Oral Argument Preview: Insurer’s Duty to Defend in a Case of Housing Discrimination. Steve Granger, et al. v. Auto Owners Insurance, et al.

Update: on August 18, 2015, the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

Read the analysis of the oral argument here.

On June 25, 2014, the Supreme Court of Ohio will hear oral argument in the case of Steve Granger, et al. v Auto-Owners Insurance, et al., 2013-1527. The issue on appeal is an insurer’s duty to defend in a housing discrimination case.

Case Background

In June of 2010, Appellees Granger and Steigerwald placed an online advertisement for a rental property they owned in Akron, Ohio. In response to the listing, Valerie Kozera contacted Granger about renting the property. However, Granger refused to rent to Kozera specifically because she had a six year old son. This is a direct violation of Ohio and Federal Fair Housing Laws.

Based on this discrimination, Kozera contacted the Fair Housing Contact Service (“FHCS”) which investigated Kozera’s claim. FHCS sent “testers” to interact with Granger and inquire about the property. Granger continued to discriminate and told the testers he would not permit children to live at the property.

In September, 2010, FHCS filed a housing discrimination complaint against Granger and Steigerwald with the Ohio Civil Rights Commission. In response, Granger and Steigerwald tried to resolve the charges with Kozera and FHCS. After negotiations failed, Kozera and FHCS filed a federal lawsuit for discriminatory conduct; the complaint stated that Kozera suffered emotional distress.

During this time, Granger and Steigerwald were insured by Owners Insurance Company and Auto-Owners Insurance Company, the Appellants. The policy at issue in this case is Auto-Owners umbrella policy issued solely to Granger, which covered damages caused by “personal injury” but excluded any personal injuries expected or intended by the insured.

On June 8, 2011, Auto-Owners refused to defend or indemnify Granger and Steigerwald. In July 2011, Granger and Steigerwald settled with Kozera without further communication with Auto-Owners. Subsequently, Granger and Steigerwald filed suit against Auto-Owners, alleging that the company violated its duty to defend under the umbrella policy.

Auto Owners moved for summary judgment on the grounds that pre-leasing discrimination does not constitute personal injury under the umbrella policy and thus is not covered, or if it was deemed a personal injury, it was expressly excluded by the policy. The trial court granted summary judgment to Auto-Owners. Granger and Steigerwald then appealed, arguing that Granger was owed a defense in the federal lawsuit under the umbrella policy. (Although he participated in the proceedings, Steigerwald is not an insured under the umbrella policy.)

On appeal, the Ninth District Court of Appeals reversed in a split decision after finding that the emotional distress alleged could constitute a “humiliation,” and thus a covered personal injury under the policy.

Key Precedent

42 U.S.C. §3604(b) (It is unlawful to discriminate against any person in the sale or rental of a dwelling because of familial status.)

42 U.S.C. 3613(c) (In a housing discrimination case, the plaintiff is limited to (1) actual and punitive damages if the court finds that a discriminatory housing practice has occurred; (2) injunctive relief enjoining the defendant from continuing to engage in discriminatory practices; and (3) attorney fees to the prevailing party.)

Allstate Ins. Co. v. Campbell, 2010-Ohio-6312 (The doctrine of inferred intent applies only in cases in which the insured’s intentional act and the harm caused are intrinsically tied so that the act has necessarily resulted in the harm)

Preferred Risk Ins. Co. v. Gill, 30 Ohio St.3d 108 (1987) (An insurer is under no duty to defend or indemnify the insured for a claim that is “inextricably entwined in time and purpose” with an intentional act, even when such a claim is purportedly within the coverage of the insured.)

Willoughby Hills v. Cincinnati Ins. Co., 9 Ohio St.3d 177 (1984) (Where the insurer’s duty is not apparent from the pleadings in the case against the insured, but allegations do state a claim which is within the policy coverage, or there is some doubt as to whether a theory of recovery within the policy coverage has been pleaded, the insurer must accept the defense of the claim.)

Auto-Owners’ Argument

Auto-Owners argues that Granger’s deliberate acts of discrimination fall within the clear and unambiguous intentional acts exclusion in the policy. It is undisputed that Granger intentionally singled out potential renters based upon their family status. Not only did Granger discriminate against Kozera, but also the FHCS testers. Therefore, the intentional discrimination fell within the intentional act exclusion.

Auto-Owners traces the inferred intent doctrine in Ohio law, and argues that the intent to discriminate is inferred for the purposes of housing discrimination.  The recitation of “emotional distress” in the complaint is insufficient to trigger a duty to defend under the policy.

Further, the doctrine of inferred intent in Campbell applies to this case to show intent. Specifically, Granger’s acts to discriminate on the basis of familial status constituted an intentional act that would result in harm in every instance. Because an intentional act of housing discrimination can only result in harm, the intent to cause that harm must be inferred under the doctrine. Therefore, the acts of discrimination fell within the exclusion.

In addition, Auto-Owners argues that even though Granger’s umbrella policy included coverage for personal injury, it had no duty to defend or indemnify the “emotional distress” claim.

First, Auto-Owners argue that the claim was not sufficiently plead. While there is a brief mention of emotional distress caused by Granger’s actions, it is merely a recitation of fact and does not by itself constitute a cause of action, nor was there a request for compensation for emotional distress in the prayer for relief.

Second, Granger’s conduct of intentionally discriminating against prospective tenants is outside the coverage of the policy.  42 U.S.C. 3613(c) does not contemplate damages for emotional distress or humiliation in housing discrimination cases and, therefore, could not have been within the scope of the policy as it relates to housing discrimination.

Granger’s and Steigerwald’s Argument

Granger and Steigerwald argue that the doctrine of inferred intent does not apply in this case, and that Auto-Owners’ contention that they had no duty to defend ignores the plain language of the insurance policy.

First, the relevant inquiry under the personal injury exclusion is whether the personal injury was expected or intended. Therefore, the appropriate question is whether Granger expected or intended Kozera to suffer emotional distress or be humiliated by his conduct. Granger and Steigerwald argue that it is clear that Granger did not intend to cause any harm by refusing to rent to families with children. On the contrary, Granger testified that he did not know the law and thought it was legal to not rent to families with children.

Second, Granger and Steigerwald argue that the doctrine of inferred intent does not apply to this case because Granger’s intentional act is not inextricably connected to the resultant harm. Here, Auto-Owners does not even contend that Granger subjectively intended to cause emotional distress or humiliation. Further, such an act does not necessarily and inextricably result in harm.

Next, Granger and Steigerwald argue that Kozera did adequately allege in her complaint that Granger’s actions caused her emotional distress, and damages for emotional distress, embarrassment, and humiliation are recoverable under fair housing laws.

Finally, Granger and Steigerwald argue that—construing the policy language against the drafter—Auto-Owner had a duty to defend regardless of any ambiguity in the policy. The umbrella policy provides that Auto-Owners indemnify for losses “which the insured becomes legally obligated to pay as damages because of personal injury.” As humiliation is included in the policy’s definition of personal injury, Auto-Owners should have been obligated to defend Granger for Kozera’s emotional distress.

Auto-Owner’s Proposed Proposition of Law No. I:

Discriminatory intent is inferred as a matter of law for purposes of an intentional act exclusion under an umbrella policy of insurance on a claim for pre-leasing housing discrimination.

Auto-Owner’s Proposed Proposition of Law No. II

A claim for emotional distress does not constitute “humiliation” sufficient to trigger a duty to defend under an umbrella policy of insurance. The duty to defend can only be triggered by actual facts, not an inference of potential recoverable damages where no covered conduct is even alleged.

Student Contributors: Michael Elliott and Austin LiPuma

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