What’s on Their Minds: 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.

On October 9, 2013, the Supreme Court of Ohio heard oral argument in the case of Estate of Timothy Oeding et. al. v. David Fraley dba Fraley Trucking, 2013-1994.  (Why the caption of this case is reversed is unclear. When Chief Justice O’Connor called the case for argument, she used the traditional caption of plaintiff v. defendant—David Fraley dba Fraley Trucking v. Estate of Timothy Oeding, et al.) The issue in this case is whether the actions of an insurance company can be imputed to the insured customer for the purpose of finding personal jurisdiction against out-of-state defendants.

Case Background

Timothy Oeding, driving a truck owned by J&R Equipment and Storing (J&R), caused an accident with a truck owned by Fraley Trucking, and driven by one of its employees.  Both drivers were within the scope of their employment at the time of the accident, which occurred in Spencer  County, Indiana.  Oeding died as the 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 on Fraley’s truck  in  Indiana for about five months.

Fraley filed suit in Butler County, Ohio 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 all claims except Fraley Trucking’s economic loss claim.

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 first obtained a judgment against the insureds.

The Twelfth District Court of Appeals reversed on the personal jurisdiction issue, which is the only issue before the Supreme Court of Ohio. Read the oral argument preview of the case here.

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.

R.C. 3929.06-Ohio’s direct action statute which does not permit a direct action against a liability insurer without a final unpaid judgment in the underlying action.

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.

At Oral Argument

Appellants’ (The Estate of Oeding , J&R, and Auto-Owners Insurance Company) Argument

The relationship between an insurance company and its insured is a contractual one. The contract creates the rights and obligations of the parties to that contract. One obligation that is solely the responsibility of the insurance company is to investigate the accident. The court of appeals decision twists the nature of the relationship between insurer and insured, and makes the insurance company the agent of the policy holder for purposes of personal jurisdiction in this case. That is wrong. The policy holder has no control over how the insurance company investigates a case.

The only Ohio resident in this case is Fraley Trucking.  All the defendants reside in Indiana, and the alleged tort, which was placing an administrative hold on the truck, occurred there. In particular, J&R, the insured, had no contacts whatsoever with Ohio.

While the Ohio Supreme Court has imputed the conduct of an insurance company to its insured, none of those cases involved personal jurisdiction—in those cases, the insured was already subject to the court’s jurisdiction.  The conduct of an insurance company cannot be imputed to its non-resident insured for the purposes of personal jurisdiction. No state supreme court has reached this far and used a fictitious agency relationship to assert personal jurisdiction over a nonresident defendant.

Fraley Trucking’s Argument

This is a case of error correction, on which the high court should not waste its precious time and resources.  The only contested issue between the parties is the application of Ohio’s long arm statute to the facts of this case. The fact pattern presented here just does not happen very often.

Imputation was proper in this case.  The long arm statute is broadly written to include both agents and representatives. Insurance companies do act on behalf of their insureds  in the litigation context, and the Court has imputed insurance company conduct in this context to insureds.  Doing the same thing in the context of personal jurisdiction is less  invasive, and a logical extension of existing precedent.

The tortious conduct in this case occurred both in Indiana and in Ohio. While the hold on the truck occurred in Indiana, the economic consequences of that act occurred in Ohio.

What Was on Their Minds

Error Correction

Is there some new law the Court needs to write on long arm jurisdiction in this case, asked Justice O’Donnell, as he almost always does? Or is the Court just to apply the law as it always has in this field?

Who is Whose Agent??

If I have a problem to be addressed, isn’t the company going out and doing my bidding, asked Justice O’Neill?

Justices O’Donnell, Lanzinger, and Chief Justice O’Connor all asked about making the insurance company the agent of its insured.  All sounded skeptical when doing so. Justice Lanzinger in particular commented about the complete lack of control an insured has over the actions of its insurer. Normally in an agency relationship, the principal controls the acts of an agent, she noted.

The Tortious Conduct

Isn’t it the conduct of the insurance company, not the insured, that the plaintiff is complaining about here, asked Justice Pfeifer?

Is the only way plaintiff could reach Auto Owners for tying up its truck to perceive Auto-Owners as the alter ego of the insured, asked Chief Justice O’Connor? Was some kind of phone call or directive from Ohio enough to create a tort in Ohio?

Ohio Minimum Contacts (or Lack Thereof)

Doesn’t Auto-Owners clearly do business in Ohio, asked Justice Pfeifer? Wouldn’t it be easy for it to defend the loss of use case in Ohio? Would fundamental fairness require the victim of the accident to traipse to another state to have an argument with the other driver with whom it has no real quarrel, rather than with the insurance company who does business right here?

Why should this case have been brought in Ohio instead of Indiana where the accident occurred, where the defendant resides and where the conduct that gave rise to the claim occurred, asked Justice O’Donnell?

All mailings and contacts were made in Ohio on the loss of use claim, noted Chief Justice O’Connor.  Is that enough to bestow jurisdiction?

If an insurance company in Connecticut were to send a check to someone in Cincinnati, has its insured somehow invoked the long arm jurisdiction of Ohio, asked Justice O’Neill?

Is simply contracting with an insurance company enough to bestow personal jurisdiction over an insured in any court that the insurance company deals with or has contacts with, asked Justice Lanzinger?

Imputation

Should the loss caused by the five month delay be imputed to the insured even though the insured had no participation in that, asked Chief Justice O’Connor?

Direct Action Statute

Justice Pfeifer really got on this, asking why the direct action statute should even apply in this case, since all the harm complained of was done by the insurance company. This was not a case of having to wait to bring a direct action until there was a final unpaid judgment.  It was a direct dispute against the insurance company for its own conduct. Is this issue beyond the Court’s reach? (Fraley’s counsel conceded that it was). Pfeifer commented that sometimes walls are erected where they shouldn’t be, and this seemed like such a situation.

How it Looks from the Bleachers

To Professor Bettman

Like a win for the appellants.  Contrary to the emphatic attempt by plaintiff’s counsel to argue that there was absolutely nothing new here to write, the issue of imputation in this context is an issue of first impression for the Court, and even if it has limited application, it is an interesting question, with potentially far-reaching consequences. Justice Lanzinger suggested as much. In this particular case, Indiana really isn’t very far away, but that isn’t the point.

Plaintiff’s counsel has a good argument about precedent imputing the litigation conduct of an insurance company to its insured.  But in that context the court already has jurisdiction over the parties, so that precedent isn’t at all on all fours. Here, the fact that to find personal jurisdiction, the insurance company would have to be deemed the agent of the insured is going to sink this argument.  Justices Lanzinger, O’Donnell, and Chief Justice O’Connor clearly weren’t buying it.  Justices French and Kennedy uttered nary a peep.

Justice Pfeifer is correct that plaintiff’s gripe is with the conduct of the insurance company, not its insured.  That would be a bad faith insurance tort, which is where it sounded like Justice Pfeifer was going, except such a claim belongs to the insured, not a third party, unless by a subsequent assignment.  So the direct action statute really does seem a bar here, as plaintiff conceded.  The other interesting point about the case to me as a torts professor is that it seems a fair argument to make that tortious conduct did occur in both states—clearly the hold on the truck occurred in Indiana, but the economic loss consequences occurred in Ohio. Justice Pfeifer has shown an expansive view of personal jurisdiction. In Kauffman Racing Equip., L.L.C., v. Roberts, 2010-Ohio-2551 he authored the majority opinion finding personal jurisdiction over a Virginia defendant predicated on that defendant’s publication of allegedly defamatory statements on the Internet.

Justice Pfeifer is likely to be willing to find personal jurisdiction here, or at least write  separately to state why there should be.  He clearly disliked the insurance company’s alleged conduct in the case, and may find its doing business in Ohio and working here on the claim to be sufficient minimum contact for long arm jurisdiction to attach.

To Student Contributor Rebecca Campbell

Beckie went and attended this oral argument in Columbus. She reports that it is more fun watching the arguments live, but much appreciates the video archive in drafting her analysis.  Ultimately, she believes the Court will rule in favor of the Appellants; the Court did not prove to be an easy read on this argument, but she thinks the votes will probably favor not expanding personal jurisdiction in a manner that could be unfavorable to public policy.  Justice Lanzinger did not buy into Fraley’s agency argument, on the grounds that it violates traditional notions of fair play and substantial justice. Chief Justice O’Connor, Justice O’Donnell, and Justice O’Neill’s questions, while somewhat neutral on their face, tended to prompt answers that favored the argument against expanding personal jurisdiction. And Justice Pfeifer believes the case is before the Court on the wrong issue – his line of questioning to Fraley challenged why the bar by the direct action statute was not the issue being challenged.  There is a good chance he could side with the majority, but write a concurrence that focuses on this issue without ruling on it.

 

 

 

 

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