In the recent case of City of East Liverpool v. Owners Insurance Company, et al., 7th Dist. Columbiana No. 20 CO 0009, MRR Attorneys Joseph F. Nicholas, Jr., Frank H. Scialdone, George V. Pilat, and Michael P. Byrne demonstrated that our insurance agency clients properly procured the insurance coverage requested by their customer. It was the customer’s own failure to request coverage for a particular structure, and not ambiguity in what was being requested, that caused the lack of coverage. The Seventh District also offered some notable interpretation of the ever evolving application of the statute of limitations in matters of professional liability.
This appeal arose out of Plaintiff City of East Liverpool’s lawsuit against its insurer Defendant Auto-Owners Insurance; its insurance agencies and agent (the Agency Defendants); and Defendant Crounse Corporation. Specifically, a passing barge owned by Defendant Crounse Corporation crashed into a concrete water-intake structure owned by the City of East Liverpool and located dozens of yards off the shoreline in the Ohio River. The City’s claim against the tortfeasor Crounse Corporation was settled. Despite that resolution, the City tried to impose liability on the Agency Defendants even though it never specifically requested coverage for the Intake Structure. Indeed, over the three-plus decades the Agency Defendants provided insurance services for the City, the City never sought to obtain coverage and never paid premiums for the Intake Structure, until after it experienced the loss. Accordingly, the trial court granted the Agency Defendants’ motion for summary judgment, holding that the City could not impose liability on the Agency Defendants for its own failure to request coverage.
The City appealed alleging, among other things, that the term “Intake Well House” is reasonably susceptible to more than one interpretation, thereby creating a genuine issue of material fact. The Seventh District determined that reasonable minds could conclude that the language used was clear and unambiguous as the plain and ordinary meaning of “Intake Well House” is the well house that connects to the intake. This definition corresponded to the street address listed for the well house that is connected to the Intake Structure. Moreover, the City was the first party to use the term “Intake Well House” and specify that it was located at 2220 Michigan Avenue. The Court asserted that the City cannot now claim that its own term, first used by it, was ambiguous.
The Court further explained that even if it were to conclude the term “Intake Well House” was ambiguous, the use of parol or extrinsic evidence would still limit the coverage to the well house structure, not the intake. A third-party report generated at the City’s request to provide estimated replacement costs for the major structures owned by the Water Department lists the two (Intake Structure and Well House) separately. In addition, the replacement value of the Intake Structure listed in the report was $750,000. The replacement value of the Well House in that same report was $115,800. Despite the report’s separate listings, the insurance contract did not list the Well House and Intake Structure separately. The contract also did not insure the “Intake Well House” for the combined amount of the Well House and Intake Structure. Instead, the contract covered the “Intake Well House” for an amount equivalent to the amount of the Well House alone; the insurance coverage was for approximately $150,000. As such, the Court further concluded that given the difference in the values between what was covered and what the structures were worth, it is glaring as to what the intent of the parties was by the use of the phrase “Intake Well House”; it was to only cover the Well House where the intake connects. Had the intent been to also cover the Intake Structure, it would have been listed separately as it was in the report, or it would have been valued at a much higher amount. Accordingly, The Seventh District upheld the trial court’s holding that the City could not impose liability on the Agency Defendants for its own failure to request coverage.
Finally, in addition to asserting that the City had failed to request coverage for the Intake Structure, the Agency Defendants also argued that the City’s claim was barred by the applicable statute of limitations. While the Court did not use the statute of limitations as the basis for its decision, it did provide some analysis of the application of the statute of limitations under the circumstances. This analysis added some interesting legal dicta to the ever evolving application of the statute of limitations in matters of professional liability. Specifically, the Ohio Supreme Court in LGR Realty, Inc. v. Franks, London Ins. Agency, 152 Ohio St.3d 517, 2018-Ohio-334, 98 N.E.3d 24 addressed the four-year statute of limitations for professional-negligence claims. Therein, the Ohio Supreme Court concluded that the “delayed damages rule” does not apply to negligent procurement or negligent misrepresentation claims where the terms of the policy when issued contained a provision specifically excluding the type of claim that the insured alleged it believed was covered by the policy. In other words, when negligent procurement and misrepresentation claims are alleged, the alleged damage occurs the moment the contract is entered and the insured becomes obligated to pay a premium for the insurance policy that provided less coverage than it believed it would receive.
The Agency Defendants argued that based upon LGR Realty, the damage to the City occurred in 1986 when insurance was procured that did not include coverage for the Intake Structure as the City alleged it requested, and as such, the four-year statute of limitations had long since expired before the City filed suit in 2018. In analyzing LGR Realty, the Seventh District commented that a renewal policy could represent a new contract separate from the initial policy, indicating that damage could occur not only upon procurement of the initial policy, but later upon renewal as well. However, while again, the Court did not rely on the statute of limitations to arrive at its decision, it did determine that even though the policy had renewed many times, the coverage for the “Intake Well House,” and the lack of coverage for the Intake Structure, was constant, and opined that “[t]his seems to indicate that the action is barred by the statute of limitations.”
This legal dicta interpreting the LGR Realty decision supports the proposition that so long as the pertinent portion of the policy remains constant for the requisite 4 years, the statute of limitations will function to bar a claim arising from that portion of the policy. This subject has the potential for further development as additional appellate courts interpret and apply LGR Realty to various professional liability matters.
More details about this case can be found in The Opinion & Judgement Entry. If you have questions related to this case or need legal advice, please contact Joe Nicholas, George Pilat, or Frank Scialdone at the law offices of Mazanec, Raskin & Ryder Co., L.P.A.