It is well-settled in Ohio that negligent procurement claims against insurance agents are subject to the four-year statute of limitations in R.C. 2305.09(D) (a “catch-all” limitations period for tort actions not specifically covered by other statutory sections). But, often a question arises as to when the claim accrues: at the time the policy at issue is procured, or once the insured suffers (or discovers) damages as a result of the deficient policy.
In LGR Realty, Inc. v. Frank & London Insurance Agency, 2016-Ohio-5044, 58 N.E.3d 1179 (10th Dist.), the Tenth District Court of Appeals (Franklin County) recently addressed this issue. The court noted that the “general rule is that a cause of action accrues at the time the wrongful act is committed” but that “in situations where the wrongful act does not immediately result in injury or damage, strict application of the general rule can lead to an unjust result.” Id. ¶ 13 (citations omitted).
Two doctrines have developed to address concerns about the unfair application of a limitations period: the “discovery rule” (which tolls the running of the statute of limitations) and the “delayed damages rule” (which adjusts when the cause of action accrues). Id. ¶ 14.
Relying primarily on Kunz v. Buckeye Union Insurance, 1 Ohio St.3d 79, 437 N.E.2d 1194 (1982), the Tenth District found that “the statute of limitations for a claim against an insurance agent or agency for failing to procure appropriate coverage for a client does not begin to run until the insured suffers a loss that should have been covered by the policy placed by the agent.” LGR Realty, 2016-Ohi0-5044,¶ 18. The court acknowledged that Kunz is an older case, but one that was factually analogous because it involved “a breach of duty by an insurance agent who failed to provide proper coverage for a client.” Id. ¶ 28.
Decisions issued after Kunz by Ohio appellate courts, including the Supreme Court, have taken different positions on the application of the delayed damages rule, many refusing to apply it in the context of professional negligence cases. See id. ¶¶ 23-24 (collecting cases). The court’s review of Ohio jurisprudence revealed “erosion of the delayed damages rule but also . . . some split of authority as to whether the delayed damages rule is still valid with respect to claims against insurers for failure to procure coverage as requested.” Id. ¶ 35.
Despite the fact that the Tenth District viewed the negligent procurement claim as one for “professional negligence” against the agent, the court found that the delayed damages rule should apply. In so doing, the court narrowly-interpreted post-Kunz cases that rejected the delayed damages rule, choosing instead to apply Kunz because it had never been expressly overturned: “Given the conflict among districts in Ohio about the continued validity of the delayed damages rule in the insurance context, the Supreme Court of Ohio may decide at some point to abandon the rule announced in Kunz, but today we are compelled to apply it.” Id. ¶ 41.
LGR Realty illustrates the varying treatment and application of the delayed damages rule (especially in procurement cases) based largely on how a court chooses to interpret binding and persuasive authority. Claimants will certainly use LGR Realty to avoid statute of limitations defenses, but defendants can continue to rely on various cases that reach the opposite conclusion. This split in authority would certainly appear ripe for review by the Supreme Court, but until that time, jurists will be left to determine how and when to apply the delayed damages rule in negligent procurement cases.
If you would like a full copy of the LGR Realty opinion, or if you have any other questions regarding negligent procurement or insurance agent liability matters, please contact one of our Professional Liability Group Members.
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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