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OACTA Spring Quarterly


									Quarterly Review
Volume 4                             Issue No. 4                                                              Fall 2011

A Quarterly Review of      Contents
     Emerging Trends       President’s Letter ............................................................................... 1
                               Gary L. Grubler
     In Ohio Case Law      Introduction: Insurance Coverage Committee ............................ 2
                               Michael M. Neltner
       and Legislative         Richard M. Garner

             Activity...   Recent Ohio Coverage Cases ........................................................... 3
                              Edited by Michael M. Neltner
                           Bad Faith Damages in Ohio – Where Do We Stand? ............... 12
                              Gregory E. O’Brien

                           It Didn’t Have to Happen That Way:
                           Analysis and Application of the International Act
                           Inferred Intent Doctrine in Allstate v. Campbell ..................... 18
                                Gary L. Grubler

                           Two Wrongs Don’t Make A Right...But One May Result In
                           Coverage For An Unnamed Business .......................................... 22
                              Brian Kerns
                           Can Lawyers Use Prior Judicial Opinions to Predict
                           Future Coverage Decisions by the Ohio Supreme Court? ...... 26
                               Jeffrey W. Ruple

                           Federal Insurance v. Executive Coach Luxury Travel, Inc.:
                           A Commentary and Its Impact ....................................................... 30
                               John Travis

                           The Current State of Construction Defect Coverage Litigation
                           in Ohio, How the Ohio Supreme Court Might Rule on the
                           “Occurrence” Issue, and Whether It Will Even Matter ............ 32
                               Melanie R. Shaerban

                                              of Civil Trial
                    OACTA                       Attorneys

                                  The Source for Defense Success
                                                                  2011 Board of Trustees
                      Association              Thomas J. Antonini (2007)                   Mark F. McCarthy (2002)
                      of Civil Trial           Robison, Curphey & O’Connell                Tucker Ellis & West LLP
OACTA                   Attorneys
                                               Four SeaGate, 9th Floor
                                               Toledo, OH 43604-1520
                                                                                           1150 Huntington Building
                                                                                           925 Euclid Avenue
                                               (419) 249-7900 • Fax: (419) 249-7911        Cleveland, OH 44115
              The Source for Defense Success   E-mail:                (216) 592-5000 • Fax: (216) 592-5009
                                               Anthony E. Brown (2010)
                                               Baker, Dublikar, Beck, Wiley & Mathews      Paul McCartney (2010)
                                               400 S. Main Street                          Rendigs, Fry, Kiely & Dennis
      2011 Officers                            North Canton, OH 44720                      One West Fourth Street, Suite 900
                                               (330) 499-6000 • Fax: (330) 499-6423        Cincinnati, OH 45202-3688
President                                      E-mail:                 (513) 381-9226 • Fax: (513) 381-9206
Gary L. Grubler                                                                            E-mail:
                                               Lynnette Dinkler (2011)
Grange Insurance Company                       Dinkler Pregon LLC                          Gregory E. O’Brien (2011)
610 South Front Street                         2625 Commons Blvd., Suite A                 Cavitch Familo & Durkin Co., LPA
Columbus, OH 43215                             Dayton, OH 45431                            1300 E. Nineth Street, 20th Floor
(614) 449-5900 • Fax: (614) 449-5980           (937) 426-4200 • Fax: (866) 831-0904        Cleveland, OH 44114
E-mail:           E-mail:          (216) 472-4621
                                                                                           Fax: (216) 621-2315
                                               Richard M. Garner (2008)
Vice President                                                                             E-mail:
                                               Davis & Young, LPA
Kevin C. Connell                               1200 Fifth Third Center                     David W. Peck (2006)
Freund, Freeze & Arnold                        600 Superior Avenue, E.                     Rendigs, Fry, Kiely & Dennis
One Dayton Centre                              Cleveland, OH 44114                         One West Fourth Street, Suite 900
One South Main Street, Suite 1800              (216) 348-1700 • Fax: (216) 621-0602        Cincinnati, OH 45202-3688
Dayton, OH 45402-2017                          E-mail:              (513) 381-9226 • Fax: (513) 381-9206
(937) 222-2424 • Fax: (937) 222-5369                                                       E-mail:
E-mail:                    John J. Garvey, III (2007)
                                               Garvey, Shearer, PSC                        Crystal Richie (2006)
                                               300 Buttermilk Pike, Suite 336              Grange Insurance Company
                                               Ft. Mitchell, KY 41017                      610 South Front Street
Kurt D. Anderson                               (859) 308-1484 • Fax: (866) 675-3676
Davis & Young LPA (Of Counsel)                                                             Columbus, OH 43215
                                               E-mail:           (614) 449-5900 • (614) 449-5980
124 Eastern Heights Blvd.
                                               Brian D. Kerns (2008)                       E-mail:
Elyria, OH 44035
(440)225-9167                                  State Automobile Mutual Insurance Company
                                               7123 Pearl Road, Suite 304                  Brian L. Wildermuth (2010)
E-mail:                                                        Shareholder
                                               Middleburg Heights, OH 44130
                                               (440) 843-5320 • Fax: (440) 843-5324        Subashi & Wildermuth
Secretary                                                                                  50 Chestnut Street, Suite 230
Anne Marie Sferra                                                                          Dayton, OH 45440
Bricker & Eckler LLP                           James N. Kline (2009)                       (937) 427-8800 • Fax: (937) 427-8816
100 South Third Street                         Ulmer & Berne LLP                           E-mail:
Columbus, OH 43215                             Skylight Office Tower
(614) 227-2394 • Fax: (614) 227-2390           1660 West 2nd Street, Suite 1100            (Year indicates first year on board)
E-mail:                    Cleveland, OH 44113-1448
                                               (216) 583-7000 • Fax: (216) 583-7161
Immediate Past President                       E-mail:
                                                                                           Executive Director
John M. Hands                                  Michael W. Krumholtz (2006)                 Debbie Nunner, CAE
Ulmer & Berne, LLP                             Bieser, Greer & Landis                      OACTA
600 Vine Street                                400 National City Center, 6 N. Main         17 South High Street, Suite 200
Suite 2800                                     Dayton, OH 45402                            Columbus, OH 43215-3458
Cincinnati, OH 45202                           (937) 223-3277 • Fax: (937) 223-6339        (614) 221-1900
(513) 698-5122 • Fax: (513) 698-5123           E-mail:                      Fax: (614) 221-1989
                                               James L. Mann (2009)
                                               Mann & Preston LLP                          Executive Assistant
                                               18 E. 2nd Street                            Rhonda Weidman
                                               Chillicothe, OH 45601-2523                  OACTA
                                               (740) 775-2222 • Fax: (740) 775-2627        17 South High Street, Suite 200
                                               E-mail:               Columbus, OH 43215-3458
                                                                                           (614) 221-1900 • Fax: (614) 221-1989
                                               Amy Mass (2007)                             E-mail:
                                               The Hanover Insurance Group
                                               500 South Front Street, Suite 870
                                               Columbus, OH 43215
                                               (614) 222-3061 • Fax: (614) 222-3079
                                   President’s Letter
                                             Gary L. Grubler
                               Grange Insurance House Counsel – Columbus
                                                Fall 2011

                      This edition of OACTA’s Quarterly is brought to you by the Insurance Coverage
                      Committee chaired by Mike Neltner of Cincinnati Insurance Company with Rich Garner
                      of the Cleveland firm of Davis & Young serving as Vice Chair. Thanks to Mike and Rich
                      for putting together an excellent array of articles analyzing current insurance coverage
                      cases and issues. John Travis of Gallagher Sharp analyzes the Ohio Supreme Court’s
                      decision in Federal Insurance v. Executive Coach, a highly publicized case in which the
                      Court found coverage for an independent contractor driver under the Bluffton
                      University’s liability policy after the university hired the bus company to use that
                      company’s bus to transport its baseball team to Florida, a trip that ended with an
accident killing seven occupants.

Former OACTA President Greg O’Brien of Cavitch, Familo & Durkin in Cleveland brings our readers up to date
on the standard for establishing an insurer’s bad faith. Brian Kerns of Wiles, Boyle, Burkholder and
Bringardner addresses a Court’s modification or reformation of an insurance contract to find coverage for an
unnamed insured. Melanie Shaerban of Weston Hurd delves into the current state of construction defect
coverage in litigation. Jeffrey Ruple of Buckley King provides an interesting take on if attorneys can predict
the Ohio Supreme Court’s decisions on coverage based upon its prior decisions in counsel’s efforts to advise
clients of the likely risks and business practices best suited to minimize those risks. Finally, I authored an
analysis of the Allstate v. Campbell case in which the Supreme Court set forth a new standard for inferring
intent to harm as a matter of law which would preclude coverage under carriers’ intentional act exclusions of
the homeowners’ policies at issue. I, with several colleagues, argued the case to the Supreme Court, so I
struggled to keep from referring to my memory as legal authority for the recitations in the article.

Just a few weeks ago I had the great pleasure at DRI’s annual meeting in Washington D.C. to, as OACTA”s
President, accept DRI’s Diversity Award extended to the state or local defense organization that demonstrates
a significant commitment to diversity both within and outside of the organization. OACTA developed a
Diversity Committee and in 2011 extended law school scholarships to students from diverse backgrounds. I
was honored to accept the award with OACTA’s Diversity Committee Chair, Hilary Taylor. Hilary and last year’s
President, John Hands, were the driving forces behind OACTA’s efforts which resulted in receiving the award.

Diversity makes our towns, neighborhoods and organizations more vibrant and receptive to new ideas. You
can always enjoy the familiar surroundings of persons just like yourself, but when you open yourself and your
organizations up to new approaches and ideas introduced by persons different from your familiar group, you
create a more interesting and exciting atmosphere. OACTA’s strength and future depends on continuing to
welcome persons of diverse backgrounds to our group. Variety truly is the spice of life, and I am proud to be a
part of this organization that places no barriers to admission, other than attorneys whose practice is primarily
in Plaintiff’s work, a group hardly considered a minority.

It has been a pleasure and honor to serve as OACTA’s President in 2011. The organization is strong and full
of brilliant and dedicated people. I extend my thanks to the other officers with which I have served, OACTA’s
Board, Committee chairs and all members for their support and willingness to get involved. It has been one
of the most rewarding experiences of my career and has resulted in friendships I will treasure for many years
to come. Thank you and Happy Holidays!

                              Insurance Coverage Committee
                                           Michael M. Neltner, Committee Chair
                                           The Cincinnati Insurance Companies

                                         Richard M. Garner, Committee Vice-Chair
                                                  Davis & Young, LPA

                              OACTA’s Insurance Coverage Committee is pleased to present to you the Fall Issue of
                              the Quarterly Review. In addition to summaries of the most recent appellate and Ohio
                              Supreme Court cases, Committee members take an in-depth look at some of the most
                              influential decisions of the Supreme Court this past year. We hope you find these
                              articles enlightening and useful for your professional career.

                              This space also provides us with the opportunity to give you an update regarding our
                              Committee’s recent activities. As of the publication of this Quarterly, we currently have
         Michael M. Neltner   67 members. We thank those of you who contributed to the committee over the past
                              year. Anyone who is not yet a member is welcome to join — simply send us your email
                              and we can add your name to our membership.

                           One of the benefits of membership this past year has been the case law update. This
                           database (“Recent Court Decisions — Spring 2011 Decisions”) currently holds an
                           updated list of nearly every trial, appellate and Supreme Court employer intentional tort
                           (“EIT”) case decided in the past two years. This information can prove invaluable when
                           filing your next EIT brief since many of the trial courts have taken opposite approaches
        Richard M. Garner
                           to the meaning of the Supreme Court’s Kaminski decision, especially in the context of
                           “guard-off” and toxic chemical EIT cases. OACTA members are provided access to this
       and other databases which is a distinct advantage when you become an OACTA member.

       In 2012, the Insurance Coverage Committee will again host its insurance coverage seminar. This seminar
       has been extremely popular in the past and is well attended by both insurance claims personnel and
       attorneys. In the past, speakers have been very open to questions from seminar attendees, both during and
       after their presentations. Please look for dates and topics in upcoming OACTA mailings.

       If you would like to contribute articles for the Updates or Reviews, cases for the database, or anything else
       you think would make your practice and the practice of law more productive and beneficial to our members,
       please feel free to send us an email or contact OACTA’s main office.

                                                   Michael M. Neltner

                                                     Richard M. Garner

Fall 2011 OACTA Quarterly Review                               2
                               Recent Ohio Coverage Cases*
                                                   Edited by Michael M. Neltner
                                                The Cincinnati Insurance Companies

                             Supreme Court Opinions                    But the Ohio Supreme Court reversed, and determined that
                                                                       the phrase “arising out of” necessitates a narrower
                                 “ARISING OUT OF”                      interpretation than what was advanced by Westfield and
                           INTERPRETED IN THE CONTEXT                  upheld by the Twelfth District. The court adopted the
                             OF A HOMEOWNER POLICY                     reasoning of a Second District case (Am. States Ins. Co. v.
                                                                       Guillermin (1996), 108 Ohio App. 3d 547, 671 N.E.2d
                       In Westfield Ins. Co. v. Hunter, 128            317) and a Kentucky Supreme Court decision (Eyler v.
                       Ohio St.3d 540, 2011-Ohio-1818,                 Nationwide Mut. Ins. Co. (Ky. 1992), 824 S.W. 2d 855)
                       948 N.E.2d 931, the Ohio Supreme                and held that the phrase “arising out of” is one that
Court interpreted an exclusion in a homeowner’s policy                 “suggests the necessity for a causal connection between
that precluded coverage for injury “arising out of” a                  the premises and the injury.” It further held that to satisfy
premises owned by the insured but which was not an                     the arising out of exclusion in the policy, it must be shown
insured location. In a 4-3 decision, the Supreme Court                 that the premises, apart from the insureds’ conduct, was
reversed the Twelfth District Court of Appeals and held that           causally related to the occurrence.
the exclusion did not apply as broadly as the Twelfth
District stated.                                                       The Supreme Court noted that the allegations against the
                                                                       Hunters in this case did not appear to involve any
The facts of the underlying case were rather                           accusations that the property itself somehow contributed
straightforward. The Hunters owned a home in Hamilton,                 to the injury. Instead, the allegations were aimed at the
Ohio that was insured with Westfield. They also owned a                Hunters’ lack of supervision over the children, and that the
farm in Indiana that was separately insured with Grinnell              farm itself played no role in the accident. The court
Mutual Reinsurance Co. In July 2001, the Hunters were at               remanded the case back to the trial court for further
their Indiana farm with their minor grandchild, Terrell, and           proceedings to determine the exact nature and factual
another minor relative, Ashley. Both kids were riding ATVs             basis of the claim against the Hunters.
on the farm property. Terrell was injured when the two
kids got into an accident involving the ATVs on the farm.              Ultimately, the court held that the “arising out of” language
Terrell and his parents brought suit against both Ashley               in the exclusion would apply in two circumstances: 1) for
and her parents as well as the Hunters.                                premises-based liability claims that are based on the
                                                                       quality or condition of the premises; and 2) claims that are
The allegations against the Hunters were essentially that              based upon the insured’s ownership of the property upon
they negligently supervised the kids while using the ATV’s             which the injury occurred.
on their property. Notably, the complaint did not allege
there was any defect in the farm property that contributed             Of note, however, the Supreme Court did provide a
to Terrell’s injuries.                                                 roadmap for insurers to follow in order to properly exclude
                                                                       coverage for this type of claim. It noted that an exclusion
Westfield denied coverage under the exclusion in its policy            with a clause excluding accidents that happen “in
that precluded coverage for injury “arising out of a                   connection with” owned, but uninsured, premises excludes
premises owned by an insured…that is not an insured                    more broadly than a clause excluding accidents that “arise
location.” The trial court and Twelfth District Court of               out of” such premises. The court noted that insurers are
Appeals both ruled in Westfield’s favor and held that since            free to draft exclusions to more fully preclude these types
the injuries occurred on the Indiana farm, that was                    of claims, but the use of the phrase “arising out of” is
sufficient to trigger the exclusion for an injury arising out of       insufficient to do so.
a non-insured location.


           FILED WITHIN ONE YEAR UPHELD                                       CARRIER INSTEAD OF HEALTH INSURER
                                                                       On August 30, 2011, the Ohio Supreme Court released its
In Dominish v. Nationwide Insurance Company, 129 Ohio
                                                                       decision in King v. ProMedica Health Sys. Inc. In a 6-1
St.3d 466, 2011-Ohio-4102, 953 N.E.2d 820, the Ohio                    decision, the Court held that a healthcare provider is not
Supreme Court, in a unanimous 7-0 decision, held that the
                                                                       prohibited under state law from choosing to directly bill a
“Suits Against Us” clause in a homeowner’s policy was
                                                                       patient’s medpay carrier as opposed to the patient’s
unambiguous and effective to require an insured to file a              health insurer.
lawsuit against the insurer in the specified time period.
Additionally, a letter from the insurer after the specified
                                                                       In this case, Ms. King was injured in an auto accident and
time period had expired did not operate to waive the                   sought treatment from the Toledo Hospital. Instead of
enforceability of the time limitations clause.
                                                                       submitting her bills directly to Aetna, King’s health insurer,
                                                                       the hospital submitted the bills to Safeco, her auto carrier
In this case, Mr. Dominish submitted a claim to                        that provided medpay coverage. King sued Toledo
Nationwide, his homeowners carrier, after a tree fell onto
                                                                       Hospital, alleging that it violated R.C. 1751.60(A) by failing
his home. Nationwide accepted part of his claim, but also
                                                                       to submit her bills to Aetna.
issued a partial denial for a portion of the claim. Mr.
Dominish continued to follow up with Nationwide, and
                                                                       The 6th District agreed with King and found that the
eventually filed suit against Nationwide more than two
                                                                       submission of bills to the medpay carrier violated the
years after the date of loss.                                          statute. The Ohio Supreme Court, however, reversed the
                                                                       6th District and held that the practice was permissible.
The Nationwide policy contained a “Suits Against Us”
clause that stated “Any action against us must be started              R.C. 1751.60 requires that a health care provider seek
within one year after the date of loss or damage.”
                                                                       payment solely from a heath insurer, and not the patient
                                                                       (with an exception for copayments and deductibles). King
The trial court granted Nationwide’s motion for summary                argued that the “solely” language in the statute prohibited
judgment, but the 11th District Court of Appeals reversed
                                                                       a medical provider from seeking payment from any source
and held that the clause was ambiguous.
                                                                       other than the health insurer. The Court disagreed, and
                                                                       stated that the statute only applies to prohibit the
The Supreme Court held that although the language could
                                                                       submission of bills to the patient when there is valid health
have been more clear, when read in its context the clause
                                                                       insurance. The statute operates to protect the individual,
was unambiguous and effectively required an insured to                 not another provider of benefits. The statute does not
commence a lawsuit within the one-year time limitation.
                                                                       prohibit a medical provider from seeking payment from
Dominish also argued that Nationwide had waived its right              another source, if such exists.
to apply this limitation since it had sent a letter to him after
the one-year period had expired. This letter further                                   Appellate Court Opinions
expressed Nationwide’s partial acceptance and partial
denial of the claim. The Court held that the letter did not               SIMPLY ADDING THE WORD, “NEGLIGENCE,” TO A
waive Nationwide’s right to apply the limitation. In order             COMPLAINT DOES NOT CONVERT A BREACH OF CONTRACT
for an insurer to waive a limitation of action clause, “an                       ACTION TO ONE FOR NEGLIGENCE
insurance company must have recognized liability or held
out a reasonable hope of adjustment and by doing so,                   In Cincinnati Ins. Co. v. Dorsey Reconditioning, Inc., 2011-
induced the insured to delay filing a lawsuit until after the          Ohio-1499, (Coshocton App.), the court reviewed claims for
contractual period of limitation had expired.”                         negligence and breach of contract in a construction defect
                                                                       context and ruled that where “the very language of the
Since the letter from Nationwide merely reaffirmed its prior           negligence claim sounds as a claim for breach of
partial denial, Dominish was not induced to forgo filing his           contract,” there is no coverage under the standard ISO
lawsuit prior to the one-year deadline.                                CGL policy because the claim is not converted into one for
                                                                       negligence simply by adding that word to the complaint.
                                                                       The court’s colorful opinion (“Evidently, appellee believes if

Fall 2011 OACTA Quarterly Review                                   4
you call a claim negligence and use the appropriate words,          language of the Policy Exclusion was ambiguous. The court
it is negligence, thereby adopting the old adage ‘if it looks       found that the policy exclusion which stated that it applied
like a duck and quacks like a duck, then it probably is a           “to you and if residents of your household, your relatives,
duck’”) makes this a good read. The court concluded that            and persons under the age of 21 in your care or in the care
there was no coverage for the lack of preparation of a pipe         of your resident relatives” could reasonably mean that, for
the insured was working on and misapplication of primer,            the policy exclusion to apply, only “your relatives” need
citing Bogner Construction Company v. Field & Associates,           also be “residents of your household.” Under this
Inc., 2009-Ohio-116 (Knox App. 2009), and The Home                  interpretation, the clause “if residents of your household”
Insurance Company of Illinois v. OM Group, Inc., 2003-              applies only to “your relatives” and has no bearing on
Ohio-3666 (Hamilton App. 2003), for the proposition that            “persons under the age of 21 in your care[.]” Although this
although there may be a claim for consequential damages             was a reasonable interpretation, one could just as
resulting from the insured’s own “work,” there was no               reasonably conclude that the clause “if residents of your
“occurrence” as defined by the policies to create a                 household” applies to both categories in the subsequent
negligence claim for property damages resulting from an             list – that is, it applies to both “your relatives” and to
occurrence.                                                         “persons under the age of 21 in your care or in the care of
                                                                    your resident relatives.” The court noted that the Policy’s
The court acknowledged the split in Ohio jurisdictions over         definition of “anyone we protect” seemed to support the
whether construction defect is an occurrence or accident            mother’s interpretation of the Policy Exclusion (the mother
and sided with the “Heile” line of cases which hold that            was arguing for coverage). As defined, the Policy protects
commercial general liability policies are not intended to           only “you” and “residents of your” household. According to
insure “business risks” – i.e. risks that are the “normal,          Erie, “[t]he rationale of [the Policy Exclusion] is clear – if
frequent, or predictable consequences of doing business,            you are insured under the Policy, you are not also entitled
and which business management can and should control                to seek recovery as a third party claimant.” Based on this
or manage.”                                                         rationale, the court found it more likely that the Policy
                                                                    Exclusion would apply only to residents of the household;
      “RESIDENT” RELATIVE FOUND AMBIGUOUS IN                        i.e., anyone that the policy protects.
                HOMEOWNER POLICY
                                                                    Erie argued that the child was a “resident” of the
In Comisford v. Erie Ins. Property Cas. Co., 2011-Ohio-             grandparents/insureds’ household at the time of the fire
1373 (Gallia App.), the sole question before the court was          pursuant to R.C. 2151.06, which states that, “[A] child has
whether an Erie homeowners policy covered the bodily                the same residence or legal settlement as his parents,
injuries of a child in the home of her paternal grandparents        legal guardian of his person, or his custodian who stands
during a fatal fire where there was a question as to                in the relation of loco parentis”. The child’s mother,
whether the child actually lived with the grandparents or           however, argued that the juvenile court never had
the parents subject to an order of the juvenile court. It was       jurisdiction over the matter because a complaint was not
undisputed that the grandparents had temporary custody              filed pursuant to Juv.R. 14 and R.C. 2151.27. In the
of the child for a period of time but that the child was            alternative, the mother argued that an April 2, 2007, order
returned to her natural parents at some point near the              decided after the fire and returning the child to her parents
date of the fire.                                                   was a nullity because the juvenile court divested itself of
                                                                    jurisdiction by dismissing the case on October 23, 2006.
The Erie policy at issue was a homeowners policy issued to          For these reasons, the mother argued that the
the grandparents. The policy exclusion which was the                grandparents did not have temporary custody of the child
subject of the litigation stated as follows, “We do not cover       and, as a result, that the child was not a “resident” of the
* * *: Bodily injury or personal injury to you and if               grandparents’ household at the time of the fire. The court
residents of your household, your relatives, and persons            stated that it need not comment on the juvenile court’s
under the age of 21 in your care or in the care of your             jurisdiction (or lack thereof) to resolve the coverage
resident relatives,” and the policy defined a resident as “a        question. Rather, the court focused on the plain language
person who physically lives with you in your household.”            of R.C. 2151.011(B)(53), which states that, “‘Temporary
                                                                    custody’ means legal custody of a child who is removed
The court found that under the facts of this case, the

from the child’s home, which custody may be terminated                that the insured premises be the named insured’s
at any time at the discretion of the court or, if the legal           exclusive residence, the court found genuine issues of
custody is granted in an agreement for temporary custody,             material fact regarding whether the insured “resided” in
by the person who executed the agreement.” (Emphasis                  the insured premises at the time of the fire and reversed
added.) It was undisputed that the grandparents would                 the trial court’s grant of summary judgment in favor of the
have temporary custody of the child. Thus, under the plain            insurer.
language of R.C. 2151.011(B)(53), the parties could
terminate their agreement for temporary custody at any                      EXCESS OVER EXCESS IS STILL EXCESS IN THE
time. And in her December 3, 2009 affidavit, the mother                            “OTHER INSURANCE” CLAUSE
stated that the grandparents “allowed the children to
return home with [her] and [her] husband” in October                  In Progressive Direct Ins. Co. v. Motorist Mut. Ins. Co., 191
2006. Furthermore, in her answers to Erie’s                           Ohio App.3d 686, 2011-Ohio-315, 947 N.E.2d 276,
interrogatories, the mother stated: (1) that she had legal            Progressive insured the driver of a vehicle involved in an
custody of the child at the time of the fire; and, (2) that the       auto accident, while Motorists insured the vehicle.
grandparents “let Xzandria * * * come home with [her]                 Progressive’s policy contained the following “other
permanently” that October. Thus, the mother’s evidence                insurance” clause: “If there is any other applicable liability
demonstrated: (1) that the parties terminated their                   insurance or bond, we will pay only our share of the total
temporary custody agreement in October 2006; (2) that                 damages. Our share is the portion that our limit of liability
Xzandria lived with the biological parents in January 2007;           bears to the total of all applicable limits. However, any
and (3) that Xzandria was merely visiting the grandparents’           insurance we provide for a vehicle or trailer, other than a
household at the time of the fire.                                    covered auto, will be excess over any other collectible
                                                                      insurance, self-insurance, or bond. Any insurance we
Because the court found both interpretations of the Policy            provide for use of a covered auto by any person other than
Exclusion to be reasonable, it found that the Policy                  you will be excess over any other collectible insurance, self
Exclusion was ambiguous and held as follows: (1) there                insurance or bond.”
are no genuine issues of material fact; (2) as a matter of
law, Krystal [the mother] is entitled to a declaratory                 The Motorists policy stated the following in its “other
judgment finding that the Policy covers Xzandria’s bodily             insurance” clause: “If there is other applicable liability
injuries; and (3) reasonable minds can come to just one               insurance we will pay only our share of the loss. Our share
conclusion, and that conclusion is adverse to Erie.                   is the proportion that our limit of liability bears to the total
                                                                      of all applicable limits. Any insurance we provide for a
     RESIDENCY EXCLUSION IN HOMEOWNER POLICY                          vehicle you do not own, including any vehicle while used as
                   SCRUTINIZED                                        a temporary substitute for your covered auto, shall be
                                                                      excess over any other collectible insurance. Any insurance
In Hicks v. Mennonite Mut. Ins. Co., 2011-Ohio-499 (Miami             we provide for use of your covered auto by any person
App.), the Miami County Court of Appeals dealt with the               other than you or any family member will be excess over
issue of whether an adult man who was taking care of his              any other collectible insurance, self-insurance or bond
mother had dual residences in both his own house and his              stated to be primary, contributing, excess or contingent.”
mother’s house where he spent considerable time in the
mother’s house and often spent the night there while                  Progressive argued that the Ohio Supreme Court’s decision
taking care of her. The court noted that the insurance                in Buckeye Union Ins. Co. v. State Auto. Mut. Ins. Co.
policy did not define the word “reside” and that numerous             (1977), 49 Ohio St.2d 213, O.O.3d 330, 361 N.E.2d
courts in Ohio have concluded that the word “reside” was              1052, applied because both companies’ “other insurance”
ambiguous. Therefore, the term must be strictly construed             clauses were excess clauses. Under Buckeye Union,
against the insurer and liberally in favor of the insured,            “[w]here two insurance policies cover the same risk and
especially where the term was an exemption or exclusion               both provide that their liability with regard to that risk shall
which was not expressed plainly. The court found it                   be excess insurance over other valid, collectible insurance,
reasonable that an individual in Plaintiff’s position would           the two insurers become liable in proportion to the amount
maintain dual residences. Because the insurer failed to               of insurance provided by their respective policies.”
define the critical terms in the policy, and failed to require

Fall 2011 OACTA Quarterly Review                                  6
Motorists countered that the policies did not cover the              then denied Central Mutual’s motion to confirm and
same risk. According to Motorists, the language that it              enforce the award. The court reasoned that, under section
added in its clause—”stated to be primary, contributing,             2-4 of the AF Arbitration Rules, AF lacked jurisdiction once
excess or contingent”—rendered the Motorists’ policy more            United Ohio raised denial of coverage and provided a copy
like umbrella coverage than competing excess coverage in             of the denial letter.
situations such as the accidents in this case.
                                                                     In reversing the decision of the trial court and reinstating
The court sided with Progressive. The court interpreted the          the award of the AF panel, the Second District stated that
decision in Buckeye Union as seeking to address the                  the grounds upon which a trial court may vacate an
question of coverage when two policies contain excess                arbitrator’s award are “few and narrow.” R.C. 2711.10
other-insurance clauses that work to prevent any                     identifies four grounds upon which a common pleas court
underlying primary insurance. Motorists’ additional                  may vacate an arbitration award. United Ohio relied
language does not change the fact that the two clauses               primarily upon R.C. 2711.10(D), which authorizes a
are “mutually repugnant” excess clauses. Each company’s              common pleas court to vacate an arbitration award when
“other insurance” clause is triggered by the existence of            “[t]he arbitrators exceeded their powers, or so imperfectly
the other company’s policy, resulting in the harm that               executed them that a mutual, final, and definite award
Buckeye Union sought to avoid—no primary coverage. We                upon the subject matter submitted was not made.” The
conclude that the clauses cover the same risks and that,             trial court granted the motion to vacate on that basis.
therefore, Buckeye Union applies. The trial court properly
granted summary judgment to Progressive, and its                     The court of appeals found that it was undisputed that the
judgment is accordingly affirmed.                                    parties signed the arbitration agreement and were subject
                                                                     to AF’s Rules. Section Two of those Rules sets forth the
    GROUNDS UPON WHICH TRIAL COURT MAY VACATE                        arbitration procedures. Of relevance, Section 2-4 provides
     ARBITRATOR’S AWARD ARE “FEW AND NARROW”                         that, “The parties must raise and support affirmative
                                                                     pleadings or defenses in the Affirmative Defenses/
In United Ohio Ins. Co. v. Cent. Mut. Ins. Co., 2011-Ohio-           Pleadings section of the Contentions Sheet or they are
2432 (Darke App.), the Darke County Court of Appeals                 waived. If a denial of coverage is being pled (see denial of
considered a case involving Central Mutual and United                coverage definition), a copy of the denial of coverage letter
Ohio who were signatories to a Property Subrogation                  to the party seeking coverage for the loss must be
Arbitration Agreement which required the parties to forego           provided as part of the evidentiary material submitted. If
litigation and submit property subrogation claims to                 provided, the case will be administratively closed as
Arbitration Forums, Inc. (“AF”) for binding arbitration.             lacking jurisdiction. If not provided or where the issue
Central Mutual submitted its claim to AF on December 18,             concerns concurrent coverage (Article First (b), Special
2009. United Ohio responded to the claim, asserting that it          Arbitration Agreement), the case will proceed to hearing
had denied coverage to Bunch Roofing for a loss “due to              wherein the arbitrator(s) will consider and rule on the
specific policy exclusions.” United Ohio provided a copy of          coverage defense.”
the denial of coverage letter that was sent to Bunch
Roofing on November 25, 2008 but did not assert any                  The Definitions section of the Rules defines “denial of
affirmative defenses in its materials submitted to the AF.           coverage” as “A company’s assertion that the entity(ies)
The AF arbitration panel found that United Ohio’s “denial”           and/or individual(s) involved in the accident, occurrence,
did not comport with the definition of a “denial” in the AF          or event in dispute is not covered under the company’s
rules and that because United Ohio did not assert any                policy of insurance, or that there was no policy in effect at
affirmative defenses in its filings, it therefore waived those       the time of the accident, occurrence, or event. (It is not a
affirmative defenses in accordance with the AF rules. The            denial of coverage as long as the company admits that the
AF therefore awarded judgment in favor of Central Mutual             party(ies) is an insured under the policy in effect at the
and United Ohio appealed to the trial court.                         time of accident, occurrence, or event, i.e. primary/excess
                                                                     coverage, policy limits, or the claim is being handled under
The trial court reversed the findings of the AF panel and            a reservation of rights.)”
held that because United Ohio issued a denial, then the AF
did not have jurisdiction to hear the case. The trial court

The court stated that even if the issue of AF’s jurisdiction                          Post-Kaminski Cases
had been properly before the trial court, it would find that
AF’s definition of “denial of coverage” supports AF’s               In addition, a number of post-Kaminski cases have been
actions and would require reversal of the trial court’s             decided by the various appellate courts (including one by
judgment. As stated in the AF rules, “denial of coverage”           the Ohio Supreme Court). Here are the most interesting of
means an assertion that the entity involved in the                  those decisions:
occurrence, e.g. Bunch Roofing, is not “covered” by the
policy or there was no policy in effect at the time of the               OHIO SUPREME COURT UNANIMOUSLY UPHOLDS
occurrence. The sentence in parentheses clarifies that an               DELIBERATE INTENT AND SUBSTANTIAL CERTAINTY
entity is “covered” as long as the entity “is an insured                 EXCLUSION FOR EMPLOYER INTENTIONAL TORT
under the policy in effect at the time of the ***
occurrence ***.” Stated succinctly, “denial of                      In Ward v. United Foundries, 129 Ohio St.3d 770, 2011-
coverage” means an assertion by the company (United                 Ohio-3176, 951 N.E.2d 770, a unanimous judgment with a
Ohio) that the entity (Bunch Roofing) was not an insured of         majority opinion joined by 6 Justices, the Supreme Court
a policy issued by United Ohio that was in effect at the time       addressed a pre-2005 employer intentional tort case. The
of the occurrence, or that there was no policy in effect at         employer was sued for an employer intentional tort under
the time of the occurrence.                                         the Fyffe “substantial certainty” standard. While the
                                                                    employer had purchased a “stop gap” endorsement to
In its denial of coverage letter, United Ohio referred Bunch        provide some kind of employer liability coverage, the stop
Roofing to its policy of insurance which defined “your              gap endorsement included an exclusion that purported to
work” and indicated that “damage to your product” and               exclude both deliberate intent torts and “substantial
“damage to your work” were excluded from coverage.                  certainty” torts. Based upon the exclusion, the employer’s
United Ohio told Bunch Roofing that “we must deny                   insurer denied coverage for the employer intentional tort
payment of the cost to repair the roof” because “your work          suit.
is specifically excluded.” United Ohio did not, however,
inform Bunch Roofing that no policy was in effect at the            The trial court found the exclusion rendered the coverage
time of the occurrence, nor did United Ohio claim that              illusory and ordered the insurer to provide a defense to the
Bunch Roofing was not an insured under the policy at the            employer (indemnity would be determined later).
time of the wind damage. To the contrary, United Ohio
implicitly acknowledged that Bunch Roofing was an                   The Fifth Appellate District reversed, but certified its
insured under the policy when it cited the exclusions as the        decision as being in conflict with a decision from the Third
basis for denying coverage for the loss. Thus, United Ohio’s        Appellate District. The Supreme Court found the insurer’s
denial of Bunch Roofing’s claim was not a “denial of                exclusion to be “plain, unambiguous and not misleading.”
coverage” within the meaning of the AF rules. Instead,              The court further held that it was not necessary for an
United Ohio’s denial of Bunch Roofing’s claim on the basis          insurer with such language to wait for a court to
that the policy excluded claims for “damage to your work”           “determine” that the bodily injury was committed by the
was an affirmative defense to Central Mutual’s                      employer/insured with the intent to injure before the
subrogation claim.                                                  insurer could deny a defense because there was no
                                                                    possibility of coverage under the facts as pled in the
Because United Ohio did not raise “denial of coverage,” as          Complaint and the language of the policy. Finally, the
defined by AF’s Rules, the AF arbitrators did not “exceed           Court stated that the policy was not illusory because it
their authority” when they failed to administratively close         provided “some benefit to the insured from the face of the
the claim for lack of jurisdiction. Rather, AF appropriately        endorsement”. If the coverage was not as broad as what
viewed United Ohio’s assertion that the policy excluded             the employer thought it was purchasing, then the high
coverage for the claim as an affirmative defense, for which         court reasoned “this is an argument for [the employer] to
United Ohio had the burden of proof.                                assert against the insurance agency and broker who
                                                                    procured the policy, not against the insurer.” Accordingly,
                                                                    the insurer did not have to defend or indemnify either
                                                                    deliberate intent or “substantial certainty” torts under the

Fall 2011 OACTA Quarterly Review                                8
stop gap endorsement because “[t]here is no set of facts              employee to use a side loading forklift to retrieve materials
under which [the employer] would be covered . . . .”                  from the same aisle in which Houdek was tagging
                                                                      inventory. There was some evidence presented that the
   JURY VERDICT UPHELD AGAINST EMPLOYER UNDER                         employer had been warned that using the forklift to
    R.C. 2745.01 FOR ADVISING APPRENTICE RUBBER                       retrieve materials while someone was working in the same
 GLOVES NOT NEEDED ON HIGH TENSION ELECTRIC LINE                      aisle was dangerous. The employee proceeded to retrieve
                                                                      the materials with the forklift at the direction of the
On October 20, 2011, the Eighth District decided the case             employer and, in doing so, crushed Houdek against the
of Hewitt v. L. E. Myers, 2011-Ohio-5413 (Cuyahoga App.),             racks causing him bodily injury.
which upheld a jury verdict in favor of the employee in a
case where a newly trained worker was sent to work alone              The Eighth District attempted to distinguish the facts in its
on a high tension electric line which became energized                case from Kaminski in order to come to the conclusion
while he was working on it and he was shocked. His                    that Kaminski’s holding did not apply to this case.
supervisor told him he did not need to wear his rubber                Specifically, it found that because in this case, the
gloves due to the weather (it was extremely hot that day).            employer actually directed the actions which led to the
This was the first time he worked alone on a job. The court           injury but in Kaminski, the injury resulted in the absence of
determined that the rubber gloves were a “safety guard”               any specific directives, enough of a distinction was present
under the statute and that the employer’s act of sending a            to differentiate the cases.
new apprentice to work on an electric line which could
become energized and then instructing him not to wear                 The court further concluded that the substantially certain
rubber gloves was beyond “reckless” and that the                      standard that was advanced prior to Kaminski was still
employer, “made a deliberate decision to place the                    viable, and that summary judgment was inappropriate
employee in close proximity to energized wires without                where an employer could be found to have been
wearing protective rubber gloves.” Such an action                     substantially certain an injury would have occurred when it
“amounted to the deliberate removal of an equipment                   directed the employee’s actions. The case is also
safety guard” and therefore the court concluded that “the             interesting in that it is not a “removal of a guard” or “toxic
deliberate removal by the employer of an equipment safety             chemical” case subject to subsection (C) of the statute.
guard was committed with intent to injure another if an
injury occurs as a direct result.”                                     SIXTH DISTRICT HOLDS DIRECT CAUSE OF EMPLOYEE’S
                                                                           INJURY CONSTITUTES A FACTUAL ISSUE TO BE
             THAT CAUSES THE INJURY                                   In Dudley v. Power & Sons, LLC, 2011-Ohio-1975 (Williams
                                                                      App.) the Sixth District Court of Appeals reversed a grant of
On April 7th, the Eighth District Court of Appeals issued a           summary judgment to an employer, after finding that a
decision in Houdek v. Thyssenkrupp Materials N.A., Inc., et           dispute over the direct cause of the employee’s injury
al., 2011-Ohio-1694 (Cuyahoga App.), that seemingly                   created a genuine issue of material fact as to whether the
contradicts the Supreme Court’s decision in Kaminski v.               employee was entitled to a statutory presumption of
Metal & Wire Prods. Co., 125 Ohio St.3d 250, 2010-Ohio-               injurious intent codified in R.C. §2745.01(C).
1027, 927 N.E.2d 1066. In Houdek, the Eighth District
reversed a trial court decision granting summary judgment             This suit arose when the employee, Dudley, was operating
to an employer based on Kaminski, and found that                      a hydraulic press. The press had been purchased many
questions of material fact still existed as to whether the            years prior, and had originally been outfitted with dual
employee’s injuries were caused by an employer                        actuating buttons so that the operator’s hands would be
intentional tort as codified in R.C. 2745.01.                         clear of the point of operation during the downward cycle
                                                                      of the press. However, a few years after the purchase, the
The plaintiff was a warehouse employee who was ordered                employer, Powers, made modifications to the press,
to work on a scissor’s lift in order to tag inventory in one of       removing the dual actuating buttons and installing an
the warehouse aisles. While Houdek was on the lift                    electronic sensor.
tagging inventory, the employer instructed another

On his first day of work, Dudley was trained how to                  considered decision to take away or off, disable, bypass, or
properly operate the press, but was not trained on                   eliminate, or to render inoperable or unavailable for use.”
maintenance or service of the press, and was not informed
about the electronic sensor. Dudley operated the press for           The court then addressed what the term, “equipment
three hours without incident. However, upon returning                safety guard” meant since the plaintiff argued that a safety
from a break, Dudley attempted to clear a loose ring inside          switch could be a “safety guard” under the statute. The
of the press. His hand activated the electronic sensor and           court found that in terms of employment safety, the term
was crushed. Subsequently, Dudley filed an intentional               means as follows when used in the statute regulating work
tort claim against Powers, claiming that dual actuating              conduct: “Thus, as used in R.C. 2745.01 (C), an
buttons were safety guards, the removal of which raised a            ‘equipment safety guard’ would be commonly understood
rebuttable presumption of intent.                                    to mean a device that is designed to shield the operator
                                                                     from exposure to or injury by a dangerous aspect of the
The trial court granted summary judgment in favor of                 equipment.”
Powers, ruling that the direct cause of injury was the
installation of the electronic sensor, and not the removal           Thus, the court defined the term as meaning something
of the dual buttons.                                                 more than a “barrier guard” but something less than “any
                                                                     device designed to prevent injury or reduce the
In reversing the trial court decision, the Court of Appeals          seriousness of injury.” The court offered as examples the
found that the direct cause of injury constituted a factual          following, which would qualify as equipment safety guards
issue to be determined by a jury. The court also denied              under this court’s analysis: two-hand controls, pull-back
Powers’ request to strike the testimony of Dudley’s expert,          guards, hold-back guards, inch controls, and electronic eye
who testified that the dual buttons were safety guards.              safety circuits. Safety switches which are not in close
The court stated that Powers may provide its own expert              physical proximity to the moving mechanisms that could
testimony to refute Dudley’s expert at trial, and that a jury        cause injury would not qualify, however.
would decide whether or not the dual buttons were safety
guards.                                                              There is a very important footnote in this opinion which will
                                                                     give these potential “guard off” cases much more play in
    COURT DECIDES WHAT KEY TERMS MEAN IN THE                         the future. In footnote 2, the court states as follows: “It is
   STATUTE, NOT AN EXPERT WITNESS – “DELIBERATE                      important to note that R.C. 2745.01(C) does not require
     REMOVAL” OF A “SAFETY GUARD” CONSTRUED                          proof that the employer removed an equipment safety
                                                                     guard with the intent to injure in order for the presumption
In Fickle v. Conversion Technologies Internatl., Inc., 2011-         to arise. The whole point of division (C) is to presume the
Ohio-2960 (Williams App.), the Sixth District released a             injurious intent required under divisions (A) and (B). It
new guard-off decision recognizing that the definitions of           would be quite anomalous to interpret R.C. 2745.01(C) as
key terms in the Employer Intentional Tort statute (R.C.             requiring proof that the employer acted with the intent to
2745.01) must be decided by a court and not by the                   injure in order create a presumption that the employer
plaintiff’s experts. The court found that the term,                  acted with the intent to injure. Such an interpretation
“deliberate” means”’characterized by or resulting from               would render division (C) a nullity.” Thus, plaintiffs in
careful and thorough consideration—a deliberate                      these types of “guard off” cases do not need to focus on
decision’” and the term, “removal” does not require “proof           proving the intent of the employer to move past summary
of physical separation from the machine,” but may                    judgment and onto trial. They need only establish that
“include the act of bypassing, disabling, or rendering               there was a “deliberate removal” of an “equipment safety
inoperable.”                                                         guard” as defined above.

Thus, the “deliberate removal” of a safety guard, as                     SUMMARY JUDGMENT IN FAVOR OF EMPLOYER IS
required by the statute, means as follows: “Combining the               APPROPRIATE WHERE NO EVIDENCE THAT EMPLOYER
above definitions, and considering the context in which the            INTENDED TO HARM THE EMPLOYEE WAS PRESENTED,
phrase is used in the statute, we find that “deliberate                  EVEN CONSIDERING ALLEGATIONS OF FAILURE TO
removal” for purposes of R.C. 2745.01(C) means a                        PROVIDE FALL PROTECTION, FAILURE TO TRAIN, AND
                                                                              FAILURE TO ADEQUATELY SUPERVISE

Fall 2011 OACTA Quarterly Review                                10
In McCarthy v. Sterling Chemicals, Inc., 193 Ohio App.3d
164, 2011–Ohio-887, 951 N.E.2d 441, the First District
considered a fall case and upheld summary judgment in                Michael M. Neltner, is a member of the
favor of the employer where the evidence showed the                  Cincinnati Insurance Company (“CIC”) Legal
employee failed to follow the employer’s written safety              Department and an attorney in its Coverage
procedures when he fell from atop a railcar while                    Unit. His practice focuses on a variety of
unloading it.                                                        insurance coverage issues, including
                                                                     construction defect, employers liability, landlord-
The court considered evidence that the employer failed to            tenant law, personal injury, and commercial
                                                                     litigation. Before coming full time to CIC in
provide fall protection to the employee, failed to
                                                                     September of 2007, Mike represented over 35
adequately train and supervise him, failed to provide him
                                                                     different insurance companies and their
with fall protection, and exposed the employee to a
                                                                     insureds as outside counsel in a variety of
substantial risk of injury by requiring him to work on top of
                                                                     coverage, commercial, bad faith, products
the railcar. The court found that, “Those alleged failures
                                                                     liability and other varied tort contexts.
do not rise to the level of intent or deliberate intent to
cause an injury required by R.C. 2745.01.” The court
                                                                     Mike is a graduate of Mercy College (magna
pointed out that none of the parties ever claimed that the           cum laude), where he served as editor-in-chief
employer “deliberately intended to harm” the plaintiff and           of the Mercy literary magazine, and the
therefore, “The record before us compels the conclusion              University of Cincinnati College of Law, where he
under R.C. 2745.01 that there is no genuine issue of                 was editor-in-chief of the Cincinnati Law Review.
material fact and that Kinder Morgan was entitled to                 He published two law review articles as a
judgment as a matter of law.” The case is also interesting           student at the University of Cincinnati.
from a procedural perspective regarding the jury
interrogatories and how it got into the appellate court in           Mike is admitted to practice law in Ohio and
the first place, so is worth reading for that reason as well.        Kentucky state courts as well as in all local
                                                                     federal courts, including the Sixth Circuit and
*[Special thanks to Christopher C. Kloeker, University of            the United States Supreme Court. He is a
Cincinnati, J.D. candidate, 2012, for assistance with title          current or former member of the Ohio State,
headings and citations.]                                             Cincinnati, and Dayton bar associations (he has
                                                                     served as Chair of the Appellate Practice
                                                                     Committees in both Hamilton and Montgomery
                                                                     Counties), the Northern Kentucky Bar
                                                                     Association, the Ohio Association of Civil Trial
                                                                     Attorneys and the Defense Research Institute.

                                                                     He has been active in the Hamilton County
                                                                     Mediation and Arbitration Programs as well as
                                                                     the Volunteer Lawyers Project and the Carl D.
                                                                     Kessler Inn of Court Program, an organization of
                                                                     trial counsel and judges. He has served as
                                                                     mentor and judge for the Thomas More College
                                                                     Mock Trial Program and the University of
                                                                     Cincinnati College of Law Moot Court
                                                                     Competition and regularly presents ethics
                                                                     seminars to Thomas More pre-law students. He
                                                                     is a member of Who’s Who Among Students in
                                                                     American Universities and Colleges, Who’s Who
                                                                     in American Law, and Who’s Who in America.

   Bad Faith Damages in Ohio – Where Do We Stand?
                                                       Gregory E. O’Brien
                                              Cavitch, Familio & Durkin Co., LPA

                        Most Ohio coverage lawyers, whether           defense counsel should bear in mind that as recently as
                        they represent policyholders or               last year in Allstate Ins. Co. v. Campbell,4 the Ohio
                        insurers, are familiar enough with the        Supreme Court affirmed that “an insurance company’s
                        legal standard for proving bad faith          bad-faith refusal to settle a claim does not necessarily
                        that they can come reasonably close           result in compensable damages,” he or she nonetheless
                        to reciting from memory the syllabus          needs to realistically evaluate the client’s exposure, even if
                        holding in the Ohio Supreme Court’s           it initially appears unlikely that there was any actionable
                        landmark decision in Zoppo v.                 conduct in a given case. So, when do damages result from
                        Homestead Ins. Co.1 (“An insurer              an insurer’s bad faith, and what are those damages likely
fails to exercise good faith in the processing of a claim of          to be?
its insured where its refusal to pay the claim is not
predicated upon circumstances that furnish reasonable                                  Compensatory Damages:
justification therefor”). That holding is quoted in virtually                            Bad Faith v. Contract
every Ohio Supreme, intermediate appellate, and trial
court opinion involving insurance bad faith decided in this           Compensatory damages for bad faith must be distinct from
state in the last seventeen years. And while whether any              compensatory damages for breach of contract. A bad faith
insurer’s given response to a particular set of facts meets           claim, if proven, allows for recovery of “extracontractual”
or falls short of the “reasonable justification” standard is          damages. These are damages “over and above those
subject to debate, the standard itself is now widely                  covered by the insurance contract sustained by the
recognized as being within the national mainstream and                insured as a consequence of the insurer’s bad faith.”5 In
fairly universally accepted.                                          Shimola v. Nationwide Ins. Co.,6 the Ohio Supreme Court
                                                                      recognized that it had “always held that an insured
Of course, the first aim of any lawyer tasked with                    seeking to recover for his or her insurer’s bad faith in
defending an insurance company in a bad faith lawsuit is              handling a claim was obligated to show actual damages
to defeat the claim on the issue of liability, either by              attributable solely to the alleged tortious conduct, distinct
demonstrating that no duty of good faith was owed, or that            from breach of contract damages, in order to recover.” An
if the duty was owed, it wasn’t breached. But what if that            insured’s failure to offer proof of compensatory damages
first line of defense is itself breached? What landmark               proximately resulting from the insurer’s alleged bad faith
opinions or legal standards guide the defense lawyer when             claims handling is grounds for summary judgment on that
the case turns on damages instead of liability? Opposing              claim.7
counsel will likely point to examples like Leber v. Smith2
(upholding a $13 million compensatory damage verdict for                                       Specificity
bad faith in refusing to defend and indemnify county
employees in a personal injury lawsuit); and, Dardinger v.            Moreover, a compensatory damage claim must be proven
Anthem Blue Cross & Blue Shield3(upholding $30 million                with specificity. A general allegation of loss is not sufficient
punitive damage award in a bad faith claim arising out of a           to survive summary judgment. In Asmaro v. Jefferson Ins.
failure to pay hospitalization benefits).                             Co. of New York,8 the Court affirmed in part and reversed
                                                                      in part a jury verdict for the Plaintiffs in a suit alleging bad
But in reality, Ohio’s jurisprudence on damages for an                faith failure to investigate a fire loss of a commercial
alleged breach of an insurer’s duty of good faith is not              building. The Court held that the Plaintiffs had proven that
nearly as well developed as it is on liability. And many              they were entitled to extra contractual damages by
plaintiffs’ lawyers (and some trial court judges) harbor              testifying generally to the loss of their business resulting
unrealistic expectations as to the compensatory damages               from the fire damage to the building. But because they
that may be recovered in an insurance bad faith case, not             offered no evidence quantifying those extra contractual
to mention punitive damages and attorney’s fees. While                damages, the Court was compelled to reverse the verdict.

Fall 2011 OACTA Quarterly Review                                 12
                 Pleading Requirement                                Jefferson Ins. Co. of New York,13 the insurer denied—on
                                                                     suspicion of arson—the plaintiffs’ fire claim for the loss of
And an insured’s failure to plead compensatory damages               the commercial building from which they operated a
may be just as fatal to a bad faith claim as the failure to          business. The insureds presented evidence that due to the
prove them. In Simpson v. Permanent General Ins. Co.,9               insurer’s wrongful refusal to pay, they did not have the
the court reversed summary judgment for the insurance                money to make repairs to the building themselves. As a
company, but one of the judges on the panel suggested in             result, the building was vandalized, became a health
a concurring opinion that the trial court could have                 hazard, and was ordered destroyed by the Board of Health.
entered summary judgment for the insurance company on                Thus, appellees lost their entire building, their business
the bad faith claim solely because the complaint expressly           and its entire inventory. While the damage to the building
classified all damages sought as punitive, noting that, “bad         and the loss of the inventory were covered by the
faith cannot survive without proof of compensatory                   insurance policy, the loss of the business itself and the
damages.”10                                                          loss of the building, over and above the fire damage, were
                                                                     potentially compensable as damages resulting from the
                        Credibility                                  insurer’s bad faith.

Even when bad faith damages are pled and proven, the                 Likewise, in Hart v. Republic Mut. Ins. Co.,14 the Ohio
insured, as the party with the burden of proof, must                 Supreme Court recognized that the insured is entitle to
persuade the trier of fact that his or her claim is credible.        recover as compensatory damages the amount of an
In Carr v. Charter National Life Ins. Co.,11 the Supreme             adverse judgment entered against him in excess of his
Court reversed default judgment for the insured on a bad             policy’s liability limits when his insurer is presented with
faith claim premised on the insurer’s failure to pay benefits        the opportunity but, in bad faith, fails to settle the claim
on a credit life policy covering a mobile home. In that case,        against its insured within the policy limits. And in Ohio Nat’l
the plaintiffs offered evidence that they had been                   Life Assur. Corp. v. Satterfield,15 the plaintiff was refused
subjected to a $9,000 deficiency judgment following the              life insurance benefits on a policy taken out on the life of
repossession and sale of the mobile home. They also                  her husband. She testified that the letters received from
claimed emotional upset, but offered no medical evidence.            her insurer denying the claim caused her to suffer,
Similarly, they claimed to have incurred various alternative         “confusion, distress, anger, sadness, and fright.”16
living expenses due to the repossession of the mobile
home, but again, offered no supporting documentation.                In his dissenting opinion in Motorists Mut. Ins. Co. v.
Their claim to have suffered a diminished credit rating was          Said,17 a bad faith claim arising out of the denial of an
likewise unsupported. “The Ohio Supreme Court                        uninsured motorists claim, Justice Douglas suggested that
concluded that, “given the total lack of competent,                  bad faith damages could include “home foreclosure, no
credible evidence to support such a large amount of                  money for son’s college tuition, no medical or fire
compensatory damages,” the judgment in the amount of                 insurance and so forth.”18
$200,000 was insufficiently supported by the evidence
and reversed it.12                                                                        Expert Testimony

           Kinds of Compensatory Damages                             Expert testimony may or may not be required to support a
                                                                     claim for compensatory damages resulting from an
If damages for bad faith must be distinct from damages               insurer’s bad faith. It depends on the damages the Plaintiff
claimed under the policy, what kinds of injuries or losses           seeks. In Shimola v. Nationwide Ins. Co.,19 the Ohio
are compensable as a result of an insurer’s bad faith? As            Supreme Court affirmed the appellate court’s reversal of a
one might expect, the scope of possible claims is limited            punitive damages award for the insured on a claim for bad
only by the ingenuity of the insured’s counsel. The                  faith failure to settle. While the lack of an expert wasn’t
following cases demonstrate just a few of the claims that            specifically cited as the reason for reversing the
insurers will typically encounter. For example, in Asmaro v.                                                              CONTINUED

intermediate appellate court, the Supreme Court noted                damages may not be awarded in the absence of proof of
that the “Plaintiff’s own self-serving testimony that he             actual, or compensatory, damages.27
incurred attorneys’ fees, deposition costs, interest on
unpaid debt, loss profits and loss of credit stemming from           Proof necessary to sustain an award of punitive damages
the loss of his business were not substantiated and                  is different from and in addition to proof necessary to
insufficient as a matter of law.”20                                  establish a breach of the duty of good faith.28 In order to
                                                                     recover punitive damages, a plaintiff must prove that: (1)
On the other hand, in a case alleging that the decedent’s            the defendant acted with either malice or aggravated or
father suffered from “nervousness, and required heart                egregious fraud; and, (2) he or she is entitled to an award
medication as a result of harassment from bill collectors”           of compensatory damages.29 And, the “actual malice”
following his insurer’s alleged bad faith failure to pay med         necessary to sustain an award of punitive damages never
pay benefits for hospital bills incurred when his adult son          flows automatically from “bad faith”30 Moreover,
was killed in auto accident, the Court concluded that                regardless of the breaching party’s motives, absent actual
expert testimony was not necessary to establish damages              malice, punitive damages are never proper in a breach of
resulting from the insurer’s bad faith “[w]hen it is a matter        contract claim.31
of common knowledge that a certain act may produce
injury.”21 But compare that case with Carr v. Charter                           Attorneys’ Fees – American Rule
National Life Ins. Co.,22 in which the Supreme Court
reversed a default judgment for the insured, citing the              The issue of whether to award attorneys’ fees is one of the
absence of any medical evidence offered to support the               more confusing areas of potential damages in an
plaintiff’s claimed “emotional upset” resulting from the             insurance bad faith claim. Many opposing counsel, and
repossession of their mobile home following the insurer’s            some judges, assume that the insured’s attorneys’ fees
refusal to pay a claim under a credit life policy.                   are recoverable as damages suffered as a result of the
                                                                     insurer’s bad faith. That is only true in limited
Even where the plaintiff’s bad faith claim is supported by           circumstances.
expert testimony, it does not necessarily assure a
favorable verdict, or even survival of summary judgment.              Ohio follows the “American Rule,” generally refusing to
For example in Captain v. United Ohio Ins. Co.,23 the Court          allow a prevailing party to recover attorneys’ fees “absent
affirmed summary judgment for the insurer,                           a statute providing for such an award.”32 However, an
acknowledging that the trial court had disregarded the               exception to the rule can arise if a party, particularly an
affidavits submitted by the plaintiff’s expert witnesses. The        insurance company, has acted in bad faith.33 The
Court held that even though both experts had opined that             underlying rationale is that such fees are “an economic
the insurer had acted in bad faith, they failed to set forth         loss-—damages—-which flow from and are proximately
specific facts to support their conclusions, noting that one         caused by the insurer’s bad faith. Consequently, an
expert’s testimony actually “enhanced the reasonableness             insured bringing a bad faith action may recover attorney
of the company’s actions,” while the other’s amounted to             fees as compensatory damages even if said insured has
nothing more than “conclusory allegations.”24                        not demonstrated the existence of actual [or punitive]
                                                                     damages separate and distinct from attorney’s fees.”34
                    Punitive Damages
                                                                        Prerequisite to Fee Award – Punitive Damages
Ohio law has clearly established that an insurer can be
liable for punitive, as well as for compensatory damages, if         In Zoppo v. Homestead Ins. Co.,35 the Ohio Supreme Court
bad faith is proven.25 Punitive damages are awarded as               held that, “an insurer who acts in bad faith is liable for
punishment for causing compensable harm and as a                     those compensatory damages flowing from the bad faith
deterrent against similar action in the future. No civil             conduct of the insurer and caused by the insurer’s breach
cause of action in Ohio may be maintained simply for                 of contract. However, an insured is not automatically
punitive damages.26 Accordingly, exemplary or punitive               entitled to interest or attorney fees. * * * Attorney fees

Fall 2011 OACTA Quarterly Review                                14
may be awarded [in a bad faith action] as an element of              defending the underlying suit with its own counsel, as well
compensatory damages where the jury finds that punitive              as the attorneys’ fees expended in prosecuting the bad
damages are warranted.”36                                            faith claim.

          Resolving Contradictory Standards                          On appeal, the Lucas County Court of Appeals affirmed in
                                                                     part and reversed in part. The Court recognized that the
These seemingly contradictory standards can be                       fees incurred in defense of the original lawsuit were
reconciled. For example, in TOL Aviation, Inc., v. Intercargo        compensatory damages incurred as a result of the
Ins. Co.,37 the plaintiff in a related suit suffered property        insurer’s failure to promptly settle a covered claim and
damage when TOL Aviation negligently damaged his                     affirmed this aspect of the judgment below. The 6th District
privately owned aircraft while performing routine                    reversed the award of attorneys’ fees that related to the
maintenance on it. TOL initially attempted to cover up the           prosecution of the bad faith claim itself because the trial
damage but later revealed it to the owner and turned the             court had made no punitive damages award.
claim in to its insurer, Intercargo. When the plane owner
sued, the insurer provided a defense under a reservation             Essentially, an attorneys’ fee award in a bad faith case will
of rights, and the insured retained its own counsel to               be upheld where it represents an expense or loss that the
defend it against the claims that Intercargo had identified          insured has actually incurred due to the insurer’s failure to
as not being covered. Intercargo eventually agreed that its          pay or properly handle a claim, but not where it is a cost of
insured was responsible—and that it owed coverage—for                enforcing a claim. The former was the situation in
certain of the plane owner’s claims against TOL, but                 Nationwide Ins. Co. v. Harvey.38 In that case, Harvey was
nonetheless refused to pay them. When it did finally settle          convicted of manslaughter and found liable in a civil suit
all of those claims, the insured sued for bad faith. That            for wrongful death. Nationwide defended Harvey in the
case went to trial and the insured prevailed on the issue of         wrongful death case under a reservation of rights and filed
bad faith. As damages, the trial court awarded (among                a declaratory judgment action to determine whether it had
other damages) the attorneys’ fees that TOL incurred in                                                                  CONTINUED

                                         James D. Sillery, Attorney at Law

      • Over 30 years civil litigation experience representing plaintiffs and defendants
      • Experience with motor vehicle, construction, farm and contract cases
      • Ample facilities at my office for cases in South Central and Southeast, Ohio
      • Will travel anywhere in state

                                                   35 North College Street
                                                     Athens, Ohio 45701
                                                     740-594-8557 (fax)

an obligation to pay the judgment. While the declaratory                            Attorneys’ Fees Calculation
action was pending, Nationwide settled the wrongful death
case. Harvey eventually prevailed on his counterclaim to             Under the common law, attorneys’ fees were considered
the declaratory judgment action in which he sought the               costs.45 And when a statute authorizes the awarding of
attorneys’ fees expended in defending himself in that case.          attorneys’ fees, it does so by allowing the fees to be taxed
The Court of Appeals held, “An insurer is not liable for the         as costs rather than awarded as damages.46 So, when
insured’s attorneys’ fees in a declaratory judgment action           attorneys’ fees are proper, the decision to award them,
unless it is shown that the insurer acted in bad faith.              and the amount of any such award, is within the sound
Nationwide acted unjustifiably and disadvantaged its                 discretion of the trial court.47 On appeal, no abuse of
insured by burdening her with the expense of a defense in            discretion will be found if the appellate court is “able to
a needless lawsuit. Nationwide was already participating in          determine the rationale underlying the award of fees, and
the defense of the insured and voluntarily settled the               the record supports the same.”48
original action.”39
                                                                     However, when attorneys’ fees are awarded as damages,
As a side note, to the extent that the award of fees in              then the availability and amount of such fees have to be
Harvey arose out of a declaratory judgment action,                   determined by the jury.49 In calculating attorneys’ fees
whether it remains good law is in doubt. In Motorists Mut.           awards, the court requires that a number of factors be
Ins. Co. v. Brandenburg,40 the Ohio Supreme Court held               considered, including, among other things, the time and
that the prevailing party in a declaratory judgment action           labor involved in maintaining the litigation, the novelty and
could recover its attorneys’ fees as statutorily permitted           difficulty of the questions presented, the professional skill
costs. In response, the Ohio Legislature amended R.C. §              required to perform the necessary legal services, the
2721.09 to negate that holding. At least one court has               reputation of the attorney, and the results obtained.50
since held that, in light of that statutory amendment,
attorneys’ fees incurred in a declaratory judgment action                              Prejudgment Interest
are not recoverable, even if the action was brought in a
bad faith case to enforce the insurer’s duty to defend.41 On         While the standard for proving the tort of insurance bad
the other hand, the First District Court of Appeals has held         faith and the statutory remedy of prejudgment interest for
that such fee awards are not legislatively eliminated.42             failure to settle a tort claim both involve a “good faith”
                                                                     element, they are not the same thing. And because the
Medvedkov v. Doe43 illustrates Ohio’s general rejection of           breach of the insurer’s duty to exercise good faith is a tort
the notion that attorneys’ fees incurred in pursuing a               claim, the potential for an award of prejudgment interest,
claim, whether for coverage or bad faith, are recoverable            in addition to damages, is always present in such a case.
absent a punitive damages award. In that case, the Court             But the proof required to prevail on each is different.
denied the insured’s claim for attorneys’ fees as damages
for bad faith in failing to investigate his UM/UIM claim. The        In Shock v Motorist Ins. Co.,51 Plaintiffs’ home was
trial court first dismissed Plaintiff’s UM claim because he          damaged by heat when a neighboring structure caught fire.
could offer no “independent corroborative evidence” that             Plaintiffs and their insurer could not agree on the value of
he was injured due to the negligence of a “phantom                   the loss. A jury found that the insurer had acted in bad
vehicle.” Plaintiff then alleged bad faith, arguing that, had        faith in undervaluing the claim and awarded
the insurer properly investigated the accident, he wouldn’t          compensatory—but no punitive—damages. The trial court
have been forced to retain counsel in order to attempt to            then denied the ensuing motion for prejudgment interest
recover UM benefits. He reasoned that due to this alleged            and the plaintiffs appealed.
bad faith in handling his claim, that he was entitled to his
attorneys’ fees as damages. The Court rejected that claim,           The Court of Appeals affirmed, noting that, “bad faith in
affirming that “compensatory damages must be shown                   settling a claim is different from and can coexist with bad
before either attorneys’ fees or punitive damages may be             faith in settling a lawsuit.”52 Even though the plaintiffs
awarded in a tort action. Without a finding of malice and            proved Motorists’ bad faith in adjusting their property loss,
an award of punitive damages, an award of attorney fees              they failed to carry their burden of proof in demonstrating
is not justified.”44                                                 that Motorists did not make a good faith effort to settle the

Fall 2011 OACTA Quarterly Review                                16
                                                                                       (1995), 72 Ohio St. 3d 157.
                                                                                       See, Cincinnati Ins. Co. v. Colelli & Assoc., Inc. (Sept. 8, 2004),
The defense of a bad faith case against an insurance                                   Wayne App. No. 04CA0008 (9th Dist.).
                                                                                       See, Westfield Cos. v. O.K.L. Can Line (Dec. 30, 2003), Hamilton
company usually focuses first, if not exclusively, on liability.                       App. No. C-030151, C-030197, C-030298.
But not every case can be won on liability, and even when                         43
                                                                                       (Dec. 28, 2000), Franklin App. No. 00 AP-358 (10th Dist.).
a defense on liability is anticipated, prudence dictates that                     45
                                                                                       State ex rel. Beacon Journal Publishing Co. v. Ohio Dept. of
a defense on damages be prepared as a fallback.                                        Health (1990), 51 Ohio St. 3d 1, 3.
                                                                                       Beacon Journal, supra, 51 Ohio St. 3d at 3; Sorin v. Warrensville
Familiarity with Ohio’s jurisprudence dealing with damages                             Hts. School Dist. Bd. of Edn. (1976), 46 Ohio St. 2d 177, 179.
that can be recovered for an insurer’s alleged bad faith                          47
                                                                                       DiNunzio v. DiNunzio, 2006 Ohio 3888, at P 70 (11th Dist.).
                                                                                       Rendina v. Rendina, 2005 Ohio 4772, at P 70 (11th Dist.).
denial of a claim is the first step in preparing for that                         49
                                                                                       Christe v. Gms Mgmt. Co. (2000), 88 Ohio St. 3d 376.
contingency.                                                                      50
                                                                                       (Nov. 15, 2004), 2004-Ohio-6049 (3d Dist.).

     (1994), 71 Ohio St.3d 552, 1994 Ohio 461.
     (1994), 70 Ohio St.3d 548, 1994 Ohio 361.                                             Gregory E. O’Brien is a partner in the
     (2002), 98 Ohio St. 3d 77.
     (2010), 128 Ohio St. 3d 186.                                                          Cleveland, Ohio law firm of Cavitch, Familo &
     LeForge v. Nationwide Mut. Fire Ins. Co. (1992), 82 Ohio App.3d                       Durkin Co., LPA, where he is a member of the
     (1986), 25 Ohio St.3d 84.                                                             firm’s Insurance Law and Commercial Litigation
     Medvedkov v. Doe 2000 Ohio App. LEXIS 6131 (Franklin App.).                           Practice Groups. His practice includes trial and
     (March 31, 1989), 62 Ohio App.3d 110 (6th Dist.).
     (March 13, 2003), Cuy. App. No: 81216 (8th Dist.).
                                                                                           appellate work before both the state and federal
     Id.                                                                                   courts in the areas of insurance coverage and
     (1986), 22 Ohio St.3d 11.
                                                                                           bad faith, business litigation, and legal
     (March 31, 1989), 62 Ohio App.3d 110 (6th Dist.).                                     malpractice, as well as real property law. Greg
     (1949), 152 Ohio St. 185.
                                                                                           earned a BA in business administration from
     2011 Ohio 2116 (Summit App.).
     Id.                                                                                   Walsh College in 1983 and his JD from The Ohio
     (1992), 63 Ohio St. 3d 690, 703.                                                      State University College of Law in 1986. He is
     (1986), 25 Ohio St.3d 84.                                                             admitted in Ohio as well as in the Northern
     Id.                                                                                   District of Ohio and the Sixth Circuit Court of
     Eastham v. Nationwide Mut. Ins. Co. (1990), 66 Ohio App.3d 843,
     848.                                                                                  Appeals. Greg is a past president of OACTA, and
     (1986), 22 Ohio St.3d 11.                                                             previously served as the chair of its Amicus
     2010 Ohio 2691 (Highland App.).
     Id.                                                                                   Curiae Committee and as the editor of the
     See, e.g., Zoppo v. Homestead Ins. Co. (1994), 71 Ohio St.3d                          OACTA Quarterly. He continues to advise
     552, 557, 1994 Ohio 461.
     Niskanen v. Giant Eagle, Inc. (2009), 122 Ohio St. 3d 486.                            OACTA’s board as Ohio’s representative to the
     Id., see also, Bishop v. Grdina. (1985), 20 Ohio St. 3d 26, 27,                       DRI. Greg currently chairs the Ohio State Bar
     upholding paragraph one of the syllabus in Richard v. Hunter
     (1949), 151 Ohio St. 185.                                                             Association’s Appellate Law Specialty
     Hoskins v. Aetna Life Co. (1983).6 Ohio St.3d 272.                                    Certification Board and is a founding member of
     Niskanen, supra, citing R.C. 2315.21(C).
     DeHoff v. Veterinary Hospital Operations of Central Ohio, Inc.                        the Cleveland Metro Bar Association’s Insurance
     (June 26, 2003), Franklin App. No. 02AP-454 (10th District).                          Law Section, as well as a past chair of its
     Id., see also, Hoskins, supra.
     Brown v. Guarantee Title & Trust/ARTA, (Aug. 28, 1996), 5th
                                                                                           Appellate Courts Committee. He is a five time
     Dist. No. 94-41, 1996 Ohio App. LEXIS 3812, citing Sorin v. Bd.                       Ohio Super Lawyer, and is a frequent author and
     of Ed. (1976), 46 Ohio St.2d 177, 347 N.E.2d 527.
     Brown, supra. See, also, Vance v. Roedersheimer,33 (“It has long
                                                                                           lecturer on topics related to his areas of
     been established in Ohio that an award of attorney fees must be                       practice. Greg is a past president of the St.
     predicated on statutory authorization or upon a finding of conduct                    Ignatius High School Father’s Club and coaches
     which amounts to bad faith”).
     Brown, supra.                                                                         and volunteers in a variety of youth sports and
     71 Ohio St.3d 552, 1994 Ohio 461, 644 N.E.2d 397.                                     other civic activities in his home community of
     Id., citing Columbus Finance, Inc. v. Howard (1975), 42 Ohio St.2d
     178, 183. See, also, Shock v. Motorists Ins. Co., (A plaintiff is not                 Rocky River, Ohio. He can be reached at 216-
     entitled to attorney fees absent a finding of bad faith and an award                  621-7860 or at
     of punitive damages).
     2006 Ohio 6061, 2006 Ohio App. LEXIS 6008.
     (Dec. 13, 1976), 50 Ohio App.2d 361 (1st Dist).

              It Didn’t Have to Happen That Way:
          Analysis and Application of the Intentional Act
         Inferred Intent Doctrine in Allstate v. Campbell
                                                        Gary L. Grubler
                                          Grange Insurance House Counsel – Columbus

                       In the case of Allstate, et al. v.              The intentional act exclusions in the Erie Insurance and
                       Campbell, et al. Ohio’s Supreme                 Grange Insurance policies excluded damage “expected or
                       Court waded into the waters of the              intended” by an insured. The Allstate policy excluded
                       intentional act exclusion for coverage          damage “intended by, or which may reasonably be
                       under several homeowners’ policies,             expected to result from the intentional or criminal acts or
                       issuing a decision that seeks to                omissions of, any insured person.” The American Southern
                       provide some guidance with respect
                                                                       coverage did not apply to damage which resulted “directly
                       to the nature of the acts and
                                                                       or indirectly from . . . an intentional act of any ‘insured’ or
                       resulting damages excluded by the
                                                                       an act done at the direction of any insured.” The Franklin
policies.1 The Court’s December 2010 Decision will likely
                                                                       County Common Pleas Court granted the insurance
have the effect of limiting those situations where an
                                                                       companies’ motions for summary judgment, finding that
insurer’s duty to defend and indemnify is excluded as a
matter of law when the insured denies an intent to or                  while the boys may not have directly intended to cause
expectation of harm.                                                   harm, their intent was inferred as a matter of law, based in
                                                                       part on the finding that their conduct was substantially
                           Facts:                                      certain to result in harm. The Tenth District Court of
                                                                       Appeals reversed the Trial Court, holding that genuine
On November 18, 2005, several teenage boys in Hardin                   issues of material fact existed over whether the boys
County stole a fake or decoy deer and took it to one the               intended to cause harm when they placed the deer target
boys’ homes to build a stand to stabilize it so it would               in the road and whether harm was substantially certain to
stand on a road as planned. After writing several                      result from their actions.2
obscenities and other phrases such as “hit me” on it, they
put it in a vehicle and after nightfall drove until they placed        The Supreme Court of Ohio accepted the insurers’
it just over the crest of a hill in the center of the eastbound        proposition of law which read that the doctrine of inferred
lane on County Road 144 in Hardin County, Ohio. The boys
                                                                       intent as applied to an intentional act exclusion in an
remained in the vicinity and after watching several drivers’
                                                                       insurance policy is not limited to cases of sexual
reactions, noticed a vehicle operated by Robert Roby and
                                                                       molestation or homicide but may be applied where
occupied by Dustin Zachariah approaching their handiwork
                                                                       undisputed facts establish that harm was substantially
in the road. Roby and Zachariah filed suits in the Franklin
                                                                       certain to occur as a result of the insured’s conduct. The
County Common Pleas Court against the boys alleging that
the placement of the decoy deer caused Roby to swerve to               Court also accepted Grange and Allstate’s proposition of
avoid the decoy, thereby resulting in injury to both. Of               law stating that their policies’ exclusionary language
course, all of the boys testified that they did not intend or          denotes an objective as opposed to a subjective standard
expect any harm. Erie Insurance Exchange, Grange Mutual                of coverage, rendering an insured’s subjective intent
Casualty Company, Allstate Insurance Company and                       irrelevant. However, in a five to two Decision the Court
American Southern Insurance Company, the insurers for                  ultimately agreed with the Court of Appeals result, holding
several of the boys, filed declaratory judgment actions                that while the doctrine of inferred intent is not limited to
asserting that the carriers had no duty to defend or                   cases of sexual molestation or homicide, it applies only in
indemnify the boys in essence because the boys’ acts were              cases in which “the insured’s intentional act and the harm
not an “occurrence” under the policies and were excluded               caused are intrinsically tied so that the act has necessarily
as intentional acts. The suits of those four carriers were             resulted in the harm.”3

Fall 2011 OACTA Quarterly Review                                  18
              How Did the Court Get There?                             test should be used to determine whether to infer intent as
                                                                       a matter of law and the Court in Gearing didn’t ask if the
The Court in Campbell discussed the evolution of decisions             insured’s action was substantially certain to result in
regarding the intentional act exclusion in arriving at its             harm.10 Rather, the Court in Gearing concluded that
decision. In 1991 the Supreme Court first began to note                “intent to harm inconsistent with an insurable incident is
that the emphasis was not just on the act but also the                 properly inferred as a matter of law from deliberate acts of
result. The Court held, “In order to avoid coverage on the             sexual molestation of a minor.”11 While it appeared to
basis of an exclusion for expected or intentional injuries,            counsel for the insurers in Campbell, based upon language
the insurer must demonstrate that the injury itself was                in the Court’s prior decisions, that the “substantial
expected or intended.”4 It added that the injury which                 certainty” application was what got the Court to its prior
ensues from an intended act is still an “accident” under               results, the Court felt the insurers were seeking adoption
the policy “if the insured does not specifically intend to             of Justice Cook’s concurring opinion in Gearing rather than
cause the resulting harm or is not substantially certain that          application of the facts in Campbell to an existing
such harm will occur.”5 Thus, the substantial certainty                standard. When asked in oral argument if the Appellants
“standard” was born. In 1996 the Court further elaborated              sought adoption of Justice Cook’s opinion, the response
on the coverage exclusion for injury or damage “expected               was in the affirmative because it was believed that opinion
or intended by the insured” where coverage was sought for              was an accurate statement of the already existing
damages resulting from a sexual molestation.6 The Court                standard. The Campbell Court disagreed, finding that
found that when there is no evidence of direct intent to               while intent could be inferred in situations beyond sexual
cause harm and the insured denies the intent to cause any              molestation and murder, despite it being referenced in
harm, as you would expect in nearly all cases, the intent to           prior cases, “substantial certainty” was not the test. The
cause harm may be inferred as a matter of law, and “in                 Court announced a new test that “an insured’s intent to
those cases where an intentional act is substantially                  cause injury or damage may be inferred only when that
certain to cause injury, determination of an insured’s                 harm is intrinsically tied to the act of the insured – i.e., the
subjective intent, or lack of subjective intent, is not                action necessitates the harm.”12 Because they found this
conclusive of the issue of coverage.”7 The insurance world             new test to be a departure from “established case law on
was introduced to the “inferred intent” doctrine.                      the doctrine of inferred intent and [the Court’s] holding in
                                                                       Gearing,” Justices O’Donnell and Lundberg Stratton
In a 1999 plurality opinion in which the Ohio Supreme                  dissented.13
Court did not infer intent where damages were sought
when an insurance carrier refused to settle a claim, Justice                              What Does It Mean?
Pfeifer pointed out that in prior cases where intent was
inferred, “insureds were found to have committed wrongful              It would appear that if there are results other than damage
acts, acts that are intentionally injurious by definition,” but        or harm that could occur as a result of an intentional act,
Buckeye Union’s act of refusing to settle an insurance                 intent may not be inferred and coverage cannot be denied
claim was not such an intentionally injurious act, because             – at least from a summary judgment perspective. The
there are circumstances where insurers may properly                    Court noted that intent should be inferred “only in a narrow
refuse to settle claims.8 In a concurring opinion, Justice             range of cases – those in which the insured’s testimony on
Cook suggested that limiting “acts that are intentionally              harmful intent is irrelevant because the intentional act
injurious by definition” to murder and sexual molestation              could not have been done without causing harm.”14 Noted
does not clarify what other types of actions might reveal              as proper cases in which to infer intent were “certain
intent to be inferred but that the “substantial certainty”             felonious-assault or rape cases, where the intentional acts
test set forth in Gearing would.9                                      necessarily cause harm.”15 However, the Court’s
                                                                       statement that “courts should be careful to avoid applying
In Campbell, the Supreme Court recognized that given                   the doctrine in cases where the insured’s intentional act
references to “substantial certainty” as a test in                     will not necessarily result in the harm caused by that act”
determining if to infer intent as well as “acts that are               suggests that intent should not be inferred as a matter of
intentionally injurious by definition” as a gauge, there was           law where something other than harm could result from
a need for clarity. The Court stated that the decision in              the act.16 Noting that cars prior to the one occupied by the
Gearing nowhere states that the “substantially certain”

Appellees passed and avoided the target deer, the Court               Additionally, in the previously recited portions of the
explained under its new standard that it “cannot say as a             Campbell decision the Court used the terms “the injury”
matter of law that the act of placing a target deer in a road         and “the harm” as what was intended or reasonably
in the manner done here necessarily results in harm.”17               expected by the boys’ intentional acts. Use of these terms
Since other results could occur, summary judgment was                 suggests that the insurers would have to prove that the
not appropriate. It now seems that the standard, at least             actual harm or injury that resulted was what was intended
for summary judgment, has moved from “was harm                        or reasonably expected by the boys. Again, while it’s not
substantially certain” to “was harm certain to occur.” As             clear that the Court intended this to be the burden to the
such, the clarity sought by the Court has seemingly been              trier of fact, such an interpretation would make it virtually
achieved.                                                             impossible to preclude coverage. Intended or reasonably
                                                                      expected harm different from the harm that actually
However, as with any new standard set forth by the State’s            occurred should not change the application of intentional
highest Court, there are issues that will need to be                  act exclusions.23
addressed by litigants and Trial Courts. In the Campbell
decision, after determining that it could not infer intent to         A Proposition of Law not accepted in Campbell also leaves
cause injury as a matter of law, the Court seemingly stated           some questions unanswered. The intentional act coverage
inconsistent standards (objective vs. subjective) to be               cases usually revolve around the intentional act exclusion
applied by the Trial Court and trier of fact on remand. The           provision of the policy and the definition of an
Court wrote “because we do not infer the insureds’ intent             “occurrence” in policies. The insurers in Campbell asked
to harm as a matter of law and the boys deny that harm                the Court to accept the proposition that where the facts
was intended or expected, whether the injury was expected             demonstrate that an insured’s conduct was substantially
or reasonably expected is an issue to be determined by the            certain to cause harm, such conduct does not constitute
trier of fact.”18 However, the Court continues in the next            an “occurrence” where that term is defined as an
paragraph with “in a declaratory judgment action like this            “accident” in a homeowner’s insurance policy. The Court
the trier of fact on remand must weigh the facts in                   did not accept this proposition and made reference to it
evidence to determine whether the boys intended or                    only when noting that each Appellant carrier’s policy had
expected harm, and, consequently, whether the insurance               similar definitions of an “occurrence” and when describing
agreements provide coverage in this case.”19 Additionally,            the rulings in other cases it heard in the past. It appears
in a footnote the Court noted that “Allstate’s inclusion of           that any separate analysis of these two policy provisions
the word ‘reasonably’ does not alter our analysis here,               may now be morphed into one, but it could be argued that
because the issue of whether the harm was intended or                 the Campbell Court’s analysis and standard applies to the
could be reasonably expected to result from an intentional            expected and intended intentional act exclusion and not
act is a question of fact.”20 Finally, at the end of its              the portion of the contracts that define a covered
Decision the Court seemed to return to a subjective                   “occurrence.”
analysis stating that the “trier of fact must conduct a
factual inquiry on remand to determine whether the boys               The Campbell Court noted that although whether intent to
intended or expected the harm that resulted from their                harm should be inferred as a matter of law was the key
intentional acts.”                                                    issue to be determined in the case, “insurance coverage is
                                                                      finally determined by the policy language.”24 While Justice
It seems unlikely that the Court intended the trier of fact to        Cupp dissented in part and opined that the objective
apply a subjective test since the boys, as pointed out by             standard in the Allstate policy gave rise to posing the
the Court, already stated that they did not intend or expect          question of if the harm “could reasonably be expected”
harm. Further, as the Court pointed out in Gearing, a                 rather than “certain” as the majority standard called for,
purely subjective test would make it virtually impossible to          the Court’s majority opinion did not find the difference in
preclude coverage for intentional injuries absent an                  the policies’ language significant enough to cause a denial
unrealistic admission of intent to harm.22 At least the               of Allstate coverage as a matter of law.25
Court’s description of the Trial Court’s task on remand
indicates the “harm must be the only possible result”                 However, the Court found that the intentional act exclusion
standard applies only to the summary judgment analysis.               language in Appellant American Southern’s policy was
                                                                      different enough to uphold the Trial Court’s summary

Fall 2011 OACTA Quarterly Review                                 20
judgment finding that it owed no duty to defend or                     and how the Decision will affect policy language, but the
indemnify. American Southern’s policy stated that                      Supreme Court’s message is clear: Intent can be inferred
coverage did not apply to injury or damage “which results              as a matter of law in situations other than sexual
directly or indirectly from * * * an intentional act of any            molestation and homicide, but only in a “narrow range of
‘insured.’ “ While the Erie, Grange and Allstate policies              cases.”
excluded coverage for harm that is expected or intended,
the American Southern policy declares that it is not liable
for harm resulting from any intentional act done by an                 Endnotes
                                                                            128 Ohio St.3d 186, 942 N.E.2d 1090.
insured (emphasis added). The Court pointed out that                   2
                                                                            Allstate Ins. Co. v. Campbell, 2009 WL 3823362, 2009-Ohio-6055
while the other policies “contained exclusions for an                       (Ohio App. 10 Dist. Nov 17, 2009) (NO. 09AP-306, 09AP-307, 09AP-
                                                                            308, 09AP-309, 09AP-318, 09AP-319, 09AP-320, 09AP-321) ¶ 53.
intentional or expected injury, American Southern’s policy             3
                                                                            Allstate Ins. Co. v. Campbell, 128 Ohio St.3d at 196-197.
addresses an intentional act.”26 Since the boys’ acts were             4
                                                                            Physicians Ins. Co. of Ohio v. Swanson (1991), 58 Ohio St.3d 189,
                                                                            569 N.E.2d 906.
admittedly intentional and resulted in injury, the Court               5
                                                                            Id. at 193.
found that under the policy language American Southern                 6
                                                                            Gearing v. Nationwide Insurance, 76 Ohio St.3d 34, 665 N.E.2d
was under no duty to defend or indemnify its insured.27                7
                                                                            Id. at 39.
Thus, despite a line of cases that placed an emphasis on               8
                                                                            Buckeye Union Ins. Co. v. New England Ins. Co. (1999), 87 Ohio St.3d
harm being expected or intended, the Court found that a                     280, 284, 720 N.E.2d 495.
                                                                            Id. at 290-291.
policy that excludes coverage for harm caused by an                    10
                                                                            128 Ohio St.3d at 196.
intentional act, not expected or intended harm, operates to
                                                                            76 Ohio St.3d at 40.
                                                                            128 Ohio St.3d at 195.
preclude a duty to defend or indemnify as a matter of law.             13
                                                                            Id. at 203.
The Court allowed the policy language to dictate the
                                                                            Id. at 195.
coverage. Justice Pfeiffer, dissenting with the majority’s             16
decision to uphold American Southern’s summary                         17
                                                                            Id. at 197.
judgment, noted that “Most accidents are the result of                 19
intentional acts – it is the result that is unintended.”28 As a        20
                                                                            Id. at 198.
means of pointing out the possible broad implications of               22
                                                                            76 Ohio St. 3d at 37.
the majority’s decision with respect to American Southern,             23
                                                                            See Morner v. Guiliano (2006), 167 Ohio App. 3d 785 at 789.
                                                                            128 Ohio St.3d at 189.
he asks “If a homeowner intentionally leaves his rake in               25
                                                                            Id. at 204.
the yard with the intention of returning to his gardening              26
                                                                            Id. at 198.
after a short water break and a neighbor steps on the rake             28
                                                                            Id. at 199
and punctures his foot and breaks his nose, is there no                29
coverage?”29 Justice Pfeiffer writes that if the exclusion             31
                                                                            See J. Quinn Dorgin’s OACTA Winter Quarterly article “Getting In:
does not apply to instances where the insured intends to                    Appealing to the Ohio Supreme Court.”
cause harm rather than the act, “there would be no
coverage for any injury that resulted from any waking,
nonreflexive act of an insured.”30 The Court’s Decision
                                                                               Gary L. Grubler is the Supervising Attorney of
applicable to American Southern upholds its stated
                                                                               Grange Insurance’s Columbus House Counsel
tradition of allowing the unambiguous language of an
                                                                               office. He earned a BA in Business
insurance policy dictate the coverage.
                                                                               Administration and English from Wittenberg
                                                                               University in 1982 and his JD in 1985 from The
The Appellant insurers in Campbell were essentially asking
                                                                               Ohio State University College of Law, where he
the Supreme Court to apply the facts of the case to what
                                                                               served as a member of the Ohio State Law
was thought to be the existing standard and reinstate the
                                                                               Journal. He is admitted in Ohio as well as in the
Trial Court’s summary judgment finding. It appears that
                                                                               Southern District of Ohio. Gary is the current
something so fact specific where an Appellant asks for a
                                                                               president of OACTA, and previously served as
“correct” application of a presumed existing standard may
                                                                               the chair of its Trial Tactics Committee and chair
not be of great interest to the Supreme Court.31 Rather, the
                                                                               of its annual meeting. He is also a member of
Court rightfully seeks to set forth or clarify the applicable
                                                                               DRI and the Ohio State Bar Association.
standards for litigants and trial courts to apply. Time will
tell how Ohio’s trial courts will apply the Campbell standard

                     Two Wrongs Don’t Make A Right...
                      But One May Result In Coverage
                      For An Unnamed Business Entity
                                                          Brian Kerns
                                           Wiles, Boyle, Burkholder and Bringardner

                       What happens when the company               Service.” The parties agree that no such entity exists.
                       intended to be insured under an             However, for over eighteen months, State Auto collected
                       insurance policy does not end up            an annual premium of $30,000.00 for commercial general
                       being the one actually named in the         liability and $1,000.00 for business auto liability coverage
                       policy? The Sixth District Court of         for this policy. 2
                       Appeals recently answered that
                       question by judicially reforming the        On March 19, 2006, William (Bill) Mira caused an auto
                       policy to meet what it determined to        accident in Sandusky County, Ohio. In that accident,
be the real intentions of the parties. In Gooslin v B-             Heather Gooslin suffered serious injuries. At the time of
Affordable Tree Service et al, 2011-Ohio-4048 the court            the accident, Mira was driving his own personal pickup
applied the doctrine of reformation to find coverage for a         truck, which displayed advertisements for his business, B-
corporate entity that was not accurately named in the              Affordable, an Ohio corporation. In 2008, Gooslin filed suit
policy.1                                                           for personal injuries and damages against both Mira and
                                                                   B-Affordable. Shortly after suit was filed, State Auto
Insurance agents have varying levels of sophistication.            intervened in the suit and asked for a declaratory
They may have little or no legal training. Some are not            judgment that it was not obligated to defend, indemnify or
particularly attentive when it comes to differentiating            provide insurance coverage to Mira or B-Affordable under
between different types of business entities in the                the commercial policy.
application process. Occasionally when an agent secures
coverage for a commercial client, the agent is not legally         The parties filed cross-motions for summary judgment on
precise in naming the business entity in the policy. The           the declaratory judgment issues. The Court noted that the
Gooslin case is another recent example of the                      parties’ dispute centered on two issues: (1) whether the
ramifications and outcome of minor, but legally significant        commercial auto policy that improperly named “Mike
errors in the naming of intended insured entities. It may          Weber & Bill Mira DBA Affordable Tree Service” provided
also serve as a cautionary tale to examiners and attorneys         coverage to B-Affordable Tree Service, Inc. in the lawsuit;
confronted with what may at first blush appear to be an            and 2) if the policy did cover the incorporated entity,
obvious denial of coverage for an unnamed insured.                 whether Mira was acting in the course and scope of his
                                                                   employment at the time of the accident.
       Gooslin vs. B-Afforable Tree Service, Inc.
                                                                   As to the second question, the trial court had held a bench
In 2006, Mike Weber and Bill Mira were equal owners of             trial and decided Mira was in the course and scope of his
an Ohio corporate entity they formed as “B-Affordable Tree         employment at the time of the accident. The lower court
Service, Inc.” After forming the company, the two men              also reformed3 the contract to find coverage existed for the
went to their independent insurance agent to obtain                corporate entity B-Affordable Tree Service, Inc. even
liability coverage for the tree trimming business they were        though it was not properly named in the insurance
starting. The agent placed the coverage with State                 contract. State Auto appealed.
Automobile Insurance Company (“State Auto”). However,
instead of using the correct name of the corporation in the        State Auto argued on appeal that the insurance contract
policy, the agent listed the insured on the commercial             should not be reformed because there was no mutual
policies as “Mike Weber & Bill Mira DBA Affordable Tree            mistake between the parties to the contract. The insurer

Fall 2011 OACTA Quarterly Review                              22
argued there was no mistake as to who was the intended                  Reformation of the Insurance Contract to Find
insured. Mira and Gooslin argued that the clear intent of                    Coverage for an Unnamed Insured
the parties was for State Auto to insure the tree trimming
business owned by Weber and Mira, even though that                   Reformation is the modification of an instrument to
business was inaccurately identified in the policy. The              express the actual intent of the parties.10 Reformation is
putative insureds argued State Auto should be estopped               an equitable remedy whereby a court modifies the
from denying coverage simply because the form and name               instrument because it does not evince the actual intention
of the business wasn’t accurately listed on the policy.              of the original parties to the agreement.11 A mistake in
                                                                     reducing an agreement to writing is subject to reformation
The court of appeals determined the parties understood               if the resulting written contract fails to reflect the
and intended that State Auto was to insure the tree                  agreement of the parties.12 Courts have noted in these
trimming business as a corporation, regardless of the                cases, “The real question * * * is whether the contract of
misnomer in the policy. Writing through Judge Yarbrough,             insurance as written and issued embodies the actual
the court determined not only was the evidence in favor of           agreement of the parties to it.”13 Reformation of a
reformation clear and convincing, it was ‘undisputed.’4              contract based upon mutual mistake is proper when the
State Auto urged the Court to uphold its denial of                   parties made the same mistake and both understood the
coverage, ‘…despite its clear intention to insure the tree           contract as the party seeking reformation alleges.14
trimming business and its acceptance of 18 months’ worth
of premiums.” Gooslin, at para. 16. State Auto made                  When reformation of a contract is sought on the basis of
several arguments against reformation, including that it             mistake, the party seeking such reformation must
should not be considered a mutual mistake, when State                establish the existence of the mistake by clear and
Auto was never informed by the insured that the business             convincing evidence.15 If the evidentiary burdens are met,
name on its policy was a non-existent entity. Further, the           a court may reform the contract to make the writing reflect
insurance application itself defined the applicant as “Mike          the intended agreement of the parties. 16
Weber & Bill Mira DBA Affordable Tree Service.” State
argued that this was no mistake by the insurer, but was
                                                                     One common issue argued by the insurer against
rather only a unilateral mistake for which the remedy of
                                                                     reformation in these cases is the fact that the insured
reformation is unavailable. Perhaps the most troubling
                                                                     received the policy and acquiesced in the terms of the
language in the decision relates to the court’s rejection of
                                                                     policy. In other words, this knowledge of the policy terms
the insurer’s arguments—“Thus, even if there was a
                                                                     for some period of time negates the idea that a mutual
unilateral error on the part of Weber and Mira for filing an
                                                                     mistake occurred, and the burden of a unilateral mistake
application with the wrong business name, mutual mistake
                                                                     should fall upon the party who made the mistake (the
still exists, and reformation is appropriate.”5
                                                                     insured in this case). 17

The court also rejected State Auto’s claims that it had no
                                                                     There is authority for the proposition that an insured has a
notice of the mistake and that there was no demonstrated
                                                                     duty to read a policy, and that failure to do so, absent a
ambiguity in the policy. The court of appeals dismissed
                                                                     trick or device by the insurer preventing the insured from
these arguments out-of-hand, saying that neither notice
                                                                     reading the policy, precludes the insured from later
nor ambiguity were necessary elements for reformation.6
                                                                     seeking reformation.18 There is also legal authority in Ohio
The Court went on to analyze State Auto’s claimed error by
                                                                     which suggests an insurance contract will not be reformed
the trial court in denying it a jury trial on the issue of
                                                                     where the mistake is only unilateral.19 A unilateral mistake
whether Mira was in the scope of his employment at the
                                                                     exists when one party to the contract believes the contract
time of the accident. 7 Although Judge Yarbrough8 reformed
                                                                     correctly integrates the agreement, but the other party
the insurance contract and held as a matter of law that the
                                                                     knows (or should know) it does not.20
intended insured was the corporate entity known as “B-
Affordable Tree Service, Inc.,” the court also found that the
                                                                     However, some Ohio appellate courts have held that
trial court erred by denying a jury trial on the issues
relating to whether Mira was in the scope of his work when           reformation is a “…proper remedy where it is shown that
the accident happened.9

the unilateral mistake was made with the knowledge of, or              Endnotes
                                                                            The Opinion was released on August 12, 2011 the case has been
due to the negligence or inadvertence of, the insurance                     remanded to trial court for a determination of the factual issues
agent or insurer.”21                                                        relating to scope of employment.
                                                                            The tortfeasor, Bill Mira had a separate personal auto liability policy
                                                                            with State Auto that applied to the loss. The dispute in the case was
On the other extreme are cases holding that an insured’s                    simply over whether the commercial auto liability coverage for B-
                                                                            Affordable would also provide coverage for the loss.
failure to read a policy can never be grounds for precluding           3
                                                                            The remedy of reformation is available whenever an instrument fails,
reformation. Those courts reason that the insured has an                    “through fraud or mutual mistake, to express the real agreement or
                                                                            intention of the parties.” Greenfield v. Aetna Cas. & Sur. Co. (1944),
absolute right to rely on the insurer providing an                          75 Ohio App. 122, 128. Mutual mistake “requires that the contract
appropriate policy.22 As a result, as long as the insured                   provision in question be contrary to the understanding of all of the
                                                                            contracting parties.” Snedegar v.. Midwestern Indem. Co. (1988),
does not actually read the policy it may be successful in                   44 Ohio App.3d 64, 69. In Ohio, in order to grant reformation of an
obtaining reformation.23                                                    insurance policy on the grounds of mutual mistake, such mutual
                                                                            mistake must be established by clear and convincing evidence.
                                                                            Shear v. West Am. Ins. Co. (1984), 11 Ohio St.3d 162, 164.
As a general rule, it is often easier for a putative insured to        4
                                                                            “Thus, based on this undisputed evidence, we have a firm belief that
                                                                            the parties intended and understood that State Auto would provide
have the policy reformed in its favor than it is for an                     coverage to the tree trimming business owned by Weber and Mira.”
insurer to successfully reform the contract. After a claim                  Gooslin, Id. Page 3, Paragraph 13.
                                                                            A Pandora’s Box may open for insurers if other courts apply this same
has been filed, insurers will rarely be able to reform a                    reasoning— permitting reformation to grant coverage for unnamed
policy.24                                                                   corporate entities even when the contracting mistake is simply
                                                                            unilateral (for example, by the insured not listing the correct corporate
                                                                            entity in the policy application).
                                                                            The second assignment of error argued by State Auto is worth noting
                                                                            for procedural reasons. State Auto claimed it was error for the trial
                                                                            court to determine the issue of ‘scope of employment” in a bench trial.
As a general rule, an insurer has a right to rely upon the                  State Auto claimed it was entitled to a jury trial on the issue of
                                                                            whether Mira was in the scope of employment. The Court held that a
unambiguous terms of insurance contracts it issues. The                     jury trial should have been held on the question of whether Mira was
purpose of contract construction is to give effect to the                   within the scope of his employment at the time of the accident. The
                                                                            Court noted that had this simply been a declaratory judgment between
intention of the parties and such intent is presumed to                     State Auto and its insured, no jury would be available. However,
reside in the language they chose to employ in the                          because State Auto also cross-claimed against the injured plaintiff,
                                                                            this converted the narrow coverage declaratory issue into a “…broader
agreement.25 A court is not required to go beyond the plain                 purpose of determining liability in an action for recovery of money,
language of an agreement if the contract is clear and                       thereby entitling the parties to a jury trial on issues of fact…” Gooslin,
                                                                            para. 26
unambiguous.26                                                         7
                                                                            Right to Jury Trial: The Court in finding the scope of employment
                                                                            issue to warrant a trial by jury, stated: “In contrast, the fact that must
                                                                            be determined here—whether Mira was acting in the course and scope
However, in some instances, even where the actual legal                     of his employment—controls both whether State Auto is obligated to
entity sued is not named in the insurance policy, a court                   defend and provide coverage to B–Affordable, and whether B–
                                                                            Affordable is vicariously liable to Gooslin for negligence. It follows that
may chose to reform the insurance contract to provide                       by resolving that factual issue, the declaratory judgment action is for
                                                                            the purpose of determining liability in an action for the recovery of
coverage. When presented with a claim for coverage of a
                                                                            money, and thus State Auto is entitled to a jury trial.”
business entity that is not precisely named in the policy, it          8
                                                                            Hon. Mark Pietrykowski and Hon. Arlene Singer joined in the decision.
                                                                            “In conclusion, we hold that where an insurer brings a declaratory
may be necessary for a claims reviewer or insurance
                                                                            judgment action against the insured and the injured party, and the same
attorney to make a more in-depth inquiry into the parties’                  issue of fact is necessary to determine both coverage in the declaratory
                                                                            judgment action and liability for money damages in the underlying tort
intentions in the application process, than can be gleened
                                                                            action, that issue of fact “shall be tried by a jury, unless a jury trial is
from simply looking at the face of the policy.27 If the                     waived.” Accordingly, the trial court erred when it sua sponte vacated the
                                                                            jury trial, and State Auto’s second assignment of error is well-taken.”
insured claims it was erroneously omitted from the policy,                  Gooslin, para. 38. The matter is currently pending in the trial court for a
a reviewing court will ultimately look to the actual intent of              jury trial on the scope of employment issue.
                                                                            Gen Tire, Inc v Mehfeldt (1997), 118 Ohio App. 3d. 109, 115.
the parties and whether there was a mutual mistake as to               11
                                                                            Greenfield v Aetna Cas.& Sur. Co. (1944), 75 Ohio App. 122, 128.
the entity insured by the policy. Therefore, obtaining a               12
                                                                            Castle v. Daniels (1984), 16 Ohio App.3d 209, 16 OBR 224, 475
                                                                            N.E.2d 149; Guenther v. Downtown Mercury, Inc. (1958), 105 Ohio
detailed statement about these issues from both the                         App. 125, 5 O.O.2d 413, 151 N.E.2d 749; Greenfield v. Aetna Cas. &
insured’s principals and the insurance agent may save                       Sur. Co. (1944), 75 Ohio App. 122, 127-128, 30 O.O. 427, 429, 61
                                                                            N.E.2d 226, 229 (“equity will afford a remedy by way of reformation of
costly litigation later.                                                    a written instrument to make it conform to the real agreement or
                                                                            intention of the parties”).
                                                                            Castle v Daniels, supra.
                                                                            Snedegar v Midwestern Indemn. Co (1988), 44 Ohio App 3d 64, 69.

Fall 2011 OACTA Quarterly Review                                  24
     Shear v. W. Am. Ins. Co. (1984), 11 Ohio St.3d 162, 164, 11 OBR
     478, 479-480, 464 N.E.2d 545, 547; Humboldt Fire Ins. Co. v. R.K.
     LeBlond Machine Tool Co. (1917), 96 Ohio St. 442, 118 N.E. 121,
     syllabus; Snedegar v. Midwestern Indemn. Co. (1988), 44 Ohio App.3d
     64, 69-70, 541 N.E.2d 90, 96
     Castle v Daniels, Id.
     Reformation of Insurance Policy to Correctly Identify Risks and Causes
     of Loss, 32 A.L.R. 3d 661
     E.g., Central Cas. Co. v. Neuman Transit Co., 203 F. Supp. 413, 416
     (D. Wyo. 1962); Smith v. Protective Life Ins. Co., Inc., 355 So. 2d 728,
     730 (Ala. Civ. App. 1978); Evers v. Brotherhood of R.R. Trainmen, 172
     S.W.2d 899, 903 (Mo. Ct. App. 1943); Setzer v. Old Republic Life Ins.
     Co., 257 N.C. 396, 126 S.E.2d 135, 139 (1962); Western Cas. and
     Sur. Co. v. Sliter, 555 F. Supp. 369, 370-71 (E.D. Mich. 1983);
     cf Young v. Ray America, Inc., 673 S.W.2d 74, 82 (Mo. Ct. App. W.D.
     Cuthbert v Trucklease Corp. 2004-Ohio-4417; Mason v Swartz (1991),

     76 Ohio App. 3d 43, 50.
     Hastings Mutual Insurance Co. v Warnimont 2001-Ohio-2158, 2001                         Visit the
     WL 163523 (insured alleged reformation where policy not issued until
     2 days after accident, but insurance agent had A ‘certificate of
     insurance’ before the accident occurred).                                          OACTA website
     Hastings, supra, at page 3; See also, Haven House Manor, Ltd v Gabel
     2002-Ohio 6750; 7 Corbin on Contracts, Avoidance and Reformation
     (2002) Section 28.45, 312.                                                       for information on
     E.g., Johnson v. United Investors Life Ins. Co., 263 N.W.2d 770, 776
     (Iowa 1978); Sinclair v. Home Indem. Co., 159 Me. 367, 193 A.2d
     177, 178 (1963); Business Interiors, Inc. v. Aetna Cas. and Sur. Co.,
                                                                                       OACTA seminars
     751 F.2d 361, 363–64 (10th Cir. 1984) (Oklahoma law).
     See, e.g., Colonial Sav. Ass’n v. Taylor, 544 S.W.2d 116, 119 (Tex.
     1976) (insured who offers evidence of not having read the policy will
                                                                                        and activities:
     not be presumed to have known the contents of the policy and will not,
     therefore, be deemed to have previously ratified the policy when
     seeking reformation).

     See Chace v. Dorcy Internatl., Inc., 68 Ohio App. 3d 99, 587 N.E.2d
     442, 449 (8th Dist. Cuyahoga County 1991);
     Stoll v United Magazine Co. 2004-Ohio-2523.
     Custom Design Tech, Inc. v Galt Alloys, In. (Jan. 7, 2002), Stark App.
     No. 2001CA00153.
     Most of the cases of a misnamed or unnamed business entity come
     down to testimony from the insured and the agent as to what was
     intended in the application process. Therefore, immediately upon
     notice of a claim, it would be wise for the insurance claims
     professional to conduct a detailed interviews to fully document those

         Brian Kerns is a Board Certified Civil Trial
         Advocate by the National Board of Trial
         Advocacy and has over 25 years of trial and
         litigation experience in insurance coverage and
         defense in northern Ohio. Brian is a past chair
         of the Personal Injury Defense Committee of
         OACTA and currently serves on OACTA’s Board
         of Trustees. He also serves as Chair of the
         Negligence Law Committee of the Ohio State
         Bar Association and is a member of the Council
         on Litigation Management. Brian recently
         opened an office for Wiles, Boyle, Burkholder
         and Bringardner in northeast Ohio.

                Can Lawyers Use Prior Judicial Opinions
                 to Predict Future Coverage Decisions
                     by the Ohio Supreme Court?
                                                        Jeffrey W. Ruple
                                                       Buckley King LPA

                       Lawyers are frequently requested by          attached to a liability insurance policy issued to an
                       a client to predict how an issue will        interstate motor carrier under federal law. 49 C.F.R.
                       be interpreted under Ohio law. The           Section 387.15. The majority relied heavily on a 9th
                       reasons vary from budgetary issues,          Circuit Court of Appeals opinion of John Deere Ins. Co. v.
                       whether costs of litigation outweigh         Nueva (9th Cir. 2000), 229 F.3d 853, in finding that the
                       settlement, and/or whether the               MCS-90 endorsement provided coverage. Justice Evelyn
                       issue has the potential to create            Lundberg Stratton dissented.
                       either good or bad precedent. As
                       Ohio’s highest court, which all other        While Lynch involved the interpretation of federal law,
Ohio courts are required to follow, the importance of               Justice Lundberg Stratton’s dissent is noteworthy. She
providing an educated prediction to a client regarding the          criticized the majority for misapplying federal legislation,
Supreme Court’s position is a critical consideration for the        and misinterpreting the language of the endorsement and
Ohio lawyer.                                                        the intent of the parties. Id. at 449. She stated that the
                                                                    majority’s decision in expanding MCS-90 coverage “defies
By this author’s count, the Ohio Supreme Court has                  logic and common sense.” Id. at 450. She further opined:
accepted twenty cases in the last ten years where the
dispute was between an insurer and a policyholder                           Nevertheless, as a result of today’s
seeking the interpretation of an insurance policy. In                       opinion, the trailers’ insurer would have to
eleven cases, the insurer obtained a favorable outcome.                     pay a judgment against a party other than
In seven cases, the policyholder had a favorable outcome.                   its own insured. Furthermore, the insurer
In two of these cases, there was a mixed outcome,                           now has a right under the MCS-90 to
meaning that the opinion favored the insurer to some                        recoup the payment from its insured for
extent, but there were issues of fact remaining or one                      another person’s negligence. The
insurer benefited and another did not.                                      majority acknowledges this problem as a
                                                                            peripheral issue that it need not consider.
Five of these cases were decided by a 4-3 majority. While                   It is, however, an example of the
every case accepted for review by the Ohio Supreme Court                    majority’s overreaching
has unique facts, this article will review the 4-3 decisions                interpretation and the illogical
from the past ten years for clues as to how future cases                    results it yields. Id. at 450. (Emphasis
may be decided. Specifically, this article examines the                     added.)
language used by current Supreme Court Justices in their
opinions to provide insight on their thoughts on policy             In 2003, now Chief Justice Maureen O’Connor authored
interpretation.                                                     the Supreme Court’s majority opinion in Westfield Ins. Co.
                                                                    v. Galatis (2003), 100 Ohio St. 3d 216. In Galatis, the
In 2002, the Ohio Supreme Court decided Lynch v. Yob                Ohio Supreme Court limited the holding of Scott-Pontzer v.
(2002), 95 Ohio St.3d 441. In Lynch, a driver of a tractor-         Liberty Mutual Fire Ins. Co. (1999), 85 Ohio St.3d 660 and
trailer caused a fatal accident. The trailer was insured by         overruled the Court’s prior opinion in Ezawa v. Yasuda Fire
AIG. The issue was whether the MCS-90 endorsement                   Marine Ins. Co. of America (1999), 86 Ohio St.3d 557.
attached to the trailer policy provided coverage for the            Justice O’Connor’s majority opinion was joined by Justice
accident. A MCS-90 endorsement was required to be                   Lundberg Stratton, former Chief Justice Thomas J. Moyer

Fall 2011 OACTA Quarterly Review                               26
and Judge Mary DeGenaro (sitting by assignment for                       intent of the parties and presuming the intent of the
Justice Deborah L. Cook.)                                                parties to a contract is within the language used in the
                                                                         contract. Id. at 89.
Justice O’Connor in her opinion noted the “chaos in the
Courts,” and “widespread criticism of the decision [Scott-               More recently in 2010, the Ohio Supreme Court decided
Pontzer] from other jurisdictions” as well as the numerous               Allstate v. Campbell (2010), 128 Ohio St.3d 186. The
conflicts emanating from the lower courts, demonstrating                 majority opinion was authored by Justice Lanzinger and
that the decision had “muddied the waters of insurance                   she was joined by Chief Justice O’Connor and Justices Eric
coverage litigation.” Id. at 228-229.                                    Brown and Pfeifer to make up the 4-3 majority. Justices
                                                                         Lundberg Stratton, O’Donnell and Robert Cupp concurred
Justice Paul E. Pfeifer authored a dissent in Galatis. He                as to paragraph 1 of the syllabus and part of the judgment
criticized the majority for finding a way for their                      and Justice Pfeifer concurred in part and dissented in part.
interpretation “not to harm insurers.” Id. at 238. He
further accused the majority of “writing new coverage                    The issue in Campbell was the interpretation of the
limitations.” Id. Justice Pfeifer was also critical of the               intentional act exclusion in policies written by Allstate
majority for failing to exercise judicial restraint. In his view,        Insurance Company (“Allstate”), Erie Insurance Exchange
the Justices in the majority are “applauded as practitioners             (“Erie”), Grange Mutual Casualty Company (“Grange”) and
of judicial restraint.” He then used a quote from the movie              American Southern Insurance Company (“American”). The
“The Princess Bride,” to express his criticism of the                    Supreme Court held that the doctrine of inferred intent
majority. “You keep using that word. I do not think it                   applies only in cases in which the insured’s intentional act
means what you think it means.” Id. at 238.                              and the harm caused are intrinsically tied so that the act
                                                                         has necessarily resulted in harm. Id. at 196-197.
In 2004, in Saunders v. Mortensen (2004), 101 Ohio St.
3d 86, Justice Lundberg Stratton authored the majority                   In interpreting the doctrine of inferred intent with regard to
opinion (joined by Justice O’Connor, Justice Terrence                    the policy issued by American, the majority held that the
O’Donnell and Justice Moyer). The Court interpreted the                  language used in the American policy which excluded
language of a Nationwide Insurance Endorsement 2352,                     coverage for “bodily injury or property damage which
and analyzed whether it provided for uninsured and                       results directly or indirectly from *** an intentional act of
underinsured motorist coverage in an auto liability policy               any ‘insured’ was sufficiently broad to exclude coverage.”
issued to Patrick R. Saunders.                                           On the other hand, the majority held that the policies
                                                                         issued by Allstate, Erie and Grange were different and that
Nationwide argued that Endorsement 2352                                  the trier of fact must conduct a factual inquiry on remand
unambiguously provided for a single, per-person limit of                 to determine whether the tortfeasors intended or expected
coverage for all persons who have sustained legal                        the harm that resulted from their intentional actions. Id. at
damages resulting from a single person’s bodily injury,                  198.
including all derivative claims. The trial court held in favor
of the insured Saunders in concluding that the                           Justice Pfeifer wrote an opinion concurring in part and
endorsement “limit of payment” provision was ambiguous.                  dissenting in part. Justice Pfeifer agreed with the
The Court of Appeals for Erie County affirmed.                           majority’s conclusion that the Allstate, Erie and Grange
                                                                         policies posed issues of fact. Justice Pfeifer, however,
In writing for the majority, Justice Lundberg Stratton held              dissented from the majority with regard to American’s
that the language of Endorsement 2352 was not                            policy. He indicated that the American policy is not
ambiguous, and clearly and unambiguously limits all                      materially different from the other policies, cannot be as
claims arising out of bodily injury to one person, including             broad as envisioned by the majority and he would have
all derivative claims, to the per-person limit of the policy.            affirmed the decision of the Court of Appeals in finding
Id. at 90. In doing so, she relied upon the prior Supreme                issues of fact with regard to the American Policy. Id. at
Court authority regarding the interpretation of written                  198.
contracts, including ascertaining and giving effect to the

Justice O’Donnell concurred in part and dissented in part.            against Ashley’s mother and stepfather. Notable to the
Justice O’Donnell agreed with the majority with regard to             majority of the Court was the absence of any allegations
the doctrine of inferred intent not being limited to cases of         that the condition of the property contributed to the
sexual molestation or homicide. He dissented from the                 incident giving rise to the accident.
majority as to the application of the doctrine. According to
Justice O’Donnell, the acts at issue were intentional and             The issue for the Court was a provision in a Westfield
the exclusions in all of the policies should apply, which             Policy excluding coverage for bodily injury arising out of a
would result in the insurance companies owing no duty to              premises owned by the insured that is not an insured
defend or indemnify. Id. at 202. He also criticized the               location.
majority for failing to follow the principle of stare decisis.
Id. at 202-203.                                                       The Supreme Court in an opinion written by Justice
                                                                      O’Connor held that an exclusion in a homeowner’s
Justice Cupp also concurred in part and dissented in part.            insurance policy for claims “arising out of “ premises
Justice Cupp agreed with the majority that there was no               owned by the insured other than the insured location
coverage under the American policy, but he believed that              excludes coverage for premises-based liability claims, such
there should also have been no coverage under the                     as those that arise from the quality or condition of the
Allstate Policy. Id. at 203. In Justice Cupp’s view, there            premises and claims based merely upon the insured’s
was “no genuine issue of material fact with regard to that            ownership of the property upon which the injury occurred.
issue under Allstate’s policy, because under the objective            The Supreme Court remanded the case for a factual
‘reasonably *** expected to result’ standard in the                   determination of the basis for the injured parties’ claims.
Allstate policy, the professed subjective intent not to harm
anyone was immaterial.” Id. at 204. He would have held                In reaching this conclusion, the Supreme Court relied upon
that Allstate was under no duty to defend or indemnify. Id.           prior decisions construing exclusions: ‘[A]n exclusion in an
                                                                      insurance policy will be interpreted as applying only to that
One final decision worthy of consideration is the recent              which is clearly intended to be excluded.’ Hybud Equip.
opinion in Westfield v. Hunter (2011), 128 Ohio St.3d 540.            Corp. v. Sphere Drake Ins. Co., Ltd. (1992), 64 Ohio St.3d
In April 2011, the Ohio Supreme Court strictly construed              657, 665, 597 N.E.2d 1096.” Sharonville v. Am. Emps.
an exclusion using the phrase “arising out of.” Justice               Ins. Co., 109 Ohio St.3d 186, 2006-Ohio-2180, 846
O’Conner wrote the majority opinion, joined by Justices               N.E.2d 833, ¶ 6.
Pfeifer, Yvette McGee Brown and Cupp (who concurred in
the syllabus and judgment only.) Justices Lundberg                    Justice Cupp filed a concurring opinion. Justice Cupp
Stratton, O’Donnell and Lanzinger dissented.                          focused on the distinction of interpreting a coverage
                                                                      provision from a policy exclusion. Id. at 547. He noted
In Westfield, Michael and Marilyn Hunter (the
                                                                      liability coverage provisions are to be interpreted broadly,
policyholders) lived in Hamilton, Ohio and were insured by
                                                                      and a general presumption in favor of coverage must be
Westfield under a Homeowners Policy. The Hunters also
                                                                      overcome in order for coverage to be denied. Id.
owned a farm in Indiana, which was insured by Grinnell
                                                                      (emphasis added by Justice Cupp) He further noted that
Mutual Reinsurance Company.
                                                                      an exclusion is interpreted narrowly in order not to defeat
                                                                      coverage that would apply absent the exclusion. Id.
On July 7, 2011, the Hunters’ minor grandchild, Terrell
                                                                      (emphasis added by Justice Cupp.) Justice Cupp stated
Whicker, and another minor relative, Ashley Arvin were
                                                                      that the general presumption in favor of coverage operates
riding their All Terrain Vehicles (“ATV”) on the farm
                                                                      to make an exclusion barring coverage applicable only if it
property. Terrell was injured in an accident which he
                                                                      is clearly expressed. Id. Justice Cupp wrote that the
alleged was caused by Ashley.
                                                                      record needed to be further developed to determine
                                                                      whether the exclusions should have been applied i.e.
Terrell and his mother and father filed suit against the
                                                                      whether the claims arise out of the ownership of the
Hunters and Ashley’s mother and stepfather who were
                                                                      premises. Id.
present that day at the farm and the Hunters. The
Complaint also alleged a claim for negligent entrustment

Fall 2011 OACTA Quarterly Review                                 28
Justice O’Donnell dissented. He wrote that the phrase
“arising out of” should have been broadly construed and
                                                                       Jeffrey W. Ruple is a partner in the Cleveland
the Court of Appeals decision should have been affirmed.
                                                                       office of Buckley King LPA. He concentrates on
He noted that “as the policy reads, the exclusion applied to
                                                                       assisting clients in insurance coverage
bodily injury, ‘arising out of a premises’ not arising out of a
                                                                       litigation, premises liability, product liability,
condition on a premises.” (Emphasis added by Court.).
                                                                       and professional liability matters. Jeff serves as
Id. at 551-552.
                                                                       a member of the Ohio State Bar Association’s
                                                                       Insurance Coverage Law Specialty Board. He is
Justice Lanzinger also filed a dissenting opinion. She
                                                                       a graduate of the University of Dayton School of
concluded that the term “arising out of” is not ambiguous              Law and Denison University. Jeff can be
and stated:                                                            reached at or
         [t]he very language that the majority
         wishes to insert in one place within the
         policy has already been used by the
         parties elsewhere in the policy. This
         surely shows an intent to distinguish
         “arising out of” premises and “arising out
         of a condition on” premises. If the
         exclusion was to be linked to a condition,
         the drafters added it; it should not be for
         this court to do so. Id. at 554.

The aforementioned quotes may give some insight as to
how the current Supreme Court reads and interprets
insurance policies. It is clear that some of the Justices
narrowly construe insurance policies and their exclusions.
On the other hand, it is also clear that some of the Justices
broadly interpret insurance policies, resulting in finding
coverage for the insured. Utilizing the prose in the
aforementioned cases, as well as additional review of
other recent Ohio Supreme Court decisions may aid a
lawyer in making the important decision with his client —
whether to appeal a particular insurance coverage case.

With the recent addition of Justice McGee Brown to the
Ohio Supreme Court in place of Justice Brown, it will be
important to monitor whether there are any significant
changes in the outcome of insurance policy interpretation
in Ohio’s highest Court.

Federal Insurance v. Executive Coach Luxury Travel, Inc.:
            A Commentary and Its Impact
                                                         John Travis
                                                        Gallagher Sharp

                              The Majority Opinion                  Several injured players and their estates sought coverage
                                                                    under the University’s policies of insurance. The trial court
                       In Federal Ins. Co. v. Executive             and court of appeals held that there was no coverage
                       Coach Luxury Travel, Inc., 2010-             because neither the driver nor Executive Coach qualified
                       Ohio-6300, liability coverage was            as an “insured”—the University did not own and had not
                       found for an independent                     “hired” the bus involved in the accident. Rather, the
                       contractor bus driver under the              University had contracted with Executive Coach to provide
                       customer’s policy of insurance. The          transportation services in a vehicle leased by Executive
                       facts of the case were important to          Coach and driven by one of its employees. The Supreme
the finding of coverage; those same facts will be important         Court of Ohio reversed.
in determining the impact of the case.
                                                                    Justice Paul Pfeiffer authored the majority opinion joined in
Bluffton University contracted with Executive Coach, which          by Chief Justice Eric Brown, then-Associate Justice
provided a bus and driver, to transport the University’s            Maureen O’Connor, and Judge Timothy Cannon of the
baseball team to Florida in March of 2007. The bus driver           Eleventh District Court of Appeals, sitting for Justice Robert
apparently mistook an exit ramp for another lane of travel          Cupp. Justice Judith Ann Lanzinger concurred in judgment
and was unable to stop the bus at the top of the ramp.              only. The majority held that the University’s policies
The bus went over the ramp and plunged to the highway               extended liability coverage to the bus driver because the
below; the driver, his wife, and five Bluffton players were         driver was using with the University’s permission a vehicle
killed and many others were injured.                                that the University hired. The court concluded that on its
                                                                    face the omnibus clause applied because the University
Before the trip the University’s baseball coach was asked if        hired the bus from Executive and granted permission to
one of Executive Coach’s drivers who had driven the team            the driver to drive his employer’s bus. The court found that
to Florida before was acceptable; the coach agreed. The             whether the insurance company intended the clause to
University coach claimed that he had authority to tell the          apply was immaterial because the language of the policy
                                                                    supported the conclusion that the driver was an insured.
bus driver to stop driving if he was driving dangerously, or
                                                                    The court noted that it construes insurance policies
to stop the bus for any reason, for a break or a meal, for
                                                                    liberally in favor of the insured and it construed the terms
example. Moreover, when the coach discovered that a
                                                                    “hire” and “permission” in keeping with their common and
DVD player was not working properly shortly after the trip
                                                                    ordinary definitions. The court was “not persuaded” that
had begun, he had the driver turn the bus around to go
                                                                    cases requiring possession and control over an auto
back to Executive Coach to get another bus with a
                                                                    should be the law of Ohio. The court dismissed those
functional DVD player. In the interim, however, the coach
                                                                    cases as “factually inapposite” because they involved the
fixed the DVD player so they continued on their journey.
                                                                    loading and hauling of construction equipment and
                                                                    materials, not the transportation of people. The majority
The University was covered by a primary auto policy issued
                                                                    concluded, though, that even if a possession and control
by The Hartford Insurance Company, an umbrella policy
                                                                    test were applied, Bluffton hired the bus and coverage
issued by American Alternative Insurance Corporation, and
                                                                    would be owed.
an excess liability policy issued by Federal Insurance
Company (“Federal”). The umbrella and excess policies
                                                                             The Dissenters and Federal’s Motion
incorporated the terms and conditions of the primary
                                                                                     for Reconsideration
policy with Hartford, which defined an “insured” in the
standard omnibus clause as follows: “[a]nyone else while
                                                                    Justices Evelyn Lundberg Stratton and Terrence O’Donnell
using with your permission a covered ‘auto’ you own, hire,          dissented. They recognized that the majority’s
or borrow.”                                                         interpretation expands the scope of coverage beyond what

Fall 2011 OACTA Quarterly Review                               30
the parties to the insurance policy intended. Although the                  Commentary and the Decision’s Impact
majority considered the parties’ intent immaterial, the
fundamental goal in interpreting policies is to ascertain the        The majority opinion focused on the facts of the case,
intent of the parties from reading the contract as a whole.          although perhaps the most compelling fact was left unsaid:
Justices Lundberg Stratton and O’Donnell noted that the              there was insufficient insurance to cover the catastrophic
majority’s decision effectively opens the door for similar           claims. If there had been adequate insurance, this case
claims under other scenarios because the omnibus clause              probably never would have been brought.
is standard in many insurance policies. A taxi company,
limousine company, bus company, and their drivers could              The majority opinion concluded that the University gave the
rely on a customer’s liability insurance to supplement their         bus driver the right to operate his employer’s bus — an odd
own coverage.                                                        construct, given that the University did not employ the
                                                                     driver or own the bus. Moreover, the independent
Federal filed a motion for reconsideration arguing that the          contractor relationship between the University and
policy should be construed in favor of the policyholder              Executive Coach (the employer of the driver) strongly
(Bluffton University), not the bus driver, who did not               suggested that the University had no right to control the
contract with, or pay premium to, the insurer for coverage.          bus driver. Federal argued that an interest in the result —
Moreover, Federal argued that the court applied the                  where the bus goes — but not the manner or means of
incorrect standard by not reading the policy language in             accomplishing the result, does not confer insurance
context so as to give effect to the intent of the parties to         coverage on the bus driver. Indeed, Federal argued that it
the contract. Appended to the motion was a listing of                made little sense to conclude that a customer could grant
cases (some where people were transported) from all fifty            or deny a non-employee a right to operate a non-owned
states where a possession and control test was applied.              vehicle. The majority of the Supreme Court, however, was
Federal cited Westfield Ins. Co. v. Galatis, 100 Ohio St. 3d         unpersuaded.
216, 2003-Ohio-5849, for the proposition that an
insurance contract should not be strictly construed against          Because this decision is so new (the motion for
the insurer where expanding coverage beyond a
                                                                     reconsideration was denied on April 1, 2011) there has
policyholder’s needs will increase the policyholder’s
                                                                     been little time to gauge its impact. Universities in Ohio,
premiums. Also, Federal asserted that the opinion in this
                                                                     though, are concerned about their insurance limits being
case would result in increased litigation, unanticipated
                                                                     eroded by transportation providers seeking coverage under
exposures, widespread uncertainty, and higher premiums.
                                                                     their policies. Insurers also are considering rewriting their
An amicus curiae brief urging reconsideration also was
filed by the following interests: Ohio Insurance Institute,
                                                                     One thing is certain: claimants in Ohio and elsewhere will
Association of Independent Colleges and Universities of
                                                                     seize upon this case where a liable transportation provider
Ohio, American Insurance Association, Ohio Chamber of
                                                                     does not have sufficient insurance. In catastrophic losses,
Commerce, Ohio Manufacturer’s Association, National
                                                                     this decision will result in additional claims, suits, and
Federation of Independent Businesses - Ohio, Ohio
                                                                     declaratory judgment actions. Insureds and insurers alike
Counsel of Retail Merchants, Ohio State Medical
                                                                     will face unexpected and detrimental exposures. In the
Association, Ohio Hospital Association, and Ohio Society of
                                                                     final analysis, there will be greater uncertainty because
CPAs. The amicus filing pointed out that the court had
                                                                     whether coverage exists may turn on the happenstance of
adopted a novel legal approach that enlarged an insurer’s
                                                                     a DVD player malfunctioning or a transportation provider
duties beyond defined legal limits and distorted the
                                                                     asking its customer whether a driver is acceptable.
underlying risk calculation on which premiums are based.
The decision bestowed coverage on an “insured” who was
not a party to the insurance contract and paid no premium,
contradicting the reasonable expectations of the insured                  John Travis is the manager of the insurance
and insurer alike. The amicus motion noted that the result                practice group at Gallagher Sharp, where he
reached in this case could harm both insurers and                         also defends general litigation matters. John
business enterprises, and could have a profound negative
                                                                          serves as the chair of the newly-created
effect on Ohio businesses.
                                                                          insurance law section of the Cleveland
                                                                          Metropolitan Bar Association.
The Supreme Court overruled the motions for
reconsideration without further opinion.

   The Current State of Construction Defect Coverage
   Litigation in Ohio, How the Ohio Supreme Court
         Might Rule on the “Occurrence” Issue,
            and Whether It Will Even Matter
                                                       Melanie R. Shaerban
                                                       Weston Hurd LLP

                        Over the years, a majority of                          For an event to be truly fortuitous, it must,
                        Appellate Courts in Ohio have issued                   of course be accidental because the
                        decisions holding that construction                    policy only covers occurrences that are
                        defect claims do not state an                          accidents. Of course, one cannot intend
                        insurance policy “occurrence”.                         to commit an accident because an
                        However, some of the Appellate                         accident is “an event that takes place
                        Districts from which these decisions                   without one’s foresight or expectation…”
                        came remain split on the issue. In                     Or, as our late colleague William E.
                        Zanco, Inc. v. Michigan Mut. Ins.                      McAnulty, Jr., wrote as a judge of the
Co.1, the Ohio Supreme Court, in dicta, suggested that                         Kentucky Court of Appeals, an accident in
allegations that an insured contractor breached its duty to                    the insurance law context is “something
construct condominiums in a workmanlike manner, and                            that does not result from a plan, design,
that it allegedly supplied defective materials incorporated                    or…intent on the part of the insured.” So
into the complex, could constitute a policy “occurrence”.2                     focusing solely upon whether [the
However, the Court ultimately ignored the issue and ruled                      insured] intended to build a faulty house
in favor of the insurer finding that several policy exclusions                 is insufficient. Rather, a court must focus
applied to bar coverage. Later, in Cincinnati Ins. Co. v.                      upon whether the building of the [tort
Anders3, the Court examined two cases involving non-                           claimants’] house was a “’chance event’
disclosure claims and held that “[f]or liability coverage to                   beyond the control of the insured.” Or, in
exist, the property damage must “aris[e] out of an                             other words, a court must bear in mind
occurrence”, that is an accident resulting in property                         that fortuitous event is one that is
damage.”4 While the Ohio Supreme Court has not come                            “beyond the power of any human being to
close to addressing the issue since Anders, many would                         bring…to pass, [or is]…within the control
say that there are some signs that indicate the Court would                    of third persons…” It is abundantly clear,
rule that construction defect claims do not state a policy                     therefore, that the issue of control is
“occurrence”.                                                                  encompassed in the fortuity doctrine.7

One such sign is a recent decision of the Kentucky                    In reaching its decision, the Kentucky Supreme Court
Supreme Court. In Cincinnati Ins. Co. v. Motorists Mut. Ins.          surveyed the law in other jurisdictions and noted that its
Co.5, the Kentucky Supreme Court held that “’a claim for              decision was in line with the majority viewpoint of courts in
faulty workmanship, in and of itself, is not an “occurrence”          other states that have considered this issue.8
under a commercial general liability policy because a
failure of workmanship does not involve the fortuity                  Meanwhile in Ohio, recent appellate court decisions also
required to constitute an accident.’”6 The Court explained            foreshadow an insurer friendly Ohio Supreme Court ruling.
that because the insured had control over the construction            In Westfield Ins. Co. v. R.L. Diorio Custom Homes, Inc.9, the
of the tort claimants’ home, the alleged substandard                  12th District Court of Appeals affirmed summary judgment
construction of the home by the insured was not a                     in favor of the insurer, finding that the tort claimants in the
fortuitous (“truly accidental”) event:                                underlying action had “failed to allege damages as a result
                                                                      of an “occurrence”.”10 The court stated that “[a] CGL

Fall 2011 OACTA Quarterly Review                                 32
policy like the one at issue does not insure against claims          On the same day that Cincinnati Ins. Co. v. Dorsey
for defective workmanship or construction because                    Reconditioning, Inc. was decided, the 11th District Court of
defective workmanship does not constitute an                         Appeals released its decision in JTO, Inc. v. State Auto Mut.
“accident”.”11 Additionally, the court addressed the fact            Ins. Co.18 In JTO, Inc., the court reversed a motion for
that several courts around Ohio have reached contrary                judgment on the pleadings ruling in favor of the insurer,
opinions on the “occurrence” issue by also applying                  because it found that an issue of fact remained as to
several policy exclusions including: the “expected or                whether water infiltration resulting from faulty
intended injury” exclusion (exclusion a); the “ongoing               workmanship could be a policy “occurrence”. However,
operations” exclusion (exclusion j(5)); the “faulty                  despite this ruling, the court adopted an analysis from the
workmanship” exclusion (exclusion j(6)); and the “impaired           2nd Appellate District that sounds strikingly similar to the
property” exclusion (exclusion m).12                                 one used by the Kentucky Supreme Court in Cincinnati Ins.
                                                                     Co. v. Motorists Mut. Ins. Co.:
The Court explained that these exclusions would bar
coverage regardless of how a court rules on the                              Insurance coverage is bottomed on the
“occurrence” issue: “Exclusions [j(5) and j(6)] would                        concept of fortuity. Applying this rule in
preclude coverage for the claims for breach of contract for                  the construction context, truly accidental
faulty workmanship and any resulting property damage,                        property damage generally is covered
and exclusion m. would encompass the [tort claimants’]                       because such claims and risks fit within
claims for damages caused by delay or representations                        the statistical abstract. Conversely, faulty
made by [the insured].”13                                                    workmanship claims generally are not
                                                                             covered, except for their consequential
More recently, the 5th Appellate District issued a similar                   damages, because they are not fortuitous.
opinion. In Cincinnati Ins. Co. v. Dorsey Reconditioning,                    In short, contractors’ “business risks” are
Inc.14, the court found that there was no coverage for faulty                not covered by insurance, but derivative
surface preparation and priming of a pipe by the insured                     damages are. The key issues are
due to the lack of property damage caused by an                              whether the contractor controlled the
“occurrence.”15 In its opinion, the court distinguished                      process leading to the damages and
“business risks” and “consequential risks”:                                  whether the damages were
        Courts generally conclude that the
        policies are intended to insure the risks of                 Despite the optimism that these signs may generate for
        an insured causing damage to other                           Ohio insurers, the fact remains that an eventual Ohio
        persons and their property, but that the                     Supreme Court ruling may mean little, if anything, for
        policies are not intended to insure the                      construction defect coverage litigation in Ohio. In at least
        risks of an insured causing damage to the                    four states, legislatures have been passing laws that
        insured’s own work. In other words, the                      effectively remove the issue from the judiciary in different
        policies do not insure an insured’s work                     ways and in varying degrees and that are usually in
        itself; rather, the policies generally insure                response to recent state appellate or supreme court
        consequential risks that stem from the                       decisions.20
        insured’s work.16
                                                                     Perhaps the most extreme of these statutes, at least at
Additionally, like the court in R.L. Diorio Custom Homes,            first glance, is Arkansas Code § 23-79-155 (enacted
Inc., this 5th District panel also recognized contrary               March 23, 2011). This statute actually requires CGL
authority on the “occurrence” issue and continued its                policies sold in Arkansas to contain a definition of
analysis to apply several policy exclusions to bar coverage          “occurrence” that includes “property damage or bodily
including the j(6) and m exclusions (as discussed above);            injury resulting from faulty workmanship.” However, this
the “your product” exclusion (exclusion k); and the “your            statute also expressly states that it “is not intended to
work” exclusion (exclusion l).17                                     restrict or limit the nature or types of exclusions from
                                                                     coverage that an insurer may include in a commercial

general liability insurance policy.” The purpose, as                 shall contain or be deemed to contain a definition of
explained in the statute by the Arkansas legislature is that         “occurrence” that includes property damage or bodily
“[a]n insurer should not be allowed to collect premiums to           injury resulting from faulty workmanship, exclusive of the
provide coverage against defects and then contest, deny,             faulty workmanship itself. This legislation was in direct
or fail to pay claims caused by faulty workmanship unless            response to a January 7, 2011 South Carolina Supreme
the insurer and insured have freely negotiated a specific            Court decision that found that such damage did not
exclusion from the coverage.” It is unclear whether these            constitute an “occurrence”.28 However, on August 22,
requirements apply to policies previously issued. There              2011, the Supreme Court reconsidered that decision and
are no reported decisions interpreting this statute.                 reversed itself, although it claims to have done so without
                                                                     consideration of the new law.29 No other courts, in
In Colorado, § 13-20-808 of the Colorado Revised                     reported decisions, have considered § 38-61-70, and a
Statutes, effective May 21, 2010, creates a presumption              case challenging its constitutionality is currently making its
that a construction defect is an accident, and therefore an          way through the South Carolina Supreme Court docket.30
“occurrence” within the meaning of the standard CGL
policy. In order to rebut this presumption, an insurer must          Finally, Hawaii has taken a different approach altogether.
demonstrate, by a preponderance of the evidence, that the            In Revised Statutes Div. 2, Tit. 24, Ch. 431, Art. 1, the
property damage at issue was intended and expected by                Hawaii legislature has stated that the term “occurrence”
the insured. However, the statute does not require                   “shall be construed in accordance with the law as it
coverage for damage to an insured’s own work, unless                 existed at the time that the insurance policy was issued.”
otherwise provided for in the policy. Also, the statute does         While this may seem rather vague, the preamble explains
not address any policy exclusions. Therefore, while the              that the purpose of the statute is to restore coverage that
statute appears to resolve the “occurrence” issue in favor           was denied by a recent appellate court decision:
of coverage, it still leaves several issues that affect
coverage to the courts.                                                      The legislature further finds that the 2010
                                                                             decision of the Hawaii Intermediate Court
Out of the three reported decisions that have addressed                      of Appeals in Group Builders, Inc. v.
the Colorado statute, not one has actually interpreted the                   Admiral Ins. Co., 231 P.3d 67 (Haw. Ct.
statute. See, Crossen v. Am. Family Mut. Ins. Co.21 (not                     App. 2010), creates uncertainty in the
addressing statute because one or more policy exclusions                     construction industry, and invalidates
applied to part coverage); Cont’l West Ins. Co. v. Shay                      insurance coverage that was understood
Constr., Inc.22 (finding that the statute did not apply where                to exist and that was already paid for by
the commercial general liability policy at issue had been                    construction professionals. Prior to the
cancelled nearly a year before the statute’s effective date);                Group Builders decision, which held that
United Fire & Cas. Co. v. Boulder Plaza Residential, LLC23                   commercial general liability policies do
(finding no need to address statute when coverage can be                     not cover bodily injury or property damage
denied on other grounds).                                                    arising from construction defects,
                                                                             construction professionals entered into
According to an article written by a Colorado attorney, at                   and paid for insurance contracts under
least one Colorado trial court has ordered the parties to                    the reasonable, good-faith understanding
brief the temporal aspects of whether the statute applied                    that bodily injury and property damage
to their case.24 The insurer’s brief argued that the statute                 resulting from construction defects would
did not apply, because, despite pending claims, the                          be covered under the insurance policy. It
subject policy had expired on April 26, 2006.25 The court                    was on that premise that general liability
agreed with the insurer and went on to decide the issue of                   insurance was purchased.31
coverage without regard to the statute.26 The court
ultimately found that there was no “occurrence” or                   In other words, it appears that the Hawaii legislature’s
“property damage” that would trigger coverage.27                     intent in passing this law was to limit the application of the
                                                                     Group Builders, Inc. decision to claims involving policies
Most recently, on May 17, 2011, South Carolina enacted               issued after the May 19, 2010 decision, while requiring
Code of Laws § 38-61-70, which provides that CGL policies            that courts apply judicial interpretations, which the

Fall 2011 OACTA Quarterly Review                                34
legislature believed were more favorable to a finding of              Endnotes
                                                                         11 Ohio St.3d 114 (1984).
coverage for construction defects, to all claims involving            2
                                                                         Id. at 115-116.
policies that existed prior to the Group Builders, Inc.               3
                                                                         99 Ohio St.3d 156, 2003-Ohio-3548.
                                                                         Id. at ¶35.
decision. To date, there are no reported decisions that               5
                                                                         306 S.W.3d 69, 2010 Ky. LEXIS 73.
apply or interpret this statute.                                      6
                                                                         Id. at *80 (quoting 9A Couch on Insurance Third Edition § 129:4
                                                                         Id. at *76 (internal citations omitted).
One might wonder what the big deal is about legislatively             8
                                                                         Id. at *75.
                                                                         187 Ohio App.3d 377, 2010-Ohio-1007 (12th Dist. 2010).
declaring that construction defect claims state an                    10
                                                                         Id. at ¶42.
“occurrence” if the insurers can still rely on policy                 11
                                                                         Id. at ¶21 (citing Paramount Parks, Inc. v. Admiral Ins. Co., 12th Dist.
                                                                         No. CA2007-05-066, 2008-Ohio-1351, ¶25; Heile v. Herrmann, 136
exclusions. The reason why it is important is that the party
                                                                         Ohio App.3d 251, 353 (8th Dist. 1999)).
seeking coverage has the burden of proof to show that it is           12
                                                                         Id. at ¶24-39.
within coverage, i.e. that there is an “occurrence”.32 On
                                                                         Id. at ¶41 (citing Westfield Ins. Co. v. Coastal Group, Inc. (9th Dist. No.
                                                                         05CA008664, 2006-Ohio-153, ¶17; Bosak v. H&R Mason Contrs.,
the other hand, the insurer has the burden to show that a                Inc., 8th Dist. No. 86237, 2005-Ohio-6731; Acme Constr. Co. Inc. v.
policy exclusion applies to bar coverage.33                              Continental Nat. Indemn. Co., 8th Dist. No. 81402, 2003-Ohio-434.
                                                                         5th Dist. No. 10-C A-11, 2011-Ohio-1499, 2011 Ohio App. LEXIS
Thus, this is really a fight over who has the burden of proof.        15
                                                                         Id. at ¶63.
                                                                         Id. at ¶64 (citing Bogner Constr. Co. v. Field & Assocs., Inc., 5th Dist.
                                                                         No. 08 CA 11, 2009-Ohio-116 ) (internal citations omitted).
At the present time, it is unclear whether the Ohio                   17
                                                                         Id. at ¶63-71.
                                                                         11th Dist. No. 2010-L-062, 2011-Ohio-1452, 2011 Ohio App. LEXIS
legislature would consider similar legislation. It is likely             1265
that if such legislation is ever considered, such                     19
                                                                         Id. at ¶31-32 (citing Ind. Ins. Co. v. Alloyd Insulation Co., 2d Dist. No.
                                                                         18979, 2002-Ohio-3916 ) (emphasis in original).
consideration would come only after an Ohio Supreme                   20
                                                                         Clifford J. Shapiro and Kenneth M. Gorenberg, Barnes & Thornburg
Court opinion finding that construction defect claims do                 LLP, The New Wave of Insurance Construction Defects? Four States
not state a policy “occurrence”. Of course, if this                      Enact Statutes Favoring Coverage for Faulty Workmanship, July 21,
happened, the long-awaited Ohio Supreme Court ruling                     insurance-construction-defects-four-states-enact-statutes-favoring-
could end up having little or no significance. Then again,               coverage-for-faulty-workmanship/.
                                                                         No. 09-cv-02859-WDM-KLM, 2010 U.S. Dist. LEXIS 68108 (D. Colo.
the Ohio legislature could also introduce legislation that               July 7, 2010).
affirmatively states that construction defect claims do not           22
                                                                         No. 10-cv-02126-WDM-KLM, 2011 U.S. Dist. LEXIS 82839 (D. Colo.
                                                                         July 28, 2011).
state a policy “occurrence”. The only thing that is clear is          23
                                                                         633 F.3d 951 (10th Cir. Colo. 2011).
that this particular battle between courts and legislatures           24
                                                                         David McLain, One court Interprets Newly Enacted Construction
                                                                         Defects Legislation as Matter of Law. Will Others Do the Same?,
has likely just begun.                                                   Winter 2010, http://
                                                                         See, Crossmann Cmtys. of N.C., Inc. v. Harleysville Mut. Ins. Co., 2011
                                                                         S.C. LEXIS 2 (S.C. Jan. 7, 2011).
                                                                         See, Crossmann Cmtys. of N.C. v. Harleysville Mut. Ins. Co., 2011 S.C.
                                                                         LEXIS 277 (S.C. Aug. 22, 2011).
                                                                         Katherine W. Sullivan, Constitutional Challenge to the South Carolina
                                                                         Legislation Defining Occurrence, June 7, 2011, http://
                                                                         HRS Div. 2, Tit. 24, Ch. 431, Art. 1 Note.
                                                                         Security Mut. Casualty Co. v. Hoff (1978), 54 Ohio St. 2d 426, 429.
                                                                         Allstate Ins. Co. v. Eyster, 189 Ohio App. 3d 640, 2010-Ohio-3673,
                                                                         ¶20 (3d. Dist. 2010)

                                                                             Melanie R. Shaerban is an Associate with the
                                                                             Ohio-based law firm of Weston Hurd LLP. She
                                                                             focuses her practice on commercial and
                                                                             business litigation, insurance defense and
                                                                             insurance coverage matters, as well as
                                                                              governmental liability.

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