Erie Ins. Exchange v. Cotten

[Cite as Erie Ins. Exchange v. Cotten, 2017-Ohio-9.]
COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
JUDGES:
ERIE INSURANCE EXCHANGE, : Hon. W. Scott Gwin, P.J.
: Hon. John W. Wise, J.
: Hon. Craig R. Baldwin, J.
Plaintiff-Appellee :
:
-vs- : Case No. 2016CA00132
:
THOMAS W. COTTEN, ET AL :
: OPINION
Defendant-Appellant
CHARACTER OF PROCEEDING: Civil appeal from the Stark County Court of
Common Pleas, Case No. 2014 CV 02684
JUDGMENT: Affirmed
DATE OF JUDGMENT ENTRY: January 3, 2017
APPEARANCES:
For Appellee Erie Insurance For Appellant Pekin Insurance
KENNETH CALDERONE SHAUN BYROADS
Hanna, Campbell & Powell, LLP Kreiner & Peters Co., LPA
3737 Embassy Parkway, Ste. 100 Box 6599
Akron, OH 44333 Cleveland, OH 44101
Stark County, Case No. 2016CA00132 2
Gwin, P.J.
{¶1} Appellant appeals the June 8, 2016 judgment entry of the Stark County
Court of Common Pleas granting Erie’s motion for summary judgment.
Facts & Procedural History
{¶2} On February 15, 2014, an explosion and fire leveled a detached garage
located on a residential property in Hartville, Ohio that was owned by Thomas and
Kimberly Cotten. The home was insured by appellee Erie Insurance Company (“Erie”).
Cotten was in the structure at the time and was seriously injured as a result. The Hartville
Police Department, Hartville Fire Department, Stark County Sheriff’s Office, and federal
investigators from the Bureau of Alcohol Tobacco and Firearms responded to the scene.
In addition, as firefighters were putting out “hot spots” to prevent further explosions, Brian
Peterman (“Peterman”), a fire investigator for the State of Ohio Division of State Fire
Marshall’s Office, arrived at the location. As they worked in the debris, the responders
and investigators noticed chemicals, tubing, and other items used to manufacture
explosive devices. The Summit County Bomb Squad subsequently took possession of
some of the discovered items.
{¶3} On February 18, 2014, Brian Churchwell (“Churchwell”) of Churchwell Fire
Consultants, who had been tasked by Erie to investigate the explosion in relation to
potential insurance claims, entered onto the property with consent of Cotten’s wife.
Churchwell prepared a report of his findings and Peterman drafted a supplemental report
on the incident. Peterman concluded that “the use of dangerous chemicals consistent
with manufacturing of fireworks and explosives contributed to the cause of the explosion”
and that, based on his education, training, and experience, “the illegal assembly and
Stark County, Case No. 2016CA00132 3
possession of chemicals and substances for manufacturing fireworks and explosives
created a substantial risk of serious physical harm.”
{¶4} In Churchwell’s report and affidavit, he states that, at the scene, he “found
numerous items consistent with the manufacturing and handling of fireworks or similar
explosive devices and materials.” Churchwell opined that, “it is my opinion to a
reasonable degree of certainty that the presence of explosive, firework-related materials
at the Cottens’ premises contributed to the explosion and fire on February 15, 2014. The
presence of those fireworks materials substantially increased the risk of a hazardous
event, including the explosion and the fire that occurred.”
{¶5} Audice Barnette, a resident living near the home of the Cottens’, submitted
an affidavit stating after the initial explosion, she heard additional explosions and
firecrackers.
{¶6} On August 25, 2014, Cotten was indicted on one count of manufacturing or
processing explosives in violation of R.C. 2923.17(B), a felony of the second degree, and
one count of inducing panic in violation of R.C. 2917.31(A)(3)(C)(3), a felony of the fourth
degree. Cotten entered pleas of “no contest” to both charges in 2015. The trial court thus
found Cotten guilty of the charges and sentenced Cotton to five (5) years of community
control. This conviction and sentence was upheld on appeal in State v. Cotten, 5th Dist.
Stark No. 2015 CA 00094, 2015-Ohio-5405.
{¶7} On November 20, 2014, Erie filed a complaint for declaratory judgment
against Thomas and Kimberly Cotten as to whether Erie owed coverage for the Cottens’
claimed property loss. The Erie policy contained a provision providing, “this entire policy
is void if before or after a loss you or anyone we protect has intentionally concealed or
Stark County, Case No. 2016CA00132 4
misrepresented any material fact or circumstance concerning this insurance.” After the
Cottens filed an answer to the complaint, Erie filed a motion for partial summary judgment
as to whether it was entitled to a declaration that it owed no coverage for the Cottens’
first-party property damage claim arising from the explosion and fire. The Cottens did not
respond to Erie’s motion for summary judgment.
{¶8} On August 4, 2015, the trial court granted Erie’s motion for summary
judgment, finding no coverage exists under the Erie policies as to the Cottens’ first-party
property damage claims. The trial court found the large quantities of explosives and other
materials suitable for manufacturing fireworks that Cotten purchased, received, and
maintained in his garage substantially increased the risk of a hazardous event, i.e., the
explosion and fire that occurred on February 15, 204, thus voiding coverage for property
damage under the subject policies. Further, that Cotten made material
misrepresentations about his purchase and use of the firework materials, which violated
the policy conditions and voided coverage.
{¶9} On May 4, 2015, appellant Pekin Insurance (“Pekin”) filed a subrogation
lawsuit against Cotten. Pekin alleged it insured neighboring homeowner Keith Perrin
(“Perrin”) and that Perrin’s house was damaged by the explosion. Pekin paid $81,575.04
to Perrin. Pekin alleged Cotten was negligent and thus liable for the monies Pekin paid
to Perrin. This case was consolidated with the case Erie filed against the Cottens.
{¶10} On October 27, 2015, Erie filed an amended complaint, seeking a
declaratory judgment that Erie owes no duty to defend or indemnify Cotten with respect
to Pekin’s claims. Pekin filed an answer and counterclaim, arguing the Erie policy
provides coverage to the Cotten so that Pekin may be paid by Erie the $81,575.04 it paid
Stark County, Case No. 2016CA00132 5
Perrin. Erie filed a motion for summary judgment and Pekin filed a cross-motion for
summary judgment.
{¶11} The trial court issued a judgment entry on June 8, 2016 granting Erie’s
motion for summary judgment. The court found there was overwhelming evidence and
inconsistent statements made by Cotten that demonstrate Cotten intentionally concealed
or misrepresented facts material to the investigation. First, the trial court found that while
Cotten denied manufacturing fireworks in his sworn statement and deposition, the Ohio
Fire Marshal found evidence of numerous explosive chemicals used for manufacturing
fireworks and the bomb squad found un-exploded homemade fireworks. The trial court
specifically cited to the conclusion of the Ohio Fire Marshall that Cotten’s illegal assembly
and possession of chemicals and substances for manufacturing fireworks created a
substantial risk of serious physical harm. The trial court also specifically cited the
conclusion of Erie’s expert that the explosion likely resulted from the presence of
aluminum powder and other materials which were utilized in the manufacturing of
fireworks. Further, that Cotten made numerous purchases from websites selling
materials for making fireworks, including a book on how to make fireworks. Thus, the trial
court found Cotten’s denials that he was making fireworks to be a material
misrepresentation.
{¶12} The trial court also found Cotten made other intentional misrepresentations
during the investigation that were material to the investigation and determination of
coverage by Erie, including: Cotten’s initial testimony was that he bought firework fuses
to give to a friend, however, he later stated he bought them to sell to a local gunsmith and
used some to make rockets for himself; Cotten initially testified he purchased bags of
Stark County, Case No. 2016CA00132 6
aluminum powder to sell at gun shows, but later testified he bought and sold it for a friend;
Cotten first testified cardboard tubes were premade fireworks purchased from Wholesale
Fireworks and he only had 10-12 of them, he then admitted he bought the tubes online;
Cotten initially denied selling other items at gun shows, but then testified he sold other
items at a gun show; and Cotten could not explain the large amount of money ($28,418)
in his bank account in the several months prior to the explosion.
{¶13} The trial court found Cotten violated the policy conditions and voided
coverage under the Erie policy. Thus, Pekin is not entitled to coverage for its third-party
subrogation claim.
{¶14} Additionally, the trial court found the coverage was voided under the
“increased hazard” clause that provides that, “unless we agree beforehand, coverage is
suspended if the hazard is substantially increased by any means within the control or
knowledge of anyone we protect.”
{¶15} The trial court granted Erie’s motion for summary judgment and found no
coverage exists under the Erie policies as to Pekin’s third-party subrogation claim. Pekin
appeals the June 8, 2016 judgment entry of the Stark County Court of Common Pleas
and assigns the following as error:
{¶16} “I. THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY FINDING
THOMAS COTTEN MADE “INTENTIONAL MISREPRESENTATIONS” AND VOIDING
COVERAGE FOR PEKIN’S INNOCENT THIRD PARTY LIABILITY CLAIMS.
{¶17} “II. THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY FINDING
THE ‘INCREASED HAZARD PROVISION’ FROM THE FIRST PARTY SECTION OF
Stark County, Case No. 2016CA00132 7
THE ERIE POLICY APPLIES AND SUSPENDS COVERAGE FOR PEKIN’S INNOCENT
THIRD PARTY CLAIM.”
Summary Judgment
{¶18} Civ.R. 56 states, in pertinent part:
Summary judgment shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories, written admissions, affidavits,
transcripts of evidence, and written stipulations of fact, if any, timely filed in
the action, show that there is no genuine issue of material fact and that the
moving party is entitled to judgment as a matter of law. No evidence or
stipulation may be considered except as stated in this rule. A summary
judgment shall not be rendered unless it appears from the evidence or
stipulation, and only from the evidence or stipulation, 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, that party being
entitled to have the evidence or stipulation construed mostly strongly in the
party’s favor. A summary judgment, interlocutory in character, may be
rendered on the issue of liability alone although there is a genuine issue as
to the amount of damages.
{¶19} A trial court should not enter a summary judgment if it appears a material
fact is genuinely disputed, nor if, construing the allegations most favorably towards the
non-moving party, reasonable minds could draw different conclusions from the
undisputed facts. Hounshell v. Am. States Ins. Co., 67 Ohio St.2d 427, 424 N.E.2d 311(1981). The court may not resolve any ambiguities in the evidence presented. Inland
Stark County, Case No. 2016CA00132 8
Refuse Transfer Co. v. Browning-Ferris Inds. of Ohio, Inc., 15 Ohio St.3d 321, 474 N.E.2d
271 (1984). A fact is material if it affects the outcome of the case under the applicable
substantive law. Russell v. Interim Personnel, Inc., 135 Ohio App.3d 301, 733 N.E.2d
1186 (6th Dist. 1999).
{¶20} When reviewing a trial court’s decision to grant summary judgment, an
appellate court applies the same standard used by the trial court. Smiddy v. The
Wedding Party, Inc., 30 Ohio St.3d 35, 506 N.E.2d 212 (1987). This means we review
the matter de novo. Doe v. Shaffer, 90 Ohio St.3d 388, 2000-Ohio-186, 738 N.E.2d 1243.
{¶21} The party moving for summary judgment bears the initial burden of
informing the trial court of the basis of the motion and identifying the portions of the record
which demonstrates absence of a genuine issue of fact on a material element of the non-
moving party’s claim. Drescher v. Burt, 75 Ohio St.3d 280, 662 N.E.2d 264 (1996). Once
the moving party meets its initial burden, the burden shifts to the non-moving party to set
forth specific facts demonstrating a genuine issue of material fact does exist. Id. The
non-moving party may not rest upon the allegations and denials in the pleadings, but
instead must submit some evidentiary materials showing a genuine dispute over material
facts. Henkle v. Henkle, 75 Ohio App.3d 732, 600 N.E.2d 791 (12th Dist. 1991).
{¶22} The Erie policy at issue in this case contains a provision that expressly voids
the policy in the case of an intentional concealment or misrepresentation of any material
fact or circumstance concerning the insurance. This provision provides as follows, “this
entire policy is void if before or after a loss you or anyone we protect has intentionally
concealed or misrepresented any material fact or circumstance concerning this
insurance.” The question in this assignment of error is whether Cotten made
Stark County, Case No. 2016CA00132 9
representations during the claims investigation process that justified voiding the Erie
policy. Erie contends Cotten’s material misrepresentations include the denial of
manufacturing fireworks and the numerous misrepresentations he made to Erie about
what he was buying and what he was doing with his purchases, such as fuses, aluminum
powder, cardboard tubes, and gun show sales.
{¶23} The materiality of a misrepresentation is a mixed question of law and fact
that, under most circumstances, should be determined by the trier of fact. Abon, Ltd. V.
Transcontinental Ins. Co., 5th Dist. Richland No. 2004-CA-0029, 2005-Ohio-3052.
However, materiality “can be decided as a matter of law if reasonable minds could not
differ on the question.” Id., citing Long v. Insurance Co. of N. Am., 670 F.2d 930 (10th
Cir. 1982).
{¶24} “A misrepresentation will be considered material if a reasonable insurance
company, in determining its course of action, would attach importance to the fact
misrepresented.” Id. Most courts have construed materiality broadly, emphasizing that
the subject of the misrepresentation need not ultimately prove to be significant to the
disposition of the claim, so long as it was reasonably relevant to the insurer’s investigation
at the time. Id., citing Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179 (2nd Cir.
1984).
{¶25} A false sworn answer is material if it “may be said to have been calculated
either to discourage, mislead, or deflect the company’s investigation in any area that
might seem to the company, at that time, a relevant or productive area to investigate.” Id.Quoting Dadurian v. Underwriters at Lloyd’s, London, 787 F.2d 256 (1st Cir. 1986).
Stated another way, a misrepresentation is material when it pertains to a fact “that
Stark County, Case No. 2016CA00132 10
significantly affects the rights or obligations of the insurer.” Parker v. State Farm Fire
Cas., N.D. Ohio No. C87-2683, 1988 WL 1058394 (Nov. 4, 1988). Since the purpose of
requiring answers to questions is to protect the insurer against false claims, the materiality
of false answers should be judged at the time of the misrepresentation. Freeland v.
Grange Mutual Cas. Co., 10th Dist. Franklin No. 14AP-206, 2014 WL 5867039. A
condition of the Erie policy in this case requires Cotten’s cooperation in the investigation
or handling of a loss and in the case of the loss. Pursuant to the policy, Cotten was
required to submit to statements and examinations under oath and cooperate with Erie in
their investigation of the loss.
{¶26} Pekin argues that Cotten’s denial of manufacturing fireworks is not a
material misrepresentation because Cotten never admitted or made any contradictory
statements about manufacturing fireworks and there is no evidence from any outside
sources showing Cotten was lying about manufacturing fireworks. Pekin contends since
Cotten answered all the questions Erie asked and he never admitted to lying, there was
no material misrepresentation. However, the mere fact that Cotten answered Erie’s
questions and did not admit to manufacturing fireworks does not mean he did not make
a material misrepresentation given the evidence presented by Erie.
{¶27} Responders to the scene noted chemicals, tubing, and other items used to
manufacture explosive devices. They also found un-exploded, homemade fireworks.
Peterman, from the Ohio Fire Marshal’s office, found evidence at the scene of chemicals
used for making fireworks; concluded the use of dangerous chemicals consistent with the
manufacturing of fireworks and explosives contributed to the cause of the explosion; and
found the illegal assembly and possession of chemicals and substances for
Stark County, Case No. 2016CA00132 11
manufacturing fireworks and explosives created a substantial risk of serious physical
harm. Churchwell stated in his report that he found numerous items consistent with the
manufacturing and handling of fireworks and opined that the presence of explosive,
firework-related materials at the Cottens’ premises contributed to the explosion and fire
on February 15, 2014. Cotten testified during his deposition that he made various
purchases from websites selling materials for making fireworks such as Skylighter, Inc.
and pyrocreations.com. Cotten also confirmed he purchased a book about the
introduction to the practice of pyrotechnics.
{¶28} Based upon the evidence presented, reasonable minds could only arrive at
the conclusion that, in response to specific inquiries by Erie, Cotten misrepresented
whether he was manufacturing fireworks. Misrepresentations regarding whether Cotten
was manufacturing fireworks pertain to the material matter as it significantly affects the
rights or obligations of Erie as it affects whether the loss is covered. Further, whether
Cotten was manufacturing fireworks is something a reasonable insurance company would
attach importance to in determining coverage under its policy, and its exposure to other
claims, including subrogation claims. See Parker v. State Farm Fire Cas., N.D. Ohio No.
C87-2683, 1988 WL 1058394 (Nov. 4, 1988); Nationwide Mut. Ins. Co. v. Skeens, 2nd
Dist. Miami No. 07-CA-29, 2008-Ohio-1875.
{¶29} Additionally, Cotten made other misrepresentations regarding whether he
bought firework materials, how much and what he bought, what he used the materials for,
and where or how much he sold them. Cotten first stated he purchased a few hundred
feet of fuse to use with his friend’s homemade cannon; then he stated at his deposition
that he acquired most of the fuse to sell at cost to a local gunsmith and used some of it
Stark County, Case No. 2016CA00132 12
to make rockets for himself. In his sworn statement, Cotten stated the numerous
cardboard tubes found at the scene were premade fireworks he purchased from
Wholesale Fireworks in Youngstown and he only had 10-12 of them; however, at his
deposition when he was presented with evidence of purchases from online sellers, he
stated he bought them online and sold the tubes to a gunsmith. Cotten initially testified
he purchased bags of aluminum powder to sell at gun shows, but later testified he bought
and sold it for a friend. Cotten initially denied selling other items at gun shows, but then
testified he sold other items at a gun show.
{¶30} Cotten’s testimony about what he was buying, what he was using it for, and
where he was selling it were material, as a reasonable insurance company would attach
importance to these facts. These facts were relevant to the policy’s increased-hazard
condition, Erie’s potential exposure to liability claims, and possible subrogation claims.
Reasonable minds could come to no other conclusion but that the total effect of Cotten’s
changing testimony and omissions constitutes material misrepresentations.
{¶31} Accordingly, we find the trial court did not err in granting Erie’s motion for
summary judgment and in finding no coverage exists under the Erie policies as to Pekin’s
third-party subrogation claim based upon the provision in the Erie policy that expressly
voids the policy in the case of an intentional misrepresentation of any material fact or
circumstance concerning the insurance. Appellant’s first assignment of error is overruled.
II.
{¶32} In their second assignment of error, Pekin argues the trial court erred in
applying the increased hazard provision to deny coverage. Contained within the “rights
and duties” clause of Section 1 of the Erie policy, the Property Protection section, is an
Stark County, Case No. 2016CA00132 13
increased hazard provision. The provision provides that, “unless we agree beforehand,
coverage is suspended if the hazard is substantially increased by any means within the
control or knowledge of anyone we protect.” Section 2 of the Erie policy is the Home and
Liability Protection section. The “rights and duties” clause in Section 1 of the policy does
not contain the increased hazard provision.
{¶33} Pekin contends since the increased hazard clause is not contained in
Section 2, the clause only applies to first party coverage, not to liability coverage. Erie
concedes the increased hazard clause only applies to first party coverage, not to liability
coverage. However, based upon our disposition of Pekin’s first assignment of error, we
find their second assignment of error moot.
{¶34} Based on the foregoing, we overrule appellant’s first assignment of error
and find appellant’s second assignment of error moot. The June 8, 2016 judgment entry
of the Stark County Court of Common Pleas is affirmed.
By Gwin, P.J.,
Wise, J., and
Baldwin, J., concur