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CASE NO. 16 – 1307 ______________________________________________________________________________
In the SUPREME COURT OF OHIO _____________
APPEAL FROM THE COURT OF APPEALS
TENTH APPELLATE DISTRICT FRANKLIN COUNTY, OHIO CASE NO. 15AP-‐1072
____________
FRANK AND LONDON INSURANCE AGENCY, Appellant
v.
LGR REALTY, INC. Appellee
______________________________________________________________________________
BRIEF OF AMICUS CURIAE THE OHIO ASSOCIATION FOR JUSTICE IN SUPPORT OF APPELLEE LGR REALTY, INC.
______________________________________________________________________________ Edwin J. Hollern (0040534) Robert P. Rutter (0021907) HOLLERN & ASSOCIATES RUTTER & RUSSIN, LLC. 77 North State Street 4700 Rockside Road, Suite 650 Westerville, Ohio 43081 Cleveland, Ohio 44131 (614) 839-‐5700 Fax (614) 839-‐4200 (216) 642-‐1425 Fax (216) 642-‐0613 [email protected] [email protected] Neal J. Barkan (0020450) Counsel for Amicus Curiae The Ohio BARKAN MEIZLISH, LLP Association For Justice 250 East Broad Street, 10th Floor Columbus, Ohio 43215 Samuel G. Casolari, Jr. (0034410) (614) 221-‐4221 Fax (614) 744-‐2300 David J. Oberly (0088410) [email protected] MARSHALL DENNEHEY WARNER COLEMAN & GOGGIN Counsel for Appellee LRG Realty, Inc. 312 Elm Street, Suite 1850 Cincinnati, Ohio 45202 (513) 372-‐6800 Fax (513) 372-‐6801 Counsel of Record for Appellant Frank and London Insurance Agency
Supreme Court of Ohio Clerk of Court - Filed June 27, 2017 - Case No. 2016-1307
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Syed S. Ahmad (pro hac vice) HUNTON & WILLIAMS LLP 2200 Pennsylvania Ave., NW Washington, DC 20037 (202) 955-‐1500 Fax (202) 778-‐2201
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TABLE OF CONTENTS
Page Table of Authorities………………………………………………………………………………….. iv 1. The Court’s options for construing the word “accrues” in R.C. §2305.09…………………………………………………………………………….. 1 2. How we got here – a historical perspective of R.C. §2305.09…………. 4 3. The construction of the word “accrues” is a judicial function………… 8 4. The rules of statutory construction……………………………………………….. 10 5. The Court should affirm Kunz and the delayed damage rule or extend Kunz and adopt the discovery rule in insurance negligence cases…………………………………………………………………………… 11 5.1 Stare decisis favors affirming Kunz……………………………………………….. 11 5.2 Legislative history is neutral or unhelpful in deciding whether to affirm or overrule Kunz……………………………………………… 13 5.3 The other factors contained in R.C. §1.49 dictate affirming Kunz…………………………………………………………………………………………….. 17 5.4 Requiring an insured to discover some theoretical damage when the policy is issued is unfair and unrealistic………………………… 19 5.5 The Kunz rule is workable in practice…………………………………………… 21 6. The history of the discovery rule in Ohio shows that it has steadily expanded and is still expanding……………………………………….. 21 7. The discovery rule is the majority rule across the country…………….. 28 8. Conclusion…………………………………………………………………………………….. 33 Certificate of Service………………………………………………………………………………….. 35 Appendix……………………………………………………………………………………………………. 36
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TABLE OF AUTHORITIES
Case Page Amer v. Akron City Hospital 47 Ohio St.2d 85, 351 N.E.2d 479 (1976)……………………………………………… 26 American Erectors, Inc. v. McNish Group, Inc. 2015 WL 5440331 (Mich.Ct.App.2015)……………………………………………….. 30 American Family Ins. v. Waupaca Elevator Co., Inc. 809 N.W.2d 337 (2012)……………………………………………………………………… 32 American General Assur. Co. v. Pappano 374 Md. 339 (2003)…………………………………………………………………………….. 32 Ault v. Jasko 70 Ohio St.3d 114, 637 N.E.2d 870 (1994)…………………………………………… 27 Baptist Health v. BancorpSouth Ins. Services, Inc. 2010 WL 1461598 (N.D.Miss.2010)……………………………………………………. 30 Berry v. Branner 245 Or. 307, 421 P.2d 996 (1966)……………………………………………………….. 9, 14
Blue v. Universal Underwriters Life Ins. Co. 612 F.Supp.2d 1201 (N.D.Ok.2009)…………………………………………………….. 32 Bonded Waterproofing Servs., Inc. v. Anderson-‐Bernard Agency, Inc. 86 A.D. 527 (N.Y.S.2d 2011)………………………………………………………………… 30 Burgess v. Eli Lilly and Company 66 Ohio St.3d 59, 609 N.E.2d 140 (1993)……………………………………………… 27 Burk Property Investments, LLC v. Alliance Ins. Agency Servs., Inc. 993 So.2d 810 (La.App. 4 Cir.2008)……………………………………………………… 31 Burr v. Board of County Commissioners of Stark County 23 Ohio St.3d 69, 491 N.E.2d 1101 (1986)…………………………………………… 26 Bush v. Ford Life Ins. Co. 682 So.2d 46 (Ala.1996)……………………………………………………………………… 30 Cacciacarne v. G.D. Searle & Co. 908 F.2d 95 (6th Cir. 1990)…………………………………………………………………. 27
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Canton v. Imperial Bowling Lanes, Inc. 16 Ohio St.2d 47, 242 N.E.2d 566 (1968)……………………………………………… 11 Collins v. Sotka 81 Ohio St.3d 506, 692 N.E.2d 581 (1998)…………………………………………… 27 Colorado Pool Systems, Inc. v. Scottsdale Ins. Co. 317 P.3d 1262 (Col.Ct.App.2012)……………………………………………………….. 31 DeLong v. Campbell 157 Ohio St. 22, 104 N.E.2d 177 (1952)………………………………………………. 21, 22, 23 Draher v. Walters 130 Ohio St. 92, 94, 194 N.E. 884, 885 (1935)……………………………………… 11 Faber v. McVay 155 A.3d 153 (2017)…………………………………………………………………………… 32 Fee’s Adm’r v. Fee 10 Ohio 469, 1841 WL 31……………………………………………………………………. 16 Flagstar Bank v. Airline Union’s Mortgage Company 128 Ohio St.3d 529, 947 N.E.2d 672 (2011)……………………………………….. 7, 8, 11, 13, 17, 18 Flanagan v. Mount Eden General Hospital 24 N.Y.2d 427, 248 N.E.2d 871 (1969)………………………………………………… 15 Flemens v. Harris 323 Ark. 421 (1996)……………………………………………………………………………. 29 Gazija v. Nicholas Jerns Co. 86 Wash.2d 215 (1975)……………………………………………………………………… 33 George H. Olmsted & Co. v. Metropolitan Life Insurance Company 118 Ohio St. 421, 161 N.E. 276 (1928)………………………………………………… 8 Girouard v. United States 328 U.S. 61, 69, 66 S.Ct. 826, 90 L.Ed. 1084 (1946)…………………………….. 14 Grama v. Trandel Ins. Agency 2016 WL 913439 (Ill.Ct.App.2016)…………………………………………………….. 31
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Gregory v. Flowers 32 Ohio St.2d 48, 54 290 N.E.2d 181, 186 (1972)……………………………….. 11, 23 Groce v. American Family Mut. Ins. Co. 5 N.E.3d 1154 (Ind.2014)…………………………………………………………………… 31 Gudenau & Co., Inc. v. Sweeney Ins., Inc. 736 P.2d 763 (Ak.1987)……………………………………………………………………… 30 Helvering v. Hallock 309 U.S. 106, 121, 60 S.Ct. 444, 84 L.Ed. 604 (1940)…………………………… 15 Hydro-‐Mill Co., Inc. v. Hayward, Tilton and Rolapp Ins. Associates, Inc. 115 Cal.App.45 1145 (2004)……………………………………………………………….. 31 Investors REIT One v. Jacobs 46 Ohio St.3d 176, 546 N.E.2d 206 (1989)…………………………………………… 6, 7, 8, 9, 13 Kasu Corp. v. Blake, Hall & Sprague, Inc. 582 A.2d 978 (1990)…………………………………………………………………………… 29 Kaufman v. C.L. McCabe & Sons, Inc. 603 A.2d 831 (1992)……………………………………………………………………………. 29 Khatchatourian v. Encompass Ins. Co. of Mass. 78 Mass.App.Ct. 53 (2010)………………………………………………………………….. 32 Kunz v. Buckeye Union Ins. Co. 1 Ohio St.3d 79, 437 N.E.2d 1194 (1982)………………………… 3, 5, 7, 8, 11, 12, 13, 17, 21, 24 Liddell v. SCA Services of Ohio 70 Ohio St.3d 6, 635 N.E.2d 1233 (1994)……………………………………………. 27 Longmire v. Upjohn Co. 686 F.Supp. 659 (S.D. Ohio 1988)……………………………………………………….. 27 Longworth v. Hunt 11 Ohio St. 194, 1860 WL 36……………………………………………………………….. 16 Makris v. Scandinavian Health Spa, Inc. 1999 WL 759989 (7th District)…………………………………………………………….. 27 Manzanita Park, Inc. v. Ins. Co. of North America 857 F.2d 549 (9th Cir.1988)………………………………………………………………… 30
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Martin v. Ohio State University Foundation 139 Ohio App.3d 89, 742 N.E.2d 1198 (2000)……………………………………… 19 Meeker v. American Torque Rod of Ohio 79 Ohio App.3d 514, 607 N.E.2d 874 (10th District 1992)…………………… 27 Melnyk v. Cleveland Clinic 32 Ohio St.2d 198, 290 N.E.2d 916 (1972)…………………………………………… 5, 22, 23, 26 Medical Data Systems, Inc. v. Coastal Ins. Group, Inc. 139 So.3d 394 (Fla.Dist.Ct.App.2014)………………………………………………… 29 Moldovan v. Lear Siegler, Inc. 672 F.Supp. 1023 (N.D. Ohio 1987)…………………………………………………….. 28 NCR Corp. v. U.S. Mineral Products Co. 72 Ohio St.3d 269, 649 N.E.2d 175 (1995)………………………………………….. 27 New Mexico Public Schools Ins. Authority v. Arthur J. Gallagher & Co. 145 N.M. 316 (2008)…………………………………………………………………………. 32 Norgard v. Brush-‐Wellman, Inc. 95 Ohio St.3d 165, 766 N.E.2d 977, 2002-‐Ohio-‐2007…………………………. 27 Occidental Fire and Cas. Of North Carolina v. Goodman 339 Ga.App. 427 (Ct.App.Ga.2016)…………………………………………………….. 29 Oliver v. Kaiser Community Health Foundation 5 Ohio St.3d 111, 449 N.E.2d 438 (1983)…………………………………………….. 6, 23 24, 26 O’Stricker v. Jim Walter Corporation 4 Ohio St.3d 84, 447 N.E.2d 727 (1983)……………………………………………….6, 9, 18, 21, 26, 34 Pichowicz v. Watson Ins. Agency, Inc. 146 N.H.166 (2001)……………………………………………………………………………. 30 Plaza Bottle Shop, Inc. v. Al Torstrick Ins. Agency, Inc. 712 S.W.2d 349 (Ky.App.1986)…………………………………………………………… 31 Renner v. Edwards 93 Idaho 836, 475 N.E.2d 530 (1970)………………………………………………….. 15
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Robson v. Quentin E. Cadd Agency 179 Ohio App.3d 298 at ¶28, 901 N.E.2d 836 (4th District)…………………. 19 Schmitz v. NCAA 67 N.E.3d 852 (8th District 2016)………………………………………………………… 27 Scott-‐Pontzer v. Liberty Mutual Fire Ins. Co. 85 Ohio St.3d 660, 710 N.E.2d 1116 (1988)…………………………………………. 12 Sears v. Weimer 143 Ohio St. 312, 55 N.E.2d 413 (1944)……………………………………………….. 10 Skidmore & Hall v. Rottman 5 Ohio St.3d 210, 450 N.E.2d 684 (1983)…………………………………………….. 26 South Carolina Farm Bureau Mut. Ins. Co. v. Kelly 345 S.C. 232 (Ct.App.2001)…………………………………………………………………. 33 State ex rel Overholser Builders, LLC v. Clark County Board of Commissioners 174 Ohio App.3d 631, 884 N.E.2d 71, 2007-‐Ohio-‐7230 (2nd District)….. 10 State ex rel Toledo Edison Co. v. Clyde 76 Ohio St.3d 508, 668 N.E.2d 498 (1996)…………………………………………… 10 Stewart v. Trumbull County Board of Elections 34 Ohio St.2d 129, 296 N.E.2d 676 (1973)……………………………………………. 10 Thomas v. American Workmen 197 S.C. 178, 14 S.E.2d 886 (1941)……………………………………………………….. 19 Toy v. Metropolitan Ins. Co. 863 A.2d 1 (2004 PA Super)…………………………………………………………………. 32 Velotta v. Leo Petronzio Landscaping, Inc. 69 Ohio St.2d 376, 433 N.E.2d 147 (1982)……………………………………………. 24, 25 Venham v. Astrolite Alloys 73 Ohio App.3d 90, 596 N.E.2d 585 (4th District 1991)………………………… 27 Viock v. Stowe-‐Woodward Co. 13 Ohio App.3d 7, 467 N.E.2d 1378 (6th District 1983)……………………….. 27 Wack v. Lederle Laboratories 666 F.Supp. 123 (N.D. Ohio 1987)……………………………………………………….. 28
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Wanner Metal Worx, Inc. v. Hylant-‐Maclean, Inc. 2003-‐Ohio-‐1814, 2003 WL 1826558 (5th District)………………………………… 19 Ward v. Moore 9 Ohio Law Abs. 439, 1930 WL 278 (4th District)…………………………………… 3, 13 Westfield Insurance Co. v. Galatis 100 Ohio St.3d 216, 797 N.E.2d 1256, 2003-‐Ohio-‐5849………………………… 11, 12 Wyler v. Tripi 25 Ohio St.2d 164, 267 N.E.2d 419 (1971)……………………………………………. 22, 23, 24 Zimmie v. Calfee, Halter and Griswold 43 Ohio St.3d 54, 538 N.E.2d 398 (1989)………………………………………………. 2
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1. The Court’s options for construing the word “accrues” in R.C. §2305.09. If I punch you in the face and break your nose, my wrongful act, your actual damage,
and your discovery of your actual damage all occur simultaneously. This is the way it works with
many, probably most, torts. But it is not true of all torts or all fact patterns. More and more, as
science, medicine, and technology advance, these three events are occurring at different times.
Nowhere is this more apparent than in the field of toxic torts, where negligent acts committed
far in the past are now being found to have caused damage, perhaps initially only microscopic
damage, that could not be diagnosed for decades.
Insurance agent negligence is another such tort. Let’s use an example. I inherit my
parent’s century house in Shaker Heights and go to my local State Farm agent for coverage. The
agent says: “We insure houses on a repair cost basis, so how much will it cost to rebuild your
house?”
“I have no idea, but it was built back in the 1920s.”
“No problem, we deal with situations like this all the time. We have a computer
program that estimates the cost of rebuilding based on square footage, type of construction,
area where the house is located, and several other factors. Would you like me to use the
program to estimate how much insurance you need?’
“Sure. You’re the expert.”
The agent comes back after doing his work and tells me I need $350,000 of insurance.
Great. I pay the premium and get a policy with a $350,000 limit. Five years later the house is
partially damaged by fire. I hire a contractor to do the repairs and a month later he gives me his
estimate for $800,000. Whoa! I go and talk to my agent.
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“You told me it was going to cost me $350,000 to rebuild the entire house. Now, I suffer
a partial loss and it’s going to cost me $800,000. I know the estimate you gave was five years
ago, but prices haven’t risen that much.”
“I know. I’m sorry. I did the estimate all wrong five years ago, maybe because I had an
alcohol problem back then. I measured the house wrong, so I used the wrong square footage.
And I put in the program that you had a wood-‐frame house when it was actually brick and
stone, and I did not allow for the special wood trim or slate roof, and I used the local price
adjustment factor for Bucyrus by mistake. If I had done the estimate right, it would have shown
that you needed $1,250,000 in insurance. I guess I goofed.”
In this scenario, I got the exact policy that I thought—or was told—that I needed. There
was no actual damage until the fire occurred, and there was no way for me to discover that I
was underinsured unless I hired an expert to do the same thing that my insurance agent told
me he had done. Why would I spend money to do that? That’s why I have an agent.
The Court has three options to choose from in determining when my cause of action
against the insurance agent accrues for purposes of R.C §2305.09.
Wrongful act—The date my insurance agent committed the wrongful or negligent act.
Actual damage—The date the fire occurred at my house for which I turned out to be
grossly underinsured due to the agent’s negligence.
Discovery date—The date my contractor told me how much it will cost to repair my
house and I discovered that I am grossly underinsured. Medical and legal malpractice cases
refer to this as the cognizable event. See Zimmie v. Calfee, Halter and Griswold, 43 Ohio St.3d
54, 538 N.E.2d 398 (1989).
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The Court’s challenge in this case is to interpret a statute of limitation that was written
nearly 150 years ago and apply it to a cause of action that has existed in Ohio for only about 90
years. See Ward v. Moore, 9 Ohio Law Abs. 439, 1930 WL 278 (4th District), which is the earliest
case counsel could find using the Boolean Westlaw search “‘insurance agent’ negligence.”
The first complete codification of Ohio laws, the Revised Statutes, was done in 1879, the
General Code was enacted in 1910, and the modern Revised Code was enacted in 1953. There
is no legislative history dealing with any of the versions of R.C. §2305.09 included in these
codifications.
Moreover, the first time a court held that R.C. §2305.09 was the applicable statute of
limitations for a claim of insurance agent negligence was in Kunz, which was decided in 1982,
over 100 years after the first version of the statute was enacted.
Because the legislature enacted the statute decades before the tort of insurance agent
negligence even existed, the original legislators could not have contemplated its eventual
application to insurance agent negligence cases. That would be akin to arguing that Madison
and Hamilton’s comments in the Federalist Papers contemplated the search of modern-‐day cell
phones.
So, we have no legislative history that directly addresses the issue. What is telling,
however, is the legislature’s response to the holding in Kunz that interpreted the word
“accrued” in the statute to mean the date of actual injury. Kunz has been the law of Ohio for
over 30 years, and the legislature has not seen fit to amend the statute and legislatively
overrule Kunz, as it certainly has done on other recent occasions.
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Does this indicate that the legislature agrees with Kunz? Is this proof of present-‐day
legislative intent? Or, as with any inference of legislative intent drawn from actions or inactions
done over 150 years ago, does it prove nothing?
2. How we got here—a historical perspective of R.C §2305.09. Here is the condensed version of the sequence of statutes and cases that resulted in the
present case.
1879 The first enactment of a comprehensive code of laws in Ohio, including:
Sec. 4979. Civil actions other than for the recovery of real property can only be brought within the following periods, after the cause of action accrues. Sec. 4982. Within four years: An action for trespass upon real property. An action for the recovery of personal property or for the taking, detaining, or injuring the same; but in an action for the wrongful taking of personal property, the cause of action shall not be deemed to have accrued, until the wrongdoer is discovered. An action for an injury to the rights of the plaintiff, not arising on contract, and not hereinafter enumerated. An action for relief on the ground of fraud; but the cause of action in such case shall not be deemed to have accrued until the discovery of the fraud.
See 1879 Revised Statutes, Appendix 1, available on several online sites including Hathaway Trust Digital Library.
1910 General Code enacted, including:
Sec. 11224. Four Years. An action for either of the following causes shall be brought within four years after the cause thereof accrued: 1. For trespassing upon real property; 2. For the recovery of personal property, or for taking, detaining, or injuring it; 3. For relief on the ground of fraud;
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4. For an injury to the rights of the plaintiff not arising on contract nor hereinafter enumerated.
If the action be for trespassing under ground or injury to mines, or for the wrongful taking of personal property, the cause thereof shall not accrue until the wrongdoer is discovered; nor, if it be for fraud, until the fraud is discovered. See Appendix 2.
1953 Revised Code enacted, including R.C. 2305.09:
Four-‐year limitation for certain actions An action for any of the following causes shall be brought within four years after the cause thereof accrued: (A) For trespassing upon real property; (B) For the recovery of personal property, or for taking or detaining it; (C) For relief on the gr ound of fraud; (D) For an injury to the rights of the plaintiff not arising on contract nor enumerated in sections 2305.10 to 2305.12, inclusive, 2305.14 and 1304.29 of the Revised Code. If the action is for trespassing under ground or injury to mines, or for the wrongful taking of personal property, the causes thereof shall not accrue until the wrongdoer is discovered; nor if it is for fraud, until the fraud is discovered.
1972 Melnyk v. Cleveland Clinic, 32 Ohio St.2d 198, 290 N.E.2d 916 (1972)
Discovery rule adopted in medical malpractice cases involving foreign objects left in the patient’s body during surgery.
1982 Kunz v. Buckeye Union Ins. Co., 1 Ohio St.3d 79, 437 N.E.2d 1194 (1982)
Per curiam opinion involving insurance agent negligence. Insured’s crane damaged—claim denied. Court held that R.C. §2305.09 was the applicable statute. Agent argued that SOL began to run when policy was issued. Insured argued for the delayed damage rule, which the court adopted. SOL accrued when crane damaged—not when claim denied.
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Adopted actual damage rule—not discovery rule. 1983 O’Stricker v. Jim Walter Corporation, 4 Ohio St.3d 84, 447 N.E.2d 727 (1983)
Syllabus—“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 defendant, for purposes of the statute of limitations contained in R.C 2305.10.”
1983 Oliver v. Kaiser Community Health Foundation, 5 Ohio St.3d 111, 449 N.E.2d 438 (1983)
Adopted discovery rule for all medical malpractice claims, not just foreign object cases. Prior case law had utilized the termination rule—one year from date of termination of physician-‐patient relationship. Note that the termination rule is not included in the language of R.C. §2305.11—“An action for * * * malpractice, including an action for malpractice against a physician * * * or a hospital * * * shall be brought within one year after the cause of action arose.” Discovery rule based on public policy—“Use of the discovery rule eases the unconscionable result to innocent victims who by exercising even the highest degree of care could not have discovered the cited wrong.” Id at 114.
1989 Investors REIT One v. Jacobs, 46 Ohio St.3d 176, 546 N.E.2d 206 (1989)
Syllabus—“The discovery rule is not available to claims of professional negligence brought against accountants.” Involved negligent preparation of financial statements. Primary reason for not recognizing discovery rule was that legislature had amended other SOL to expressly include discovery rule in certain situations, but had not amended R.C. §2305.09. “The General Assembly’s failure to include general negligence claims under the discovery rule set out in R.C. 2305.09 argues strongly that it was not the legislature’s intent to apply the discovery rule to such claims.” Id at 181. “The General Assembly has not adopted a discovery rule applicable to general negligence claims arising under R.C. 2305.09. This court will not interpret R.C. 2305.09 to include a discovery rule for professional negligence claims against
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accountants arising under R.C. 2305.09 absent legislative action on the matter.” Id at 182. This case only deals with accountant claims—no discussion of Kunz.
2004 R.C 2305.09 is amended to include an additional paragraph:
An action for professional negligence against a registered surveyor shall be commenced within four years after the completion of the engagement on which the cause of action is based.
The legislature leaves the rest of the statute alone. 2011 Flagstar Bank v. Airline Union’s Mortgage Company, 128 Ohio St.3d 529, 947 N.E.2d 672
(2011)
Appraiser negligence claim. Syllabus—“A cause of action for professional negligence against a property appraiser accrues on the date that the negligent act is committed, and the four-‐year statute of limitations commences on that date.” Follows Investors REIT One. Property appraisals done in 2001 and 2002. Action filed in 2008 alleging appraisals materially inaccurate. Bank said no injury until property sold at foreclosure. “Because the legislature did not define ‘accrue,’ we must determine when a cause of action accrues.” Id at ¶12. “[T]he discovery rule (concept) must be specifically tailored to the particular context in which it is to be applied.” Id at ¶15. Discusses discovery rule and delayed damages rule. Cites Kunz as applying delayed damage rule. As in Investors REIT One, the Court’s decision applies only to a narrow profession—property appraisers—and not to all professions.
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Since Flagstar, appellate courts have struggled to decide whether Kunz is still good law,
or whether Investors REIT One and Flagstar, even though they did not mention insurance
agents, nevertheless impliedly overruled Kunz.
Technically, Kunz is a delayed damage case, not a discovery case, so the holdings in
Investors REIT One and Flagstar can certainly be distinguished. But does the Court want to slice
the onion this thin?
3. The construction of the word “accrues” is a judicial function.
Before we get to the meat of the appeal, let’s discuss and dismiss one argument that
appellant makes throughout its brief. Appellant repeatedly asserts that the delayed damage
rule and the discovery rule are judicially-‐created exceptions to R.C. 2305.09(D). According to
appellant, the court of appeals “contravened the plain language of the limitations statute”,
which dictates that a claim accrues when the wrongful act occurs, not when the damage occurs
or the damage is discovered. Any attempt to hold that a cause of action accrues when damage
occurs or damage is discovered is, therefore, a “judicially-‐created” exception to the plain
meaning of the statute.
Appellant’s argument is clever, but fallacious.
There is nothing plain about the meaning of the term “accrues.” As this Court
recognized in George H. Olmsted & Co. v. Metropolitan Life Insurance Company, 118 Ohio St.
421, 161 N.E. 276 (1928), when numerous courts have interpreted a term and arrived at
conflicting conclusions about its correct meaning, intent, and effect, “the question whether
such clause is ambiguous ceases to be an open one.” This is what has happened to the term
“accrues”, not just in Ohio, but across the country.
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Despite what appellant argues, no statute of limitation in Ohio defines what “accrues”
means. More specifically, R.C. §2305.09 does not say that it is triggered by a wrongful act any
more than it says it is triggered by actual damage or discovery of damage. The statute is
completely silent on the trigger.
“Absent legislative definition, it is left to the judiciary to determine when a cause of
action “arose” for purposes of statutes of limitation.” O’Stricker v. Jim Walter Corp., 4 Ohio
St.3d 84, 447 N.E.2d 727 (1983), syllabus 1. The same holds true for the definition of “accrues.”
Investors REIT One v. Jacobs, 46 Ohio St.3d 176, 546 N.E.2d 206 (1989).
So, adoption by a court of the delayed damage rule or the discovery rule is no more of a
judicially-‐created rule than adoption of the wrongful act rule. Any rule announced by this Court
is nothing more than it properly exercising its judicial function; that is, to interpret an
ambiguous term of a statute.
In Berry v. Branner, 245 Or. 307, 421 P.2d 996 (1966), the court reversed its earlier
decision holding that a cause of action for malpractice accrues at the date of the wrongful act,
and adopted the discovery rule. The dissent argued that this amounted to judicial legislation,
and the majority responded:
The legislature, however, did not provide that the time of accrual was when the physician performed the negligent act. This court did. The legislature left the matter undetermined. A determination that the time of accrual is the time of discovery is no more judicial legislation than a determination that it is the time of the commission of the act. Id at 313.
In interpreting an ambiguous term, the court should be mindful of certain well-‐
established rules of construction.
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4. The rules of statutory construction. Where the language of a statute is plain and unambiguous and conveys a clear and
definite meaning, there is no need to apply rules of statutory construction. Sears v. Weimer,
143 Ohio St. 312, 55 N.E.2d 413 (1944), syllabus 5. However, when a statute is ambiguous,
courts must resort to the rules of statutory construction. The primary rule of statutory
construction is to ascertain, declare, and give effect to the intention of the legislature. The
Court must determine the intent of the legislature primarily from the language of the statute
itself. Stewart v. Trumbull County Board of Elections, 34 Ohio St.2d 129, 296 N.E.2d 676 (1973).
In determining the intention of the legislature, courts may also consider the factors set
forth in R.C. §1.49:
If a statute is ambiguous, the court, in determining the intention of the legislature, may consider among other matters:
(A) The object sought to be obtained; (B) The circumstances under which the statute was enacted; (C) The legislative history; (D) The common law or former statutory provisions, including
laws upon the same or similar subjects; (E) The consequences of a particular construction; (F) The administrative construction of the statute.
The consideration of these factors and the reference to “other matters” necessarily
allows courts to also consider Ohio’s public policy. State ex rel Toledo Edison Co. v. Clyde, 76
Ohio St.3d 508, 668 N.E.2d 498 (1996). These factors also give rise to several other, but related,
rules of construction. A constitutional construction is favored over a non-‐constitutional
construction. State ex rel Overholser Builders, LLC v. Clark County Board of Commissioners, 174
Ohio App.3d 631, 884 N.E.2d 71, 2007-‐Ohio-‐7230 (2nd District). A construction that results in a
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just and reasonable result is favored over a construction that results in hardship or injustice.
Canton v. Imperial Bowling Lanes, Inc., 16 Ohio St.2d 47, 242 N.E.2d 566 (1968).
Finally, and most significantly, a remedial statute is to be liberally construed. A statute
of limitation is remedial in nature and is to be given a liberal construction to permit the
deciding of cases on their merits. Gregory v. Flowers, 32 Ohio St.2d 48, 54 290 N.E.2d 181, 186
(1972), (referring to the “settled doctrine that statutes of limitation are remedial or procedural
in nature”); R.C. §1.11.
The liberal construction of a statute of limitation requires that “every reasonable
presumption will be indulged and every doubt resolved in favor of affording, rather than
denying a plaintiff his day in court.” Draher v. Walters, 130 Ohio St. 92, 94, 194 N.E. 884, 885
(1935); Flagstar Bank v. Airline Union Mortgage Co., 128 Ohio St.3d 529, 947 N.E.2d 672, 2011-‐
Ohio-‐1961, ¶7.
5. The Court should affirm Kunz and the delayed damage rule or extend Kunz and adopt the discovery rule in insurance negligence cases.
5.1 Stare decisis favors affirming Kunz.
“Stare decisis is the bedrock of the American judicial system. Well-‐reasoned opinions
become controlling precedent, thus creating stability and predictably in our legal system. It is
only with great solemnity and with the assurance that the newly chosen course for the law is a
significant improvement over the current course that we should depart from precedent.”
Westfield Insurance Co. v. Galatis, 100 Ohio St.3d 216, 797 N.E.2d 1256, 2003-‐Ohio-‐5849.
This Court has relied on several factors to determine if stare decisis should be ignored
and a previous decision be overruled. These include (1) whether the decision was wrongly
decided, (2) whether the decision defies practical workability, (3) whether reliance interests
12
would cause an undue hardship, and (4) whether changes in the law or facts no longer justify
the questioned decision. Galatis, ¶47.
Kunz was not wrongly decided in the same sense that Scott-‐Pontzer v. Liberty Mutual
Fire Ins. Co., 85 Ohio St.3d 660, 710 N.E.2d 1116 (1988) was wrongly decided. Kunz followed the
majority rule in the country, and this is still the majority rule, as discussed below. Kunz did not
involve any novel or strained reasoning, and was based on other analogous cases in which the
wrongful act and the damage from that act did not coincide.
Also, the rule announced in Kunz is practical and workable. Counsel is not aware of any
reported cases where application of the rule resulted in a manifestly unjust result, and
appellant has not cited any to this Court. The rule is simple and understandable, and, since it is
the majority rule through the country, it is the rule that insurance agents expect.
As for reliance, one need look no further than this case to see that Ohio lawyers and
their clients have relied on the rule set forth in Kunz in deciding whether to take insurance
agent negligence cases and when to file them.
Finally, there has been no change in Ohio law that dictates a reversal of Kunz. If
anything, as discussed below, the discovery rule has steadily expanded in Ohio and across the
country, and the wrongful act rule, at least in professional negligence cases, has shrunk to a
small minority of states.
In short, this Court should affirm Kunz because it has been good law in Ohio for over 30
years, and appellant has not advanced any reason why the rule is wrong, unfair, or unworkable.
13
5.2 Legislative history is neutral or unhelpful in deciding whether to affirm or overrule Kunz.
“The devil can cite Scripture for his purpose.” William Shakespeare, The Merchant of
Venice. So it is with legislative history in this case. Let’s start with the legislative history that
favors affirming Kunz.
Kunz has been the law of Ohio for over 30 years. The legislature amended R.C §2305.09
in 2004 to add a special termination provision governing registered surveyors. While it was
amending the statute, if the legislature disagreed with Kunz it could have amended the statute
to legislatively overrule the decision, as it has done on numerous occasions in the areas of
uninsured motorist coverage, employer intentional tort, and damages caps.
It did nothing. It allowed Kunz to stand, providing strong evidence that the legislature
intends R.C. §2305.09 to operate in the area of insurance agent negligence just as it has for the
last 30 years. Ergo, the legislative history favors affirming Kunz.
But what of the argument that R.C. §2305.09 provides a discovery rule for trespassing
underground, taking personal property, and fraud, yet is silent as to the other torts that come
within its scope? This was the primary argument upon which both Investors REIT One and
Flagstar rested.
Here is why the argument assumes too much. The same basic version of R.C. §2305.09
has been on the books since at least 1879, the first time the laws of Ohio were codified state-‐
wide. At the time, insurance agent negligence was unknown. The first reported case in Ohio of
insurance agent negligence was in 1930, over 60 years later. See Ward v. Moore, 9 Ohio Law
Abs. 439, 1930 WL 2780 (4th District).
14
How could the legislators who passed the first version of the statute have contemplated
its application to a cause of action that did not even exist?
Berry v. Branner, 245 Or. 307, 421 P.2d 996 (1966) dealt with whether a cause of action
for malpractice accrues at the time of the wrongful act or when the damage is discovered. In a
case decided by the same court just a few years earlier, the majority had relied primarily on the
argument that the fraud statute specifically provided for accrual at the time of discovery, but
the malpractice statute was silent. The majority had relied on this as the main argument against
adopting the discovery rule—“the fact that the legislature expressly adopted the discovery rule
as to fraud and deceit but not as to malpractice.” Id. at 310.
However, in only four years the majority flipped, and the primary reason was the new
majority’s skepticism over relying on legislative inaction to determine legislative intent:
The validity of this reasoning is dependent upon the supposition that the legislature, in adopting the discovery principle as to fraud, had in mind undiscovered malpractice as well and nevertheless decided against the adoption of the discovery principle as to it. We do not now believe that his necessarily follows. Id at 310.
The court pointed out that “any number of things could have occurred which brought
the inequities of the fraud situation to the legislature’s attention without it ever having
considered analogous situations which might exist in other fields.” In the court’s view,
“Legislative inaction is a weak reed upon which to lean in determining legislative intent.” Id at
311.
Many other cases have pointed out the danger in placing reliance on legislative inaction:
• Girouard v. United States, 328 U.S. 61, 69, 66 S.Ct. 826, 90 L.Ed. 1084 (1946), (“It is at best treacherous to find in congressional silence alone the adoption of a controlling rule of law.”);
15
• Helvering v. Hallock, 309 U.S. 106, 121, 60 S.Ct. 444, 84 L.Ed. 604 (1940), (“[W]e walk on quicksand when we try to find in the absence of corrective legislation a controlling legal principle.”);
• Flanagan v. Mount Eden General Hospital, 24 N.Y.2d 427, 248 N.E.2d 871 (1969),
(discussing argument raised about legislative inaction and stating “This argument rests on unsure ground. No one knows why the Legislature did not pass a proposed measure.”);
• Renner v. Edwards, 93 Idaho 836, 475 N.E.2d 530 (1970), (holding that legislative
intent was an important factor “but to imply such an intent in this case as a result of legislative inaction is unreasonable.”).
Several Ohio courts have rejected the maxim of expressio unius est exclusio alterius—
the express inclusion of one thing means the exclusion of others. These courts have construed
R.C. §2305.10, which contains a discovery rule for injuries caused by asbestos or agent orange,
so as to also apply the discovery rule to injuries caused by substances not specifically listed in
the statute such as manganese, petroleum naphtha, IUD devices, DTP vaccines, and others. See
cases listed on pages 26 – 27.
Also, R.C. §2305.09’s present section (D) is a catch-‐all provision and it has been since
1879. Since it encompasses all types of miscellaneous causes of action, it would be impractical
for the legislature to state a discovery exception for each one as it did for trespass
underground, taking personal property, and fraud. The whole point of section (D) was to
provide a refuge for causes of action that the legislature did not think of and put in a specific
category. How could the legislature have listed causes of action that it did not think of?
Finally, there are reasons why the 1879 statute provided a discovery rule for trespass
underground, taking personal property, and fraud, and the reasons appear in the footnote to
the 1879 version of the statute. The legislature included the fraud provision because there was
a difference between how a statute of limitation was enforced in equity compared to how it
16
was enforced in law. Of course, this distinction is long-‐lost on any lawyer practicing today. This
court, in Fee’s Adm’r v. Fee, 10 Ohio 469, 1841 WL 31, ruled that fraudulent concealment of a
cause of action brought in law did not extend the statute of limitations. Later, in Longworth v.
Hunt, 11 Ohio St. 194, 1860 WL 36, this court had looked with displeasure at a litigant who
attempted to enforce the strict wording of a statute of limitation in equity, calling the attempt
“most unconscionable.”
These cases were cited in the legislative record to justify why a specific discovery rule
was needed for fraud cases; that is, to make sure the discovery rule was applicable in both
equity and law cases. The legislature had somewhat confusing supreme court precedent on this
cause of action, and used its disagreement with the strict enforcement of the wrongful act rule
as a basis for crafting a discovery rule. That is, the state had personal experience with fraud
cases and how the statute of limitations had operated in the past. The legislature knew of this
precedent, so it acted. No such supreme court precedent existed with respect to insurance
agent negligence cases because, as discussed above, they did not even exist yet. So, the failure
to act could not indicate the legislature’s intent; it had no intent because it had no cases dealing
with this tort upon which to draw.
In this case, there actually is no valid legislative history upon which the Court can rely.
There is no analysis by the Legislative Service Commission of any of the various bills amending
R.C. §2305.09 over the years. There is no record of any floor debate. There is neither a record
of any hearings nor any statements from any bill sponsors. What we have—all we have—on
either side is legislative inaction, and this is not a firm foundation upon which to build any
argument.
17
5.3 The other factors contained in R.C. §1.49 dictate affirming Kunz.
Since we have no real legislative history, the Court should rely on the other factors listed
in R.C. §1.49, particularly “The object sought to be obtained” and “The consequences of a
particular construction.”
Let’s start with the purposes of a statute of limitations. Flagstar listed several, including
(1) ensuring fairness to the defendant, (2) encouraging prompt prosecution of causes of action,
(3) suppressing stale and fraudulent claims, and (4) avoiding the inconveniences engendered by
delay—specifically, the difficulties of proof present in older cases.
With these considerations in mind, the Court must weigh the impact on each party of
each possible accrual date—wrongful act, actual damage, and discovery of actual damage.
Application of the wrongful act date will certainly lead to the foreclosure of many insurance
agent negligence cases before the insured even discovers the negligence and resulting damage.
Many commercial insurance policies are written on three-‐year terms, and the statute of
limitations for wrongful death in Ohio is two years. Consider this all-‐too-‐likely scenario:
Policy period 1/1/2010 to 1/1/2013 Industrial accident resulting in death 9/15/12 Lawsuit filed against insured 9/10/14 Insurer investigates and then denies 2/20/15
If the claim denial results because of insurance agent negligence, the insured’s cause of
action against the agent, even if filed immediately after the denial, will come too late. Or
consider the fact pattern set forth at the beginning of this brief. Any homeowner policy in force
for more than a few years will likely mean that the insurance agent is shielded from liability for
any errors made when the policy was initially issued. Encouraging the prompt prosecution of
18
claims is a laudable goal, but it is not served by constructing a limitations period that precludes
a suit from being filed before the insured party even sustains injury.
Unquestionably, the wrongful act rule hurts consumers. Significantly.
What about protection against stale claims and the inherent problem of memories
fading over time? In our modern age, with the increasing use of technology, the constant saving
of documents and photographs and emails, and the proliferation of electronic evidence that
never goes away, the problem of stale claims is not as significant as it was 50 or 100 years ago.
As in O’Stricker, insurance agent negligence cases are document-‐based, and “such documentary
evidence, unlike that requiring the exercise of individual’s memories, does not typically become
less reliable over time.” Id at 89.
Insurance agent negligence cases rely on insurance policies, applications, insurance
summaries furnished to insureds by agents, and internal insurance agency diary systems that
are now as common as email. The days of he-‐said/she-‐said insurance disputes are largely a
thing of the past.
That gets us to the last consideration in deciding how to interpret the word “accrues.”
Statutes of limitation are remedial statutes. Per R.C. §1.11, a court must construe them liberally
“to permit cases to be decided upon their merits, after a court indulges in every reasonable
presumption and resolves all doubts in favor of giving, rather than denying, the plaintiff an
opportunity to litigate.” Flagstar at ¶7.
Construing the statute liberally requires this Court to give it the broadest reading
reasonably possible in favor of allowing claims to be decided on their merits. This is clearly the
discovery rule. The choice is even clearer because, as discussed below, Ohio has embraced and
19
steadily expanded the scope of the discovery rule over the last 30 years, and this mirrors the
national trend. As discussed below, the discovery rule is now, without question, the majority
rule across the country.
5.4 Requiring an insured to discover some theoretical damage when the policy is issued is unfair and unrealistic.
Proponents of the wrongful act trigger argue that an insured suffers actual damage at
the time the policy is issued, and that the insured could and should discover the agent’s
negligence by reviewing the policy and determining that the coverage was not proper.
This amounts to a judicial determination that every insured who does not detect an
error made by its agent is more than 50% comparatively negligent, thus precluding a negligence
recovery against the agent. But this supposition fails to recognize that “the insured’s duty to
read is closely bound up with her right to rely” and that “the duty to read will depend upon the
facts of each case ‘such as the form and materiality of the representations, the respective
intelligence, experience, age, and mental and physical condition of the parties, and the relation
and respective knowledge and means of knowledge of the parties.’” Martin v. Ohio State
University Foundation, 139 Ohio App.3d 89, 742 N.E.2d 1198 (2000), quoting Thomas v.
American Workmen, 197 S.C. 178, 14 S.E.2d 886 (1941).
See also Wanner Metal Worx, Inc. v. Hylant-‐Maclean, Inc., 2003-‐Ohio-‐1814, 2003 WL
1826558 (5th District), (recognizing that charging an insured with an absolute duty to read and
fully comprehend his policy “would be imposing strict contributory negligence when such is not
the standard in Ohio.”); Robson v. Quentin E. Cadd Agency, 179 Ohio App.3d 298 at ¶28, 901
N.E.2d 836 (4th District), (adopting the rationale that “the insured’s failure to read the policy is
a matter of comparative negligence reserved to the trier of fact.”).
20
Let’s return again to the fact pattern used at the beginning of this brief. Even if I read
and understood the policy, I would not know that the agent had erred in calculating the proper
amount for which to insure my house.
Consider also the practical impossibility of what is required of an insured. A typical
homeowner gets a policy that is 30-‐40 pages long, with definitions, coverage grants, coverage
extensions, exclusions, limitations, and endorsements that change the primary coverage in
various ways. It is unrealistic to think that an average insured can read such an intricate
instrument, understand everything that it contains, think of every possible fact pattern for
which insurance might be required, and then figure out if this policy, as written, covers all of
the theoretical possibilities for which the insured thinks there should be coverage.
Commercial policies are usually 100-‐200 pages long, and many commercial insureds are
mom-‐and-‐pop operations without any high level of insurance sophistication. Typically, such
commercial insureds place a great deal of reliance in their insurance agents (and the agents
want and expect such reliance to be placed) to recommend the appropriate coverages and
endorsements that are necessary for the business. Requiring (usually) unsophisticated insureds
to detect coverage lapses that their agents often do not detect is unfair.
This is why insureds consult experts—because insurance is complicated and they need
help.
This argument holds no more water than saying that a patient whose condition is
misdiagnosed by her doctor is precluded from recovering from the doctor because the patient
should have, after receiving the diagnosis, reviewed her medical charts and the medical
literature and realized that the doctor’s diagnosis was incorrect.
21
5.5 The Kunz rule is workable in practice.
Appellant asserts that the Kunz rule is unworkable in practice. Well, it has been the law
in Ohio for over 30 years and seems to be working just fine. As far as counsel can tell, none of
the trade groups representing insurance agents, such as the National Association of
Professional Insurance Agents or the “Big I”—the Independent Insurance Agents & Brokers of
America—is clamoring the legislature for a change.
Also, contrary to what appellant asserts, neither Kunz nor the discovery rule announced
in O’Stricker requires the date of claim denial to be the trigger. Rather the rule is when the
insured knew, or by the exercise of reasonable care should have known, that the coverage was
inadequate. This could be the date of claim denial, or, as in my fact pattern, when the insured is
notified by someone else—a contractor or a lawyer perhaps—that the coverage is inadequate.
But notice would typically arise when the carrier issues a reservation of rights letter telling the
insured that there may not be coverage and here is why. Such a letter gives an insured
reasonable notice that the coverage may be inadequate.
6. The history of the discovery rule in Ohio shows that it has steadily expanded and is still expanding.
In 1952, this Court refused to apply the discovery rule to a medical malpractice claim
involving a foreign object left in a patient following surgery. DeLong v. Campbell, 157 Ohio St.
22, 104 N.E.2d 177 (1952) The primary rationale relied on by the court was that another statute
of limitation, the present R.C. 2305.09, contained a discovery provision pertaining to claims for
trespassing underground or for injury to mines, but that the medical malpractice statute of
limitations did not:
22
Had the legislative branch of the government intended that the statute should not begin to run until discovery by the patient of the malpractice, it could have added a provision to that effect, just as it did in Section 11224, General Code. Id at 27.
Nearly 20 years later the court was asked to reconsider its holding in DeLong, but voted
4-‐3 to reaffirm the case. Wyler v. Tripi, 25 Ohio St.2d 164, 267 N.E.2d 419 (1971) Again, the
primary justification was the Court’s perceived view of the legislative action and inaction with
respect to the malpractice statute of limitations. In fact, several bills had been introduced over
the years seeking to amend the statute to include a discovery provision, all of which died on the
vine. The Court reasoned:
In consideration of the obvious and repeated disinclination of the General Assembly to amend its malpractice statute of limitations, we are compelled to adhere to our former decisions on the question and refrain from judicially adopting that which has so clearly been legislatively rejected. Id at 172.
And yet, just a scant 22 months later, the court, by a vote of 7-‐0, adopted the discovery
rule in foreign-‐object malpractice cases. Melnyk v. Cleveland Clinic, 32 Ohio St.2d 198, 290
N.E.2d 916 (1972)
So, what happened in those 22 months to cause such a change of heart?
Only one new justice was on the court, Justice Duncan having been replaced by Justice
Lloyd Brown, but Duncan was one of the dissenters in Wyler. All four of the justices who had
been in the Wyler majority changed their votes; in fact, Justice Herbert authored both Wyler
and Melnyk.
Some clues as to why the court swung so sharply on this issue lie in Justice Herbert’s
opinion in Melnyk, wherein he indicates that the court issued its decision in Wyler “with an
unmistakable lack of enthusiasm” and “issued a thinly veiled suggestion that the General
23
Assembly reassess its historic position in this area.” Id at 200. Footnotes two and three to these
comments are telling:
2 We take judicial notice that, since the Wyler holding, the General Assembly has not yet seen fit to do so.
3 We are now called upon to decide whether statutes of limitation
have become the sole demesne of this court. Section 5(B), Article IV, Constitution of Ohio [giving the Supreme Court the power to “prescribe rules governing practice and procedure in all courts of the state”]; Gregory v. Flowers (1972) 32 Ohio St. 48, 290 N.E.2d 181.
The rest of the opinion does not reference these footnotes or the ideas expressed in
them. Instead, it dwells on the public policy considerations favoring the discovery rule,
especially in foreign-‐object cases when “it is difficult, if not impossible, to imagine a defense to
the act charged.” Id at 200.
In a bit of judicial gymnastics, the court reasoned that “We need not disturb the holding
in Wyler, nor interfere in the affairs of our sister branch [of] government, in order to accord this
[discovery] rule the viability we have determined it must have.” Id at 201.
Instead of overruling Wyler, which had predicated its decision on when a cause of action
for malpractice “accrued”, the Melnyk court adopted the tolling theory:
Thus, while a cause of action for medical malpractice accrues, at the latest, when the physician-‐patient relationship finally terminates, the negligent leaving of a metallic forceps and a nonabsorbent sponge inside a patient’s body during surgery will toll the running of the statute of limitations until such time as the patient discovers, or by the exercise of reasonable diligence should have discovered, the negligent act. Id at 201.
It took the Court another 11 years to finally abandon the hair-‐splitting, overrule DeLong
and Wyler, and fully embrace the discovery rule in medical malpractice cases. In Oliver v. Kaiser
Community Health Foundation, 5 Ohio St.3d 111, 449 N.E.2d 438 (1983), the court held that “a
24
cause of action for medical malpractice accrues and the statute begins to run when the patient
discovers, or, in the exercise of reasonable care and diligence should have discovered, the
resulting injury.” Syllabus by the Court.
So, Oliver returned the court to more solid ground in that the decision was based on one
of the court’s traditional roles—interpreting statutes—in this case the meaning of the word
“accrues.” Oliver criticized Wyler for putting “undue emphasis on legislative history as
constituting legislative disapproval of the discovery rule.” Id at 114.
In the year before Oliver was decided, the Court laid the groundwork for its re-‐
interpretation of the word “accrues” and its consequential overruling of DeLong and Wyler.
First came Velotta v. Leo Petronzio Landscaping, Inc., 69 Ohio St.2d 376, 433 N.E.2d 147 (1982),
a case involving a claim of faulty construction against a contractor in which the work was done
in 1970, but the water damage did not manifest itself until 1975. The court considered R.C.
§2305.09(D), the same statute at issue in our case, and held 6-‐1 that “When negligence does
not immediately result in damages, a cause of action for damages arising from negligent
construction does not accrue until actual injury or damage ensues.” Syllabus 2.
Whereas the Wyler court had placed great emphasis on the last section of R.C.
§2305.09, which specifically applied the discovery rule to certain torts such as fraud, the Velotta
decision did not mention anything about the perceived legislative intent behind the statute.
Instead, the matter was handled strictly as a matter of statutory interpretation. The court
reasoned that a cause of action is not complete until there is damage, and so the cause of
action did not “accrue” until the damage ensues.
25
A few months later the Court decided Kunz v. Buckeye Union Insurance Co., the case
that brings us back before the Court today. 1 Ohio St.3d 79, 437 N.E.2d 1194 (1982). Kunz
involved a claim of negligent procurement of insurance on April 1, 1973. The insured’s crane
was damaged on April 21, 1975, and the carrier denied coverage in June 1975. The insured filed
a lawsuit on April 20, 1977, more than four years after the policy went into effect, but less than
four years from the date of the accident and the claim denial.
Kunz relied on the delayed damages theory, not the discovery theory as espoused in
Velotta. Kunz does not mention Velotta, which was decided only five months earlier. In fact,
Justice Krupansky authored Velotta, but dissented in Kunz, arguing that the cause of action
accrued on April 1, 1973 because if Kunz had discovered the mistake he could have sued the
agent at that time for the difference in value between the policy with the requested coverage
and the value of the policy obtained.
Clearly, the court considered the delayed damage rule relied on in Kunz to be different
than the discovery rule utilized in Velotta. The difference apparently lies in the type of damage
sustained. In a delayed damage case, there is not progressive damage—the damaging incident
simply occurs later than the wrongful act.
In a discovery rule situation, the damage may begin at the same time as the wrongful
act, but due to the slow and insidious nature of the damage, be it water damage, asbestosis, or
lung cancer, the damage does not manifest itself for an extended period of time. That is, the
damage is occurring, but in such a manner that it is not reasonably discernable by the party
being injured.
26
To continue our trilogy of cases leading to Oliver, we turn to O’Stricker v. Jim Walter
Corporation, 4 Ohio St.3d 84, 447 N.E.2d 727 (1983), a case decided only two months before
Oliver. O’Stricker stated explicitly what several earlier decisions had merely implicitly assumed:
Absent legislative definition, it is left to the judiciary to determine when a cause of action “arose” for purposes of statutes of limitations. Syllabus 1.
The case dealt with R.C. §2305.10, which used the word “arose” instead of “accrues”.
The court issued a blanket ruling endorsing the discovery rule whenever “an injury does not
manifest itself immediately.” Syllabus 2. This necessarily includes all cases of delayed damage
and progressive, but latent, damage. The Court gave several reasons for its decision, including
the rationale for statutes of limitations, the competing public policy considerations in all owing
meritorious claims to proceed, and the discovery rule adopted in Melnyk, but the court’s
attitude is best viewed by its quotation of a dissent from Chief Justice Celebrezze in Amer v.
Akron City Hospital, 47 Ohio St.2d 85, 351 N.E.2d 479 (1976):
Justice in this case cries out for a remedy. How can anyone be precluded from asserting a claim by a statute of limitations which expires before the discovery of the injury? How can anyone charged with the responsibility of administering justice allow such an absurdity? Id at 89.
In the 34 years since Oliver and O’Stricker were decided, Ohio courts, including the
Supreme Court, have steadily expanded the scope of the delayed damages rule and the
discovery rule:
• Burr v. Board of County Commissioners of Stark County, 23 Ohio St.3d 69, 491 N.E.2d 1101 (1986), (wrongful adoption);
• Skidmore & Hall v. Rottman, 5 Ohio St.3d 210, 450 N.E.2d 684 (1983), (legal malpractice);
• Skidmore & Hall v. Rottman, 5 Ohio St.3d 210, 450 N.E.2d 684 (198, (negligent credentialing claim);
27
• Burgess v. Eli Lilly and Company, 66 Ohio St.3d 59, 609 N.E.2d 140 (1993), (DES
exposure);
• Ault v. Jasko, 70 Ohio St.3d 114, 637 N.E.2d 870 (1994), (sexual abuse case involving repressed childhood memories);
• Liddell v. SCA Services of Ohio, 70 Ohio St.3d 6, 635 N.E.2d 1233 (1994),
(negligent exposure to toxic gas);
• Collins v. Sotka, 81 Ohio St.3d 506, 692 N.E.2d 581 (1998), (wrongful death claim accrued when death determined to be wrongful such that claim did not accrue until tortfeasor was convicted of murder and sentenced);
• NCR Corp. v. U.S. Mineral Products Co., 72 Ohio St.3d 269, 649 N.E.2d 175 (1995),
(asbestos removal);
• Norgard v. Brush-‐Wellman, Inc., 95 Ohio St.3d 165, 766 N.E.2d 977, 2002-‐Ohio-‐2007 (employer intentional torts);
• Venham v. Astrolite Alloys, 73 Ohio App.3d 90, 596 N.E.2d 585 (4th District
1991), (manganese exposure);
• Viock v. Stowe-‐Woodward Co., 13 Ohio App.3d 7, 467 N.E.2d 1378 (6th District 1983), (exposure to several toxic chemicals including naphtha, ketone, toluene, and ketone);
• Meeker v. American Torque Rod of Ohio, 79 Ohio App.3d 514, 607 N.E.2d 874
(10th District 1992), (product liability claims);
• Makris v. Scandinavian Health Spa, Inc., 1999 WL 759989 (7th District), (personal injuries caused by negligent training);
• Schmitz v. NCAA, 67 N.E.3d 852 (8th District 2016), (chronic traumatic
encephalopathy (CTE) caused by repetitive head trauma);
• Cacciacarne v. G.D. Searle & Co., 908 F.2d 95 (6th Cir. 1990), (injuries caused by IUD);
• Longmire v. Upjohn Co., 686 F.Supp. 659 (S.D. Ohio 1988), (injuries caused by
prescription drug Depo-‐Provera);
28
• Moldovan v. Lear Siegler, Inc., 672 F.Supp. 1023 (N.D. Ohio 1987), (injuries caused by exposure to para alpha napthylamine and triortho cresyl phosphate);
• Wack v. Lederle Laboratories, 666 F.Supp. 123 (N.D. Ohio 1987), (injuries caused
by vaccines).
The delayed damage rule and the discovery rule are now the “go to” rules in Ohio with
respect to when a cause of action accrues for purposes of the statute of limitations, at least
when there is some divergence between the time of the wrongful act and the time the victim is
either actually damaged (the delayed damage rule) or discovers insidious or progressive
damage (the discovery rule).
Admittedly, sometimes the courts have conflated the delayed damage rule and the
discovery rule or used the terms interchangeably. Most times, the result is the same under
either rule so the doctrine of “no harm, no foul” controls. However, depending on how this
Court decides to proceed in cases of professional negligence, the distinction between these two
rules could become important.
7. The discovery rule is the majority rule across the country.
Most states that have considered the issue—and not all have—hold that a cause of
action for professional negligence accrues either (1) when actual damage occurs as a result of
the negligence, or (2) the insured discovers, or through the exercise of reasonable care should
have discovered, that damage has occurred. The wrongful action trigger is used only in a small
minority of states.
Jurisdiction Date of Negligent Act Date of Damage/Injury Date of Discovery Alabama X Alaska X Arizona X Arkansas X California X Colorado X Delaware X Florida X
29
Georgia X Illinois X Indiana X Kentucky X Louisiana X Maine X
Maryland X Massachusetts X
Michigan X Minnesota Mississippi X
New Hampshire X New Mexico X New York X
North Dakota X Oklahoma X
Pennsylvania X Rhode Island X South Carolina X Washington X West Virginia X
Jurisdictions that use the date of the negligent act.
• Arkansas: Flemens v. Harris, 323 Ark. 421 (1996) (“We hold that the statute of limitations for an insurance agent commences at the time the negligent act occurs, in keeping with our traditional rule in professional malpractice cases. However, in doing so, we recognize the harshness of this rule to the clients of … insurance agents…”)
• Delaware: Kaufman v. C.L. McCabe & Sons, Inc., 603 A.2d 831 (1992) (“We hold that any cause of action plaintiffs may have arising from the negligence of defendants accrued at the time at which they had actual or constructive notice of the terms of coverage of their insurance policy … the time of discovery exception [is] inapplicable in this case.”)
Jurisdictions that use the date of injury/damage.
• Florida: Medical Data Systems, Inc. v. Coastal Ins. Group, Inc., 139 So.3d 394 (Fla.Dist.Ct.App.2014) (“‘A cause of action accrues when the last element constituting the cause of action occurs.’ The last element of a cause of action based on negligence is actual loss or damage.”)
• Georgia: Occidental Fire and Cas. Of North Carolina v. Goodman, 339 Ga.App. 427 (Ct.App.Ga.2016) (“[I]t is apparent that the Supreme Court … held that the statute of limitation in such a tort case begins to run from the date damage was sustained.”)
• Maine: Kasu Corp. v. Blake, Hall & Sprague, Inc., 582 A.2d 978 (1990) (“In tort, a cause of action ‘accrues when the plaintiff sustains harm to a protected interest.’ Plaintiff urges us to adopt the ‘discovery rule’ which establishes that a cause of action accrues whenever the harm is discovered, rather than at the time it actually occurs … we hold that plaintiff suffered a judicially cognizable injury not later than … when the coverage
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was needed but unavailable, not … when plaintiff discovered the absence of coverage.”)
• Michigan: American Erectors, Inc. v. McNish Group, Inc., 2015 WL 5440331 (Mich.Ct.App.2015) (“[N]egligent procurement of insurance and negligent advice … accrue when the insurer denies the insured's claim because ‘any speculative injury becomes certain, and the elements of the negligence action are complete.’”)
• Mississippi: Baptist Health v. BancorpSouth Ins. Services, Inc., 2010 WL 1461598 (N.D.Miss.2010) (“[The insured] could not have [sued] at the time it completed its purchase of the D & O insurance. At that point no damages had occurred. ‘In the absence of damage, no litigable event arose.’ It was only [then] that [the insured] suffered from the denial of coverage that a suit became appropriate.”)
• New Hampshire: Pichowicz v. Watson Ins. Agency, Inc., 146 N.H.166 (2001) (“In this case, the alleged negligence was the defendant's failure to procure insurance that would cover the plaintiffs in the underlying lawsuit. This alleged negligence first caused harm to the plaintiffs when they incurred legal fees… The ‘discovery rule’ … does not apply.”)
• New York: Bonded Waterproofing Servs., Inc. v. Anderson-‐Bernard Agency, Inc., 86 A.D. 527 (N.Y.S.2d 2011) (“‘[W]here, as here, a claim against an insurance agent or broker relating to the failure of insurance coverage sounds in tort, the injury occurred and the plaintiffs were damaged when coverage was denied’ … Since the plaintiff could not have established any harm of a tortious nature until its request for coverage and a defense was denied … its negligence cause of action … did not accrue until that time and, thus, its negligence cause of action was not time-‐barred.”)
Jurisdictions that use the date of plaintiff’s discovery.
• Alabama: Bush v. Ford Life Ins. Co., 682 So.2d 46 (Ala.1996) (“We agree with [the insured] that the cause of action for negligent procurement did not accrue until [the insurer] notified him that it would not honor his claim. In a case of negligent procurement, a cause of action accrues when a loss that would trigger liability under the policy occurs.”)
• Alaska: Gudenau & Co., Inc. v. Sweeney Ins., Inc., 736 P.2d 763 (Ak.1987) (“The court should have looked to the date on which [the insured] discovered, or reasonably should have discovered, [the agent’s] failure to procure the all-‐inclusive insurance coverage … it promised…)
• Arizona: Manzanita Park, Inc. v. Ins. Co. of North America, 857 F.2d 549 (9th Cir.1988) (“In Arizona, a cause of action for negligence accrues ‘when the plaintiff knows, or in the exercise of reasonable diligence should have known, of the defendant's negligent conduct,’ and only after a plaintiff has also suffered actual injury or damage … Even
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where a policy, upon issuance, clearly fails to cover a loss that the insured thought would be included, most courts find that legal injury has not occurred until the insured actually suffers the unprotected loss.”)
• California: Hydro-‐Mill Co., Inc. v. Hayward, Tilton and Rolapp Ins. Associates, Inc., 115 Cal.App.45 1145 (2004) (“‘A cause of action for professional negligence does not accrue until the plaintiff (1) sustains damage and (2) discovers, or should discover, the negligence.’ Thus, the crucial question in this case is when did [the insured] know, or when should it have known, about [the] wrongful conduct and the resulting harm.”)
• Colorado: Colorado Pool Systems, Inc. v. Scottsdale Ins. Co., 317 P.3d 1262 (Col.Ct.App.2012) (“A negligence claim does not accrue until the plaintiff discovers or reasonably should have discovered the negligent act and at least some resulting damages … Here, until [the insurer] finally denied coverage, plaintiffs could not have discovered that [the agent] had been negligent in allegedly misrepresenting the extent of coverage.”)
• Illinois: Grama v. Trandel Ins. Agency, 2016 WL 913439 (Ill.Ct.App.2016) (“[O]ur appellate courts have repeatedly held that in the context of claims against an insurance agent or broker for procurement of insurance policies with defects in coverage, such as here, a cause of action is one in tort, arising out of a contract, and therefore accrues on the date coverage under a policy is denied. Our courts have repeatedly held that the discovery rule applies to causes of action, such as this one, brought against an insurance broker or agent, and which would otherwise be barred…”)
• Indiana: Groce v. American Family Mut. Ins. Co., 5 N.E.3d 1154 (Ind.2014) (“In general, and in the context of claims of negligent procurement of insurance, ‘the cause of action of a tort claim accrues and the statute of limitations begins to run when the plaintiff knew or, in the exercise of ordinary diligence, could have discovered that an injury had been sustained [because] of the tortious act of another.’”)
• Kentucky: Plaza Bottle Shop, Inc. v. Al Torstrick Ins. Agency, Inc., 712 S.W.2d 349 (Ky.App.1986) (“Clearly, the appellant's cause of action began to run … when it was informed there was no liquor liability coverage, not when the insurer declared or when it was determined it had no duty to defend or, as appellant urges, not when the judgments were rendered…”)
• Louisiana: Burk Property Investments, LLC v. Alliance Ins. Agency Servs., Inc., 993 So.2d 810 (La.App. 4 Cir.2008) (“Thus, preemption in legal malpractice cases, as in insurance malpractice cases, begins to run from the date of discovery, not the date that damages
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begin to accrue.”)
• Maryland: American General Assur. Co. v. Pappano, 374 Md. 339 (2003) (“The intermediate appellate court correctly recognized that an action [for negligent procurement] ‘accrues’ … when 'the claimant in fact knew or reasonably should have known of the wrong’”)
• Massachusetts: Khatchatourian v. Encompass Ins. Co. of Mass., 78 Mass.App.Ct. 53 (2010) (The “limitations period does not begin running until a plaintiff’s ‘cause of action accrues.’ Under our discovery rule, a cause of action for negligence accrues when a ‘plaintiff knows or reasonably should know that it has sustained appreciable harm [because] of a defendant’s negligence.’”)
• New Mexico: New Mexico Public Schools Ins. Authority v. Arthur J. Gallagher & Co., 145 N.M. 316 (2008) (“‘[I]n New Mexico, a cause of action arises when the plaintiff discovers or with reasonable diligence should have discovered that a claim exists.’”)
• North Dakota: American Family Ins. v. Waupaca Elevator Co., Inc., 809 N.W.2d 337 (2012) (“There are instances, however, when an injury may not be discovered at the time of the wrongful act … [The] claimed injury accrued on December 30, 2004, … and our [discovery rule] analysis … the statute of limitations … did not begin to run until December 31, 2004.”)
• Oklahoma: Blue v. Universal Underwriters Life Ins. Co., 612 F.Supp.2d 1201 (N.D.Ok.2009) (“‘Oklahoma courts apply the so-‐called discovery rule to determine when the two-‐year statute of limitations accrues’ … In the instant case, Plaintiff was aware of the facts which could have given rise to a claim [even though] she did not realize such conduct may have supported a bad faith claim.”)
• Pennsylvania: Toy v. Metropolitan Ins. Co., 863 A.2d 1 (2004 PA Super) (“In some circumstances, although the right to institute suit may arise, a party may not, despite the exercise of due diligence, reasonably discover that he has been injured. [Then] the discovery rule applies. Pursuant to the discovery rule, the statute of limitations is tolled until the plaintiff knows, or in the exercise of reasonable diligence should have known, that he/she has been injured and that her injury was caused by another's conduct.”)
• Rhode Island: Faber v. McVay, 155 A.3d 153 (2017) (Claim for insurance malpractice accrued when the insured received, multiple times, notice of his policy renewal from the insurer)
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• South Carolina: South Carolina Farm Bureau Mut. Ins. Co. v. Kelly, 345 S.C. 232 (Ct.App.2001) (“Here, the statute of limitations is subject to the discovery rule and runs not from the date of injury but rather from the date the injured party knew or should have known a cause of action existed.”)
• Washington: Gazija v. Nicholas Jerns Co., 86 Wash.2d 215 (1975) (“We therefore hold that respondent's cause of action accrued when he first suffered actual loss and had the first opportunity by the exercise of reasonable diligence to discover he had an actionable claim for unauthorized cancellation of the ‘floater’ policy”)
8. Conclusion
The Court could simply affirm the ruling of the Tenth District finding that Kunz is still
good law in insurance agent negligence cases. However, in doing so the Court should recognize
that it is endorsing the delayed damages rule, not the discovery rule, and inviting future
controversy.
If the Court takes this approach, then what of Investors REIT One and Flagstar? These
cases refused to adopt the discovery rule, so they could be distinguished on that basis. But is
there any good reason to have one trigger for some types of professional negligence claims—
accounting, appraising—and a different trigger for other types of professional negligence such
as insurance agency?
This hodge-‐podge approach makes life difficult for lawyers, judges, and insurers alike.
Above all else, insurance companies that provide E&O coverage to insurance agents value one
thing—predictability. As long as carriers know the rules, they can price for it, and the rule they
have priced for during the last 30 years has been the delayed damages rule. And this has not
caused any great hue and cry.
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We suggest that the Court continue to follow the trend that has existed in Ohio for the
last 40 years and which represents the majority position throughout the country. Our proposed
syllabus:
A cause of action for professional negligence under R.C. §2305.09 accrues when the plaintiff discovers, or by the exercise of reasonable care should have discovered, that he has been injured by the professional’s conduct. O’Stricker v. Jim Walter Corp., 4 Ohio St.3d 84, 447 N.E.2d 727 (1983) followed and extended.
Respectfully submitted, /s/ Robert P. Rutter Robert P. Rutter (0021907) RUTTER & RUSSIN, LLC 4700 Rockside, Suite 650 Cleveland, Ohio 44131 (216) 642-‐1425 [email protected] Counsel for Amicus Curiae
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CERTIFICATE OF SERVICE
The undersigned hereby certifies that a copy of the foregoing Brief of Amicus Curiae The
Ohio Association For Justice in Support of Appellee LRG Realty, Inc. was served via electronic
mail and/or regular mail pursuant to S.Ct.Prac.R. 3.11(B)(1) this 27TH day of June, 2017, on the
following:
Edwin J. Hollern Neal J. Barkan HOLLERN & ASSOCIATES BARKAN MEIZLISH, LLP 77 North State Street 250 East Broad Street, 10th Floor Westerville, Ohio 43081 Columbus, Ohio 43215 [email protected] [email protected] Counsel for Appellee LGR Realty, Inc. Samuel G. Casolari, Jr. MARSHALL DENNEHEY WARNER COLEMAN & GOGGIN 312 Elm Street, Suite 1850 Cincinnati, Ohio 45202 [email protected] Syed S. Ahmad HUNTON & WILLIAMS LLP 2200 Pennsylvania Ave., NW Washington, DC 20037 Counsel for Appellant Frank and London Agency /s/ Robert P. Rutter ROBERT P. RUTTER
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APPENDIX
