Broz v. Winland` - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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OPINIONS OF THE SUPREME COURT OF OHIO
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Broz, Exr., et al., Appellants, v. Winland et al.; American
States Insurance Company, Appellee.
[Cite as Broz v. Winland (1994), Ohio St.3d .]
Insurance -- Determination made in declaratory judgment action
between insurance company and its insured does not bind
persons injured by the insured's negligence who are not
parties to the declaratory judgment action.
A determination made in a declaratory judgment action between
an insurance company and its insured does not bind persons
injured by the insured's negligence who are not parties to
the declaratory judgment action.
(No. 92-2370 -- Submitted December 14, 1993 -- Decided
March 30, 1994.)
Appeal from the Court of Appeals for Lake County, No.
91-L-173.
On July 16, 1989, Rosemarie Broz, her fiance Dana
Dominick, and her mother Rose Marie Broz were involved in an
automobile accident when their vehicle was struck by an
automobile driven by Melissa Winland. Rosemarie was severely
injured and her mother and fiance were killed. Rosemarie Broz
and Richard E. Broz, as executor of the estate of Rose Marie
Broz, appellants, brought a tort action against Melissa Winland
for the resulting personal injury and wrongful death. The
estate of Dana Dominick is not a party to this appeal.
At the time of the accident, Melissa's father, Harold
Winland, was insured under an American States Insurance Company
automobile policy. While Melissa, as a family member, was a
"covered person" pursuant to the policy, the insurance contract
excluded liability coverage for any person "using a vehicle
without a reasonable belief that the person is entitled to do
so."
While the tort action was pending, American States brought
a separate declaratory judgment action against its insureds,
Harold and Melissa Winland, seeking a determination that there
was no coverage for Melissa because she did not have a
reasonable belief that she was entitled to use the vehicle she
was operating at the time of the accident. The court hearing
the declaratory judgment action agreed and entered judgment for

American States.
Meanwhile, the tort action against Melissa had been set
for trial. Prior to trial, however, and after the declaratory
judgment, Melissa confessed judgment to the Brozes in the sum
of $1.2 million. After the judgment went unsatisfied for
thirty days, the Brozes filed a supplemental complaint against
American States pursuant to R.C. 3929.06.
American States filed a motion to dismiss and a motion for
summary judgment, raising the affirmative defense of res
judicata because of the determination reached in the
declaratory judgment action. Both motions were denied and the
case proceeded to trial.
At trial, Melissa testified concerning the events leading
up to this tragedy. According to Melissa, on July 16, 1989,
she accompanied her friend, Tisa Yates, and Tisa's parents to a
high school graduation party. Tisa, her parents, and Melissa
arrived at the party around 5:30 p.m. Tisa's brother, Daniel,
also attended the party; however, he drove separately.
At approximately 8:15 p.m., Tisa's parents decided to
leave the party. Mr. and Mrs. Yates informed the girls they
would be back around 9:30 p.m. to take them home. After Mr.
and Mrs. Yates left, the girls offered to drive another friend
home. Although neither Tisa, age eighteen, nor Melissa, age
seventeen, had a driver's license, Tisa's brother Daniel gave
his car keys to Tisa and gave Tisa permission to drive his
car. However, Daniel expressly instructed his sister not to
let Melissa drive. Melissa overheard this conversation.
Once outside the house, Tisa asked Melissa to back the car
out of the parking space, because she had difficulty in doing
so. According to Melissa, Melissa continued driving at Tisa's
request. Melissa also testified that she sought to relinquish
the driving responsibilities to Tisa on two more occasions, but
Tisa claimed she could not drive because she had been
drinking. Although Tisa testified that Melissa had
specifically requested permission to drive, she admitted she
allowed Melissa to do so because she was afraid that they could
be stopped by the police, and she felt the penalties would not
be as harsh for a seventeen-year-old.
After driving their friend home, the girls were on their
way back to the party when Melissa lost control of the vehicle,
causing this tragic collision.
At the close of the plaintiffs' case, the trial court
granted American States' motion for a directed verdict, ruling
as a matter of law that Melissa had been without a reasonable
belief that she was entitled to operate Daniel Yates's
vehicle. The Brozes appealed and American States
cross-appealed the trial court's decision denying the motion to
dismiss and motion for summary judgment based upon res judicata.
The court of appeals upheld the directed verdict and
reversed the trial court's denial of American States' motion
for summary judgment.
The cause is now before this court pursuant to the
allowance of a motion to certify the record.

Jeffries, Kube, Forrest & Monteleone Co., L.P.A., Michael
R. Kube and William J. Shramek, for appellants.
Smith, Marshall & Weaver and Stephen C. Merriam, for

appellee.

Francis E. Sweeney, Sr., J. The legal issue we are asked
to decide is whether a determination made in a declaratory
judgment action between an insurance company and its insureds
binds persons injured by the insured's negligence who are not
parties to the declaratory judgment action. For the reasons
which follow, we hold that injured persons not parties to a
separate declaratory judgment action are not bound by such
decision, and thus are not precluded from litigating the issue
of insurance coverage in an R.C. 3929.06 supplemental
proceeding.
I
American States obtained a declaratory judgment against
its insureds, Melissa and her father, that determined that it
had no duty to indemnify Melissa under the terms of the
insurance policy because Melissa had no "reasonable belief"
that she was entitled to use the car. Because of this
judgment, American States filed a motion for dismissal and a
motion for summary judgment in the tort action, arguing that
the doctrine of res judicata prevented the Brozes from trying
to collect from American States. The Brozes contend, however,
that res judicata does not attach, as they were never parties
to the declaratory judgment proceeding.
The concepts of res judicata, more specifically the
doctrine of collateral estoppel, have no application to this
matter. We have long held that mutuality of parties is a
requisite to collateral estoppel. Whitehead v. Gen. Tel. Co.
of Ohio (1969), 20 Ohio St.2d 108, 49 O.O.2d 435, 254 N.E.2d
10; Goodson v. McDonough Power Equip., Inc. (1983), 2 Ohio
St.3d 193, 2 OBR 732, 443 N.E.2d 978. In Goodson, this court
stated this general rule, and noted, "[a]s a general principle,
collateral estoppel operates only where all of the parties to
the present proceeding were bound by the prior judgment. * * *
A prior judgment estops a party, or a person in privity with
him, from subsequently relitigating the identical issue raised
in the prior action." Id. at paragraph one of the syllabus.
The rationale for this general rule was articulated in Goodson:
"The main legal thread which runs throughout the
determination of the applicability of res judicata, inclusive
of the adjunct principle of collateral estoppel, is the
necessity of a fair opportunity to fully litigate and to be
'heard' in the due process sense." Id. at 200-201, 2 OBR at
739, 443 N.E.2d at 985.
The application of res judicata would deny appellants the
right to litigate an issue they did not litigate in the
declaratory action. They were not parties to this prior action
nor were they in privity with the Winlands in the action. In
fact, the Winlands and the appellants were adverse parties, at
least in regard to the underlying tort action. The Winlands'
primary concern is to insulate themselves from liability,
whereas the appellants' concern is to obtain redress for their
injuries. Thus, it cannot reasonably be found that the
Winlands were adequate surrogates to protect the rights of the
appellants. Thus, the appellants, who were neither engaged in
the litigation of the declaratory judgment action nor in
privity with the Winlands, cannot be bound by the decision

reached in the prior action.
In finding that appellants were barred from litigating the
issue of coverage on grounds of res judicata/collateral
estoppel, the court of appeals relied on the related cases of
Luntz v. Stern (1939), 135 Ohio St. 225, 14 O.O. 62, 20 N.E.2d
241 and Conold v. Stern (1941), 138 Ohio St. 352, 20 O.O. 449,
35 N.E.2d 133. However, these cases are distinguishable.
Both Luntz and Conold evolved from a single auto accident
where Stern was the driver of the car and Luntz and Conold were
passengers. Luntz's executors and Conold brought separate
actions against Stern. In the first case, Luntz's executors
obtained a judgment against Stern. A supplemental proceeding
against the insurer determined that the insurer was obligated
to Stern. On appeal, this court found on undisputed facts that
Stern had failed to cooperate with his insurer and that this
breach of contract resulted in no coverage to Luntz.
In Conold, Conold also obtained a judgment against Stern
and brought a supplemental proceeding against Stern's insurer.
The insurer asserted Stern's breach of contract as a defense
and argued that the decision in Luntz operated as res judicata
against Conold. This court ruled that the adverse judgment in
Luntz was res judicata as to the rights of the Stern's
insurance company and Stern.
The distinguishing characteristic of Luntz and Conold,
however, is that Luntz was a party to the supplemental
proceeding that determined the rights between Stern and his
insurance company. Therefore, he had the opportunity and the
incentive to litigate his rights and dispute any claim made by
the insurance company against its insured. Moreover, Conold
was in privity with Luntz, who had the same interests as Luntz
in establishing that coverage existed. In the present case,
the same cannot be said. The Brozes were not parties to the
declaratory judgment action between the Winlands and American
States nor were their rights adequately represented by the
Winlands.
Finally, we note that the procedure used by American
States to determine whether it would have any duty to indemnify
its insured in the underlying tort action was specifically
authorized in Preferred Risk Ins. Co. v. Gill (1987), 30 Ohio
St.3d 108, 30 OBR 424, 507 N.E.2d 1118.
More recently, in Krejci v. Prudential Prop. & Cas. Ins.
Co. (1993), 66 Ohio St.3d 15, 607 N.E.2d 446, we answered the
following certified question in the negative: "Does Ohio
Revised Code { 3929.06 preclude an injured person from bringing
any action, including a declaratory judgment action, against
the tortfeasor's insurer unless the injured person has first
obtained a judgment against the insured?"
Reading Gill and Krejci together, it becomes apparent that
either a tortfeasor's insurer or an injured victim may initiate
a direct action to determine the liability insurer's obligation
to indemnify in the event a judgment is obtained against the
tortfeasor. The fact that the injured victim can initiate such
an action is significant. R.C. 2721.03 provides that a
declaratory judgment action is available to "[a]ny person
interested" under a written contract of any nature for purposes
of establishing rights and duties thereunder. Thus, even
before judgment against the tortfeasor is obtained, an injured

victim is an interested party under the tortfeasor's insurance
policy.
The declaratory judgment action involved the Brozes'
interests as much as any other party who participated in that
proceeding. Thus, appellants were clearly proper parties to
the declaratory judgment between American States and the
Winlands and in order to be bound by its decision, they should
have been joined in that action. R.C. 2721.12 mandates that
"[w]hen declaratory relief is sought, all persons shall be made
parties who have or claim any interest which would be affected
by the declaration. No declaration shall prejudice the rights
of persons not parties to the proceeding." (Emphasis added.)
Thus, according to the terms of the statute, in order to
bind the injured tort claimant to the declaratory judgment,
American States had to join the Brozes in that proceeding.
Because it failed to join the Brozes in its declaratory
judgment action, American States cannot now claim that
appellants are forever barred from litigating the issue of
insurance coverage. This holding is in accord with decisions
reached in other jurisdictions. See, e.g., S. Farm Bur. Cas.
Ins. Co. v. Robinson (1963), 236 Ark. 268, 365 S.W.2d 454;
Shapiro v. Republic Indemn. Co. of Am. (1959), 52 Cal.2d 437,
341 P.2d 289; Pharr v. Canal Ins. Co. (1958), 233 S.C. 266, 104
S.E.2d 394. In this regard, R.C. 2721.14 instructs that R.C.
2721.12 "shall be so interpreted and construed as to effectuate
[its] general purpose to make the law of this state uniform
with the law of those states which enact similar sections."
II
After hearing the plaintiffs' evidence, the trial court
directed a verdict in favor of the defense, ruling as a matter
of law that Melissa had been without a reasonable belief that
she was entitled to use the car. The Brozes contend that this
was a factual determination to be made by the jury. We agree.
The Brozes admit that Melissa heard her friend's brother
say that Melissa was not to drive the car. However, this fact
does not by itself lead to the inescapable conclusion that
Melissa did not reasonably believe that she was entitled to use
the vehicle. Moreover, it is also undisputed that Tisa, the
authorized user, gave Melissa permission to drive. We approve
appellate case law which holds that permission from an
authorized user creates a question of fact as to whether the
driver had a reasonable belief that she was entitled to use the
car. Collins v. Fessler (Dec. 5, 1983), Miami App. No.
83-CA-20, unreported, and State Farm Mut. Auto. Ins. v.
Progressive Cas. Ins. Co. (July 26, 1988), Montgomery App. No.
CA 10748, unreported. Indeed, if Melissa's testimony is
believed, the authorized user refused to drive, claiming she
was too intoxicated.
In further support of its position, American States argues
that Melissa was unable to have a reasonable belief that she
was entitled to operate the car because she did not have a
driver's license. It is true that Melissa was not licensed to
drive; however, neither was Tisa, and her brother entrusted the
vehicle to her. In Blount v. Kennard (1992), 82 Ohio App.3d
613, 612 N.E.2d 1268, the appellate court rejected a similar
challenge, and stated that the test under the insurance policy
was not whether the plaintiff believed he was licensed to drive

but whether he reasonably believed he was authorized to drive
the car.
In ruling on a motion for a directed verdict, the court
must construe the evidence most strongly in favor of the party
against whom the motion is made and must give that party the
benefit of all reasonable inferences that may be drawn from the
evidence. Civ.R. 50(A)(4). This the court did not do.
Whether Melissa had a reasonable belief that she was entitled
to use the car is a jury issue.
Accordingly, for the foregoing reasons, we reverse the
judgment of the court of appeals and remand the cause to the
trial court for further proceedings.
Judgment reversed
and cause remanded.
A.W. Sweeney, Douglas, Resnick and Pfeifer, JJ., concur.
Moyer, C.J., and Wright, J., dissent.