Ohio Supreme Court: Duty Arose when Insurance Policy was Issued, Not When the Breach of Duty Occurred
March 12, 2018
The Ohio Supreme Court has ruled that a cause of action that alleges negligence relating to procuring a liability policy accrued on the date that the policy was issued. The case is LGR Realty, Inc. v. Frank & London Ins. Agency, 2018-Ohio-334.
Frank and London Insurance Agency (Frank and London) acquired a Real Estate Agents Errors and Omissions Liability Insurance Policy from the Continental Casualty Insurance Company. The policy was effective from May 12, 2010 through May 12, 2011. A company called Milligan Communications brought a suit against LGR Realty within the depicted policy period. LGR Realty made a claim against the policy provided by Continental for defense against the Milligan lawsuit, and to indemnify LGR Realty for any damages that it might become liable for. On April 26, 2011 Continental denied the claim because of an exclusion provision in the policy. LGR Realty accrued over $420,000 in attorney's fees and expenses defending against the suit.
In April 2015 LGR Realty brought an action against Frank and London alleging that Frank and London had been negligent when they failed to procure an appropriate professional liability insurance policy, and had represented the coverage available under the policy that they acquired for LGR Realty. As a result, LGR claimed that Frank and London breached its duty to acquire an appropriate insurance policy, one that would have provided coverage for defense and indemnification of LGR in the lawsuit.
Frank and London argued that the cause of action had accrued on the date the policy was effective, May 12, 2010, and since the complaint was filed in April of 2015, it was barred by the 4-year statute of limitations set forth in the Revised Code.
LGR argued that under the delayed-damage rule, the cause of action did not accrue until LGR suffered an “injury” which occurred when Continental denied the claim for defense and indemnity on April 26, 2011. Under this argument, the April 17, 2015 complaint was filed within 4 years of the accrual and is not time barred.
The trial court dismissed LGR's case, determining that the cause of action accrued on the date the insurance policy went into effect, and thus the action had been filed outside of the four-year statute of limitations period. The court of appeals reversed and the case went to the Ohio Supreme Court.
The Ohio Supreme Court reversed the appellate court's decision and reinstated the decision of the trial court, stating that the cause of action (that is, the injury) occurred when Frank and London issued the professional liability policy containing the exclusion that precluded coverage for the Milligan lawsuit. The court reasoned that if LGR was injured by the insurance policy containing the exclusion, “then LGR was damaged the moment it entered into the contract and became obligated to pay the premium” for the professional liability policy that covered less than LGR believed it would cover. The court further stated that the harm was complete when the insurance contract that set forth the exclusion was issued. The court mentioned that the delayed-damage rule did not apply to a cause of action alleging negligent procurement of a professional liability insurance policy or negligent misrepresentation of the terms of the policy when the policy contained a provision that specifically excluded the type of claim that was brought, that the insured alleged it believed was covered by the policy.
Editor's Note: Justice Ross dissented stating that until there is “actionable negligence” the statute of limitations should not begin to run, and allowing the statute of limitations to start running on the date of the breach of duty is the same as enacting a rule that automatically attributes injury when no duty has been fulfilled. He said that the cause of action does not accrue until there is a discernible injury that is proximately caused by the breach of duty. IN the case at hand, the cause of action accrued on the date of the denial of the claim, when the injury was caused by the agency's failure to meet its duty. He concluded with stating that being uninsured is not in itself an injury, but it exposes the uninsured to a risk of injury. Because of this, Ross argues that the complaint was filed within the statute of limitations and should not have been dismissed on the discussed grounds.