Landis v. Grange Mutual Insurance

[This opinion has been published in Ohio Official Reports at 

82 Ohio St.3d 339

.]




   LANDIS ET AL., APPELLEES AND CROSS-APPELLANTS, v. GRANGE MUTUAL
            INSURANCE COMPANY, APPELLANT AND CROSS-APPELLEE.
             [Cite as Landis v. Grange Mut. Ins. Co., 

1998-Ohio-387

.]
Insurance—Motor vehicles—Claim for underinsured motorist benefits under
        employer’s policy—Denial of claim by insurer—Determination of
        prejudgment interest pursuant to R.C. 1343.03(A)—Insurance company not
        liable for attorney fees incurred by claimants pursuant to a contingency fee
        contract, but liable for reasonable attorney fees pursuant to R.C. 2721.09,
        when.
      (No. 97-707—Submitted February 17, 1998—Decided July 15, 1998.)
   APPEAL and CROSS-APPEAL from the Court of Appeals for Erie County, No.
                                         E-96-034.
                                  __________________
        {¶ 1} Frederick Landis, an employee of Foster Chevrolet, Inc. (“Foster”),
was a designated insured for underinsured motorist coverage in the amount of
$1,000,000 pursuant to a policy obtained by Foster and issued by Grange Mutual
Insurance Company (“Grange”). On the night of June 5, 1988, while walking along
Columbus Avenue in Sandusky, Ohio, Landis was negligently struck by an
underinsured motorist. The tortfeasor’s insurer paid $100,000, the liability limit of
the tortfeasor’s policy, to Landis.
        {¶ 2} Landis and his wife, Ruthann, presented their demand for
underinsured motorist benefits under the Grange policy. Grange denied the claim
on its assertion that Landis was not a designated insured. Subsequent to the denial
of the claim, the Landises executed a contingency fee contract with the law firm of
Murray & Murray Co., L.P.A. On August 17, 1988, the Landises filed a complaint
                            SUPREME COURT OF OHIO




for declaratory judgment, seeking a declaration that Landis was entitled to
underinsured motorist benefits under the Grange insurance policy.
       {¶ 3} On June 14, 1993, the trial court issued its opinion, finding that
Grange was required to provide underinsured motorist coverage for Landis. The
ruling was affirmed by the Erie County Court of Appeals. The amount of damages
was thereafter submitted to arbitration, and the Landises were awarded $1,300,000.
The award was reduced to judgment on December 8, 1995, and Grange
immediately paid the policy limit to the Landises. (The Landises have disclaimed
any right to the $300,000 in excess of the policy limit that was awarded by the
judgment.) Landis paid attorney fees in the amount of $333,333.33 to Murray &
Murray, pursuant to the contingency fee contract.
       {¶ 4} On December 8, 1995, Landis filed a motion for reimbursement of
attorney fees and for prejudgment interest. Landis did not assert that Grange’s
denial of benefits constituted bad faith. The trial court held that a claim for
underinsured motorist coverage is based on tort and therefore that Landis had no
claim for prejudgment interest under R.C. 1343.03(A) or (C). The trial court
granted the motion for reimbursement of attorney fees, finding the contingency fee
contract to be reasonable and proper.
       {¶ 5} On appeal, the court of appeals reversed the trial court’s denial of
prejudgment interest and held that “the accumulation of interest pursuant to R.C.
1343.03(A) begins on the date the claim becomes due and payable.” The court did
not determine the date on which Landis’s claim became due and payable. The court
vacated the award of attorney fees, finding that Grange could not be held liable for
a contractual agreement (the contingency fee contract) to which it was not a party.
The court remanded for determination of the amount of prejudgment interest to be
awarded and a determination of a “proper award of attorney’s fees.” Grange
appealed, and Landis filed a cross-appeal.




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                                 January Term, 1998




        {¶ 6} The cause is now before this court pursuant to the allowance of a
discretionary appeal and cross-appeal.
                                __________________
        Murray & Murray Co., L.P.A., James T. Murray and Joseph A. Zannieri,
for appellees and cross-appellants.
        Buckingham, Doolittle & Burroughs, Donald A. Powell and Robert L.
Tucker, for appellant and cross-appellee.
        Clark, Perdue, Roberts & Scott and Edward L. Clark, urging affirmance on
the appeal for amicus curiae Ohio Academy of Trial Lawyers.
        Mazanec, Raskin & Ryder Co., L.P.A., and Edwin J. Hollern, urging
reversal in part on the appeal for amicus curiae Great American Insurance
Companies.
                                __________________
        PFEIFER, J.
        {¶ 7} Two separate issues are raised in the controversy before us: (1)
whether Landis is entitled to prejudgment interest pursuant to R.C. 1343.03(A) and
(2) whether Grange is liable for the attorney fees that Landis incurred pursuant to
a contingency fee contract. For the reasons that follow, we answer the first question
in the affirmative and the second question in the negative, and address each
question separately.
        {¶ 8} R.C. 1343.03(A) states that “when money becomes due and payable
upon any * * * instrument of writing * * * and upon all judgments * * * for the
payment of money arising out of tortious conduct or a contract or other transaction,
the creditor is entitled to interest at the rate of ten per cent per annum.”
        {¶ 9} Grange spent considerable effort attempting to persuade us that
uninsured/underinsured motorist insurance (“UMI”) claims are based on tortious
conduct and therefore that R.C. 1343.03(A) does not allow prejudgment interest.
Landis spent considerable effort attempting to persuade us that UMI claims are




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contract claims and therefore that R.C. 1343.03(A) does allow prejudgment
interest.   We conclude that Landis’s UMI claim is a contract claim, while
acknowledging that there would be no UMI claim absent tortious conduct, the
accident. Kraly v. Vannewkirk (1994), 

69 Ohio St.3d 627, 632

, 

635 N.E.2d 323, 327

 (legal basis for recovery of UMI benefits is contract); Motorists Mut. Ins. Co.
v. Tomanski (1971), 

27 Ohio St.2d 222, 223

, 

56 O.O.2d 133, 134

, 

271 N.E.2d 924, 925

 (right to recovery of UMI benefits is on the contract).
        {¶ 10} In the declaratory judgment action, the trial court determined that
Landis was covered by the UMI provision. According to the declaratory judgment,
when Landis applied for UMI benefits, Grange should have paid them to him. In
other words, the benefits were due and payable to him based on an instrument of
writing, the insurance contract. R.C. 1343.03(A). That the benefits were denied in
good faith is irrelevant because lack of a good faith effort to settle is not a predicate
to an award of prejudgment interest pursuant to R.C. 1343.03(A), as it is under R.C.
1343.03(C). The proper way to fully compensate Landis is to award prejudgment
interest. Royal Elec. Constr. v. Ohio State Univ. (1995), 

73 Ohio St.3d 110

, 116-
117, 

652 N.E.2d 687

, 692.
        {¶ 11} In dissent below, Judge Glasser stated that “awarding prejudgment
interest under the circumstances of this case clearly discourages litigation of
reasonable issues.” We disagree; parties will remain free to litigate reasonable
issues. However, when they litigate, they will be subject to a prejudgment interest
award, not as a punishment but as a way to prevent them from using money then
due and payable to another for their own financial gain. We affirm the judgment
of the court of appeals as to prejudgment interest under R.C. 1343.03(A).
        {¶ 12} Grange argues that even if prejudgment interest under R.C.
1343.03(A) is proper, no money was due and payable until the arbitration award
was reduced to judgment. We disagree. According to the declaratory judgment,
the money was due and payable. That the amount remained undetermined until




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                                January Term, 1998




arbitration does not bar recovery of prejudgment interest. Royal Elec. Constr. v.
Ohio State Univ., 

73 Ohio St.3d 110

, 

652 N.E.2d 687

, syllabus.
       {¶ 13} If Grange had not denied benefits, the issue of damages would have
gone directly to an arbitrator and the benefits would have become due and payable
no later than upon entry of the arbitrator’s award. But Grange did deny benefits,
and it scarcely seems equitable that the denial of benefits contractually owed to
another that led both parties on a lengthy and tortuous journey through the judicial
system should redound to Grange’s benefit. A determination that the benefits
became due and payable upon the entry of the arbitrator’s award would, in this case,
work an injustice by rewarding Grange for improperly denying benefits. See Hogg
v. Zanesville Canal & Mfg. Co. (1832), 

5 Ohio 410, 424

 (“[prejudgment] interest
is allowed, not only on account of the loss which a creditor may be supposed to
have sustained by being deprived of the use of his money, but on account of the
gain being made from its use by the debtor.”).
       {¶ 14} Whether the prejudgment interest in this case should be calculated
from the date coverage was demanded or denied, from the date of the accident, from
the date at which arbitration of damages would have ended if Grange had not denied
benefits, or some other time based on when Grange should have paid Landis is for
the trial court to determine. Upon reaching that determination, the court should
calculate, pursuant to R.C. 1343.03(A), the amount of prejudgment interest due
Landis and enter an appropriate order.
       {¶ 15} The second issue concerns whether Grange can be held liable for the
attorney fees that were incurred by Landis pursuant to a contingency fee contract
to which Grange was not a party.
       {¶ 16} In Motorists Mut. Ins. Co. v. Brandenburg (1995), 

72 Ohio St.3d 157

, 

648 N.E.2d 488

, syllabus, this court stated that “a trial court has the authority
under R.C. 2721.09 to assess attorney fees based on a declaratory judgment issued
by the court. The trial court’s determination to grant or deny a request for fees will




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not be disturbed, absent an abuse of discretion.” Abuse of discretion                   “
‘connotes more than an error of law or of judgment; it implies an unreasonable,
arbitrary or unconscionable attitude on the part of the court.’ ” Pembaur v. Leis
(1982), 

1 Ohio St.3d 89, 91

, 1 OBR 125, 127, 

437 N.E.2d 1199, 1201

, quoting
Klever v. Reid Bros. Express, Inc. (1951), 

154 Ohio St. 491

, 

43 O.O. 429

, 

96 N.E.2d 781

, paragraph two of the syllabus.
       {¶ 17} Grange and Landis stipulated that the contingency fee agreement
between Landis and Murray & Murray was “normal, ordinary, and customary.” As
the court of appeals noted, “[s]uch agreements permit persons of ordinary means
access to a legal system which can sometimes demand extraordinary expense. The
mechanism by which this is accomplished is a contract between client and attorney
whereby some or all of the risk involved in litigation is shifted to the attorney. The
quid pro quo for relieving the client of this risk is that the agreement normally calls
for the attorney to receive a percentage of any possible recovery. * * * To be sure,
the contingency percentage is an arbitrary figure but, like liquidated damages in
other contracts, is proper because it is a bargained for result.” (Citation omitted.)
       {¶ 18} This reasoning does not apply to Grange, an insurance company of
considerable means. For instance, Grange did not receive the benefit of transferring
risk to an attorney. Further, and most important, Grange did not bargain for the
contingency fee contract. That the contingency fee agreement was normal and
customary as to Landis and Murray & Murray does not mean that it can be enforced
against a party that did not agree to it. See Branham v. CIGNA Healthcare of Ohio,
Inc. (1998), 

81 Ohio St.3d 388

, 

692 N.E.2d 137

 (arbitration contract binds only
contracting parties). We conclude that the trial court abused its discretion, not by
requiring Grange to pay attorney fees, but by requiring Grange to pay attorney fees
pursuant to a contract to which it was not a party.
       {¶ 19} Accordingly, we affirm the judgment of the court of appeals and
remand to the trial court for determination of the amount of prejudgment interest




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                                January Term, 1998




and determination of an award of reasonable attorney fees pursuant to R.C.
2721.09. See Bittner v. Tri-County Toyota, Inc. (1991), 

58 Ohio St.3d 143

, 

569 N.E.2d 464

; DR 2-106(B).
        {¶ 20} Grange also argues that the trial court did not follow the procedural
mandate of R.C. 2721.09 in awarding attorney fees. We agree with the court of
appeals that the remand moots the issue.
                                                                 Judgment affirmed.
        MOYER, C.J., concurs.
        DOUGLAS and F.E. SWEENEY, JJ., concur in part and dissent in part.
        REECE, COOK and LUNDBERG STRATTON, JJ., dissent in part and concur in
part.
        JOHN W. REECE, J., of the Ninth Appellate District, sitting for RESNICK, J.
                                __________________
        DOUGLAS, J., concurring in part and dissenting in part.
        {¶ 21} I concur with the majority in affirming the court of appeals on the
prejudgment interest issue. I respectfully dissent as to the attorney fees issue.
        {¶ 22} In Motorists Mut. Ins. Co. v. Brandenburg (1995), 

72 Ohio St.3d 157

, 

648 N.E.2d 488

, we said, at the syllabus, that “[a] trial court has the authority
under R.C. 2721.09 to assess attorney fees based on a declaratory judgment issued
by the court. The trial court’s determination to grant or deny a request for fees will
not be disturbed, absent an abuse of discretion.” In the case at bar, the trial court
awarded attorney fees in the amount it cost the Landises to recover from their own
insurance carrier what was due them pursuant to their underinsured motorist
coverage. To allow them, as the majority apparently does, less than what they paid
to obtain what was owed to them results in the Landises’ being left less than whole.
It is, indeed, a curious world in which we live. Buy insurance; have coverage
denied; sue your company; win at the trial court, the court of appeals, and the
Supreme Court levels; have attorney fees case law on your side; yet be awarded




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attorney fees in a sum less than what you paid attorneys to obtain the coverage you
contracted for. Confucius said: “Do to every man as you would have him do to
you; and do not unto another what you would not have him do to you.” The
International Dictionary of Thoughts (1969) 329. Maybe, somehow, the Landises
will understand.
         F.E. SWEENEY, J., concurs in the foregoing opinion.
                                 __________________
         COOK, J., dissenting in part and concurring in part.
         {¶ 23} Against    the     grain   of   its   customary      treatment    of
uninsured/underinsured motorist issues, a majority of this court has now decided
successive appeals by recognizing the contractual nature of the relationship
between insurer and insured. In Ross v. Farmers Ins. Group of Cos. (1998), 

82 Ohio St.3d 281

, ___ N.E.2d ___, the majority permitted plaintiffs to avoid the setoff
provision of R.C. 3937.18(A)(2) by applying former R.C. 3937.18(A)(2) as
interpreted by Savoie v. Grange Mut. Ins. Co. (1993), 

67 Ohio St.3d 500

, 

620 N.E.2d 809

, on the basis that it was the law in effect at the time of contracting.
Today’s majority holds that uninsured/underinsured motorist claims are based in
contract and, pursuant to R.C. 1343.03(A), permits the plaintiffs to collect
prejudgment interest on their underinsured motorist claim without a showing of bad
faith.
         {¶ 24} Overlooked, but not overruled, are this court’s decisions in State
Farm Auto. Ins. Co. v. Alexander (1992), 

62 Ohio St.3d 397

, 

583 N.E.2d 309

, and
Miller v. Progressive Cas. Ins. Co. (1994), 

69 Ohio St.3d 619

, 

635 N.E.2d 317

,
which would seem to contain contrary logic. Alexander overruled Dairyland Ins.
Co. v. Finch (1987), 

32 Ohio St.3d 360

, 

513 N.E.2d 1324

, paragraph two of the
syllabus, reasoning that “R.C. 3937.18(A)(1) and (2) are premised on the
tortfeasor’s legal liability to the injured insured.” (Emphasis sic.) Alexander, 

62 Ohio St.3d at 400

, 

583 N.E.2d at 312

. Based on that reasoning, the Alexander court




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                                January Term, 1998




held that “[a]n automobile insurance policy may not eliminate or reduce uninsured
or underinsured motorist coverage, required by R.C. 3937.18, to persons injured in
a motor vehicle accident, where the claim or claims of such person arise from
causes of action that are recognized by Ohio tort law.” 

Id.

 at syllabus.
       {¶ 25} The Alexander court’s abandonment of earlier holdings that R.C.
3937.18 does not displace ordinary principles of contract law (see Stanton v.
Nationwide Mut. Ins. Co. [1993], 

68 Ohio St.3d 111, 113

, 

623 N.E.2d 1197, 1199

,
explicitly acknowledging the abandonment) was followed by a series of cases
steadily eroding the contractual nature of the relationship between the insurer and
the insured. See, e.g., Holt v. Grange Mut. Cas. Co. (1997), 

79 Ohio St.3d 401

,

683 N.E.2d 1080

 (policy definition of “insured” party inapplicable to exclude
coverage of an insured’s wrongful death beneficiary); Schaefer v. Allstate Ins. Co.
(1996), 

76 Ohio St.3d 553

, 

668 N.E.2d 913

 (policy provision that subjects both a
person sustaining bodily injury and a person asserting a derivative claim for loss of
consortium based on that bodily injury to a single “per person” limitation invalid);
Martin v. Midwestern Group Ins. Co. (1994), 

70 Ohio St.3d 478

, 

639 N.E.2d 438

(“other owned vehicle” exclusion unenforceable).
       {¶ 26} The Miller court invalidated a policy provision requiring the
plaintiffs to commence any action against their insurance carrier within one year of
the accident causing injury. Bypassing the notion that uninsured/underinsured
motorist claims are actions sounding in contract, the Miller court ultimately held
that the R.C. 2305.10 two-year statute of limitations for bodily injury limited the
parties’ ability to contract for a shorter time period. Accordingly, based on a statute
of limitations designed to cover tort actions, the Miller court overruled the holding
in Colvin v. Globe Am. Cas. Co. (1982), 

69 Ohio St.2d 293, 295

, 

23 O.O.3d 281, 282

, 

432 N.E.2d 167, 169

, that “[g]enerally, in the absence of a controlling statute
to the contrary, a provision in a contract may validly limit, as between the parties,
the time for bringing an action on such contract to a period less than that prescribed




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                                SUPREME COURT OF OHIO




in a general statute of limitations provided that the shorter period shall be a
reasonable one.”
        {¶ 27} Despite these cases which elevate the tort underpinnings of
uninsured/underinsured motorist claims over their contractual origin, the majority
today    says     that    for    purposes      of    awarding      prejudgment       interest,
uninsured/underinsured motorist claims are based in contract and therefore
governed by R.C. 1343.03(A). This decision comes despite R.C. 1343.03(C)’s
employment of the expansive phraseology “based in tortious conduct.”                      The
significance of this language was noted by the Franklin County Court of Appeals
in deciding Woods v. Farmers Ins. of Columbus, Inc. (1995), 

106 Ohio App.3d 389, 396

, 

666 N.E.2d 283

, 288: “Had the General Assembly wanted R.C. 1343.03(C)
to apply only in tort cases, it could have used the simpler phrase ‘tort action,’ rather
than ‘civil action based on tortious conduct.’ Indeed, the phrase ‘based on tortious
conduct’ appears to be unique in the Revised Code to R.C. 1343.03. Elsewhere in
the Revised Code, the terminology encompassing tort actions is less expansive * *
*.”1 For instance, “tort action” is used in former R.C. 2309.01(A) and 2315.18,
Am.Sub.S.B. No. 1, 142 Ohio Laws, Part I, 1661, 1684, 1685-1686, and in R.C.
2317.45(A)(2), 2317.62(A)(3), and 2315.21(A)(4), and liability “in tort” is
employed in R.C. 2307.31(A).
        {¶ 28} Accordingly, with respect to prejudgment interest, support for
treating uninsured/underinsured motorist claims under rules of tort rather than
contract can actually be found in the language of the statute. Present in this case,
then, is a much stronger basis for applying R.C. 1343.03(C)—and consequently
avoiding the contractual origin of an uninsured/underinsured motorist claim—than



1. The phrase “based on tortious conduct” now appears in R.C. 2743.18, dealing with interest on
judgments in the Court of Claims, and in uncodified Section 6(A) of Am.Sub.H.B. No. 350, 146
Ohio Laws, Part II, 3867, 4029, referring to amendments to several other Revised Code sections
dealing with interest on judgments.




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                                January Term, 1998




existed in the many cases where this court premised its avoidance of contract
principles on its elastic interpretation of the uninsured/underinsured motorist
statute’s public policy. As a result, the majority’s failure to apply R.C. 1343.03(C)
in this case is irreconcilable with existing law on the subject. Because I do not read
the court’s most recent opinions as signaling a return to treating an insurance policy
primarily as a contract between the insurer and the insured (Ohio Farmers Ins. Co.
v. Cochran [1922], 

104 Ohio St. 427

, 

135 N.E. 537

), I respectfully dissent.
       {¶ 29} With respect to attorney fees, I concur in the majority’s decision to
remand the issue to the trial court for further proceedings. Before calculating
reasonable fees pursuant to Bittner v. Tri-County Toyota, Inc. (1991), 

58 Ohio St.3d 143

, 

569 N.E.2d 464

, however, the trial court, pursuant to the procedures set forth
in R.C. 2721.09, must first determine whether attorney fees are “necessary or
proper.” See Motorists Mut. Ins. Co. v. Brandenburg (1995), 

72 Ohio St.3d 157, 160

, 

648 N.E.2d 488, 490

.
       REECE and LUNDBERG STRATTON, JJ., concur in the foregoing opinion.
                               __________________




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