On August 18, 2015, the Supreme Court of Ohio handed down a merit decision in Granger v. Auto-Owners Ins., 2015-Ohio-3279. In a 5-2 opinion written by Justice Pfeifer, the court held that under the umbrella insurance policy at issue in the case, the insurance company had a duty to defend, and that the inferred intent doctrine was inapplicable in this claim for emotional distress suffered as a result of a housing discrimination incident. Justice Kennedy wrote the dissent for herself and Justice O’Donnell. The case, pending more than a year, was argued June 25, 2014.
Steve Granger and Paul Steigerwald, the appellees, owned the four unit rental property at issue in this case. The property was held in a trust. Granger refused to rent a unit to Valerie Kozera because she had a six year old son, and he told her he didn’t rent to people with children. Kozera, who is African American, contacted a fair housing organization, which used testers to check out her claim. At least one tester received a proposed lease from Granger which clearly stated no children were permitted, and one tester alleged that Granger made racially discriminatory remarks. Granger’s refusal to rent to Kozera ultimately resulted in a federal lawsuit against Granger, Steigerwald and the trust brought by Kozera and the fair housing organziation in March of 2011. The federal complaint alleged, among other things, that Granger had discriminated against Kozera on the basis of familial status and race, and that Kozera had suffered emotional distress.
Insurance Policies at Issue in the Case
There was potential coverage for the federal lawsuit under two separate Auto-Owners policies (collectively, Auto-Owners, appellants here). The first, a dwelling policy that included landlord liability, covered Granger, Steigerwald, and the trust. The second policy is an umbrella policy under which Granger is the named insured. It is the umbrella policy that is involved in this appeal.
On May 18, 2011, Granger and Steigerwald sent a copy of the complaint in the federal suit to their insurance agent, who contacted Auto-Owners seeking coverage under the dwelling policy only. Auto Owners sent Granger and Steigerwald a letter explaining that discrimination did not fall under the dwelling policy’s definition of personal injury. This letter denying coverage did not mention the umbrella policy. After this denial letter came, Granger’s agent submitted a claim on his behalf under the umbrella policy on June 9, 2011, but never heard back.
Settlement of the Federal Lawsuit and Resulting Lawsuit Against Auto-Owners
In July of 2011, Granger and Steigerwald settled the federal lawsuit. A short time later, they sued Auto Owners in state court for failure to provide coverage, and sought summary judgment on the duty of Auto Owners to defend Granger under the umbrella coverage. Auto Owners filed for summary judgment on its duty to defend and indemnify Granger and Steigerwald under the policies.
The trial court granted summary judgment to Auto-Owners. Granger and Steigerwald appealed, arguing that the trial court erred in granting summary judgment to Auto-Owners on its duty to defend Granger under the umbrella policy.
The Ninth District Court of Appeals reversed in a split decision, finding that the emotional distress alleged could constitute “humiliation,” and thus a covered personal injury under the policy, and that it could not say as a matter of law that the intentional acts exclusion applies in this case, because intent to injure could not be inferred from Granger’s acts.
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. Opinion reviews all previous cases on this subject.)
Cincinnati Indemn. Co. v. Martin, 85 Ohio St.3d 604, (1999) (An insurer need not provide a defense if there is no set of facts alleged in the complaint which, if proven true, would invoke coverage for any claim.)
Westfield Ins. Co. v. Hunter, 2011-Ohio-1818, (2011) (An exclusion in an insurance policy will be interpreted as applying only to that which is clearly intended to be excluded.)
Physicians Ins. Co. of Ohio v. Swanson, 58 Ohio St.3d 189 (1992) (“In order to avoid coverage on the basis of an exclusion for expected or intentional injuries, the insurer must demonstrate that the injury itself was expected or intended.”)
Preferred Risk Ins. Co. v. Gill, 30 Ohio St.3d 108 (1987) (When the policy excludes coverage for bodily injury or property damage that is expected or intended by the insured, the insured’s conduct is not covered by the policy and the insurer has no duty to defend.)
Keys v. U.S. Welding, Fabricating & Mfg., Inc., N.D.Ohio No. CV91-0113, (1992) (Violation of the FHA includes “the availability of ‘damages’ and ‘other appropriate relief’ fairly encompasses an award for pain and suffering, mental anguish, humiliation, and the like.”)
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.)
Issues in this Appeal
Did Auto-Owners have a duty to defend Granger under the umbrella policy?
Short answer: yes.
Does the inferred-intent doctrine apply in this case, thus excluding coverage as a matter of law?
Short answer: no.
Key Policy Language: Definitions
The umbrella policy provides that Auto Owners will pay, on behalf of its insured, “damages because of personal injury.” The definition of personal injury includes “humiliation.” The definition of “personal injury” is broader in the umbrella policy than it was in the dwelling policy because it includes particular damages rather than just particular causes of action.
Key Policy Language: Exclusions
The umbrella policy excludes coverage for intentional acts. The exact language is “we do not cover…personal injury…expected or intended by the insured.”
Duty to Defend
The court reviewed some fundamentals here. The duty to defend is broader than the duty to indemnify. The duty arises whenever the complaint contains any allegation that arguably could be covered by the policy. So, the crux of this matter is whether the inclusion of coverage for humiliation in the umbrella policy gave rise to a duty to defend under the facts of this case. In her complaint, Kozera alleged that she had suffered emotional distress. The policy includes coverage for particular harms, including humiliation. The court found that a broad allegation of emotional distress arguably contained an allegation of humiliation. And it further found that humiliation is a recognized injury in housing-discrimination cases.
Bottom line here: “Kozera’s claim of emotional distress invoked coverage under the policy.”
We’re not done yet. We have to deal with the intentional acts exclusion and the inferred intent doctrine.
Intentional Acts Exclusion and Inferred Intent
Auto Owners argued that even if it had a duty to defend because of the allegation of emotional distress in the complaint, the policy exclusion for intentional acts obviates coverage. It is black letter insurance law that an intentional-acts exclusion in a policy relieves any obligation to provide coverage. In this case, Auto-Owners argued the inferred intent doctrine should be applied as a matter of law, which would mean no duty to defend or indemnify. When that doctrine apples, the policy exclusion for intentional acts kicks in as a matter of law, and the insurance company has no further obligation.
Review Time. The Inferred Intent Doctrine
When there is no evidence of direct intent to cause harm, and the insured denies intent to cause harm, intent to cause harm will be inferred as a matter of law under some circumstances, namely in circumstances where intent to cause harm can be inferred from the conduct of the insured. That’s what Auto Owners argued, and the trial court found here. Auto Owners argued that for the purpose of the intentional act exclusion in this umbrella policy, discriminatory intent can be inferred. Specifically, it can be inferred from Granger’s act of discrimination in refusing to rent to Kozera that Granger intended to cause injury to Kozera. Thus, Auto-Owners should be relieved from having to prove intent to cause harm through evidence, and be off the hook as a matter of law.
Not so fast, said the majority. Until the decision in 2010 in Allstate Ins. Co. v. Campbell, (see precedent section), the court had applied inferred intent to cause harm only in two instances—in one, a case of murder of a child, the other sexual molestation of a child. In those cases inferring intent to cause harm from the act itself seems totally obvious. In Campbell the court held that the doctrine of inferred intent is not limited to cases of sexual molestation or homicide. But the doctrine is to be limited—to 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.” The harm must be the inherent result of an intentional act.
The court in Campbell declined to extend the application of the inferred intent doctrine to acts that are substantially certain to cause harm. Harms that are substantially certain to result from an intentional act could still fall under the intentional acts exclusion of a policy. But in such cases intent to harm must be determined by the trier of fact, rather than inferred as a matter of law.
So which is this case? The court found the key question here to be whether the personal injury here was expected or intended; did Granger expect or intent for Kozera to be humiliated by his conduct? The majority concludes, “we do not find that humiliation is so intrinsically tied to pre-leasing discrimination that Granger’s act necessarily resulted in the harm suffered by Kozera.” In other words, in this case, the inferred intent doctrine does not apply, so Auto-Owners doesn’t get out of coverage as a matter of law. Granger is not claiming coverage for discrimination, but rather for humiliation allegedly caused by that discrimination. “We cannot say that the personal injury was intended in this case, nor can we say that emotional distress is inherent in the very nature of housing discrimination,” Pfeifer wrote.
So What Does All This Mean?
It all means that the insurance company doesn’t get out of the duty to defend as a matter of law, but can still prove that Granger intended to cause humiliation to Kozera, which would exclude coverage under the intentional acts exclusion of the policy. The majority affirms the court of appeals decision here.
Justice Kennedy’s Dissent
Justice Kennedy dissented, joined by Justice O’Donnell. She would find Auto Owners had no duty to defend Granger against Kozera’s discrimination suit because the umbrella policy excludes injuries that are expected or intended by the insured. To her, discrimination and harm are intrinsically tied, and she cites several cases recognizing that injury is inherent in the act of discrimination. The complaint filed in the federal lawsuit alleged discrimination; discrimination and injury are intrinsically tied, so the inferred intent doctrine should apply in this case. When Granger acted in a discriminatory manner, he intended injury as a matter of law for the purpose of determining coverage. Therefore Auto-Owners had no duty to defend him under the umbrella policy.
Kennedy would reverse the appeals court and reinstate the trial court’s grant of summary judgment to Auto-Owners.
While I was correct that the court was going to find that the embarrassment alleged in the federal complaint could constitute “humiliation” and thus a covered personal injury under the policy, I missed on the inferred intent doctrine and the duty to defend. I, and both of my student contributors all thought the court would apply the inferred intent doctrine in this case. But it didn’t. Personally, I thought the majority opinion had a bit of a tin ear about the nature of discrimination—I think an act of discrimination necessarily results in harm. So, I found Justice Kennedy’s dissent to be the more persuasive opinion here.
This case is very fact specific, and has no syllabus, so whether it has any impact beyond its immediate facts is uncertain. But there are several principles that I think will extend beyond the facts of this case. The inferred-intent doctrine is going to continue to be very narrowly interpreted. I think that is more than fair, despite the fact that to me this is a case where it should have been applied. I have long believed insurance companies shouldn’t get out of their contractual obligations easily, and the fact that they have to prove factual matters that entitle them to exclusions resonates with me.