Heintzelman v. Air Expert, Inc.
126 Ohio St.3d 138, 2010-Ohio-3264
The Ohio Supreme Court recently determined that an insurance company litigating coverage issues in a declaratory judgment action must name third party claimant for the determination to be binding. The Estate of Heintzelman v. Air Experts, Inc., 126 Ohio St.3d 138, 2010-Ohio-3264. The decision impacts the procedure utilized by insurance companies seeking to have their rights and obligations under policies determined by courts in Ohio.
In Heintzelman, the Estate of Mr. Heintzelman filed a wrongful death lawsuit against an electrician who improperly installed an air conditioning unit. Separately, the electrician’s liability insurer filed a declaratory judgment action against the electrician seeking a declaration that it had no duty to provide coverage to him for the wrongful death lawsuit. Significantly, the electrician’s insurer did not name the estate as a defendant. The electrician was no longer in business and failed to answer the declaratory judgment lawsuit. As a result, the electrician’s insurer obtained a default judgment determining that the insurer had no obligation to provide coverage to the electrician.
The estate obtained a substantial judgment against the electrician. After the judgment went unsatisfied, the estate filed a supplemental complaint against the electrician’s insurer pursuant to Revised Code § 3929.06. Revised Code § 3929.06 permits a judgment creditor to file a supplemental action directly against a tortfeasor after it has obtained a judgment against the tortfeasor. The trial court granted the insurer’s motion for summary judgment holding that the estate was bound by the declaratory judgment finding no coverage. The court of appeals, however, reversed concluding that the determination made in the declaratory judgment action was not binding on the Estate because it was not a party to that action. The Supreme Court affirmed, holding that the declaratory judgment action between an insured and insurer is only binding on a third party claimant if the declaratory judgment action was initiated by the insured or if the third party claimant participated in the declaratory judgment action.
In 1999, the Ohio General Assembly amended the declaratory judgment statutes adding several specific provisions relating solely to declaratory judgment actions involving insurance coverage. Specifically, Revised Code § 2721.02 was amended to make clear that a person not a party to an insurance contract was precluded from filing a declaratory judgment action against an insurer. Despite this prohibition against a direct action against an insurer by a third party claimant, Revised Code § 2721.02 provided that the decision of a court in a declaratory judgment action between the insurer and insured would be binding on a third party claimant. Revised Code § 2721.02 also provided that if a “holder of the policy” of insurance commences a declaratory judgment action and a court enters “final judgment with respect to the policy’s coverage or non- coverage” prior to commencement of a supplemental proceeding by a plaintiffs-judgment creditor, “the final judgment shall be deemed to also have binding legal effect upon the judgment creditor.” R.C. 2721.02(C). The statute provides that its application shall apply notwithstanding any contrary principals of res judicata or collateral estoppel.
However, where the insurance carrier commences such an action for declaration of coverage, the Supreme Court expressed concern that a third party claimant would be bound by the determination of coverage without having had any ability to participate in the action. This concern was manifest in the case before the court wherein the insured failed to answer the complaint and default judgment was rendered. The court held that a final judgment rendered in a declaratory judgment action binds a plaintiff only if: (1) the insured/policyholder initiated the action; or (2) the plaintiff actually participated in the declaratory judgment action.
Thus, insurance carriers considering coverage litigation must consider the effect of its failure to name a third party claimant as a defendant in any declaratory judgment action that it files. If the insurer wishes to obtain a binding determination, it must name the claimant as a defendant in a coverage action. If it fails to do so, the claimant can seek to re-litigate the issues resolved in the coverage action in a supplemental proceeding. If you have any questions about this Supreme Court decision, or would like further information regarding coverage litigation in Ohio, please contact a member of Reminger’s Insurance Coverage Practice Group.
