What’s on their Minds: How to Determine Domicile. Peggy Spaeth, et. al. v. State Automobile Mutual Insurance Company

Update: On October 14, 2014, the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

On November 6, 2013, the Supreme Court of Ohio heard oral argument in the case of Peggy Spaeth, et. al. v. State Automobile Mutual Insurance Company, 2012-1866. The issue is how to determine domicile in a case arising out of an insurance coverage dispute.

Case Background

While riding his bicycle, Peggy Spaeth’s husband, Miles Coburn, was killed by a car driven by Robert Schill. Appellee Spaeth filed a wrongful death suit against Schill, seeking the coverage available under an umbrella policy issued by appellant Cincinnati Insurance Company (“CIC”), owned by Robert Schill’s father, James Schill.

The CIC umbrella policy granted coverage to the named insureds and their “resident relatives.” Resident relative is defined by the policy to mean, “a person related to [the policy holder] by blood, marriage, or adoption that is a resident of ‘your’ household and whose legal residence of domicile is the same as yours.” The policy does not provide a definition of “domicile, ” which is the subject of this lawsuit. The question is whether James’ son Robert is a defintional insured under this CIC policy.  The answer turns on where James is domiciled.

In 1993, James and his wife Jean moved from Ohio to Florida. The Florida house is titled solely in Jean’s name. They moved all their belongings, vehicles, voter registrations, drivers’ licenses, and bank accounts to Florida, found new doctors there, joined a church there, and have a social life there.  James files his federal tax returns with a Florida address. But James has never filed an affidavit with the Ohio Department of Taxation, which is now required under R.C. 5747.24 in order not to be considered an Ohio resident for tax purposes.

James remains active in the business of his two Ohio companies, and returns to Ohio for significant amounts of time each month to oversee business. When he does, he stays with his son Robert in Robert’s house in Burton Ohio.

Procedure Below

The trial court found that Robert did not meet the definition of “resident relative” since he did not have the same domicile as either of his parents, the named insureds, which was required under the CIC policy. Thus the trial court held Spaeth was not entitled to the umbrella insurance from the CIC policy.

The Eighth District Court of Appeals reversed, finding James was domiciled in Ohio for insurance company purposes. The appeals court listed fourteen factors to support its conclusion that James had never abandoned his Ohio domicile, and that Spaeth was entitled to the coverage under the CIC policy.

Key Statute and Precedent

R.C. 5747.24, governs whether an individual owes Ohio income tax. Under the statute, a person is presumed not to be domiciled in Ohio if the individual is in the state less than 182 days. But the statute also requires the filing of an affidavit or verified statement with the Ohio Department of Taxation attesting to this fact.  If the individual fails to file the statement as required, the individual is presumed to have been domiciled in this state the entire taxable year.

Sturgeon v. Korte, 34 Ohio St. 525 (1878), established two requirements for obtaining a new domicile: the fact that the person in question is actually removing to a new location, and his or her intention to remain at that location. A temporary residence may become a domicile by a change of purpose and election to remain at that location as a home.

In re Estate of Hutson, 156 Ohio St. 115 (1956), states that in order to change one’s domicile, there must be actual abandonment of the first domicile, intention not to return to the first domicile, and acquisition of a new domicile in another place with the intention of making the new domicile a permanent home. The acts of the person must correspond with the purpose of changing one’s domicile.

At Oral Argument

CIC’s Argument

CIC’s attorney pounded on intent, intent, intent, arguing that beginning in 1993 when James Schill and his wife moved  to Florida, it was his intent to be and remain domiciled there. A person can have only one domicile. To determine where a person is domiciled, the court should look to the three factors from the Korte case-the intent of the individual, where the individual selected his permanent place of abode, and where he chooses to reside permanently. Then, the court must determine if that intent matches up with the facts of the case. The paramount inquiry on this issue is intent, which the court of appeals ignored.  James Schill has been domiciled in Florida since 1993, and since that date it has always been his intent to be domiciled there. That intent is undisputed. Many facts support that intent—voting in Florida, living there with his wife, going to church there, and paying taxes there. He let his Ohio driver’s license lapse. He files no tax returns in Ohio. Coming back to do business in Ohio does not change that intent.

Spaeth’s Argument

James Schill, by his own admission, flunked retirement.  He never intended to abandon Ohio as his domicile, and never did so in fact.  Even after moving to Florida, he spends about two weeks every month in Ohio on business related matters. When he does so, he stays with his son Robert in Robert’s Ohio home.  James owns no real estate in Florida. He is an Ohio CPA and owns a plant in Geauga county. The standard for determining intent is an objective standard, combined with a person’s conduct.  It is not subjective intent. Under that standard, the court of appeals correctly determined James Schill was domiciled in Ohio. Most significantly, under R.C. 5747.24, in order to be presumed domiciled somewhere other than Ohio, an individual must file an affidavit with the Department of Taxation.  As a CPA James Schill surely knew that, but never filed such an affidavit. Thus, he is presumed domiciled in Ohio.  As for the insurance policy in this case, it is an Ohio policy.

What Was on Their Minds

Given the arguments about domicile, it is good to remember that the reason the parties were arguing about that question is to determine if Peggy Spaeth can reach the insurance proceeds under James’ umbrella policy in her wrongful death lawsuit.  That kind of got lost in the shuffle.

Justice Lanzinger was absent from argument, but the Chief announced that she would watch the argument and participate in the case.

Determining Domicile

How many domiciles can an individual have, asked Justice O’Donnell? Can a person have multiple residences, but just one domicile? How many times can a person change domiciles? What are the factors to be weighed in making this determination? James regularly returns to Ohio to conduct business, and when he does he stays with his son Robert, he noted. What should the Court make of that?

Didn’t James Schill move to Florida for the preferential tax treatment, asked Justice Pfeifer? Are residency and domicile interchangeable words?

Justice O’Neill stated he was troubled by the idea that James had “flunked retirement.” Chief Justice O’Connor later asked what difference that made?

Chief Justice O’Connor asked the significance of a person’s birthplace—now that James lived in Florida, what difference does it make that he was born in Ohio? What was the basis of the presumption that James was domiciled in Florida? Robert never testified that his father considered Ohio to be his home, did he? (answer: no). Is intent determinative of the domicile question? Wasn’t it James’ intent to remain in Ohio temporarily, for as long as it took him to accomplish his business, but no longer, and certainly not so long as to trigger adverse tax consequences, and then to return to Florida? The Chief made a point of stating that James and his wife live at the same address in Florida, go to church there, are registered as parishioners there, pay taxes there, vote there, and have a social life there. (was there a question there?) If the court of appeals decision stands, similarly situated individuals will be advised to take their assets out of Ohio, she commented. Are the multitude of factors suggesting he is domiciled in Florida trumped by the fact that he spends some time in Ohio?

When did James abandon his intent to be domiciled in Florida, asked Justice Kennedy?

The Korte case

Has anything in the law changed since Korte  was decided, asked Justice O’Donnell?

In 1878 there weren’t too many people living in two places, commented Justice Pfeifer, adding, they were still getting around on horseback. If the law has been clear for 140 years, why was the Court hearing this case? Should its decision be, we meant it in 1878 and we still do?

Was the insurance company asking the Court to clarify or overturn this case, asked Justice O’Neill?

Procedural Posture

Why did the insurance company move for summary judgment? Did it think there were no facts in dispute, asked Justice French? Is the most the company can get here a remand for a factual determination as to intent?

Chief Justice O’Connor asked if the facts used to bolster intent were undisputed? Did the case need to go back to the trial court to examine intent?

Why was Spaeth—who won a final judgment on appeal-acknowledging going back to the trial court to start again, asked Justice O’Neill?

Dismissal as Improvidently Accepted?

Justice Pfeifer got into it with counsel for CIC, noting that his brief was just a “totally fact driven situation” favoring his point of view, commenting that this was just a very fact specific case, asking what new law was being provided for lawyers and judges? Why are we here, he mused, noting this was just a case about one insured, one policy and one accident? Isn’t this just a case of error correction? Everyone understands what domicile is except the Eighth District?

Justice French asked if Spaeth’s counsel wanted the case dismissed as improvidently allowed?

Hasn’t the appeals court written an opinion that can be cited all over the state with unintended consequences, asked Chief Justice O’Connor?

The Affidavit for the Tax Man

Doesn’t his failure to file the affidavit mean only that James doesn’t get the tax benefit he thought he would, asked Chief Justice O’Connor? Is there any evidence the tax people aren’t treating James as a Florida resident for tax purposes? Is the fact James didn’t file the proper document with the tax department the critical flaw here?

What do we do with an individual who is trying to remove himself from Ohio for tax purposes, but returns here, asked Justice O’Donnell?

As long as James didn’t file the tax affidavit, does that mean he is domiciled in Ohio, asked Justice Kennedy?

The Insurance Policy

If James had an accident with his car in Ohio, what does the policy provide, and what law would apply, asked Justice Pfeifer?

What is the basis in the contract that shows James intended to be an Ohio-domiciled individual, asked Chief Justice O’Connor?

How it Looks from the Bleachers

To Professor Bettman

I’m going to call this for CIC, but this decision is going to be splintered. I don’t think the case will be dismissed as improvidently allowed because of the “unintended consequences” of the appellate decision, as the Chief put it.

This argument devolved into a two-way duel: Chief Justice O’Connor versus Spaeth’s lawyer and Justice Pfeifer versus CIC’s lawyer.  Both justices incorporated a lot of statements into their questions. The Chief used up a lot of Spaeth’s time arguing back and forth with her lawyer about all the many factual indicia of James’ intent to move to Florida and make that his permanent domicile.  Justice Pfeifer used most of the rebuttal time with CIC’s lawyer about why this case wasn’t worth bothering with.

It seems clear that James was domiciled in Florida—both his subjective intent and the objective factors like where he voted, titled his cars, paid taxes, had a social life, went to church, and where his wife lived so suggest.  To my mind, Spaeth’s lawyer made far too much of James’ failure to file the tax affidavit to prove he never intended to be domiciled in Florida.  Justice Kennedy seemed to think this as well. It wasn’t even clear that was required when James Schill moved there in 1993.

Justices Pfeifer and O’Neill seemed the least persuaded by the insurance company’s arguments.

Justices O’Donnell and French seemed inclined to send this back for a fact determination.  And of course Justice Lanzinger wasn’t there, but I’m guessing she will side with the Chief on this one.

To Student Contributor Beckie Campbell

The battle in this case will be fought over following Korte or dismissing the case for being improperly before the Supreme Court. After hearing oral arguments, the Justices are split into three factions: Justice French and Justice Pfeifer ultimately questioned whether this case should be in front of the Supreme Court. They see this case as strictly one of error correction, and do not want the Court to function in that capacity. Specifically, Justice French focused on how fact oriented a determination of domicile must be, and emphasized the proper place for the factual determination is at the trial court level.

Chief Justice O’Connor and Justice Kennedy both focused on the heart of the argument that James Schill’s failure to file an affidavit disclaiming Ohio residency for tax purposes means he is still domiciled in Ohio, and neither Justice seemed to buy the argument. The Chief Justice more specifically drilled into Schill’s retirement (or lack of) and why that should matter as to where he is domiciled. If they do not agree the case should be dismissed, they will likely form the core of an opinion which narrowly reiterates the Korte holding requiring deference to the person’s intended domicile.

From the beginning, Justice O’Neill’s questions focused on the fact that Schill “flunked retirement” and continues to provide financial support in relation to the Ohio property. His approach during oral argument suggest he agrees with Spaeth’s argument that Schill’s domicile never changed, and that he has been and remains domiciled in Ohio.

Justice O’Donnell presents a wild card; during CIC’s argument, he reframed the issue in the case away from the domicile question, and closer to the insurance coverage dispute of the case: is Robert Schill’s domicile the same as James Schill’s domicile? Because Justice O’Donnell ultimately focused on what the Court should consider for determining domicile and how many domiciles an individual can have, he’ll likely side with the Chief Justice and Justice Kennedy.

 

 

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