OACTA INSURANCE COVERAGE SEMINAR "RECENT DEVELOPMENTS & RECURRING ISSUES IN OHIO BAD FAITH LAW"

Transcription

1 OACTA INSURANCE COVERAGE SEMINAR "RECENT DEVELOPMENTS & RECURRING ISSUES IN OHIO BAD FAITH LAW" Columbus, Ohio May 21, 2013 Presented By: Gregory E. O Brien CAVITCH Familo & Durkin, Co. LPA 1300 East 9 th St., Twentieth Floor Cleveland, Ohio gobrien@cavitch.com I. EMERGING ISSUES AND CURENT LAWS No Duty Contrary To Policy Terms Andrews v. Nationwide Mutual Insurance Co., 2012 Ohio 4935, 2012 Ohio App. LEXIS 4318, (8 th Dist., 2012). The appellate court affirmed the trial court s order dismissing the insureds class action under certain life insurance policies because the theory of recovery alleged was contrary to the terms of the policy. The insured class alleged the insurer had acted in bad faith by failing to affirmatively determine if the beneficiaries were entitled to death benefits. They argued that the insurer was obligated as a matter of good faith to search a national database called the Death Master File to independently determine on an annual basis whether members of the purported class had died. However, the policies expressly required "receipt" of "proof of death," in compliance with R.C (K) as a condition precedent to payment and imposed no duty to determine whether the insureds were deceased. Accordingly, the Court found that the duty of good faith and fair dealing did not obligate the insurer to incorporate searching the database into its account servicing practices. No Duty To Shield Insured From Punitive Exposure Stephens v. Grange Mut. Ins. Co., 2012 Ohio 4980, 2012 Ohio App. LEXIS 4357, (2 nd Dist., 2012).

2 The Court of Appeals affirmed summary judgment for the insurer on the underlying plaintiff s assigned bad faith claim arising out of an excess verdict against the insured due to a traffic accident. The insured was DUI and caused an accident, injuring the plaintiff. A jury awarded plaintiff $31, in compensatory damages and $20,000 in punitive damages. Grange provided the insured with a defense and satisfied the compensatory-damage award. The insured assigned to plaintiff his right to bring a claim against Grange for failing to protect him from personal liability resulting in the punitive damage award. The Court found no bad faith. The insurer was obliged to consider the potential effect of the DUI evidence on the compensatory damage award. But the insurer was not obliged to make a greater settlement offer solely to shield the insured from potential punitive damage liability. As a matter of law, if compensatory damage exposure, and eventual judgment, is well within policy limits, an insurer need not consider whether to make a greater settlement offer solely to shield the insured from a punitive damage judgment. No Duty Outside Claims Context Frisch v. Nationwide Mut. Ins. Co., 2012 U.S. Dist. LEXIS , (USDC for the SD of Ohio, Eastern Div., 2012). The District Court granted the insurer s motion to dismiss its agent s claim for breach of the implied duty of good faith arising out of the contractual relationship created by the agency contract. The agent and sued the insurance company for breach of contract, fraud, and other causes of action following termination of the insurer-agent relationship. The agent alleged a standalone claim for breach of the implied duty of good faith. The Court held that regardless of whether the claim sounded in contract or tort it was not recognized in Ohio law as separate from the parties contractual duties to each other. The insurer s duty of good faith claims handling has no application in a contractual dispute with its agent. No Duty---No Coverage, No Bad Faith Bisewer v. Nisrane, 2013 U.S. Dist. LEXIS 4589, (USDC for the SD of Ohio, Eastern Div., 2013) The trial court granted the insurer s motion for summary judgment on the insured s bad faith claim under an auto policy insuring a rental car company. Plaintiff was injured while riding as a passenger in a rental car rented by another passenger in the vehicle. Under the terms of the rental agreement the driver was not an authorized to operate it. The customer had purchased the additional liability coverage offered as part of the rental agreement. The Court held that the rental company s insurers were not obligated to indemnify the driver against the plaintiff s suit or to provide the plaintiff with UM/UIM coverage. Plaintiff alleged bad faith in failing to provide either coverage.

3 The Court found that neither the driver nor the Plaintiff qualified as insureds under the terms of the policy and that no coverage was owed, The Court further concluded that there could be no liability for bad faith absent coverage. No Duty---No Coverage, No Bad Faith Joseph v. State Farm Fire and Cas. Co., 2013 U.S. Dist. LEXIS 24511, (USDC for the SD of Ohio, Eastern Div., 2013). The District Court entered summary judgment for the insurer on the insured s claims for breach of contract and bad faith arising out of the insurer s cancellation of a homeowner's policy and refusal to pay a fire damage claim at the insured residence. The insured reported a fire at his insured residence. The investigation revealed potential arson and the insurer retained an attorney to conduct an investigation of the insured finances and possible motive for arson. The insured refused to cooperate and the insurer cancelled the policy. In light of misrepresentations made on the policy application and during the course of the investigation and plaintiff's failure to cooperate, the insurer was justified in voiding the policy and denying the claim. Because the insurer was entitled to summary judgment on the contract claim, it was also entitled to summary judgment on the bad faith claim. No Duty---No Coverage, No Bad Faith Rose v State Farm Fire & Cas. Co., 2012 U.S. Dist. LEXIS , (USDC for the SD of Ohio, Southern Dist., 2012). The District Court ruled on cross-motions for summary judgment on breach of contract and bad faith claim arising out of the insurer s denial of coverage for a first party fire loss under a homeowner s policy. The Court denied the insured s motion and granting the insurer s. The insured suffered a fire loss at his home. The insurer discovered that the insured was in a precarious financial situation at the time of the fire and that the cause of the fire was undetermined, but more likely than not resulting from some human act. The Court refused summary judgment on the intentional acts exclusion, finding issues of fact. It also refused summary judgment on the fraud and concealment provision, finding insufficient proof with regard to the profitability of the insured s businesses, and the value of the assets he had on hand. However, the Court found a material misrepresentation as to the number and size of the judgment liens pending against the insured and granted summary judgment on coverage to the insurer. The Court found that as a matter of law, that since it had found no coverage for the insured s claims under the policy, the insured s bad faith claim could not survive. No Duty---Agent s Liability

4 World Shipping, Inc., v. RMTS, LLC, 2013 U.S. Dist. LEXIS 25996, (USDC for the ND of Ohio, Eastern Div., 2013). The District Court granted the Defendant agency s motion to dismiss the Plaintiff s breach of contract and bad faith claims, and denied the insurer s motion for claims under employee health insurance plan. The Court held that a bad faith claim cannot be maintained against the agent because it is not plaintiff's insurer. The duty to act in good faith "arises from the insurance contract" and because the agent is not a party to that contract, it owes not duty of good faith to the insured. Underwriters, claims adjudicators, and agents cannot be liable for bad faith. No Duty---Agent s Liability Tornado Technologies, Inc. v. Quality Control Inspection, Inc., 2012 Ohio 3451, 977 N.E.2d 122, 2012 Ohio App. LEXIS 3037 (8 th Dist., 2012). Court of Appeals affirmed summary judgment for insurance agent on customer s claims of negligence and insurance agent malpractice arising out of inadequate coverage for loss of electronic data stored off site at third party facility. Customer claimed that the agent failed to obtain the proper coverages and amount of coverage for its business. The Court held that the relationship between the customer and the agent was an ordinary business relationship, not a fiduciary relationship. The customer was in the best position to know how much coverage it needed. Since the customer had superior knowledge of the nature and scope of its business needs, it had a duty to bring these relevant concerns to the agent s attention and request the appropriate coverage. Agent satisfied good faith and reasonable diligence in obtaining the insurance requested by the customer over the years; there was no duty to advise that additional coverage was needed absent additional pertinent information from the customer. Plaintiff stated a claim for bad faith against the insurer by identifying the claims at issue and allegings that the decision to deny coverage for the claims was arbitrary and capricious. In addition, plaintiff alleges that the insurer refused to process and respond to claims for coverage in a timely fashion. No Breach---Claim Fairly Debatable Gibney v. State Farm Fire & Cas. Co., 2012 U.S. Dist. LEXIS (USDC for the SD of Ohio, Eastern Div., 2012). The District Court granted in part and denied in part the insurer s motion for summary judgment on Plaintiff s breach of contract and bad faith claims arising out of the insurer s denial of a first party property claim for a fire loss under a homeowner s policy. The homeowner reported a fire loss and then gave contradictory versions of the events leading up to the fire in multiple statements to the insurer and fire investigators. An expert retained by the insurer further opined that the fire was intentionally set. The trial

5 court denied summary judgment on the breach of contract claim finding that issues of fact remained. However, the Court granted summary judgment on the bad faith claim finding that the evidence demonstrated as a matter of law that coverage for the claim was fairly debatable. No Breach---Reasonable Justification Proved Jenkins v. State Farm Mut. Auto. Ins. Co., 2013 Ohio 1142, 2013 Ohio App. LEXIS 1021, (10 th Dist., 2013). The Court of Appeals affirmed a jury verdict for plaintiff on the value of his damaged motorcycle, contingent on proof of title, and affirmed summary judgment for the insurer on the plaintiff s bad faith claim. The insured was involved in accident in which his custom motorcycle was damaged. The insured and his insurer disagreed over the value of the claim and the methodology for determining it. The insured sued alleging breach of contract and bad faith. The trial court determined that the insurer was reasonably justified in rejecting the insured s valuation. The insurer relied on two widely recognized valuation databases and its expert who had 25 years of experience as an appraiser, including appraisals for motorcycles. The insurer also relied on a second valuation expert who testified that the insured s expert s valuation method was not an accepted standard practice. Finally, the trial court determined there was no evidence that State Farm had ever acted with malice or fraud amounting to bad faith during the appraisal process. No Breach---Reasonable Justification Proved Wallace v. Ohio Casualty, 2012 Ohio 6071, 2012 Ohio App. LEXIS 5220, (6 th Dist., 2012). Court of Appeals affirmed trial court s dismissal of bad faith claim for refusal to pay a fire loss under her homeowner s policy. Insurer denied claim because the policy had been non-renewed for failure to submit requested underwriting information. Insured claimed not to have received either the requests for underwriting information or the statutory notices of non-renewal. Insured claimed that insurer denied her claim in bad faith. Insured s evidence called into question whether insurer had effectively notified insured of its intention not to renew the policy. However, the refusal to pay the claim was based on the insurer s belief that the insured had received the letter of non-renewal and that, therefore, the policy had expired at the time of the fire. The Court held that regardless of whether the contract was ever cancelled, the insurer had a reasonable justification for denying the claim. Since the insurer had complied with the terms of the policy by mailing the letter of non-renewal several months prior to the policy's expiration date, the insurer had a reasonable basis to believe that the policy was no longer in effect. It logically follows that if the policy had expired, the insurer was not obligated to process a claim under it.

6 No Breach---Justification Need Not Be The Only Reasonable One Retail Ventures, Inc, v. National Union Fire Ins. Co. of Pittsburgh, PA., 691 F.3d 821, 2012 U.S. App. LEXIS 17850, 2012 FED App. 0279P (6th Cir., 2012). Court of Appeals affirmed summary judgment for insurer on bad faith and for insured on coverage claim awarding insured more than $6.8 million in stipulated losses and prejudgment interest under a "Blanket Crime Policy" for losses resulting from a computer hacking scheme that compromised customer credit card and checking account information. The Court rejected the insured s argument that an insurer can deny coverage in good faith only if it had reason to believe that its interpretation was the only reasonable one. The Court held that if it incorporated the default-ambiguity cannon into a bad faith claim, it would conflate the two claims and equate bad faith with breach of contract. The Court also rejected the insured s argument that the insurer s failure to specifically reference in its denial letter one of the grounds for its coverage position constituted bad faith per se. The Court further found no bad faith even though one of its coverage positions was wrong---the position was not unreasonable. Finally, the Court found no inadequate claims investigation, holding that even if the insurer was not satisfied with the first legal opinion it received, requesting a second opinion did not, under the circumstances, make the investigation so one-sided as to constitute bad faith. Duty Breached Fifth Third Mortgage Co. v. Chicago Title Ins. Co., 692 F.3d 507, 2012 U.S. App. LEXIS 18400, 2012 FED App. 0294P (6th Cir., 2012), The Court of Appeals affirmed summary judgment for the insured, including finding that insurer acted in bad faith by refusing to defend and indemnify its insured under a title policy. Insurer dealt with a fraudulent agent who conspired with property owner to obtain multiple liens using the same property as collateral. When the insured discovered another s creditor s foreclosure, it demanded the title insurer to defend its interest and indemnify against losses. Insurer refused claiming that insured s shoddy loan underwriting practices caused or contributed to the loss. The Court held that the denial of coverage was based upon a condition--adequate underwriting practices--nowhere found or even intimated in the policy itself. And the policy terms otherwise plainly required coverage. Thus, the refusal to provide coverage on underwriting grounds was plainly unreasonable. Breach Of Duty An Issue Of Fact City Of Cleveland v. Chartis Specialty Ins. Co. etc., 2013 U.S. Dist. LEXIS 8362, (USDC for the ND of Ohio, Western Div., 2013)

7 Trial Court ruled on the parties cross-motions for summary judgment on coverage and bad faith under a pollution legal liability policy issued to the City of Cleveland. The insurer argued that it owed no coverage for remediation of petroleum contaminated soils because the damage was discovered three years before the policy began, not during the policy period. The City sought summary judgment on its bad faith claim alleging that the insurer had no basis for its position. The city did not argue that the insurer delayed the claim, failed to review materials provided, or engaged in other bad faith conduct. The District Court concluded that multiple issues of fact remain for trial regarding whether the insurer was obligated to provide coverage and, if coverage was warranted, whether the insurer acted in bad faith in denying the claim. Discovery---No Clear Denial C.B. Fleet Co, Inc., v. Colony Specialty Ins. Co., 2012 U.S. Dist. LEXIS , (USDC for the ND of Ohio, Eastern Div., 2012) The District Court granted in part and denied in part the insured s motion to compel discovery of allegedly privileged insurer claim files. Applying state law, the Court held that because there was no clear cut date where the insurer unequivocally denied coverage, under Boone, insured was entitled to discovery of allegedly privileged claim file documents created before the filing of the insurer s answer to the complaint. Applying federal law, the Court ordered an in camera inspection of allegedly work product protected documents created prior to the answer date, and relieved the insurer of any obligation to produce documents created after the answer date, regardless of the basis of the objection to discovery. Discovery---First Party v. Third Party Claims Stafford v. Jewelers Mut. Ins. Co., 2012 U.S. Dist. LEXIS , (USDC for the SD of Ohio, Western Div., 2012). The District Court granted the insured s motion to compel discovery of the insurer s claim file pursuant to Boone v. Vanliner in a suit for declaratory judgment, breach of contract, bad faith, and punitive damages under a jeweler s liability policy. Insured jeweler sued a supplier for loss of an insured diamond and the supplier counterclaimed. The insurer opened a first party property claim for the loss/theft of the diamond and a third party liability claim regarding the counterclaim. Insured alleged that insurer failed to honor its duty to defend and its duty to indemnify. Insured claimed that the insured should not be entitled to discovery of the claim file dealing with the first party claim. The Court disagreed finding that in the investigation of the loss of the diamond, the insurer s employees developed bias and ill-will towards the insured that could have clouded their judgment in evaluating the claim for defense and indemnification.

8 The Court further refused to consider the insurer s arguments that the underlying bad faith claim was meritless or that the insurer had a valid statute of limitations defense in assessing the merits of the discovery motion. Discovery---In Camera Inspection Required Stewart v. Siciliano, 2012 Ohio 6123, 2012 Ohio App. LEXIS 5295, (11the Dist., 2012). Court of Appeals affirmed in part and reversed in part the trial court s discovery order requiring discovery of insurer s claim file in a bad faith claim arising out of insurer s withdrawal of a settlement offer under the UM/UIM coverage. Insurer withdrew its settlement offer because it learned insured had not disclosed information about prior injuries. The withdrawal of the offer prompted the insured to allege bad faith. The Court of appeals rejected insurer s argument that Boone only requires discovery after coverage is actually denied. The Court held that an express denial is not required to trigger the insured s right to discovery under Boone. However, privileged communications relevant to the insurer s defense that don t reflect on bad faith are not discoverable in any event. Therefore it was error for the trial court to order discovery without first conducting an in camera inspection. Direct Actions---Insurer As Tortfeasor Fraley v. Estate of Oeding, 2012 Ohio 4770, 981 N.E.2d 911, 2012 Ohio App. LEXIS 4175, (12 th Dist., 2012). Appellate Court reversed lower court s order dismissing the complaint for lack of personal jurisdiction on claim against out of state defendant and its Ohio insurer for damages arising out of an out of state auto accident. In its investigation into liability for the underlying accident, the Defendants insurer took actions that were alleged to have caused economic loss to the plaintiff. The Court of Appeals held that RC did not apply and a judgment against the insured was not a prerequisite for a direct action against the insurer, where the insurance company---not the insured---was the alleged tortfeasor. Actions of the insurer can be imputed to the insured for purposes of establishing personal jurisdiction. Direct Actions---Discovery Permitted Whitacre v. Nationwide Ins. Co., 2012 Ohio 4557, 2012 Ohio App. LEXIS 4001, (7 th Dist., 2012). Court of appeals affirmed order compelling discovery of insurer s claim file in Plaintiff s direct action against the tortfeasor s insurer arising out of alleged verbal contract to pay medical bills. Plaintiff was involved in a motorcycle accident caused by the insured's dog. Plaintiff claimed the dog owner's insurer entered into a verbal contract to pay all of his medical expenses. When insurer stopped paying the medical bills Plaintiff sued insured and

9 insurer, and ultimately settled with the insured. The trial court permitted Plaintiff to discover insured s claim files and to depose the insurer s adjusters. The Court held that because the case was before it solely on the discovery motion, Plaintiff was entitled to obtain the requested documents and testimony. Insurer had not filed a motion to dismiss challenging the legality of the underlying claim and insurer had not yet filed for summary judgment on the merits. However, the Court held that prior to allowing discovery, the trial court must conduct an in camera inspection to determine whether any genuinely privileged material is contained in the file. Statute Of Limitations Stafford v. Jewelers Mut. Ins. Co., 2013 U.S. Dist. LEXIS 29011, (USDC for the SD of Ohio, Western Div., 2013). The District Court granted the insurer s motion for judgment on the pleadings concluding that none of the claims set forth in the underlying defendant s counterclaim against the insured potentially or arguably gave rise to a duty to defend. The Court then went on to further find that the insured s bad faith claim arising out of the insurer s refusal to defend and indemnify was also barred by the four year statute of limitations. The Court held that the statute of limitations begins to run on a tort claim for bad faith when there has been an invasion of a legally protected interest. Further, the Court held that for purposes of a failure to defend, the statute of limitations begins to run when claims are made against the insured and the insured is informed by the insurer that a defense will not be provided. Finally, the Court held that a statute of limitations is not "retriggered" by repeating requests for relief. The Court also noted that the discovery rule did not toll the running of the statute in an insurance bad faith case. Bifurcation Stewart v. Siciliano, 2012 Ohio 6123, 2012 Ohio App. LEXIS 5295, (11the Dist., 2012). Court of Appeals reversed the trial court s refusal to bifurcate the punitive damages claim from the compensatory damage claim as required by R.C (B). The Court affirmed the trial court's decision denying bifurcation of the bad faith claim from the breach of contract claim. The insured sued his insurer alleging breach of contract and bad faith arising out of the handling of his UM/UIM claim. The insurer sought bifurcation and the trial court refused. The Court of Appeals found that, in light of the Supreme Court s ruling in Havel, the lower court had been incorrect in refusing to implement the punitive damages bifurcation statute. The Court held that R.C (B) did not apply to the bad faith/breach of contract bifurcation issue and the trial court s exercise of its discretion under Civ.R. 42 should not be disturbed.