Monsler v. Cincinnati Cas. Co.

Citations: 598 N.E.2d 1203; 74 Ohio App. 3d 321; 1991 Ohio App. LEXIS 2543Docket: No. 90AP-522.

Court: Ohio Court of Appeals; May 28, 1991; Ohio; State Appellate Court

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Cincinnati Casualty Company appeals a judgment from the Franklin County Common Pleas Court dated April 6, 1990. The court's ruling included: (a) overruling the defendant's objections to a referee's report; (b) adopting the report which determined that Cincinnati Casualty had a duty to defend plaintiff Monsler in a federal court action; (c) ordering the defendant to pay the plaintiff’s attorney fees and expenses; and (d) awarding prejudgment interest to the plaintiff. The defendant raises eight assignments of error: 

1. Admission of evidence outside the underlying complaint's scope.
2. Misinterpretation of the insurance coverage terms obligating the defendant to defend the plaintiff.
3. Finding the phrase "negligent acts, errors, or omissions" ambiguous.
4. Erroneous conclusion regarding the commercial umbrella liability policy's obligation to defend the plaintiff.
5. Misinterpretation of the commercial umbrella liability policy as providing both excess and umbrella coverage.
6. Incorrect finding of an "occurrence" as defined by the commercial umbrella liability policy.
7. Implicit coverage for intentional acts of discrimination under the commercial umbrella liability policy.
8. Improper order for the defendant to pay the plaintiff’s attorney fees related to the underlying case and current proceedings.

The underlying federal case, initiated on December 15, 1986, involved allegations of racial discrimination in the sale of property. Monsler, a licensed real estate agent, was insured under policies issued by Cincinnati Casualty, which the defendant claimed did not require them to defend her. Following a declaratory judgment suit filed by Monsler on April 28, 1989, the case was referred to a referee, who concluded that the defendant had a duty to defend her. The trial court upheld this conclusion, leading to the current appeal.

The defendant appealed on May 4, 1990, regarding a case involving plaintiff Monsler, a real estate salesperson affiliated with HER, Inc. from March 1985 to July 1987. In 1986, Monsler assisted the Fowlers in selling their home. HER provided its sales staff with various resources, and Monsler operated on a commission basis without direct supervision. As part of her affiliation, she was required to have insurance coverage, which she obtained through HER’s liability policy, for which she paid a share of the premium.

The defendant issued two liability policies to HER: a comprehensive property and casualty policy with HER as the primary insured and salespersons as additional insureds, and an excess commercial "umbrella" policy. The comprehensive policy included a rider for "errors and omissions," obligating the defendant to defend salespersons against claims of negligence. However, the defendant evaluated a federal action against Monsler and determined it only alleged intentional conduct, leading to the conclusion that it had no duty to defend her under either policy. The rejection was based on the failure to meet the definitions of "property damage" and "occurrence" in the comprehensive policy, and the applicability of exclusion (h) in the umbrella policy, which excludes liability for personal injury arising from discrimination.

The trial court’s sole issue was whether the defendant had a contractual duty to defend Monsler against the federal discrimination complaint. Such disputes between an insurer and insured can be resolved in a declaratory judgment proceeding, where the court typically examines the allegations in the underlying complaint to determine the duty to defend.

The Ohio Supreme Court, in Willoughby Hills v. Cincinnati Ins. Co., established that the "scope of the allegations" may extend beyond the pleadings when determining an insurer's duty to defend. An insurer must defend claims that are potentially or arguably within policy coverage, even if the pleadings do not clearly indicate this obligation. If the allegations are vague, ambiguous, or incomplete, the insurer's duty to defend is triggered. Conversely, if the allegations are clear and do not suggest claims within coverage, the insurer has no duty to defend. The defendant in the case argues that a federal discrimination complaint is specific and alleges only intentional acts, challenging the trial court's consideration of extrinsic evidence about the plaintiff's intent. The trial court's reliance on this evidence was deemed erroneous. The relevant insurance policy stipulates that the insurer must defend any suit against the insured if the allegations suggest coverage, regardless of their truth. The Ohio Supreme Court reinforced that the insurer's duty to defend arises from the allegations in the underlying complaint, irrespective of their veracity.

The case is guided by precedents from Willoughby Hills and Trainor, focusing on whether the underlying complaint's allegations constitute a "claim" potentially covered by insurance policy rather than the actual facts of the case. The federal complaint is described as clear and directly alleging housing discrimination based on race and color, violating Sections 1982 and 3604 of Title 42, U.S. Code. Specifically, the complaint claims the defendants acted with intentional disregard for the plaintiffs' rights, characterizing their actions as "intentional" rather than negligent.

It is noted that racial discrimination in real estate transactions is prohibited under federal law. The complaint outlines instances of disparate treatment, such as offering different terms to black and white buyers, which reflects a discriminatory intent. Even without the explicit language in paragraph eleven, the complaint aligns with federal discrimination law's definition of "disparate treatment," implying intentional action.

In legal terms, an intentional act, relevant to civil liability, is one done willingly with knowledge of the likely results. Consequently, an insurer typically has no obligation to defend against claims alleging intentional acts. The complaint does not present a theory of recovery that falls within the policy's coverage for negligent acts, as the policy requires defense only for such claims. Therefore, the insurer has no duty to defend the action, leading to the conclusion that the underlying complaint does not state a claim covered by the errors and omissions policy, resulting in the sustenance of the first and second assignments of error.

Words and phrases in an insurance contract that lack specific definitions should be interpreted using their ordinary meanings unless ambiguity exists. In cases where contract provisions can be interpreted in multiple ways, they are construed strictly against the insurer and favorably for the insured. The court found no ambiguity in the errors and omissions rider, which specifies coverage for claims resulting solely from negligent acts, errors, or omissions. The term "negligent" clearly modifies "act," indicating unintentional conduct. The underlying federal discrimination complaint only alleges acts without claiming any errors or omissions, thus eliminating the need for further analysis. 

The third assignment of error was sustained. The fourth, fifth, sixth, and seventh assignments of error pertain to the trial court's interpretation of the commercial umbrella liability policy. The defendant argues that (a) there is no duty to defend the discrimination complaint under the umbrella policy, as its coverage is limited to that of the errors and omissions rider, and (b) the underlying complaint only alleges intentional conduct, which does not qualify as an "occurrence" under the umbrella policy. The court agreed with this interpretation. 

Plaintiff Monsler is classified as an "additional insured" under both the comprehensive property and casualty policy and the errors and omissions endorsement, extending her status to the umbrella policy. However, the umbrella policy specifies that coverage for additional insureds is limited to the extent of the underlying insurance. The umbrella policy's coverage is restricted to "occurrences" related to personal injury, property damage, or advertising liability, with an explicit exclusion for liabilities arising from discrimination.

An "occurrence" is defined as a sudden, unintended event causing personal injury, property damage, or advertising liability during the policy period, which aligns with the errors and omissions rider’s focus on negligent conduct. Thus, the umbrella policy provides excess liability coverage solely for unintentional occurrences. The commercial umbrella liability policy's limits apply to ultimate net losses for occurrences that exceed the limits of the underlying insurance or that are not covered by the underlying insurance but fall under the umbrella policy. The use of "or" in the contract implies that it does not provide both excess and umbrella coverage, contrary to the trial court's conclusion.

Umbrella policy coverage requires an "occurrence" to be triggered. The plaintiff contends that "discrimination" falls under the umbrella policy's definition of "personal injury," which should obligate the defendant to defend against the underlying federal lawsuit. While the policy does include discrimination in its definition of personal injury, coverage is only applicable if the injury arises from an unintentional occurrence. Intentional acts resulting in personal injury do not qualify for coverage. Furthermore, the policy explicitly excludes personal injury liability arising out of discrimination in its coverage provisions, indicating no conflict with the definitional section. A key principle of contract interpretation holds that specific provisions take precedence over general ones. Consequently, the coverage exclusions control, and the defendant is not obligated to defend the plaintiff in the federal discrimination case, which is characterized by intentional conduct and a "disparate treatment" claim. All assigned errors related to the trial court's rulings are sustained, leading to the reversal of the trial court’s judgment and the vacating of its award of attorney fees, expenses, and prejudgment interest. The case is remanded with directions to enter judgment for the defendant.