Merit Decision: Statute of Limitations Starts to Run When Insurance Policy Was Issued. LGR Realty, Inc. v. Frank & London Ins. Agency.

On January 31, 2018, the Supreme Court of Ohio released a merit decision in LGR Realty, Inc. v. Frank & London Ins. Agency, Slip Opinion No. 2018-Ohio-334. (According to the Reporter’s Note, the case was actually decided on January 16, 2018, while Justice O’Neill was still on the Court, but released on January 31, 2018, after O’Neill had left the Court.) Five justices agreed that the statute of limitations for a case of negligence in issuing a professional liability insurance policy starts to run the date the policy was issued, but split three to two on the analysis. Justice Kennedy wrote the majority opinion for the court, joined by Justices O’Donnell and French.  Justice DeWine concurred with a separate opinion, joined by Chief Justice O’Connor.  Judge Carol Robb, of the Seventh District Court of Appeals, who sat for the recused Justice Fischer on the case wrote the dissent, joined by Justice O’Neill.  The case was argued September 12, 2017.

Case Background

Frank and London Insurance Agency (“F&L”) obtained a real estate agents’ errors and omissions liability policy for LGR Realty, Inc. (“LGR”), from Continental Casualty Company (“Continental”), which was effective from May 12, 2010 through May 12, 2011. The policy contained an endorsement specifically excluding any claim made against LGR by Plaza Properties.

A liability claim was made against LGR within the policy period, in regard to a lawsuit captioned Milligan Communications LLC v. Plaza Properties, Inc. LGR requested that Continental defend and indemnify LGR, which Continental refused on April 26, 2011, on the basis of the Plaza Properties exclusion in the policy.  LGR incurred over $420,000 in legal fees and costs defending against the Milligan lawsuit.

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. F&L moved to dismiss, arguing the cause of action accrued the day the policy went into effect on May 12, 2010, and thus was time-barred.  LGR, relying on the delayed damages rule articulated in Kunz v. Buckeye Union Insurance Co., argued that the claim did not accrue until it had suffered an injury, which was April 26, 2011, and thus its complaint was not time-barred.

The trial court found the statute began to run on the day the policy was issued, and thus was time-barred. The court found that Kunz has been abrogated by subsequent 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.

On appeal, the Tenth District Court of Appeals reversed the trial court’s dismissal, finding that Kunz had not been overruled, and the statute of limitations did not begin to run until Continental denied LGR’s request for defense and indemnity on April 26, 2011.

Read the oral argument preview of the case here and the analysis of the case here.

Key Precedent

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

Kerns v. Schoonmaker, 4 Ohio 331 (1831) (generally, the “Statute of limitations commences to run as soon as the injurious act complained of is perpetrated, although the actual injury is subsequent.”)

Simpson v. Holmes, 106 Ohio St. 437 (1922) (a per curiam opinion must be read in light of the facts of the particular case.)

State ex. Rel. Canada v. Phillips, 168 Ohio St. 191 (1958) (“only what is stated in a syllabus or in an opinion per curiam or by the court represents a pronouncement of the law by this court.”) (syllabus paragraph 6.)

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.”)

Velotta v. Leo Petronzio Landscaping, Inc., 69 Ohio St.2d 376 (1982) (Adopted the delayed-damages rule, “where the wrongful conduct complained of is not presently harmful, the cause of action does not accrue until actual damage occurs.”)

Kunz v. Buckeye Union Ins. 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.”)

O’Stricker v. Jim Walter Corp., 4 Ohio St.3d 84, 87, 447 N.E.2d 727 (1983) (“When an injury does not manifest itself immediately, the cause of action does not arise until the plaintiff knows or by the exercise of reasonable diligence should have known, that he had been injured by the conduct of the defendant, for purposes of the statute of limitations.”)

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

Investors REIT One v. Jacobs, 46 Ohio St.3d 176 (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.”)

Mussivand v. David, 45 Ohio St.3d 314, 318, 544 N.E.2d 265 (1989) (An action for negligence requires a duty, a breach of that duty, and that breach resulted in an injury.)

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.)

Merit Decision

Executive Summary

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. Relying on Kunz, LGR argues the statute began to run when Continental refused to defend and indemnify it. Relying on Investors REIT and Flagstar, F&L argues the statute started to run when the policy was issued. The majority agrees with F&L; the dissenters with LGR. The cause of action in this case accrued on the date the policy was issued. But, in making its ruling, the majority does not overrule Kunz. The separate concurrence thinks the court should have.

General Rule and Exceptions

Justice Kennedy begins with the general rule that a statute of limitations begins to run when the act causing injury occurred.  There are two exceptions to this general rule. One is the time of discovery, adopted in O’Stricker, which tolls the running of the statute until the plaintiff knows or should have known that the plaintiff had been injured by the conduct of the defendant.  The second is the delayed damages rule, adopted in Velotta, which holds that where the wrong is not presently harmful, the cause of action does not accrue until damage occurs.

What Part of Court’s Opinion Controls?

Back in the day, the syllabus used to state the law of the case.  That is no longer true. The current version of Rep.Op.R 22 says that no part of an opinion takes precedence over any other part. While no one disagrees with that, in a wonky part of the majority opinion, Justice Kennedy writes that since that rule only went into effect in 2012, cases between 1982 (when the court set rules for reporting of decisions on or after March 1, 1983) and 2011 cannot be relied on to decide which part of those decisions, if any, take precedence over another. I guess the point being Kunz, Velotta, and Flagstar were all decided between 1982 and 2011. Lost in the weeds? Me, too.

Kunz: The Case of the (Un)Covered Crane

Since Kunz  (decided in 1982) was a per curiam decision without a syllabus, it is to be read in light of all the facts of the particular case, says Kennedy.

And so here all those facts.  Kunz and his concrete company (“the insureds”) began buying business insurance from their agent in 1952.  In 1969, they bought a policy written by Buckeye Union Insurance Company that provided all-risk coverage on a certain crane.  In April of 1970, the insurance agent, at Kunz’s request, presented Kunz with a three-year consolidated policy from Buckeye Union that Kunz thought provided the same all-risk coverage the insureds had before. The insureds renewed the consolidated policy in 1973, again assuming it was as good as the pre-1970 individual policies.  But it turns it wasn’t.

On April 21, 1975, the crane was damaged.  In June of 1975, Buckeye Union denied the claim based on a consolidated policy exclusion that wasn’t part of the pre-1970 coverage on the claim. The insureds sued their agent on April 20, 1977, alleging negligence in obtaining coverage on the crane. The trial court and appeals court found in favor of the agent, finding the four year statute of limitations (the same one at issue in this appeal) began to run the date the consolidated policy was issued, which was April 1, 1973. Applying the delayed damages rule, the Supreme Court of Ohio found that the cause of action did not accrue until the crane was damaged in 1975.  So, the suit filed in April of 1977 was timely filed.

Ok, so why this whole detailed work-out with the Kunz case?  To show that it is different from the case at bar. In Kunz, when the insureds bought the consolidated policy, they believed, incorrectly, that the all-risk coverage continued.   But when LGR bought its insurance policy, when the policy was issued, it contained the very entity-exclusion in it that Continental relied on in denying the claim.  Get it?

The delayed damages rule only applies in those narrow circumstances in which the injured party’s right to recovery might be barred before the party is even aware he or she has been injured.  But because the coverage LGR obtained specifically excluded coverage for claims related to services performed for Plaza Properties, that is not the case here. Here, the harm to LGR was complete when F&L issued the insurance contract with that specific exclusion in it, so the claim accrued the day the policy was issued.

So, Does This Mean Kunz is Gone?

Not to Justices Kennedy, O’Donnell, and French.

“F&L argues that the holding in Kunz has been eroded by Investors REIT and Flagstar. Because we need not reach that issue to resolve this case, we decline to do so,” wrote Kennedy.

What  Exactly Happens to this Case?

The court of appeals is reversed, and the trial court’s judgment dismissing LGR’s complaint is reinstated.  In short, this case is over and LGR lost.

Justice DeWine’s Concurrence

Justice DeWine clearly thinks Kunz should have been overruled:

“The majority’s opinion today and the decision in Kunz cannot both be the law.”

DeWine sees no meaningful distinction between this case, and Kunz—in both, the insured received less coverage than it thought it had bought, an injury occurred, coverage was denied, and a lawsuit was filed more than four years after the policy was issued: “Had today’s rule been applied in Kunz, we would have been compelled to find that the claim there was barred by the statute of limitations. Had the rule that was applied in Kunz been applied in today’s case, LGR Realty’s claim would not be barred by the statute of limitations,” wrote DeWine.

To DeWine, the Court has made it clear, in the cases since Kunz, and particularly, in Flagstar, that the general rule is that all professional-negligence claims governed by R.C. 2305.09(D) accrue at the time of the wrongful act (here, when the policy was issued.) The Court’s failure to overrule Kunz in Flagstar has done nothing but create confusion in the lower appellate courts, and the Court absolutely should have overruled Kunz in this case, and should have done so sooner.

Bottom line, Concurring Opinion

“A cause of action for professional negligence under R.C. 2305.09(D) accrues at the time of the wrongful act. Kunz has been overruled. We should not be shy about saying so. ”

Chief Justice O’Connor joined this concurrence.

Dissenting Opinion

Judge Robb, sitting for Justice Fischer, dissented, joined by then-Justice O’Neill.  She believes that the statute of limitations accrued when there was an injury, and here, that is when the claim was denied.  Thus, the complaint in this case was timely filed.

Case Syllabus

None

Concluding Observations

As a retired torts professor with a notorious plaintiff’s heart, I think this is a terrible decision.  I don’t see how there was an injury until this claim was denied, and so I wrote after oral argument.  So, count me with the dissenters.  It was clear during argument that Judge Robb and Justice O’Neill felt that way, but I thought the Chief and Justice O’Donnell did, too. As Justice O’Donnell put it during argument, “Until a claim was made and denied, how would the policyholder know it was injured?”

Justice Kennedy makes much in the majority opinion of a specific provision in the policy at issue here excluding any claim made against LGR by Plaza Properties.  I don’t think anyone brought that up during oral argument, nor do I recall it in the briefing.

Given the court’s ruling, I agree with Justice DeWine that it should have overruled Kunz. Why not? It clearly has caused confusion in the lower courts.

Back in the day, when I was practicing in the medical negligence field, I remember how long it took for the discovery rule to be adopted for statutes of limitations for medical claims. Although that is not at issue here, I hope today’s decision doesn’t foreshadow trouble for that exception.

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