Oral Argument Preview: Personal Jurisdiction by Imputation to Insured of Conduct of Insurance Company. Estate of Timothy Oeding, et. al. v. David Fraley dba Fraley Trucking.

Update: On February 12, 2014, the Supreme Court handed down a merit decision in this case.  Read the analysis here.

Read the analysis of the oral argument of this case here.

On October 9, 2013, the Supreme Court of Ohio will hear oral argument in the case of Estate of Timothy Oeding et. al. v. David Fraley dba Fraley Trucking, 2013-1994.  The issue in this case is whether the actions of an insurance provider can be imputed to the insured customer for the purpose of finding personal jurisdiction against out-of-state defendants.

Case Background

This case began with an accident that occurred in Spencer County Indiana between Craig Farler and Timothy Oeding. Farler was driving a truck owned by his employer, David Fraley, doing business as Fraley Trucking.  Oeding was driving a truck owned by his employer, J&R Equipment and Storing.  Both drivers were within the scope of their employment at the time of the accident.  Fraley Trucking is an Ohio business; Oeding and J&R were residents of Indiana.  Fraley alleged that Oeding caused the accident by driving while intoxicated, causing physical damage to both vehicles and injuries to both drivers. Ultimately, Oeding died as a result of his injuries.

J&R was insured by Auto-Owners Insurance Company, also located in Indiana.  Auto-Owners investigated the accident. During the course of this investigation, the insurance company placed an investigative hold in Indiana on Fraley’s truck for about five months.

Fraley filed suit in the Butler County Court of Common Pleas against J&R, the Estate of Oeding, and Auto-Owners.  The defendants filed a motion to dismiss for lack of personal jurisdiction.  Before any ruling was made on that motion, Auto-Owners settled Farler’s bodily injury claim, and the claim for damage to the truck, but the parties could not settle the claim for economic loss to Fraley Trucking.

Fraley argued that the trial court had personal jurisdiction over all defendants because Auto-Owners, as agent of J&R, had a license to do business in Ohio, engaged in tortious conduct in Ohio, and transacted business in Ohio.

The trial court granted the motion to dismiss, finding that it could not assert personal jurisdiction over an out-of-state defendant solely because his or her insurance company did business in the injured party’s state.  Additionally, Fraley was barred from maintaining a direct action for damages against Auto-Owners, because he had not obtained a judgment against the insureds.

The Twelfth District Court of Appeals reversed on the personal jurisdiction issue (the decision on the direct action bar is not before the Supreme Court) finding that Auto-Owners’ action of placing a hold on the Fraley truck in Indiana, which it knew was likely to cause economic injury in Ohio, having a license to do business in Ohio, and negotiating with Fraley while he was in Ohio were sufficient to establish minimum contacts and meet due process, and could be imputed to its insureds in order to establish personal jurisdiction.  J&R had the chance to choose its insurer, and Auto-Owners was acting on behalf of J&R and Oeding, and for their benefit.

Key Statutes and Precedent

R.C. 2307.382(A)(4) – Ohio’s Long-Arm Statute, which provides in part that a court in Ohio may exercise personal jurisdiction over a person who acts directly or by agent to cause a tortious injury within the state if he or she regularly does business in the state of Ohio.

Civ.R. 4.3 – allows service of process when a party’s actions caused tortious injury in this state by an act or omission outside this state if the person regularly does or solicits business, engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in Ohio.

International Shoe Co. v. Washington, 326 U.S. 310 (1945) The due process clause of the Fourteenth Amendment of the United States Constitution mandates that a court exercise personal jurisdiction only if the defendant has sufficient minimum contacts with the state such that summoning the party in that state would not offend the “traditional notions of fair play and substantial justice.”

U.S. Sprint Communications Co. Ltd. Partnership v. Mr. K’s Foods, Inc., 68 Ohio St.3d 181, (1994) The evaluation of personal jurisdiction is a two-step process. First, it must be determined whether the requirements of Ohio’s Long-Arm Statute and Civ. R. 4.3 are met. Second, it must be determined whether the exercise of personal jurisdiction over the defendant comports with due process under the Fourteenth Amendment of the United States Constitution.

Peyko v. Frederick, 25 Ohio St.3d 164 (1986).  Insurer’s tortious litigation conduct imputed to its insured for purposes of prejudgment interest award to plaintiff.

Griffey v. Rajan, 33 Ohio St.3d 75 (1987).  The neglect of a defendant’s insurance company during litigation in failing to file an answer to a complaint imputed to the defendant insured.

Kirchen v. Orth, 390 F.Supp. 313 (E.D. Wisc. 1975).  Notions of due process and fair play would be violated if the Court subjected the defendant to the jurisdiction of the court under the long-arm statute based solely on the actions of its insurer in engaging in settlement negotiations.

Georgia Insurers Insolvency Pool v. Brewer, 602 So.2d 1264 (1992).  The Florida Supreme Court refused to impute the actions of an insolvent member of an insurance pool to an out-of-state insurance pooling entity for the purpose of finding personal jurisdiction to maintain an action in Florida’s court system.

Appellants’ Argument on Appeal

The Estate of Oeding (Oeding), J&R Equipment and Storing (J&R), and Auto-Owners Insurance Company (collectively, Appellants) argue that the appellate court decision imputing the conduct of the insurer to its out-of-state insureds violates traditional notions of fair play and substantial justice.  They point out that no other state has found jurisdiction under these circumstances, citing precedent from Wisconsin and Florida as examples of a proper analysis of personal jurisdiction under these circumstances.

Additionally, Appellants argue finding personal jurisdiction over Oeding and J&R through the actions of Auto-Owners would violate the Due Process clause of the Fourteenth Amendment of the United State Constitution.  Fraley has not established that Oeding and J&R had any business association or other minimum contacts with Ohio, apart from the actions of Auto-Owners in attempting to settle the claim. Even though both the hold on the truck and the accident itself occurred in Indiana, Fraley attempts to use Auto-Owners’ hold on the truck to establish a tort in Ohio, then impute responsibility through agency to make the Oeding Estate and J&R pay damages.  Appellants argue the Oeding and J&R had no other contact with Ohio, and could not fairly have anticipated being forced to defend themselves in court in Ohio.

Finally, Appellants encourage the Court to consider the policy implications; by imputing the actions of the insurer to the insured to establish personal jurisdiction, Ohio would open the courts for any Ohio citizen injured in an accident, regardless of where the accident occurred, to sue the other party, so long as his or her insurance company is licensed to do business in Ohio and attempts to settle the claim.  This freedom to bring suit against out-of-state defendants offends the notions of fair play and substantial justice established by the Due Process Clause of the Fourteenth Amendment.

Fraley’s Argument on Appeal

Fraley argues Auto-Owners’ act of holding Fraley’s truck in Indiana caused foreseeable economic injury to his business in Ohio, and that action should be imputed to its insureds for the purposes of personal jurisdiction.  Agency principles and imputation are determinative of the long arm jurisdictional issues here. Since the insurer acts on behalf of its insured, its litigation conduct is imputed to the insured. These principles of agency and imputation logically extend to the imposition of long arm jurisdiction over the insureds.

Fraley also argues Auto-Owners deliberate engagement in the forum, through its business license in Ohio, as well as its correspondence in attempt to settle the claims in this case, satisfy Ohio’s long arm statute and Civ. R. 4.3(A). Auto-Owners directed the litigation for and in the name of its insureds in Ohio. The evidence necessary to establish the business loss claim is in Ohio. Auto-Owners made use of the Ohio statutory direct action bar in the case. And Indiana is not very far away.  Thus, all the fair-play factors required to meet due process favor Fraley in this case.

Appellants’ Proposed Proposition of Law

The conduct of an insurer cannot be imputed to its out-of-state insured for purposes of establishing personal jurisdiction.

Fraley’s Proposed Counter-Proposition of Law

The actions of an agent, personal representative, alter ego, subsidiary, or affiliate impute to the nonresident defendant under Ohio’s long-arm statutes and Civ.R. 4.3(A) for purposes of long-arm jurisdiction.

Amicus Curiae

The Ohio Association of Civil Trial Attorneys (OACTA) filed an amicus brief in support of the Appellants.  OACTA argues Fraley’s attempt to assert personal jurisdiction over Oeding and J&R through Auto-Owners fails on both the long-arm statute and due process prong of the analysis, because Fraley incorrectly asserts the tortious act of Auto-Owners as the core of the analysis, instead of using the original negligent acts surrounding the automobile accident. Without the Spencer County Indiana accident, there would be no loss of use claim. When focusing on the insureds’ actions, as is proper, there were no minimum contacts established in Ohio. OACTA further argues against adopting an interpretation of the long-arm statute which would expand Ohio’s jurisdiction over out-of-state defendants as a poor policy consideration which would open Ohio’s courts to unfair litigation.

Student Contributor: Rebecca Campbell

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