MacDonald v. Webb Ins. Agency, Inc. ( 2015 )

[Cite as MacDonald v. Webb Ins. Agency, Inc., 2015-Ohio-4623.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
ALLEN COUNTY
ROBERT E. MACDONALD, ET AL., CASE NO. 1-15-27
PLAINTIFFS-APPELLANTS,
v.
WEBB INSURANCE AGENCY, INC., OPINION
DEFENDANT-APPELLEE.
Appeal from Allen County Common Pleas Court
Trial Court No. CV 2014 0223
Judgment Affirmed
Date of Decision: November 9, 2015
APPEARANCES:
Michael A. Rumer and Victoria Maisch Rumer for Appellants
Robert B. Fitzgerald for Appellee
Case No. 1-15-27
ROGERS, P.J
{¶1} Plaintiffs-Appellants, Robert E. MacDonald (“Robert”) and Jean E.
MacDonald (“Jean”) (collectively “the MacDonalds”), appeal the judgment of the
Court of Common Pleas of Allen County granting summary judgment in favor of
Defendant-Appellee, Webb Insurance Agency, Inc. (“Webb Insurance”). On
appeal, the MacDonalds argue that the trial court erred by (1) determining that
they suffered no actual damages as necessary to establish a prima facie case for
negligence; (2) determining that their alleged damages were barred by the
economic loss rule; (3) determining that their alleged damages were precluded
under R.C. 2721.13(A)(1); and (4) granting Webb Insurance’s motion for
summary judgment and dismissing their claim for negligent misrepresentation.
For the reasons set forth herein, we affirm the judgment of the trial court.
{¶2} The MacDonalds’ current claims stem from an earlier dispute between
the MacDonalds and their insurance company concerning the terms of the
MacDonalds’ insurance policy. As both suits concern the same generally
undisputed facts, we refer, in relevant part, to the facts set forth in MacDonald v.
Auto-Owners, 3d Dist. Allen No. 1-12-25, 2012-Ohio-5949.
{¶3} On March 23, 1961, the MacDonalds purchased a three-story home
(“the Spencerville home”) located at 547 North Broadway Street in Spencerville,
Ohio, where the couple lived and raised their four children. In 2006, Robert
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retired. The following year, the MacDonalds moved to Michigan. Despite the
move, the MacDonalds continued to use the Spencerville home intermittently.
{¶4} On or about December 8, 2008, Robert informed his insurance agent,
Roger Stokes (“Stokes”) of Webb Insurance, that the Spencerville home would be
leased for commercial purposes as of January 1, 2009. Stokes informed Robert
that he would need to obtain a commercial insurance policy to reflect the
property’s change in use. Thereafter, Owners Insurance issued a new commercial
insurance policy effective January 22, 2009. A few months later, on March 12,
2009, Stokes mailed a copy of the new commercial policy to Robert, which
included a provision excluding coverage for any water-related loss or damage if
the building remained vacant for more than 60 consecutive days preceding the loss
or damage.
{¶5} On July 1, 2009, the Spencerville home’s lessee vacated the premises.
On or about September 25, 2009, Robert informed Stokes of the vacancy, and
Stokes cautioned Robert that, as a result of the vacancy, Owners Insurance might
not renew the commercial policy for the following year.
{¶6} On January 11, 2010, Webb Insurance notified Owners Insurance that
the Spencerville home was vacant; nevertheless, Owners Insurance renewed the
commercial policy on January 22, 2010.
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{¶7} On June 2, 2010, Mike Sarno, another Webb Insurance agent, called
Robert for an update on the Spencerville home. Robert informed Sarno that the
home remained vacant.
{¶8} On June 3, 2010, Owners Insurance notified Webb Insurance that they
would remain on the policy until January 22, 2011. Due to the Spencerville
home’s vacancy, however, Owners Insurance stated that they would not renew the
MacDonalds’ policy again.
{¶9} A few days later, on June 23, 2010, Robert visited the Spencerville
home and discovered extensive water damage, originating from a water line
rupture in the attic space near the third floor bathroom. Robert reported the
damage to Webb Insurance.
{¶10} On June 24, 2010, Owners assigned the loss to Crawford &
Company (“Crawford”), an adjusting company, who assigned the claim to their
employee, Shawn Burden (“Burden”).
{¶11} Over the course of the next few months, the Spencerville home
underwent extensive demolition and repair. During that time, Burden
continuously indicated to both the MacDonalds and their family that the
Spencerville home would be fully restored under the terms of their insurance
policy.
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{¶12} On September 10, 2010, Owners Insurance sent a letter to the
MacDonalds denying their insurance claim on the grounds that loss was excluded
from coverage by application of the policy’s vacancy provision.
{¶13} On September 14, 2010, Robert called Stokes regarding the denial
letter. Stokes informed Robert that he would be reimbursed for only the work
Burden authorized.
{¶14} On January 25, 2011, the MacDonald’s filed a complaint in the Court
of Common Pleas of Allen County seeking, in relevant part, a declaration from the
trial court that Owners Insurance was obligated to cover the cost of repairs under
the terms of their policy.1
{¶15} Ultimately, the trial court granted summary judgment in favor of the
MacDonalds finding that Owners Insurance was estopped from asserting the
vacancy provision due to the misrepresentations of its agent. On review, the trial
court’s judgment was affirmed. MacDonald, 2012-Ohio-5949 at ¶ 60.
{¶16} Based on these events, on April 7, 2015, the MacDonalds filed a
complaint in the Court of Common Pleas of Allen County asserting claims of
negligence and negligent misrepresentation against Webb Insurance. The
complaint alleged that Webb Insurance was liable to the MacDonalds for money
1
The complaint named several other defendants and alleged various theories of relief against each. The
trial court stayed all claims pending resolution of the issue of coverage.
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damages caused by the negligent acts of its agents, Stokes and Sarno.
Specifically, the MacDonalds averred that, but for the negligent conduct of Stokes
and Sarno, they would not have incurred the expense of litigating the issue of
coverage against Owners Insurance.
{¶17} On May 20, 2014, Webb Insurance filed its answer denying liability
and raising several affirmative defenses.
{¶18} Due to the nature of the MacDonalds’ claims, on January 27, 2015,
the trial court ordered that discovery from the MacDonalds’ earlier suit against
Owners Insurance be transferred and incorporated into the present suit against
Webb Insurance.2
{¶19} On February 6, 2015, Webb Insurance filed a motion for summary
judgment. In its motion, Webb Insurance argued that the MacDonalds’ alleged
damages (i.e., attorney fees accrued in connection with seeking declaratory relief)
were purely economic and therefore barred under the well-established economic
loss rule. Attached to Webb Insurance’s motion was (1) the trial court’s entry
granting summary judgment in favor of the MacDonalds in their earlier suit
against Owners Insurance; (2) this court’s opinion and entry affirming the trial
court’s judgment; and (3) supporting case law.
2
Thereafter, discovery from case CV 2011 0048 was transferred and incorporated into case CV 2014 0223.
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{¶20} On March 9, 2015, the MacDonalds filed their response arguing that
summary judgment was improper because they had established a prima facie case
for negligence and negligent misrepresentation and genuine issues of material fact
remained. More specifically, the MacDonalds averred that their attorney fees
were recoverable damages.
{¶21} On March 19, 2015, Webb Insurance filed a reply noting the
MacDonalds had an independent duty to read the terms of their policy, including
the vacancy provision, and again reemphasizing that there was no legal basis for
the recovery of their attorney fees.
{¶22} On April 23, 2015, the trial court granted summary judgment in favor
of Webb Insurance. In doing so, the trial court found that (1) the MacDonalds
lacked actual damages because the damage to their home was fully covered under
the terms of their insurance policy; (2) their alleged damages were purely
economic and therefore barred by the economic loss rule; and (3) irrespective of
the economic loss rule, the MacDonalds were not entitled to attorney fees under
R.C. 2721.16.
{¶23} It is from this judgment that the MacDonalds appeal, presenting the
following assignments of error for our review.
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Assignment of Error No. I
THE TRIAL COURT ERRED IN FINDING, AS A MATTER
OF LAW, THAT NO GENUINE ISSUES OF MATERIAL
FACT EXISTED IN THE CASE AT BAR SINCE “DAMAGE
NO LONGER EXIST” AS TO PLAINTIFFS’ NEGLIGENCE
CLAIM.
Assignment of Error No. II
THE TRIAL COURT ERRED IN DETERMINING THAT THE
ECONOMIC-LOSS RULE PREVENTS PLAINTIFFS’
RECOVERY OF DAMAGES UNDER THEIR NEGLIGENCE
CLAIM BECAUSE “[T]HE LOSS SUFFERED BY THE
ALLEGED NEGLIGENCE OF DEFENDANT WAS PURELY
ECONOMIC.”
Assignment of Error No. III
THE TRIAL COURT ERRED IN APPLYING R.C. 2721.16 TO
THE CASE AT BAR IN THAT THE INSTANT MATTER IS
NOT A CLAIM OR PROCEEDING FOR DECLARATORY
RELIEF.
Assignment of Error No. IV
THE TRIAL COURT ERRED IN GRANTING DEFENDANT
SUMMARY JUDGMENT AND DISMISSING PLAINTIFFS’
CLAIM FOR NEGLIGENT MISREPRESENTATION WHEN
THERE ARE GENUINE ISSUES OF MATERIAL FACT AS
TO WHETHER DEFENDANT’S AGENT USED
REASONABLE CARE IN COMMUNICATING POLICY
INFORMATION TO PLAINTIFFS REGARDING
COVERAGE UNDER PLAINTIFFS’ 2009 AND 2010
INSURANCE POLICIES.
{¶24} Due to the nature of the MacDonalds’ assignments of error, we elect
to address some of them together and out of order.
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Assignments of Error Nos. I & IV
{¶25} In their first and fourth assignments of error, the MacDonalds argue
that the trial court erred in granting summary judgment in favor of Webb
Insurance. We disagree.
{¶26} An appellate court reviews a summary judgment order de novo.
Hillyer v. State Farm Mut. Auto. Ins. Co., 131 Ohio App. 3d 172, 175 (8th
Dist.1999). Accordingly, a reviewing court will not reverse an otherwise correct
judgment merely because the lower court utilized different or erroneous reasons as
the basis for its determination. Diamond Wine & Spirits, Inc. v. Dayton
Heidelberg Distrib. Co., Inc., 148 Ohio App. 3d 596, 2002-Ohio-3932, ¶ 25 (3d
Dist.), citing State ex rel. Cassels v. Dayton City School Dist. Bd. of Edn., 69 Ohio
St.3d 217, 222 (1994). Summary judgment is appropriate when, looking at the
evidence as a whole: (1) there is no genuine issue as to any material fact, and (2)
the moving party is entitled to judgment as a matter of law. Civ.R. 56(E). In
conducting this analysis the court must determine “that reasonable minds can
come to but one conclusion and that conclusion is adverse to the party against
whom the motion for summary judgment is made, [the nonmoving] party being
entitled to have the evidence or stipulation construed most strongly in the
[nonmoving] party’s favor.” Id. If any doubts exist, the issue must be resolved in
favor of the nonmoving party. Murphy v. City of Reynoldsburg, 65 Ohio St. 3d
356, 358-359 (1992).
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{¶27} The party moving for summary judgment has the initial burden of
producing some evidence which demonstrates the lack of a genuine issue of
material fact. Dresher v. Burt, 75 Ohio St. 3d 280, 292 (1996). In doing so, the
moving party is not required to produce any affirmative evidence, but must
identify those portions of the record which affirmatively support his argument. Id.
at 292. The nonmoving party must then rebut with specific facts showing the
existence of a genuine triable issue; he may not rest on the mere allegations or
denials of his pleadings. Id.; Civ.R. 56(E).
{¶28} The fundamental question in this case is whether attorney fees
accrued in connection with a claim or proceeding for declaratory relief can serve
as sufficient damages in a subsequent action in negligence. As this is a case of
first impression, we necessarily must address the juxtaposition between the
American Rule governing the recovery of attorney fees and Ohio tort law.
{¶29} “Ohio has long adhered to the ‘American Rule’ with respect to the
recovery of attorney fees: a prevailing party in a civil action may not recover
attorney fees as part of the costs of litigation.” Wilborn v. Bank One Corp., 121
Ohio St. 3d 546, 2009-Ohio-306, ¶ 7. Exceptions to the rule allow for recovery
“when a statute or an enforceable contract specifically provides for the losing
party to pay the prevailing party's attorney fees, * * * or when the prevailing party
demonstrates bad faith on the part of the unsuccessful litigant * * *.” Id.
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{¶30} Up until recently, the General Assembly had yet to enact a statute
expressly disallowing the recovery of attorney fees accrued in connection with a
claim or proceeding for declaratory relief. Courts were permitted to award
recovery under the authority of R.C. 2721.09, which provides, in relevant part, that
“whenever necessary or proper, a court of record may grant further relief based on
a declaratory judgment * * *. ” See e.g., Motorists Mut. Ins. Co. v. Brandenburg,
72 Ohio St. 3d 157 (1995).
{¶31} In 1999, in order to perpetuate adherence to the “American Rule,”
the General Assembly enacted R.C. 2721.16, which superseded R.C. 2721.09
insofar as it permitted the recovery of attorney fees accrued in connection with a
claim or proceeding for declaratory relief. Under R.C. 2721.16(A)(1), a court
shall not award attorney fees to “any party on a claim or proceeding for
declaratory relief * * * .” Recovery is allowed only where the Revised Code
explicitly authorizes such an award or where attorney fees are authorized by R.C.
2323.51, the Civil Rules, or by an award of punitive or exemplary damages against
the party ordered to pay attorney fees. Id.
{¶32} In the case sub judice, the MacDonalds’ alleged damages consists
entirely of attorney fees accrued in connection with their pursuit of declaratory
relief against their insurance company concerning the extent of their policy’s
coverage. By application of the American Rule, the MacDonalds are responsible
for these fees unless a statute or contract provides otherwise.
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{¶33} As noted above, R.C. 2721.16 now governs the recovery of attorney
fees in declaratory relief actions and generally bars recovery unless a specific
statutory exception is triggered. Here, none of the exceptions carved out by the
General Assembly are applicable; there is neither a code section permitting
recovery nor an award of punitive or exemplary damages. Thus, under the
American Rule, the MacDonalds are not entitled to recover their attorney fees
accrued in connection with their claim for declaratory relief.
{¶34} With this in mind, we next consider whether the MacDonalds can
recover these fees through an action in negligence. It is well settled that the
elements of an ordinary negligence are (1) the existence of a legal duty, (2) the
defendant's breach of that duty, and (3) damages resulting proximately therefrom.
Hartings v. Xu, 3d Dist. Mercer No. 10-13-11, 2014-Ohio-1794, ¶ 72. Proof of
damages is also an essential element in a claim of negligent misrepresentation.
See, e.g., Textron Fin. Corp. v. Nationwide Mut. Ins. Co., 115 Ohio App. 3d 137,
150 (9th Dist.1996).
{¶35} The MacDonalds aver that their attorney fees constitute sufficient
damages in a negligence action under a theory analogous to legal malpractice,
which permits the recovery of attorney fees where an attorney commits
professional misconduct. Specifically, the MacDonalds allege that Webb
Insurance committed professional misconduct by indicating that their insurance
policy was effective despite the Spencerville home’s vacancy.
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{¶36} “[M]alpractice consists of ‘the professional misconduct of members
of the medical profession and attorneys.’ Such professional misconduct may
consist either of negligence or of breach of the contract of employment * * *.”
Wilkerson v. O’Shea, 12th Dist. Butler, No. CA2009-03-068, 2009-Ohio-6550, ¶
13, quoting Muir v. Hadler Real Estate Mgmt. Co., 4 Ohio App. 3d 89, 90 (10th
Dist.1982). While a legal malpractice action can be rooted in tort, it is strictly
limited to a certain type of professional relationship (i.e., attorney-client). Quite
obviously, this type of relationship does not exist between the MacDonalds and
Webb Insurance. Nonetheless, the MacDonalds argue that because an insurance
agent owes a legal duty to an insured, a breach of that duty constitutes professional
misconduct, similar to the type alleged in a legal malpractice action, thereby
permitting the recovery of attorney fees.
{¶37} The MacDonalds further argue that the trial court erred in dismissing
their claim for negligent misrepresentation. Specifically, the MacDonalds claim
that attorney fees are sufficient damages in a negligent misrepresentation action
pursuant to the Ohio Supreme Court’s finding in Haddon View Inv. Co. v. Coopers
& Lybrand, 70 Ohio St. 2d 154 (1982). In Haddon View, the court found that “an
accountant may be liable for purely economic damages based upon negligent
misrepresentation to third parties ‘when that third party is a member of a limited
class whose reliance on the accountant's representation is specifically foreseen.’ ”
Corporex Dev. & Constr. Mgt., Inc. v. Shook, Inc., 106 Ohio St.
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{¶38} 3d 412, 2005-Ohio-5409, ¶ 7, quoting Haddon View at 157. Relying
on Haddon View, the MacDonalds maintain that their damages, although purely
economic, are recoverable because an insurance agent owes professional duties to
an insured.
{¶39} However, the issue in this case is not whether the MacDonalds’
negligence claim is analogous to a malpractice action, or whether their alleged
damages are subject to an exception to the economic loss rule such as the one
delineated in Haddon View. Rather, the relevant inquiry is whether attorney fees
accrued in connection with seeking declaratory relief can, as a matter of law, serve
as sufficient damages in a later negligence-based action. The MacDonalds cite to
no case law supporting this proposition.
{¶40} The General Assembly has made clear that attorney fees accrued in
connection with seeking declaratory relief are not recoverable. In enacting R.C.
2721.16, the General Assembly sought to preserve the American Rule and its
application to attorney fees accrued in connection with seeking declaratory relief.
In absence of case law indicating to the contrary, we cannot adopt a rule that
thwarts that purpose. Thus, we cannot find that attorney fees expressly barred
under R.C. 2721.16 serve as sufficient damages in a later negligence-based action.
{¶41} In light of the foregoing, we cannot say that the trial court erred in
granting summary judgment in favor of Webb Insurance, as the MacDonalds
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lacked sufficient damages to maintain actions in negligence. Accordingly, the
MacDonalds’ first and fourth assignments of error are overruled.
Assignments of Error Nos. II & III
{¶42} In light of our disposition of the MacDonalds’ First and Fourth
Assignments of Error, their remaining assignments of error are rendered moot and
need not be considered. App.R. 12(A)(1)(c).
{¶43} Having found no error prejudicial to the appellants, in the particulars
assigned and argued, we affirm the judgment of the trial court.
Judgment Affirmed
SHAW and PRESTON, J.J., concur.
/hlo
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