Oral Argument Preview: When Should the Statute of Limitations on Insurance Agent Negligence Claims Begin to Run? Frank and London Insurance Agency v. LGR Realty, Inc.

On September 12, 2017, the Supreme Court of Ohio will hear oral argument in the case of Frank and London Insurance Agency v. LGR Realty, Inc., 2016-1307. At issue in this case is whether the delayed-damages rule applies to insurance agent negligence claims, or if the statute of limitations began to run when the tortious act occurred. Justice Fischer has recused himself from this case, and Judge Carol Ann Robb of the Seventh District Court of Appeals will sit for him on the appeal.

Case Background

Frank and London Insurance Agency (“F&L”) obtained a commercial insurance policy for LGR Realty, Inc. (“LGR”), from Continental Casualty Company (“Continental”), which was effective from May 12, 2010 through May 12, 2011. During this time period, a third-party initiated a claim against LGR. Pursuant to the policy, LGR requested that Continental defend and indemnify LGR, which Continental refused on April 26, 2011. Although LGR prevailed on the merits of this lawsuit, it incurred over $420,000 in legal fees and costs.

On April 17, 2015, LGR filed a complaint against F&L, alleging that F&L negligently obtained unsatisfactory insurance coverage for it in May of 2010. At issue was the statute of limitations. Both parties agree that the four year statute of limitations in R.C. 2305.09(D) applies, but disagree about when it started to run. LGR argued it began when Continental refused to defend or indemnify; F&L argued it began the day the policy was issued.

The trial court found the statute began to run on the day the policy was issued, and was thus time-barred. The court found that although the delayed-damages rule approved by the Supreme Court of Ohio in Kunz v. Buckeye Union Insurance Co. would have saved LGR’s claim, Kunz has been abrogated by later decisions of the high court, even though it has never been expressly overruled.  The trial court granted F&L’s motion to dismiss, and LGR appealed.

The Appeal

In a decision authored by Judge Tyack, joined by Judge Horton, with Judge Dorrian concurring in judgment only, the Tenth District Court of Appeals reversed the trial court’s dismissal. According to the appeals court, pursuant to Kunz v. Buckeye Union Insurance Co., which has never been expressly overruled, there could be no injury until the plaintiff has suffered some injury or harm, and thus the statute of limitations did not begin to run until Continental denied LGR’s request for defense and indemnity on April 26, 2011. Therefore, this lawsuit filed on April 17, 2015, was not time-barred.

Noting that there is a legitimate question as to the continued validity of the delayed damages rule in the insurance context, the appeals court observed that Kunz has not been overruled, and thus its holding continues to be binding on it.

Votes to Accept the Case

Yes: Justices O’Neill, French, Kennedy, and DeWine

No: Chief Justice O’Connor and Justice O’Donnell

(Justice Fischer did not participate)

Key Statutes and Precedent

R.C. 2305.09(D) (four-year statute of limitations for certain otherwise unspecified torts.)

Rep.Op.R. 2.2 (“The law stated in an opinion of the Supreme Court shall be contained in its text, including its syllabus, if one is provided, and footnotes.”)

The Supreme Court of Ohio, Writing Manual, Section 19.2(B), at 131 (2d Ed. 2013). (“The role of the syllabus in Ohio has changed. The old rule that the syllabus, and only the syllabus, contains the law of the case has been discarded. The entire text of the opinion contains the law; text from the body of the case, including footnotes, may be cited as authority.”)

Kunz v. Buckeye Union Insurance Co., 1 Ohio St.3d 79 (1982) (Applied the delayed-damages rule to an insurance agent negligence claim, and held, “[t]he statute of limitations as to torts does not usually begin to run until the tort is complete.”)

Velotta v. Leo Petronzio Landscaping, Inc., 69 Ohio St.2d 376, 379 (1982) (“[W]here the wrongful conduct complained of is not presently harmful, the cause of action does not accrue until actual damage occurs.”)

O’Stricker v. Jim Walter Corporation, 4 Ohio St.3d 84, syllabus (1983) (“Absent legislative definition, it is left to the judiciary to determine when a cause of action ‘arose’ for the purposes of statutes of limitation.”)

Investors REIT One v. Jacobs, 46 Ohio St.3d 176, 181 (1989) (“The legislature’s express inclusion of a discovery rule for certain torts arising under R.C. 2305.09, including fraud and conversion, implies the exclusion of other torts arising under the statute, including negligence.”)

Zimmie v. Calfee, Halter Griswold, 43 Ohio St.3d 54 (1989) (Time begins to accrue in a legal malpractice claim upon a “cognizable event,” where the client discovered or should have discovered the injury due to the attorney’s act or non-act.)

Westfield Ins. Co. v. Galatis, 2003-Ohio-5849, ¶ 48 (“[A] prior decision of the Supreme Court may be overruled where (1) the decision was wrongly decided at that time, or changes in circumstances no longer justify continued adherence to the decision, (2) the decision defies practical workability, and (3) abandoning the precedent would not create an undue hardship for those who have relied upon it.”)

Nichols v. Schwendeman, 2007-Ohio-6602 (10th Dist.) (“the insured has a corresponding duty to examine the policy, know the extent of its coverage, and notify the agent if said coverage is inadequate.”)

DiCenzo v. A-Best Products Company, Inc., 2008-Ohio-5327, syllabus (“An Ohio court has discretion to apply its decision only prospectively after weighing the following considerations: (1) whether the decision establishes a new principle of law that was not foreshadowed in prior decisions, (2) whether retroactive application of the decision promotes or retards the purpose behind the rule defined in the decision, and (3) whether retroactive application of the decision causes an inequitable result.”)

Grant Thornton v. Windsor House, Inc., 57 Ohio St.3d 158 (1991) (Reaffirming the rationale discussed in Investors REIT One v. Jacobs, which held that the discovery rule did not apply to professional negligence claims.)

  Flagstar Bank, F.S.B. v. Airline Union’s Mortgage Co., 2011-Ohio-1961, ¶ 13 (A cause of action for professional negligence exists from the time the wrongful act is committed.)

F&L’s Argument

Under Flagstar Bank, a cause of action in a professional negligence claim begins when the wrongful act is committed. Therefore, the statute in this case began to run when LGR purchased the policy in May of 2010. Unlike other tolling exceptions expressly enumerated in R.C. 2305.09, there is no delayed discovery rule in this situation. To disregard these express statutory limitations invades the province of the General Assembly, and ignores traditional principles of statutory interpretation.

The Tenth District’s reliance on Kunz and the delayed-damages rule is misplaced. Since Kunz, this Court has addressed other professional negligence claims, where it has held that the cause of action accrues when the act is committed, and not from the discovery of the tort. These cases limit and abrogate Kunz’s delayed-damages rule. Even if the extent of the damages is not readily ascertainable at the time of the tort, the injury occurs at the time of the wrongful act.

Kunz was wrongly decided and should be overruled. It is practically unworkable and would subject insurance companies to unlimited liability, indefinitely. Furthermore, in this case, LGR had a copy of the policy and a duty to examine it for defects in coverage as soon as the policy was placed, thus giving it constructive knowledge of any problems with coverage.

Also, the Tenth District wrongly held the syllabus in Flagstar, which was limited to claims of professional negligence against property appraisers, supersedes the opinion text. This Court explicitly rejected the syllabus rule when it amended the Supreme Court Rules, and further discussed this change when it promulgated its Writing Manual. The case syllabus, if any, is no longer controlling; rather, the entire text of the opinion contains the law. The text of the decision in Flagstaff makes it clear that “a cause of action for professional negligence accrues when the act is committed.” The opinion in Flagstar thus abrogates Kunz’s application of the delayed damages rule.  Therefore, the Tenth District erred, and this Court should reinstate the trial court’s dismissal.

LGR’s Argument

This Court should affirm the Tenth District, which correctly applied the delayed-damages rule as discussed in Kunz. To find otherwise would allow inequitable results where claims are barred before the injury even occurs, and would unfairly prejudice LGR for relying on Kunz.

This Court in Kunz held that the injury does not occur until the insured has been notified that the purchased policy is inadequate, and not when the policy is issued or renewed. This directly applies to the insurance issue presented here. LGR could not have known about the lack of coverage until April 26, 2011, when Continental informed LGR it would not indemnify it or provide a defense.

While it is true that the legislature sets the duration of statutes of limitations, courts have a role to play in determining when they start to run. For example, the “cognizable event” test triggering the accrual of the statute in certain legal and medical malpractice claims is judge-made law.

A claim against an insurance agent is more analogous to a product produced by a third party that later causes harm than it is to a professional giving bad advice. With a bad product, the accrual date is when the product causes harm to the injured party.  With an insurance agent, it is when the insured first learns there is no coverage for its loss.

Delayed damages are different from the general discovery rule. In situations like the present negligent insurance claim, knowledge of the claim only happened after a third-party filed a lawsuit against the insured. Flagstar did not involve delayed damages, and therefore could not abrogate Kunz. However, if this Court does find that Kunz is no longer good law, this should not apply retroactively.

LGR should not be deprived of a remedy, therefore, this Court should affirm the Tenth District.

F&L’s Proposed Proposition of Law No. 1

A cause of action for insurance agent or agency negligence accrues for purposes of the four-year R.C. 2305.09(D) statute of limitations when the allegedly wrongful act is committed under Flagstar Bank, F.S.B. v. Airline Union’s Mortgage Co., 128 Ohio St.3d 529, 2011-Ohio-1961, 947 N.E.2d 672, abrogating the delayed-damages rule applied in Kunz v. Buckeye Union Insurance Co., 1 Ohio St.3d 79, 437 N.E.2d 1194 (1982).

F&L’s Proposed Proposition of Law No. 2

Under Rep.Op.R. 2.2 of the Supreme Court Rules for the Reporting of Opinions, “The law stated in an opinion of the Supreme Court shall be contained in its text, including its syllabus, if one is provided, and footnotes”–making all parts of the decision co-equal, with no part of the decision taking precedence.

Amicus in Support of LGR Realty, Inc.

The Ohio Association for Justice filed an amicus brief on behalf of LGR. While in most circumstances, the wrongful act, the actual damage, and the discovery of that damage all occur simultaneously, this is not absolute. Insurance agent negligence is one of the few exceptions to this general rule. It is inequitable and unrealistic to expect an insured party to know the extent of its coverage before the harm is suffered. In fact, it is a practical impossibility. Therefore, this court should adopt a discovery rule for professional negligence claims, and avoid the controversy that accompanies Kunz’s delayed-damages rule. It is entirely appropriate for the judiciary to interpret the meaning of the term “accrued.”

Student Contributor: Jefferson Kisor

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