Lichon v. American Universal Ins. Co.

• Decision Date: 07 September 1990
• Docket Number: Docket No. 84935
• Citation: 435 Mich. 408,459 N.W.2d 288
• Parties: Dennis S. LICHON, Plaintiff-Appellant, v. AMERICAN UNIVERSAL INSURANCE COMPANY, Defendant-Appellee.
• Court: Michigan Supreme Court

Page 288

459 N.W.2d 288

435 Mich. 408

Dennis S. LICHON, Plaintiff-Appellant, v. AMERICAN UNIVERSAL INSURANCE COMPANY, Defendant-Appellee.

Docket No. 84935.

Supreme Court of Michigan.

Argued March 6, 1990.

Decided July 30, 1990.

Rehearing Denied Sept. 7, 1990.

[435 Mich. 410] Joseph J. Trogan, Saginaw, for plaintiff-appellant.

Braun, Kendrick, Finkbeiner, Schafer and Murphy by Gregory E. Meter and Scott C. Strattard, Bay City, for defendant-appellee.

Denenberg, Tuffley, Bocan, Jamieson, Black, Hopkins & Ewald, P.C., Southfield, for Ass'n of Defense Trial Counsel, amicus curiae.

OPINION

ARCHER, Justice.

The question presented is whether the trial court properly granted defendant's motion for summary judgment because plaintiff's previous nolo contendere plea to attempted burning of real property terminated any rights plaintiff had under his policy of insurance with defendant company.

I

The plaintiff, Dennis Lichon, was the proprietor of Denny's Party Store in Saginaw, Michigan. The defendant, American Universal Insurance Company, insured Lichon's business against the risk of fire loss. The building housing Denny's Party Store caught fire in December, 1984, resulting in partial damage to the business. In January, 1985, as Denny's was preparing to reopen, a second fire destroyed the entire building, causing the total loss of the business.

Lichon filed claims for the fire damage. When nearly a year had passed without a positive response from the insurance company, he filed this suit, seeking to recover his losses under the terms of his insurance policy. Within seven months after the suit was filed, the parties were able to come to a settlement agreement. Approximately five weeks later, but before American Universal paid the agreed sum, Lichon was charged with burning real property, M.C.L. § 750.73; M.S.A. § 28.268. The state accused Mr. Lichon of setting both fires.

Lichon eventually entered a plea of nolo contendere to the lesser charge of attempted burning of real property. He was convicted and sentenced to one year in the county jail.

In this civil action, American Universal filed a motion for summary disposition under MCR 2.116(C)(7) ¹ and (10), ² contending that Lichon's nolo contendere plea and conviction prevented him from recovering on the insurance contract. The insurance company argued that Lichon was barred from recovery under the contract's antifraud exclusionary clause. ³ The company argued that it was entitled to judgment as a matter of law. American Universal argued that it was entitled to judgment under MCR 2.116(C)(7), because Lichon was collaterally estopped by his conviction from disputing his role in setting the fires, and under MCR 2.116(C)(10) because principles of equity estopped Lichon from raising any issue of fact regarding his role in the arson. American Universal argued that Lichon was unable to rebut its affirmative defense of arson.

The circuit court granted defendant's motion under MCR 2.116(C)(10) and entered judgment in its favor. The Court of Appeals affirmed. ⁴ We granted leave to appeal ⁵ and we hereby reverse.

II

We begin our analysis by acknowledging a fundamental principle which presents the background for this case: A wrongdoer should never profit from crime. Budwit v. Herr, 339 Mich. 265, 63 N.W.2d 841 (1954). It is axiomatic that a person who owns insured property and causes it to burn is not entitled to collect the insurance proceeds. See also Walz v. Peninsular Fire Ins. Co., 221 Mich. 326, 191 N.W. 230 (1922); Eagle, Star & British Dominions Ins. Co. v. Heller, 149 Va. 82, 111, 140 S.E. 314 (1927).

This axiom holds true for two reasons. First, the language of standard business insurance policies, including the policy of insurance issued on Mr. Lichon's property, prevents recovery for damages caused by an insured's criminal acts. ⁶

Second, it is untenable on public policy grounds to allow a person to profit from such a fraud. As the Supreme Court of Virginia in Eagle, Star, supra, 149 Va. p. 111, 140 S.E. 314, so eloquently stated:

"To permit a recovery under a policy of fire insurance by one who has been convicted of burning the property insured, would be to disregard the contract, be illogical, would discredit the administration of justice, defy public policy and shock the most unenlightened conscience. To sustain such a judgment would be to encourage and give support to the current thoughtless and carping criticisms of legal procedure, and to justify the gibe that the administration of the law is the only remaining legalized lottery."

To say that an arsonist should not profit from his crime, however, does not answer the question at the heart of this case, the question how a court may properly determine that a litigant is, in fact, an arsonist.

Under review is the trial court's order granting American Universal's motion for summary judgment under MCR 2.116(C)(10). A motion for summary disposition under that court rule tests the factual sufficiency of the plaintiff's claim. The trial court cannot grant the defendant's motion unless it is impossible to support the plaintiff's claim at trial because of some deficiency that cannot be overcome. See Rizzo v. Kretschmer, 389 Mich. 363, 372, 207 N.W.2d 316 (1973).

The trial court granted judgment for American Universal, stating "that the theory of equitable estoppel should be applied in this case." The trial court held that Lichon was equitably estopped from disclaiming responsibility for the fires that burned his store because he pled nolo contendere to attempted burning of real property. In effect, the court reasoned that, since Lichon was estopped by his plea and conviction from disclaiming responsibility for the fires, he would be unable to present any facts at trial that would overcome American Universal's affirmative defense. The court further supported its holding on the public policy grounds that one should not profit from wrongdoing.

Our review of this case requires us to determine whether the trial court was correct in ruling that Lichon was unable, because of his nolo contendere plea and conviction, to raise a question of material fact regarding his role in setting the fires that burned his business. The trial court was correct only if Lichon is estopped, either by general principles of equity or principles of collateral estoppel, from denying responsibility for the fires after his nolo contendere plea and conviction.

We hold that the trial court erred. We do not believe Lichon was estopped from disclaiming any role in setting the fires. Neither do we believe that Lichon's nolo contendere plea-based conviction collaterally estopped him from presenting evidence at trial in an attempt to disprove his responsibility in starting the fires. His denial of responsibility, therefore, raises a genuine issue of material fact precluding summary disposition under MCR 2.116(C)(10).

III

The plaintiff is not precluded from litigating the issue whether he burned his business because his nolo contendere plea to a charge of attempted burning of real property is not an admission of guilt that can be used against him in subsequent civil or criminal litigation.

A

Equitable estoppel " 'arises when one by his acts, representations, or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts.' " Fleckenstein v. Citizens Mutual Automobile Ins. Co., 326 Mich. 591, 599-600, 40 N.W.2d 733 (1950). Therefore, Lichon is estopped from denying he set the fires only if he explicitly or tacitly, intentionally or negligently, admitted his guilt in such a way as to induce his insurance company's justified and detrimental reliance.

This case does not present a situation where the doctrine of "equitable estoppel," strictly defined, applies. American Universal did not detrimentally rely upon Lichon's nolo contendere plea in such a way that principles of equitable estoppel would prevent Lichon from contesting his responsibility for setting the fires that destroyed his business. Equitable estoppel enables a party to avoid litigating, in a second proceeding, claims which are plainly inconsistent with those litigated in a prior proceeding. However, "[b]ecause the doctrine is intended to ensure fair dealing between the parties, the courts will apply the doctrine only if the party asserting the estoppel was a party in the prior proceeding and if that party has detrimentally relied upon his opponent's prior position." Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 598 (C.A. 6, 1982). See also Davis v. Wakelee, 156 U.S. 680, 689, 15 S.Ct. 555, 39 L.Ed. 578 (1895). Because American Universal was not a party to Lichon's criminal prosecution, it cannot rely on the doctrine of equitable estoppel.

It is possible that the trial court intended to rely, not on "equitable estoppel," but on the doctrine of "judicial estoppel" or estoppel by pleading. Under this doctrine, a party who has successfully and unequivocally asserted a position in a prior proceeding is estopped from asserting an inconsistent position in a subsequent proceeding. Edwards, supra at 598.

Under the doctrine of judicial estoppel, Lichon is prevented from denying responsibility in setting the fires in this civil trial only if such a position is inconsistent with the position he adopted in his criminal case. In other words, he would be judicially estopped in the civil trial from asserting his innocence in burning his business if such a position is inconsistent with his earlier plea of nolo The two claims are inconsistent only if we interpret the nolo contendere plea as an admission of guilt that can be held against Lichon in this subsequent litigation. However, the very nature of a nolo contendere plea, as it has been...