LANDIS ET AL., APPELLEES AND CROSS-APPELLANTS, v. GRANGE MUTUAL INSURANCE COMPANY, APPELLANT AND CROSS-APPELLEE.
No. 97-707
SUPREME COURT OF OHIO
Decided July 15, 1998.
82 Ohio St.3d 339 | 1998-Ohio-387
Submitted February 17, 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
{¶ 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
{¶ 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
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
{¶ 8}
{¶ 9} Grange spent considerable effort attempting to persuade us that uninsured/underinsured motorist insurance (“UMI“) claims are based on tortious conduct and therefore that
{¶ 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.
{¶ 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
{¶ 12} Grange argues that even if prejudgment interest under
{¶ 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
{¶ 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
{¶ 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
{¶ 20} Grange also argues that the trial court did not follow the procedural mandate of
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
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
{¶ 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 ”
{¶ 25} The Alexander court‘s abandonment of earlier holdings that
{¶ 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
{¶ 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
{¶ 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
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
{¶ 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
REECE and LUNDBERG STRATTON, JJ., concur in the foregoing opinion.