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The Ohio Supreme Court Deals a Heavy Blow to the Use of the Delayed-Damage Rule Against Insurance Agents in Professional Liability Actions

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By Katie Lynn Zorc

July 10, 2018

Statutes of limitation govern the length of time a plaintiff has to file a claim against a defendant. Under Ohio law, the date a statute of limitations accrues, or the date the clock starts to run, is generally the date of the defendant’s wrongful conduct. 

There are two primary exceptions to this rule.  The first is the “discovery rule,” which provides that some statute of limitations will not accrue until the date the plaintiff discovers or should have known that it was defendant’s conduct that caused their damages.  The second exception is called the “delayed-damage rule,” which provides that some statutes of limitation will not accrue until a plaintiff suffers actual harm, provided that defendant’s conduct was not “presently harmful” when it occurred, but became harmful after the passing of time.

For the past twenty years, it has been unclear if and when this delayed-damage rule would apply to negligent procurement or negligence misrepresentation claims against insurance agents or agencies. Typically in these matters, a plaintiff/insured asserts that a defendant insurance agent failed to secure the appropriate insurance coverage with the plaintiff’s insurer, and/or that the insurance agent misrepresented that they had secured the appropriate coverage, when they had not. The statute of limitations for both negligence procurement and negligent misrepresentation claims is four years, as provided in R.C. 2305.09(D).

In 1982, the Ohio Supreme Court’s decision in Kunz v. Buckeye Union Ins. Co., 1 Ohio St.3d 79, 437 N.E.2d 1194 (1982) appeared to suggest that the delayed-damage rule would apply to these claims. In Kunz, a concrete company sued its insurance agent for negligent procurement in failing to secure “all risk” crane coverage in a consolidated business and equipment policy issued by Buckeye Insurance in 1973. Notably, the agent had properly secured the requested coverage from Buckeye in 1969, before consolidation. 

The agent claimed the company’s suit was untimely, as he had assisted the company with their purchase of the purportedly deficient policy in 1973, and the company did not file suit until over four years later in 1977. The company claimed that its suit was not untimely, as the company had not been damaged until 1975, when a crane broken down and Buckeye denied coverage. 

The Court in Kunz agreed with the company, applying the delay-damages rule to find that the agent’s conduct in securing the deficient policy in 1973 was not presently harmful to the company, and did not become harmful until the company’s insurer denied coverage in 1975.

However, the Ohio Supreme Court’s reasoning in Kunz was scrutinized and chipped away at for years by subsequent Supreme Court decisions and lower court findings that held that the discovery rule and delayed-damage rule should be more limited, and that a defendant’s conduct should be the trigger for the statute of limitations unless there was a specific, statutorily defined exception. See, e.g., Investors Reit One v. Jacobs, 46 Ohio St.3d 176, 546 N.E.2d 206 (1989); Flagstar Bank, F.S.B. v. Airline Union's Mtge. Co., 128 Ohio St.3d 529, 2011-Ohio-1961, 947 N.E.2d 672. 

Then, on January 16, 2018, the Supreme Court decided LGR Realty, Inc. v. Frank & London Ins. Agency, 152 Ohio St.3d 517, 2018-Ohio-334. In this matter, LGR Realty, Inc. (“LGR”) sued its insurance agency, Frank and London Insurance Agency (“F&L”), for negligent procurement and negligent misrepresentation after F&L assisted LGR in securing an insurance policy from Continental Casualty Insurance Company that failed to provide LGR with coverage against lawsuits for professional liability filed against specific entities owned by LGR through a specific-entity exclusion endorsement.  

F&L argued that the claim was untimely, as the policy went into effect on May 12, 2010 and the specific-entity exclusion endorsement had been present and subject to review by LGR in the policy for over five years, yet LGR had not filed its lawsuit until April 17, 2015, outside of the four year statute of limitations.

LGR relied heavily on Kunz in its response, arguing that the delayed-damages rule should apply to trigger the running of the statute of limitations only after its insurer denied coverage, and that this had occurred on April 26, 2011, which was less than four years prior to LGR filing suit, and thus, within the statute of limitations.

The Court spent quite some time discussing Kunz and the trends in the law that followed.  The Court then briefly distinguished LGR Realty from Kunz, as LGR Realty involved a specific, express provision of the policy, i.e., the specific-entity exclusion endorsement, and Kunz involved more general coverage issues. 

In the end, the Court held that LGR could not argue it was not damaged by F&L until its insurer denied coverage.  Instead, LGR had been “damaged,” by definition, when the policy was issued, as from that point forward it was paying premiums for a professional-liability insurance policy that provided less coverage than LGR believed it would receive. The fact that LGR did not have a claim, and thus, was not subject to damages until a later date was irrelevant to the Court—the only dates of importance to the Court were the dates of the insurance agency’s conduct.

Thus, the Court held that the delayed-damage rule would not apply to a cause of action of negligent procurement or negligent misrepresentation against an insurance agent when the policy contained a specific provision upon which the plaintiff’s allegations were built. This finding provides much needed clarity to how courts should apply Ohio’s four-year statute of limitations to professional negligence claims brought against insurance agents and agencies.

If you have any questions regarding LGR Realty, Inc. v. Frank & London Ins. Agency, would like a complete copy of the opinion, or have any questions with respect to professional liability law, please contact a member of Reminger’s Professional Liability Practice Group.

This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.

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