J. Introduction
{¶ 1} This case primarily concerns the meaning of an insurance-policy exclusion incorporating, in substance, the “known loss” doctrine. In 1996, one boy sexually assaulted his younger roommate while both were long-term residents receiving treatment at The Buckeye Ranch, Inc. (“the Ranch”). The Ranch is a nonprofit institution that provides services, including a residential program, for children and families struggling with emotional, behavioral, and mental health issues. It had liability insurance coverage in force during 1996, written on a “claims-made” basis. Three years later, the Ranch changed to a traditional occurrence-based format for its insurance. Seeking to assure that there was no inadvertent gap in coverage, the Ranch consulted a broker. It then purchased a prior acts coverage endorsement from Northfield Insurance in exchange for an additional premium of $13,600. Several years later, roughly six years after the assault, the victim first presented a multimillion-dollar tort claim against the Ranch. Nоrthfield Insurance denied coverage under the prior acts endorsement, and the Ranch thereafter settled the boy’s claim. This coverage lawsuit followed.
II. The Factual Setting
1. The Parties
{¶ 2} As documented in a stipulation of facts relative to Counts 1 and 2,
{¶ 3} At all times relevant to this case, the Ranch carried both commercial general liability (“CGL”) and professional liability (“PL”) coverages. Between March 1996 and March 1999, successive annual claims-made CGL and PL coverage was purchased from Scottsdale Insurance Co. Effective January 1, 1999, the Ranch switched insurers to Northfield. It also changed the type of CGL and PL coverages from claims-made to occurrence-based. Five months after Northfield bound coverage under Policy No. KA 990011, the Ranch completed an application for the new carrier.
{¶ 4} Northfield Insurance knew it was binding coverage on a business dealing with “adolescent counseling, rehabilitation and support groups” and that the Ranch was a “Behavioral Healthcare Facility.” The new policy included several endorsements, the third of which was a one-page prior-acts coverage endorsement. That endorsement was governed by the general terms of Northfield’s Policy. Paragraph 15 of the parties’ stipulation states that the endorsement modified both the CGL and the PL coverages. The prior-acts coverage endorsement was purchased for an additional premium of $13,600. Northfield continued to insure the Ranch for a number of years after 1999.
2. The 1996 Incident
{¶ 5} Andrew C. was 9 years old when he was sexually assaulted in the fall of 1996. The perpetrator was another resident of the Ranch, a 14-year-old boy named David M. The Ranch assigned Andrew C. as David M.’s roommate. For brevity, this tragic event is referenced as the “incident.”
{¶ 6} Paragraph 19 of the parties’ stipulation records that the Ranch “was aware” of the incident in 1996. The Ranch conducted its own internal review, and the incident was fully investigated by local police and Franklin County Children Services. In fact, David M. admitted the assault to Ranch staff three weeks after it occurred. The Ranch prepared two incident reports and cooperated with the criminal investigation leading to David M.’s conviction in juvenile court. Franklin County Children Services apparently initially found allegations of neglect attributable to the Ranch itself, but following an appeal, all specific allegations against the Ranch were withdrawn and/or vacated.
{¶ 8} Before the court are cross-motions for summary judgment filed by the Ranch and Northfield. The Ranch moved for partial summary judgment on counts one and two of the complaint. Count one sought a declaratory judgment that Northfield was obligated to defend the Ranch and indemnify it for defense costs and settlement expense. Count two was а claim for breach of contract alleging that the Ranch satisfied all preconditions for coverage.
3. The Prior-Acts-Coverage Endorsement
{¶ 9} On January 28, 1999, Northfield issued liability insurance for the Ranch, retroactive to the first day of January. It is undisputed that from 1993 until 1999, the Ranch had maintained claims-made liability insurance with Scottsdale. The policy issued by Northfield was an occurrence-based policy. Both Northfield and the Ranch used insurance brokers as intermediaries to negotiate new coverage for the Ranch, according to the affidavit of Northfield’s underwriter. The Ranch used MacLean; Northfield worked directly with Westrope & Associates.
{¶ 10} Occurrence-based policies and claims-made policies are materially different. A claims-made policy provides protection when claims are brought against an insured during the life of the policy, while an occurrence-based policy provides coverage when allegedly wrongful acts occur during the policy period without regard to when a claim is presеnted or a suit is filed. See Mueller v. Taylor Rental Ctr. (1995),
III. Analysis
1. General Rules for Policy Interpretation in Ohio
{¶ 12} Under Ohio law, the interpretation of an insurance contract is, ordinarily, a question of law to be decided by the court. Costanzo v. Nationwide Mut. Ins. Co.,
{¶ 13} A contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer when the meaning of the language used is uncertain. Faruque v. Provident Life & Acc. Ins. Co. (1987),
2. The Prior-Acts Coverage Endorsement
{¶ 14} Northfield issued “nose” coverage for prior acts. There are two pertinent provisions in the endorsement to Northfield’s рolicy addressing prior acts. One states the preconditions to prior-acts coverage, and the second excludes coverage under certain circumstances. The language reads:
In consideration of the additional premium charged, it is agreed that this insurance shall also apply to damages for covered “bodily injury” or “property damage” that:
— have been deemed to have occurred during the policy period between 03/05/1993 and 01/01/1999;
— were caused by an “occurrence” as defined within the policy;
— weren’t known by you or any insured prior to 01/01/1999;
— are not covered by the prior claims made policies;
— arise from a claim or suit made or brought subsequent to 01/01/1999.
This insurance provided by this endorsement does not apply to any damages arising out of any act, error, omission or prior litigation which is known by the Insured as of the inception date of this policy.
{¶ 15} The parties recognize that the prior-acts coverage endorsement is at the core of this case. That additional coverage was negotiated by experts to fill a specific neеd. Northfield’s underwriter testified by affidavit, “At no time prior to issuance did we have direct contact with The Ranch.” However, coverage was examined and agreed upon through two insurance brokers, and Northfield specifically tailored the prior-acts endorsement to the needs of the Ranch. Thus, the earlier claims-made coverage from Scottsdale was implicitly referenced in the endorsement, which provided protection against prior acts resulting in bodily injury so long as (1) the damages occurred between March 1993 and January 1999 — that is, during the Scottsdale claims-made period, (2) the damages were caused by an “occurrence” as defined in the new policy,
{¶ 16} Supplementing the third of these five requirements for coverage (that any damages “weren’t known” to the Ranch) is a separate sentence excluding prior-acts coverage in certain instances. Northfield excluded coverage if the “damages” arose out of an “act, error, omission or prior litigation which is known by” the Ranch prior to January 1,1999.
{¶ 17} The Ranch readily satisfies four of the five preconditions to coverage under the prior-acts endorsement. Andrew C.’s damages occurred during the specified time frame. The incident was an unintended and accidental occurrence from the standpoint of the Ranch. The alleged “damages [were] for covered ‘bodily injury’.” Likewise, there is no contention that Andrew C.’s claim could have been covered by the Scottsdale claims-made policy, since his claim was first presented years after the inception of the Northfield coverage. Whether North-field owed coverage to its insured, therefore, turns upon whether “damages” from the incident “weren’t known by [the Ranch] * * * prior to 01/01/1999.”
{¶ 18} Both the requirement for coverage (that damages “weren’t known by” the Ranch) and the separately-stated exclusion (for “damages arising out of any act * * * which is known by the insured”) essentially incorporated the “known loss” doctrine. The language used by Northfield as a prerequisite to prior-acts coverage is not ambiguous: in January 1999, did the Ranch know of damages caused to Andrew C.? That is readily answered. Nothing in the record suggests that it did. The stipulation of facts submitted by the parties proves only that the Ranch knew of the incident, not that it knew of any “damages” arising from it. Accordingly, whether coverage is available turns upon the next following sentence in the endorsement, which excludes coverage otherwise available for prior-acts.
3. The Ambiguous Exclusion Keyed to “Damages”
{¶ 19} After providing prior-acts coverage so long as five tests were met, Northfield set out several exclusions from coverage provided by its endorsement. The first is at issue here. This is a somewhat redundant exclusion for “any damages arising out of any act, error, omission or prior litigation which is known by the insured as of the inception of this policy.”
{¶20} Northfield makes much of the broad words “any act,” arguing that coverage is unavailable for “any act” that was “known” to have occurred, even if it was not known to be negligent or wrongful, so long as at some point “damages”
{¶ 21} The court concludes that a narrow reading of the exclusion from prior-acts coverage is appropriate based upon the words used, ambiguous though they are, and is consistent with case law in most jurisdictions applying the “known loss” doctrine. That construction leads to a sensible understanding of the exclusion included in this short endorsement tailored to the perceived needs of the Ranch. It is also faithful to Ohio law in coverage disputes.
{¶ 22} At the outset, Ohio law teaches that a court should first attempt to understand a policy from the words actually used. While the key word “damages” was used in two places in the endorsement, Northfield included no definition of “damages” in the policy. Yet that word is explained in Ohio decisions involving insurance law: “The rules of construction then dictate we give the word its plain and ordinary meaning. ‘Damages,’ in the plural, is defined as “compensation in money imposed by law for loss * * Webster’s New Collegiate Dictionary (9th Ed.1990) 323, and ‘monetary compensation that may be recovered in court by someone who has suffered injury * * * through an unlawful act or omission of another.’ Statsky, West’s Legal Thesaurus & Dictionary (1985) 206. This court has stated, ‘damages’ has been defined as the
{¶ 23} Recognizing that under common law the word “damages” is inexplicably tied to the concept of a tortfeasor who, by operation of law, becomes liable to an injured party, it follows that the absence of any claim for “damages” against the Ranch before 2002 should have significance in arriving at a proper understanding of the exclusionary language. The exclusion turns on “damages,” not merely a known prior act. Beyond that, several other legal rules about “damages” aid in understanding Northfield’s exclusion. Damages are not presumed in an ordinary action for a negligently caused personal or bodily injury under Ohio law. Lautner v. Lin, Franklin App. No. 04AP-983,
{¶ 24} The sophisticated parties to this prior-acts endorsement would have had no reason to exclude coverage for possible damages, either known or claimed. As of 1999, it required speculation to suggest that damages could be sought from the
{¶ 25} Northfield argues that its policy exclusion is even broader than the “known loss” case law and operates to avoid coverage for every prior act, error, or omission lurking anywhere in the history of the Ranch before 1999. As suggested earlier, such a reading is too broad. The parties knew that the Ranch was a large, institutional-health-care setting. They must be presumed to have recognized that it had many employees and patients. Thus, deliberate treatment decisions, staffing decisions, delivery of meals and drugs, room assignment decisions like the one leading to the incident, and a whole panoply of other day-to-day conduct are needed to operate the Ranch and to treat adolescents. In such a large institutional setting, one must presume that at least one employee knew of virtually every prior “act” or recorded in patient records almost every prior “act” that took place during the six years between 1993 and 1999 when Scottsdale provided claims-made insurance. Carried to its logical extreme, therefore, Northfield’s reading of the exclusion would deprive the Ranch of exactly the insurance that the prior-acts endorsement was purchased to provide. Such a huge gap in coverage cannot have been the intention of either party, particularly when both sides were sophisticated and worked through professional brokers in arranging this coverage. In short, an exclusion that referenced “any act, error, [or] omission” that might have been “known” cannot be applied as a trick phrase eliminating protection for prior acts that this endorsement so plainly was written to provide.
{¶ 26} The record contains no suggestion that the Ranch knew of any “damages” in 1999.
4. The “Known Loss” Doctrine
{¶ 27} The “known loss” doctrine is a compilation of practical concepts intended to prevent a windfall for insureds and manifest unfairness for the insurance industry. An often cited decision of the California Supreme Court held that “as long as there remains uncertainty about damage or injury that may occur during the policy period and the imposition of liability upon the insured, and no legal obligation to pay third party claims has been еstablished,” then there is no “known loss.” Montrose Chem. Corp.,
{¶ 28} As a threshold issue, courts sometimes wrestle with whether the “known loss” doctrine should be recognized as part of the common law in their particular jurisdiction. See, e.g., Peck v. Pub. Serv. Mut. Ins. Co. (D.Conn.2005),
{¶ 29} Swanson addressed an exclusion from liability coverage for “expected or intended” injuries. As recognized in Owens-Corning Fiberglas supra,
{¶ 31} Similarly, Arkwright Ins.,
{¶ 32} Stonewall Ins. Co. v. Asbestos Claims Mgt. Corp. (C.A.2, 1995),
{¶ 33} Stonehenge Eng. Corp. v. Emp. Ins. of Wausau (C.A.4, 2000),
{¶ 34} Natl. Union Fire Ins. of Pittsburgh, Pa. v. The Stroh Cos., Inc. (C.A.2, 2001),
{¶ 35} There is not complete uniformity in the “known loss” decisions from around the country. At least for some courts, “[a]n insured’s liability need not be fixed to a monetary certainty; if the known liability has occurred or is substantially certain to occur, the known loss doctrine bars coverage.” General Housewares,
{¶ 36} Like the Common Pleas Court for Lucas County in Owens-Coming Fiberglas, supra, this court concludes that “it is unnecessary to delve into the varying applications of ‘known loss’ in order to manufacture one coherent doctrine.”
{¶ 37} Whilе the Ranch was aware of the incident in 1996 while insured by Scottsdale, the Ranch acted responsibly and in no sense tried to take advantage of its insurer. The Ranch conducted an internal investigation, assisted in a criminal investigation, and participated in an investigation by Franklin County Children Services. (“FCCS”). Independent investigations were made by Grove City Police and by FCCS in 1996 and 1997, but ultimately neither investigation resulted in “specific allegations” of fault against the Ranch. This does not give rise to a “known loss” or satisfy the exclusion in Northfield’s prior-acts endorse
5. The Reasonable-Expectations Doctrine
{¶ 38} Andersen v. Highland House Co. (2001),
{¶ 39} Acting responsibly toward its residents and their families, the Ranch purchased liability insurance each year. When changing types of coverage, the Ranch purchased a specific endorsement promising retroactive insurance for “prior acts” for which no claim had been made. When Northfield first became the insurer for the Ranch in 1999, the expectations of these parties must reasonably be presumed to have been that some event could have happened and could be a “prior act” against which liability insurance would offer protection. In considering the conduct of these sophisticated parties and the insurance documents, no other conclusion is reasonable. In passing, it may also be observed that Northland would have been better served to have asked the Ranch whether it knew of any either “ prior acts” or of “damages” from them before it offered this extra coverage, which looked back six years to 1993. Northfield did not ask. The parties have stipulated that Northfield did not even receive an application for coverage until five months after coverage was bound. Moreover, there is no claim that the application was fraudulent or intended to mislead Northfield. All of this plainly suggests, and Northfield’s underwriter Rugnetta does not dispute in his affidavit, that the underwriting decision never turned upon an actual examination of the six-year history of the Ranch measured against reasonable actuarial standards.
{¶ 40} Northfield had the opportunity to ask questions about “prior acts,” and had it later learned that the Ranch had been deceptive, such misconduct could
{¶ 41} While it appears that the Supreme Court has not formally adopted the reasonable-expectations doctrine, it does merit note that other Ohio decisions seek to arrive at a reasoned understanding of the meaning of insurance policies and other contracts by considering what the parties must have been thinking at the incéption of their arrangement. “When ‘construing an agreement, the court should prefer a meaning which gives it vitality rather than a meaning which renders its performance illegal or impossible.’ Kebe v. Nutro Machinery Corp. (1985),
{¶ 42} The decision by the Ohio Supreme Court in Harasyn illustrates the pragmatic approach taken to understanding what parties thought they would receive when buying insurance, which appears similar to the reasonable-expectations doctrine used in other jurisdictions. Part II of Justice Herbert Brown’s majority opinion, and Justice Holmes’s concurring opinion, are both instructive. Harasyn was among the cases in which Ohio courts have struggled to apply a general public policy against insurance coverage for intentional torts, frequently involving child sexual abuse or Blankenship “intentional” torts in the workplace. Both the majority and Justice Holmes refused to apply that public policy against coverage for intentional acts when an insurer sold specific “stop gap” coverage for workplacе “intentional torts” in the aftermath of the landmark Blankenship decision. Justice Holmes reasoned, “These policies were actively promoted to Normandy and other employers, and Fireman’s Fund having held out such coverage should not now be heard to deny liability upon such insurance policies sold during this period of time.”
{¶43} The Ranch and Northfield were aided by their respective insurance brokers. Everyone agrees that a prior-acts endorsement was purchased to avoid
6. Northfield’s Remaining Arguments
{¶ 44} Northfield advances two other arguments to support denial of coverage. Northfield argues that the Ranch failed to notify it of the incident in a timely manner. Further, Northfield argues that coverage must be denied because Andrew C’s claims for excessive medication fall outside of both the CGL and the PL coverages. For the reason set forth below, neither of these arguments avoids coverage for defense and for some portion of the settlement paid in 2003.
a. The Notice Requirement
{¶ 45} The Northfield CGL policy provided that the Ranch “must see to it that we are notified as soon as practicable of an ‘occurrence’ ... which may result in a claim.” Under Ohio law, if an insured breaches a notice requirement, an insurer may be relieved of its obligation to provide coverage. However, an insured’s delay in giving notice must be unreasonable and must prejudice the insurer. Ferrando v. Auto-Owners Mut. Ins. Co.,
{¶ 46} In view of the facts stipulated to exist here, the Ranch gave notice as soon as practicable in July 2002 after it was contacted by counsel for Andrew C. The underlying rationale of a notice provision is to allow an insurer to investigate and value a claim, to determine whether a claim is in fact covered by the policy, to control potential litigation and its cost, and sometimes to pursue subrogation. See, e.g., Ormet Primary Aluminum, supra, at 302-03,
b. Andrew C.’s Excessive Medication Claim
{¶ 47} Northfield’s final argument is that Andrew C.’s claim was largely for professional negligence and that, as such, his claim is not covered. Northfield paints too broadly. “To be cоnsidered a ‘professional service’ for insurance purposes, a liability ‘must arise out of the special risks inherent in the practice of the profession.’ [Citation omitted.] This standard has been cited with approval by several courts across the country.” PMI Mort. Ins. Co. v. Am. Internatl. Speciality Lines Ins. Co. (C.A.9, 2005),
{¶ 48} A claim addressed to overmedication could constitute a matter of professional negligence, but it is undisputed that the prior-acts coverage endorsement also tied in coverage under the PL coverage. The record does not fully address how the final settlement was negotiated by the Ranch and Andrew C., nor does it explain any allocation of funds between his claims or as may have been described in the resulting settlement. Indeed, currently, the record does not conclusively show whether any portion of the amount paid in settlement should be considered to have been allocated to any claim that Andrew C. had been overmedicated. See Zurich Ins. Co. v. Killer Music, Inc. (C.A.9, 1993), 998
{¶ 49} An insurer’s duty to defend is separate and distinct from its duty to indemnify. Socony-Vacuum Oil Co. v. Continental Cas. Co. (1945),
IV. Conclusion
{¶ 50} Pursuant to Count One of the complaint, the court finds and declares that the Ranch was entitled to coverage for defense of the claim pursued by Andrew C. in 2002. The “known loss” doctrine and the exclusion from coverage in Northfield’s prior-acts coverage endorsement did not defeat such coverage. Furthermore, the court finds and declares that the Ranch provided timely notice to Northfield. Northfield is not entitled to summary judgment in its favor.
(¶ 51} There remain open questions as to whether the settlement ultimately reached by the Ranch related predominantly to administrative decisions at the Ranch, such as the assignment of roommates, or instead turned predominantly upon decisions involving acts or omissions of a professional nature and, if so, whether the exclusion in the PL coverage for conduct by physicians operates to deny reimbursement for some or all of the settlement paid. The court will hold a status conferеnce in chambers with all counsel to address the remaining factual and legal issues in this case and how they may most expeditiously be resolved.
So ordered.
Notes
. The stipulation is thorough and, together with the affidavits of two witnesses, avoided any dispute over fact material to this opinion. The court commends counsel for their care in
. Although the word "occurrence" is used in quotation marks in the endorsement, that term was not defined in it. However, at page 9 (of 10) in the CGL, "occurrence” is defined in the customary way used in such policies, as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
. The initial letter by counsel for Andrew C. claimed both negligence in providing protection from assault by other patients and that Andrew C. was "over-medicated” after the incident in 1996.
. The last term in Northfield's poliсy exclusion does not result in any ambiguity. "[A]ny damages arising out of any * * * prior litigation” are also excluded, but the readily identifiable nature of "prior litigation” makes this specific exception from prior-acts coverage understandable. "Prior litigation” would be marked by a readily recognized event — a lawsuit — and the Ranch could face no uncertainty about coverage for such a specific matter if it had proceeded, as one would have expected, and already reported any suit under Scottsdale’s claims-made policy.
. Rieser's affidavit states that Andrew C. continued to receive treatment at the Ranch until August 1997, when he moved with his family to Georgia. Apparently, he still lived in Georgia
. Ohio law on intentional torts is analogous: "[m]ere knowledge and appreciation of a risk, however, falls short of substantial certainty and does not by itself establish intent. [Citations omitted.]" Brown v. FirstEnergy Corp.,