Fairless v. Acuity

[Cite as Fairless v. Acuity, 2022-Ohio-10.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
JOSEPH FAIRLESS, : APPEAL NO. C-210165
TRIAL NO. A-1800263
and :
BAYBERRY CROSSING, LLC, : O P I N I O N.
Plaintiffs-Appellees/Cross- :
Appellants,
vs. :
ACUITY, A MUTUAL INSURANCE :
COMPANY,
:
Defendant-Appellant/Cross-
Appellee. :
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Affirmed
Date of Judgment Entry on Appeal: January 5, 2022
Stagnaro, Saba, & Patterson Co., LPA, Jeffrey M. Nye and Joshua Smith, for
Plaintiffs-Appellees/Cross-Appellants,
Lewis, Brisbois, Bisgard & Smith LLP, Judd R. Uhl and Katherine L. Kennedy, for
Defendant-Appellant/Cross-Appellee.
OHIO FIRST DISTRICT COURT OF APPEALS
ZAYAS, Presiding Judge.
{¶1} This case concerns an insurance coverage dispute in the context of the
duty to defend. Defendant-appellant/cross-appellee Acuity, A Mutual Insurance
Company, (“Acuity”) brings this appeal to challenge the trial court’s grant of
summary judgment in favor of plaintiffs-appellees/cross-appellants Bayberry
Crossing, LLC, (“Bayberry”) and Joseph Fairless (“Fairless”), arguing in a sole
assignment of error that the trial court erred in determining that it had a duty to
defend the underlying action. Plaintiffs-appellees/cross-appellants Bayberry and
Fairless bring their cross-appeal to challenge the trial court’s award of damages,
arguing in a sole assignment of error that the trial court erred in declining to award
them their reasonable attorney fees and costs for the present litigation. For the
following reasons, we overrule both assignments of error and affirm the judgment of
the trial court.
Facts
Background Information
{¶2} In 2016, Gavin Connor filed a complaint against Brookmeadow, LTD.,
(“Brookmeadow”) alleging that, on or about November 3, 2014, he fell and suffered
injury due to a dangerous condition on the premises at 15 Montgomery Way, Amelia,
Ohio.
{¶3} On July 5, 2017, Brookmeadow filed a third-party complaint against
Bayberry and Fairless, alleging claims for indemnity, contribution, and negligence.
The relevant allegations from the complaint are:
3. [Conner] filed his complaint against Defendant/Third Party
Plaintiff Brookmeadow, Ltd., * * * in the Clermont County Court of
Common Pleas, * * * claiming damages resulting from personal
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injuries allegedly sustained at the property located at 15 Montgomery
Way, Amelia, Ohio, 45102 (hereinafter “Premises”).
4. [Conner’s] Complaint alleges that on or about November 3,
2014 he sustained personal injuries as the result of the failure of
Defendant/Third-Party Plaintiff’s [sic] to properly maintain the
Premises at 15 Montgomery Way, Amelia, Ohio 45102.
5. On or about June 5, 2013, Third Party Plaintiff entered into a
Lease with Option to Purchase Agreement with Third-Party
Defendant, Joe Fairless. A true and accurate copy of the Lease with
Option to Purchase Agreement (hereinafter “Lease”) is attached hereto
as Exhibit 1.
6. Upon information and belief, on or about July 12, 2013,
Third-Party Defendant Joe Fairless assigned his interest in the Lease
to Bayberry Crossing, LLC. (See Contract for Sale attached hereto as
Exhibit 2).
7. The Lease required Third-Party Defendants Bayberry
Crossing, LLC and Joe Fairless to maintain the Premises in good
repair and condition. (See Exhibit 1).
8. The Lease required Third-Party Defendants Bayberry
Crossing, LLC and Joe Fairless to perform all necessary repairs and
maintenance in order to bring the Premises in compliance with all
laws, ordinances and regulations and other governmental orders.
9. Upon information and belief, Bayberry Crossing, LLC, was
the Lessor, operator and manager of Bayberry Apartments, 15
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Montgomery Way, Amelia, Ohio 45102 at the time Plaintiff alleges he
sustained personal injuries on the Premises.
{¶4} The “Lease with Option to Purchase Agreement” and the contract for
sale, entitled “Purchase, Sale, and Assignment Agreement,” were attached and
incorporated into the complaint.
{¶5} The “Lease with Option to Purchase Agreement” shows that, on June
5, 2013, Brookmeadow, as lessor and Fairless, as lessee, entered into a 53-month-
and-two-day lease agreement for the property located at 15 Montgomery Way,
Amelia, Ohio. The property was a 168-unit apartment complex known as Bayberry
Crossing. Under the agreement, Fairless was to pay monthly rent to Brookmeadow
and was to assume “all obligations under all leases and rental agreements with
existing tenants at the Premises.” The lease had the following relevant provisions:
11. Maintenance and Repair: Lessee, at its sole discretion, shall
keep and maintain the Premises and buildings and improvements and
all other portions of the Premises (including, but not limited to, all
heating, air conditioning, plumbing and electrical equipment and
apparatus, driveways, parking areas and landscaping) in good repair
and condition and shall make all repairs, replacements and renewals,
whether structural or non-structural, foreseen or unforeseen, ordinary
or extraordinary, interior or exterior, necessary to put or maintain the
Premises in that state of repair and condition. Lessee expressly waives
the right to (a) require lessor to maintain, repair or rebuild all or any
part of the Premises, or (b) to make repairs at the expense of Lessor
pursuant to any legal requirement, contract, agreement, covenant,
condition or restriction at any time in effect.
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***
14. Insurance: Lessee shall, during the Term, keep in force and
effect such insurance as Lessee deems appropriate, with coverage and
limits no less than as required under the mortgage. The policy shall
name Lessor and Lender as additional insureds, and shall provide that
the insurer may not cancel or change the insurance coverage in any
respect without first giving Lessor and Lender ten (10) days prior
written notice. Lessee shall pay for all insurance coverage related to
the Premises. A copy of the policy or a certificate of insurance shall be
delivered to Lessor on or before the Commencement Date and
whenever replaced. In the event of loss, any insurance proceeds
payable by reason of such loss shall be paid pursuant to the Loan
Documents. Lessee covenants and agrees that it will neither do nor
permit to be done any act or thing on the Premises or elsewhere which
will invalidate any insurance on the Premises or increase the
premiums for insurance thereon.
***
23. Conditional Assignment of Rents and Leases: Beginning on
the Commencement Date and continuing during the Term so long as
Lessee is not in default under the Lease, Lessor authorizes Lessee to
assume the management and operation of the Premises, including
collection of rents and income under all currently existing and future
tenant leases, rents, and security deposits for apartments located on
the Premises during the entirety of the Term. Lessee’s rights under
this Section shall immediately terminate upon any default by Lessee.
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***
38. Miscellaneous: b. Heir and Assigns: This lease with Option
to Purchase Agreement shall not be assigned by Lessee without the
prior consent of the Lessor, such consent shall not be unreasonably
withheld. This Lease with Option to Purchase Agreement shall be
binding on and inure to the benefit of Lessee and Lessor and their
respective heirs and assigns, successors, administrators, trustees,
representatives and executors.
{¶6} The “Purchase, Sale and Assignment Agreement,” shows an agreement
from 2016 which purports to sell the property to “15 Montgomery Way LLC.” The
agreement listed Bayberry as the “seller,” Fairless as the “original lessee,” and
Brookmeadow as the “fee owner.” Of relevance, the agreement asserted that Fairless
assigned all his interest in the “Lease Option Agreement” to Bayberry on or about
July 12, 2013. Additionally, the agreement stated that the property was “operated”
by Bayberry.
The Insurance Policy
{¶7} A “Commercial General Liability Coverage” policy was in place with
Acuity at the time of the alleged injury. On the first page of the policy, the Renewal
Declarations page, it lists “BROOKMEADOW LTD AN OHIO LLC DBA BAYBERRY
CROSSING” as the “First Named Insured.”
{¶8} Per the policy, the words “you” and “your” refer to the “Named Insured
shown in the Declarations, and any other person or organization qualifying as a
Named Insured under this policy.” The words “we,” “us,” and “our” refer “to the
Company providing the insurance.
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{¶9} Section I concerns coverages under the policy. In relevant part, the
coverage A section states:
We will pay those sums that the insured becomes legally
obligated to pay as damages because of bodily injury or property
damage to which this insurance applies. We will have the right and
duty to defend the insured against any suit seeking those damages.
However, we will have no duty to defend the insured against any suit
seeking damages for bodily injury or property damage to which this
insurance does not apply.
(Emphasis sic.)
{¶10} Section II concerns who is an insured under the policy. In relevant
part, this section lists the following as insured:
1.c. If you are designated in the Declarations as: A limited
liability company, you are an insured. Your members are also
insureds, but only with respect to the conduct of your business. Your
managers are insureds, but only with respect to their duties as your
managers.
2.b. Any person (other than your employee) or volunteer
worker or any organization while acting as your real estate manager.
(Emphasis sic.)
{¶11} “Real estate manager” is not defined in the policy. Later in the policy,
there are two amendments to Section II, which are entitled “Additional Insured.”
The first is for the “mortgagee,” Union Central Life Insurance Company. The second
is for the “Co-Owner of Insured Premises,” “Bayberry Inc.” The address listed for
“Bayberry Inc” is 15 Montgomery Way, Amelia, Ohio. It states that Section II is
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“amended to include as an insured the person(s) or organization(s) shown in the
Schedule, but only with respect to their liability as co-owner of the premises shown
in the Schedule.”
Outcome of the Underlying Suit
{¶12} After several months of communication between the parties regarding
whether Acuity would provide coverage to Fairless, Brookmeadow voluntarily
dismissed the third-party complaint against Bayberry and Fairless on September 26,
2017, after reaching a settlement with the original plaintiff. On October 17, 2017,
counsel for Fairless sent a letter to Acuity demanding payment of all attorney fees
and expenses incurred in the matter in the amount of $5,399.13. The letter also
informed Acuity that Fairless intended to pursue all remedies available to him if
payment was refused, including but not limited to a declaratory judgment action and
claims of bad faith.
Procedural History
{¶13} On January 15, 2018, Fairless filed a complaint against Acuity,
asserting claims for a declaratory judgment, breach of contract, and lack of good
faith. With leave of court, Fairless filed an amended complaint on August 22, 2018,
which added Bayberry as an additional plaintiff.
{¶14} On June 28, 2019, Acuity filed a motion for summary judgment,
arguing that the insurance contract did not provide coverage for the third-party
claims. That same day, Fairless and Bayberry filed a joint motion for summary
judgment on counts I and II, arguing that the policy and the allegations in the
underlying third-party complaint, taken together, “make clear that Acuity owed
Plaintiffs a duty of defense and breached that duty when it refused to provide or
reimburse Plaintiffs for the same.” In an affidavit attached to Fairless and Bayberry’s
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joint motion for summary judgment, Fairless averred that he is the managing
member of Bayberry and that he obtained the insurance policy with Acuity pursuant
to his obligations under the lease agreement and made all premium payments. On
March 10, 2020, the trial court granted the plaintiffs’ motion for summary judgment
on counts I and II, finding that Acuity was required to defend Fairless and Bayberry
because the underlying suit “did arguably or potentially bring an action within the
insurance coverage provision of Acuity’s policy.”
{¶15} On September 25, 2020, plaintiffs filed a motion for an award of
damages and attorney fees as to counts I and II. Included with the motion was an
affidavit of Joshua Smith that stated that attorney fees and expenses in the amount
of $4,121.63 were charged to Fairless and Bayberry for defense of the third-party
complaint. The affidavit also claimed that attorney fees and expenses in the amount
of “$35,337,57” [sic] were charged to Fairless and Bayberry for the investigation,
preparation, and prosecution of the present litigation. The affidavit incorporated
invoices and time reports that were attached to the affidavit. On February 18, 2021,
the trial court entered an order for an award of attorney fees in the amount of
$4,121.63 to Fairless and Bayberry. The court found that “at this stage” attorney fees
were limited to fees incurred in defense of the third-party complaint.
{¶16} On March 5, 2021, Acuity filed a notice of appeal. On March 9, 2021,
plaintiffs filed their notice of cross-appeal. Plaintiff’s claim for lack of good faith,
which seeks compensatory and punitive damages, remains pending in the trial court.
Law and Analysis
Defendant-Appellant’s Assignment of Error
{¶17} Acuity raises a sole assignment of error that the trial court erred in
determining that Acuity had a duty to defend the underlying action. We review a
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grant of summary judgment de novo. City of Cincinnati v. Metro. Design & Dev.,
LLC, 1st Dist. Hamilton No. C-170708, 2019-Ohio-364, ¶ 14, citing Grafton v. Ohio
Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996).
{¶18} “An insurance policy is a contract.” William Powell Co. v. OneBeacon
Ins. Co., 2020-Ohio-5325, 162 N.E.3d 927, ¶ 26 (1st Dist.), citing Westfield Ins. Co. v.
Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, 797 N.E.2d 1256. “When presented
with an issue of contract interpretation, the role of a court is to give effect to the
intent of the parties to the agreement.” Id., citing Galatis. “ ‘We examine the
insurance contract as a whole and presume that the intent of the parties is reflected
in the language used in the policy.’ ” Id., quoting Galatis. “When the language of a
contract is clear, we may look no further than the writing itself to find the intent of
the parties.” Id., citing Galatis.
{¶19} “Under Ohio Law, an insurer’s duty to defend against an insured claim
is significantly broader than the duty to indemnify.” Metro. Design at ¶ 15, citing
Westfield Ins. Co. v. Factfinder Marketing Research, 168 Ohio App.3d 391, 2006-
Ohio-4380, 860 N.E.2d 145 (1st Dist.). “In determining the duty to defend, a court
reviews the allegations in the complaint and any allegations arising after the filing of
the complaint.” Id., citing Willoughby Hills v. Cincinnati Ins. Co., 9 Ohio St.3d 177,
179, 459 N.E.2d 555 (1984). “Where the allegations state a claim that is potentially
or arguably within the policy coverage, the insurer must accept the defense of the
claim regardless of the ultimate outcome of the action or the insurer’s liability to the
insured.” Id., citing Willoughby Hills. “But a duty to defend does not attach when
the conduct alleged is indisputably outside the scope of coverage.” Id., citing
Willoughby Hills.
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{¶20} Here, the policy unambiguously states that Acuity had a duty to defend
an insured from any suit seeking damages for bodily injury. The policy also
unambiguously states that any organization acting as “real estate manager” for
Brookmeadow was covered as an insured under the policy.
{¶21} Real estate manager is not defined in the policy so we must rely on its
plain and ordinary meaning. See Collins v. Auto-Owners Ins. Co., 2017-Ohio-880,
80 N.E.3d 542, ¶ 16 (12th Dist.), citing Prudential Property & Cas. Ins. Co. v. Koby,
124 Ohio App.3d 174, 177, 705 N.E.2d 748 (11th Dist.1997). The plain and ordinary
meaning of “real estate” is “property in buildings and land.” Merriam-Webster’s
Online Dictionary, https://www.merriam-webster.com/dictionary/real%20estate
(accessed Dec. 17, 2021). The plain meaning of “manager” is “one that manages.”
Merriam-Webster’s Online Dictionary, https://www.merriam-webster.com/
dictionary/manager (accessed Dec. 17, 2021). Thus, the plain meaning of “real estate
manager” is one who manages property in buildings or land.
{¶22} “When the insurer’s duty is not clear from the complaint, but the
allegations state a claim that is potentially or arguably within the policy coverage, or
there is some doubt as to whether a theory of recovery within the policy coverage had
been pleaded, the insurer must accept defense of the claim.” Westfield Cos. v. O.K.L.
Can Line, 155 Ohio App.3d 747, 2003-Ohio-7151, 804 N.E.2d 45, ¶ 8 (1st Dist.),
citing Willoughby Hills, 9 Ohio St.3d at 180, 459 N.E.2d 555.
{¶23} The third-party complaint alleged that “Upon information and belief,
Bayberry Crossing, LLC, was the Lessor, operator and manager of Bayberry
Apartments, 15 Montgomery Way, Amelia, Ohio 45102 at the time Plaintiff alleges he
sustained personal injuries on the Premises.” (Emphasis added.) The complaint also
alleged that “Third-Party Defendants Bayberry Crossing, LLC and Joe Fairless
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negligently maintained the premises located at 15 Montgomery Way, Amelia, Ohio
45102, which may have caused injury to Plaintiff.” Thus, the allegations in the
complaint expressly state a claim that is potentially or arguably within the policy
coverage for Bayberry because it alleged that Bayberry was the manager of the
apartments.
{¶24} Additionally, we consider the language in the lease because it was
attached and incorporated into the complaint. See Civ.R. 10(C) (“A copy of a written
instrument attached to a pleading is part of the pleading for all purposes.”). Under
the “Maintenance and Repair” provision, Fairless had “sole discretion” to “keep and
maintain the Premises and buildings and improvements,” and Fairless expressly
waived the right to require Brookmeadow to maintain or repair the premises. Under
the “Conditional Assignment of Rents and Leases” provision of the lease, Fairless
was “authorized” as the Lessee “to assume the management and operation of the
Premises, including collection of rents and income under all currently existing and
future tenant leases, rents, and security deposits for apartments located on the
Premises during the entirety of the term.” Further, the lease had a provision that
made the lease binding on the lessor, lessee, and their assigns. Thus, it is arguable
that Fairless was responsible for management of the premises, and we cannot say
that the suit against Fairless was indisputably outside the scope of coverage.
Accordingly, the claims in the underlying complaint against Fairless and Bayberry
were arguably within the policy coverage. Consequently, this assignment of error is
overruled.
Plaintiffs-Appellees’ Cross-Assignment of Error
{¶25} Fairless and Bayberry raise a sole assignment of error that the trial
court erred in declining to award them their reasonable attorney fees for the present
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litigation. Neither party disputes the trial court’s award of attorney fees for the
breach of the duty to defend the initial action. We review a trial court’s award of
attorney fees for an abuse of discretion. Westfield, 155 Ohio App.3d 747, 2003-Ohio-
7151, 804 N.E.2d 45, at ¶ 38.
Ohio follows the ‘American Rule,’ which generally requires that
an award of ‘costs’ in the form of attorney fees to a prevailing party in a
civil action or proceeding must be based upon an express authorization
of the General Assembly or upon a finding that the losing party has
acted in ‘bad faith, vexatiously, wantonly, obdurately, or for oppressive
reasons.’ But attorney fees are allowable as ‘damages’ in breach-of-
contract cases where the parties have bargained for this result and the
breaching party’s wrongful conduct has led to the legal fees being
incurred.
(Citations omitted.) Westfield at ¶ 28.
{¶26} Thus, a trial court properly awards legal fees to an insured for the legal
fees incurred in defending an action where the insurer contractually accepted the
duty to defend the insured against third-party lawsuits to which coverage potentially
applied. See id. at ¶ 29. However, where the parties do not contract to shift fees
incurred for litigation of the dispute between the insured and insurer, the award of
legal fees must “be authorized by legislation or by a finding that [the insurer] had
acted in ‘bad faith, vexatiously, wantonly, obdurately, or for oppressive reasons.’ ”
Id. at ¶ 30.
{¶27} Fairless and Bayberry cite to Motorist Mut. Ins. Co. v. Trainor, 33
Ohio St.2d 41, 47, 294 N.E.2d 874 (1973), for the proposition that insureds are
entitled to recovery of attorney fees to date based upon an insurer’s breach of its duty
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to defend. However, in Westfield, this court limited Trainor, and any subsequent
cases relying on Trainor, and held that, when the parties do not contract to shift fees
incurred for litigation of the dispute between the insured and insurer, attorney fees
may only be awarded in a declaratory judgment/breach of contract action when the
losing party has acted in bad faith, vexatiously, wantonly, obdurately, or for
oppressive reasons. Westfield at ¶ 31-37. Stare decisis dictates that we adhere to this
holding. See William Powell Co. v. Onebeacon Ins. Co, 2016-Ohio-8124, 75 N.E.3d
909, ¶ 31 (1st Dist.) (“Stare decisis ‘provides continuity and predictability in our legal
system, * * * thwart[s] the arbitrary administration of justice [and] provide[s] a clear
rule of law by which the citizenry can organize their affairs.’ ” (Ellipses sic.)).
{¶28} The parties have not pointed to, and we do not find, any contractual
provision which concerns fee shifting in a dispute between the insured and the
insurer. Since the trial court reserved the claim that Acuity failed to act in good faith
and has yet to rule on this issue, we cannot determine that the trial court abused its
discretion in declining to award attorney fees in the present litigation “at this point in
the case.” Consequently, this assignment of error is overruled to the extent that
Fairless and Bayberry argue that attorney fees should have been awarded for the
period leading up to this point in the litigation, regardless of whether there was bad
faith.
{¶29} Fairless and Bayberry also make the alternative argument that this
court should hold that the attorney fees were recoverable because Acuity’s actions
establish bad faith, or vexatious, wanton, obdurate, or oppressive conduct. However,
the trial court expressly reserved the determination of whether Acuity acted in bad
faith. Consequently, this portion of the cross-assignment of error is premature and
therefore we do not address it.
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Conclusion
{¶30} For the foregoing reasons, we overrule Acuity’s assignment of error,
overrule Fairless and Bayberry’s cross-assignment of error in part, and hold the
remaining portion of plaintiffs-appellees’ cross-assignment of error is premature.
Accordingly, we affirm the judgment of the trial court.
Judgment affirmed.
WINKLER and BOCK, JJ., concur.
Please note:
The court has recorded its own entry this date.
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