CyrusOne, L.L.C. v. Great Am. Ins. Co.
2021 Ohio 1971
| Ohio Ct. App. | 2021Background
- CyrusOne (insured under a 2011 crime/fidelity policy issued to Cincinnati Bell) alleged its construction director, Dennis Scheib, accepted kickbacks from preferred vendors and funneled inflated project costs to CyrusOne. Scheib and related entities received about $5.65 million from vendors.
- CyrusOne notified Great American of a potential claim in September 2011 and sued after Great American denied coverage. CyrusOne sought declaratory relief, breach-of-contract and bad-faith damages.
- An arbitration panel (applying Texas law) found Scheib had defrauded CyrusOne; the trial court adopted those findings. CyrusOne’s forensic accountant (Bayley) testified that vendor invoices were inflated at least by the amount of the kickbacks, producing a $5,654,560 loss.
- The policy insured losses caused by an employee’s dishonest acts that cause the insured to sustain loss and result in a financial benefit to the employee or another designated person; it had a $1,000,000 deductible and a two-year contractual suit period measured from discovery.
- The trial court awarded CyrusOne $4,654,560 (kickback loss less deductible), rejected Great American’s cooperation/prejudice defense, denied CyrusOne’s bad-faith claim, and declined to award additional sums for alleged fictional commissioning or the $100,000 claim-expense endorsement.
Issues
| Issue | CyrusOne's Argument | Great American's Argument | Held |
|---|---|---|---|
| Whether CyrusOne proved a covered loss and the amount | Bayley’s unrebutted forensic accounting shows vendors inflated invoices by at least the amount of kickbacks, proving a $5,654,560 loss (award net $4,654,560 after $1M deductible). | CyrusOne failed to show vendors passed kickback costs to CyrusOne; bank records prove far less ($2.4M). | Court: Bayley’s testimony and documentary evidence constitute competent, credible proof of a $5,654,560 loss; award affirmed. |
| Whether the claim was time-barred under the policy’s 2-year discovery rule | CyrusOne didn’t discover a covered loss until after Aug. 8, 2011 (post-termination vendor interviews); KPMG’s Aug. 4, 2011 materials did not show payments during Scheib’s CyrusOne employment or a concluded scheme. | Discovery occurred by Aug. 4, 2011 (KPMG’s communications), triggering the 2-year bar. | Court: Reasonable evidence supports that discovery occurred after Aug. 8, 2011; claim not time-barred. |
| Whether CyrusOne’s failure to produce secret office recordings materially prejudiced Great American’s investigation (failure-to-cooperate defense) | The tapes were inaudible/immaterial; CyrusOne personnel did not act on them and retained Scheib for another year, so nonproduction did not prejudice the insurer. | Non-production of recordings denied insurer potentially material evidence and prejudiced investigation. | Court: No genuine issue of material fact; nondisclosure did not materially prejudice Great American — summary judgment for CyrusOne affirmed on this defense. |
| Whether Great American acted in bad faith and whether additional damages (fictional commissioning; claim-expense endorsement) were owed | Great American’s denial was unreasonable given arbitration findings and the underwriter’s suspicious emails; CyrusOne sought extra damages for fictional commissioning and $100k under the claims-expense endorsement. | Great American had a reasonable, good-faith coverage dispute and repeatedly described evidence needed; extensions were granted. | Court: No bad faith — insurer acted reasonably. Trial court properly declined additional awards for fictional commissioning (conflicting evidence/no proof of overpayment) and for the $100k claim-expense endorsement (insufficient evidence to apportion Bayley’s work). |
Key Cases Cited
- Eastley v. Volkman, 972 N.E.2d 517 (Ohio 2012) (standard for manifest-weight-of-the-evidence review in bench trials)
- Zoppo v. Homestead Ins. Co., 644 N.E.2d 347 (Ohio 1994) (insurer’s duty of good faith and what constitutes bad-faith denial)
- Grafton v. Ohio Edison Co., 671 N.E.2d 241 (Ohio 1996) (summary-judgment standard)
- State ex rel. Howard v. Ferreri, 639 N.E.2d 1189 (Ohio 1994) (summary-judgment standard principles)