Ohio Insurance Industry Legal Update

The legal environment in Ohio continues to be active in insurance. While the court system has been slowed down by COVID, the various branches of the judiciary continue to issue decisions that impact your clients, insurance policies, and insurance carriers. We have provided a brief synopsis of the latest legal opinions affecting your clients and the Ohio insurance industry.

Ohio Supreme Court Clarifies Water-backup exclusion

In a recent ruling, the Ohio Supreme Court ruled that the water-backup exclusion bars coverage for damage caused directly or indirectly by water that backs up or overflows from a sewer. The Court overturned a decision from the Ninth District Court of Appeals (Summit County) that found coverage for damage caused by “water that backs up or overflows from a sewer” including damage to property caused by the sewage carried onto the insured’s property.

According to the facts in AKC v. United Specialty Ins. Co. (2021), “in 2014, sewage from the local sewer system backed up into the Bank Nightclub in Akron, Ohio. The bar was insured at the time by the appellant, United Specialty Insurance Company. Soon after the bar was flooded, the bar hired the appellee, AKC, Inc., d.b.a. Cleantech, to clean up the site.

The bar also submitted a claim to its insurer, United Specialty. Citing an exclusion in the bar’s policy for damage caused by water that backs up or overflows from a sewer, United Specialty denied that claim. Following that declination of coverage, the bar assigned AKC any claims it might have against United Specialty, and AKC eventually instituted this breach-of-contract action. After the trial court granted summary judgment in favor of United Specialty and the Ninth District Court of Appeals reversed” and was appealed to the Supreme Court.

The Supreme Court found the policy exclusion to be plain and unambiguous in overturning the lower court ruling and finding that the water-backup exclusion clearly includes damage caused by sewage resulting in no coverage.

COVID Business Interruption Lawsuits

Federal Cases in Ohio

The U.S. Sixth Circuit Court of Appeals unanimously held in Santo’s Café v. Acuity that the presence of COVID and subsequent shutdown orders do not constitute “direct physical injury” to property that would trigger coverage under the Business Interruption clauses of the commercial property form.

In addition, the Sixth Circuit vacated the ruling in Henderson Road v. Zurich and remanded the case back to the trial judge. The Henderson Road was the sole federal court decision granting the policyholder’s coverage in Ohio. The opinion has widely been considered an outlier. Now the decision has been vacated.  Judge Polster had previously ordered further briefing to be completed by October 8, 2021, to determine if Santo’s applies to the facts in Henderson Road.

Several state trial courts in Ohio relied on Henderson Road decision to deny insurer’s motions to dismiss and now that the decision is vacated there will be additional activity in the cases that have relied on this decision. This information was provided by the Ohio Insurance Institute.

Ohio Supreme Court Case – Neuro-Communications vs. Cincinnati Insurance Company (certified federal question)

Several insurance companies and the Ohio Insurance Institute (OII) filed amicus briefs in the Neuro-Communications v. Cincinnati Insurance Company in the Supreme Court of Ohio.

The case is a certified question of state law from the Northern District of Ohio in a Business Interruption proceeding. Ohio is one of the first states that the question of business interruption coverage has reached the state’s court of last resort.

The next step in the process is for the Supreme Court to set a date for oral arguments. The announcement is expected to come in October. This will likely put oral arguments in early 2022 and a final decision in summer 2022.

Caps on Non-economic Damages

The Ohio Supreme Court voted 4-3 to accept a case that places a portion of Ohio’s 2005 tort reform overhaul in jeopardy. Notably, Justices Kennedy, Fischer, and DeWine dissented in the decision to accept the case. In Amanda Brandt v. Ray Pompa, et al., the court will decide whether the 2005 tort reform overhaul that caps a portion of non-economic damages as applied to minor victims of sexual abuse that suffer severe and permanent injuries violates constitutional rights to due process, equal protection, trial by jury and open courts.

While the court issued a decision in Arbino v. Johnson in 2016 that upheld these caps, Brandt argues that her case is distinguishable from the 2016 lawsuit and noted that in its 2016 decision the court also wrote that “there may exist a set of facts under which application of the statutory damage caps would prove unconstitutional.” With only two of the seven justices that ruled in the 2016 case remaining on the Court, this latest challenge is being watched closely by many.

The tort reform laws passed in the early 2000s helped create a stable and predictable legal environment for businesses to grow and invest in our state. In part, the effect has been Ohio’s insurance premiums rank among the lowest in the country (9th lowest for homeowners and 13th lowest for auto) despite being one the most populist states in the country. In addition, Ohio is ranked as one of the most stable legal climates due to business in comparison to being one of the worst in the early 2000s. OIA is closely monitoring this lawsuit as it has the potential to have a significant impact on the insurance environment in our state.

Supreme Court Elections

With all this activity in the legal arena, OIA is preparing to actively engage in the 2022 Ohio Supreme Court elections. We are currently assessing the opinions, judicial philosophy, and candidate credentials for the upcoming elections with the OIA Advocacy Committee.

There are 3 seats up for election in November 2022, comprised of the Chief Justice role and two associate Justice positions. As of now, the declared candidates include:

  • Chief Justice – Open Seat – Two sitting Justices – Sharon Kennedy (R) and Jennifer Brunner (D) planning to run for the Chief Justice role.
  • Associate Justice – Pat DeWine seeking re-election
  • Associate Justice – Pat Fischer seeking re-election

As we have done in the past, OIAPAC plans to support candidates that have a philosophy of judicial restraint and interpreting the law rather than creating it from the bench.

For more information on any of these issues please contact Jeff Smith at jeff@ohioinsuranceagents.com.

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