heyman’s criminal convictions were admissible evidence that he had intentionally set the fire, thus excluding O’Flaherty’s from recovering any insurance proceeds for the fire loss.

The defendants appealed. On review, the 6th District Court of Appeals reversed the trial court’s grant of summary judgment and remanded the case for further proceedings. The appellate panel ruled that the trial court erred in distinguishing between a plea of no contest and a conviction based on a no contest plea, holding that neither was admissible under Evid.R. 410 and Crim.R. 11(B)(2). Elevators Mutual sought and was granted Supreme Court review of the 6th District’s decision.

In today’s decision affirming the court of appeals’ judgment, Justice Lanzinger wrote: “The purpose behind the inadmissibility of no contest pleas in subsequent proceedings is to encourage plea bargaining as a means of resolving criminal cases by removing any civil consequences of the plea. ... The rule also protects the traditional characteristic of the no contest plea, which is to avoid the admission of guilt. The prohibition against admitting evidence of no contest pleas was intended generally to apply to a civil suit by the victim of the crime against the defendant for injuries resulting from the criminal acts underlying the plea. ... The plain language of Evid.R. 410(A) prohibits admission of a no contest plea, and the prohibition must likewise apply to the resulting conviction. To find otherwise would thwart the underlying purpose of the rule and fail to preserve the essential nature of the no contest plea.”

Justice Lanzinger acknowledged that some federal and state courts have interpreted the rule as prohibiting the use of a no contest plea only against the person who entered it, meaning that the plea would be admissible when a former criminal defendant seeks to benefit from his or her own criminal acts by using the rule offensively. She pointed out, however, that “Evid.R. 410(A) states that a no contest plea ‘is not admissible in any civil or criminal proceeding against the defendant who made the plea’ (emphasis added) and specifies no exception for offensive versus defensive use. In this declaratory judgment action, Elevators Mutual intends to offer the fact of the conviction based on Richard Heyman’s no contest plea against him. This is contrary to the clear language of the rule, and we decline to limit its broad application.”

Noting that Michigan has changed its rules to permit evidence of a criminal conviction based on a no contest plea in cases where the offender is the plaintiff rather than the defendant in a subsequent civil action, Justice Lanzinger wrote: “There is, of course, well-established public policy that no one should profit from his or her own wrongdoing. ... Public policy may indeed call for an amendment to the rules to allow admission of evidence of no contest pleas and convictions in cases such as this, to prevent a wrongdoer from benefiting by the wrong. ... Until an amendment provides otherwise, we must apply the Evidence Rule as it is currently written and bar evidence of a no contest plea or conviction in this civil action.”

Justice Lanzinger’s opinion was joined by Chief Justice Thomas J. Moyer and Justices Paul E. Pfeifer, Maureen O’Connor and Robert R. Cupp. Justice Terrence O’Donnell concurred in judgment only.

Justice Evelyn Lundberg Stratton entered an opinion in which she concurred with the majority’s holding that Evid.R. 410 and Crim.R.11(B)(2) prohibit evidence of a no-contest plea or a conviction based on such a plea in a subsequent civil case, and said she believes that the rules should be changed to prevent a person from profiting from a crime of which he has been convicted. But Justice Stratton also stated that in her view a party can, and in this case did, waive the protection of those rules by agreeing to the terms of a contract such as an insurance policy.

She wrote: “Here, the parties contracted for fire insurance but excluded coverage for ‘loss or damages caused directly or indirectly by’ the dishonest or criminal acts of the insured. Also, the policy voided any coverage ‘if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning’ a claim. I believe that when Richard Heyman, on behalf of O’Flaherty’s, purchased this insurance policy containing these provisions, he waived the protections of the Criminal Rules and the Rules of Evidence as they may apply to the admissibility of convictions for dishonest or criminal acts based on pleas of no contest.”

Robert E. Chudakoff, 216.583.7000, for Elevators Mutual Insurance Co.

W. Patrick Murray, 419.624.3000, for Patrick O’Flaherty’s and Richard and Jan Heyman.

Please note: Opinion summaries are prepared by the Office of Public Information for the general public and news media. Opinion summaries are not prepared for every opinion released by the Court, but only for those cases considered noteworthy or of great public interest. Opinion summaries are not to be considered as official headnotes or syllabi of Court opinions. The full text of this and other Court opinions from 1992 to the present are available online from the Reporter of Decisions

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