United National Insurance Company v. Sst Fitness Corporation

1991) (“At the heart of an action based on conferred benefit on Howard Industries. quasi-contract unjust lies a claim of enrich Contship It is clear that did not behave ment quasi-contract liability and such is opportunistically and seek out Howard In- fairness.”) by justice dictated needs dustries or trick Howard Industries into 746, 1784, 507 U.S. 113 S.Ct. services, using its af but rather behaved as f'd (1993). 123 L.Ed.2d 528 any carrier would if a shipper delivered Indeed, goods to it. there dispute is no law, Applying Michigan we-had occasion from Howard Industries as to the amount to draw a distinction between contracts of shipping charges or whether the service implied in law implied and contracts in performed adequately. light of fact: facts, these Howard payments Industries’ There are two kinds of implied con- to Transworld were undertaken at its own tracts; one implied fact and the other Thus, risk. even there is an issue of fact implied exist, in law. The first does not regarding whether there was an meet, agree- unless the minds of the parties ment parties, between the there reason of words or conduct. is no need The second quasi constructive, for a finder of fact to decide that does not issue as require meeting minds, is im- we believe the undisputed but facts viewed law, posed by fiction of justice favorably to enable most clearly to Howard establish to be accomplished, even in quasi-contract. case no con- tract was intended. Ill Publ’ns.,

Murray Hill Inc. v. ABC Com reasons, foregoing For the judgment Inc., munications, (6th 622, 264 F.3d of the district court is affirmed. Cir.2001) (quoting Cascaden v. Magryta, 267, 247 Mich. (1929)); 225 N.W.

see also Wrench LLC v. Taco Corp., Bell (6th Cir.2001) (distin F.3d

guishing a quasi-contract from contract fact), denied, cert. 534 U.S. UNITED NATIONAL INSURANCE 122 S.Ct. 151 L.Ed.2d 885 COMPANY, Plaintiff- (2002). Appellant, The district court was not sitting di- v. versity jurisdiction but original rather had CORPORATION, SST FITNESS jurisdiction over this maritime action. Defendant-Appellee. Thus, law, we apply federal common which also recognizes quasi-contracts. See Unit- No. 00-4239. California, ed States 932 F.2d at 1350. Appeals, States Court of undisputed The facts viewed in the light Sixth Circuit. most favorable to Howard are sufficient to Argued: March 2002. establish necessary qua- elements of a Decided and Filed: Nov. 2002. si-contract. Howard Industries delivered goods Contship, and Contship trans- ported those goods exactly as In- Howard so,

dustries wished.2 In doing Contship 2. might The outcome had delivery different How- tracted Contship. The facts al- goods however, ard freight-forwarder delivered the leged, support cannot such a find- Transworld, and then ing. Transworld subcon- (argued and Nielsen

James Christian Nienow, Nielsen, briefed), Ha- H. Thomas CA, Francisco, Abbott, San ley & Plaintiff-Appellant. P. (argued), David

Lawrence R. Elleman Cincinnati, Shohl, Fornshell, Dinsmоre & (briefed), OH, Thomp- W. Simmons Gerald Cincinnati, OH, Hine, for Defendant son Appellee. CLAY, BATCHELDER

Before CARR, Judge.* District Judges; Circuit * Ohio, Carr, silting by designation. ‍​​​‌​‌​​‌‌​​​​​​‌‌‌​​‌​‌‌​‌‌‌‌​​​​​​​‌​‌​​​​​​‌‌‍States G. The Honorable James Judge Northern District of for the District

CARR, D.J., $116,706.39, interest, opinion prejudgment delivered the of the court, BATCHELDER, J., joined. in which $29,633.41. The district court denied this CLAY, 923-28), (pp. J. delivered motion, finding United National was a separate dissenting opinion. paid volunteer when it SST’s defense costs and, therefore, could not recover those OPINION costs. J.A. at 185.

CARR, Judge. District STANDARD OF REVIEW Plaintiff-appellant National In- (“United National”) surance Company ap- Because the ques- district court decided motion, peals the denial of its brought law, judgment tions we review its de 2202, pursuant § to 28 for U.S.C. defense novo. United v. Al-Zubaidy, States insured, paid defendant-appel- costs to its (6th Cir.2002) (“We F.3d review (“SST”). Corporation lee SST Fitness For questions statutory of law and interpreta- reasons, the following we REVERSE novo”) tion (citing de Nixon v. Kent judgment of the district court and RE- (6th Cir.1996) (en 76 F.3d MAND proceedings for further in. accor- banc); Zieba, 4 F.3d Mumford dance with this decision. (6th Cir.1993)); Pro-Eco, see also Inc. v. Board Jay County, Comm’rs BACKGROUND Indiana, (7th Cir.1995) 57 F.3d purchased liability SST insurance from (In reviewing a district court’s denial of National, agreed which provide to relief in brought pursuant a case to 28 defense indemnify any costs and SST for stated, § U.S.C. the court “[W]ith liability. J.A. at 49-79. When SST was the district court deciding the case on pure sued for patent infringe- and trademark law, questions of and in light of our cir- ment, paid United National SST’s defense guard cuit’s decision jealously to the dis- costs, costs. Prior providing defense cretion afforded under the Declaratory provided United National a letter to SST Act, Judgment we will review the district stating, “United National reserves court’s deniаl of Pro-Eco’s motion de to recoup any from SST defense novo.”). costs and paid subject fees to be to this reservation letter on duty the basis that no DISCUSSION to defend now exists has existed with regard to the tendered suit.” J.A. at 115. Right Recoupment I. Insurer’s $116,706.39 United National paid that, United National contends because patent SST’s counsel in the and trademark it had no to defend SST the under- infringement accepted payment suit. SST lying infringement action and it reserved costs, of its defense without objecting to costs, United National’s rights. reservation of entitled recover those costs. United Na- SST, United National thereafter sued tional further argues accepted that SST seeking declaratory judgment that Unit- the terms of its reservation letter ed National owed no to defend or when it accepted defense costs without indemnify underlying infringe- SST objecting to the rights, ment action. The district granted court thereby giving rise to an implied contract declaratory judgment favor of United being reimbursement. There no Ohio National, and the Sixth Circuit affirmed. issue, decisions on this United National moved, urges under us to at opinions 28 U.S.C. look from other § reservation, paid jurisdictions for costs allowing insurers to reserve a on costs when the insurer did not have a cases contracts. reviewing After cases from to defend. jurisdictions, the court other determined that, it never ex- because contends that the insurer was entitled to reimburse- the reservation of accepted pressly argues, is ineffective. SST the reservation those Id. at 1039. The ment of costs. pri- is made “An offer to defend insurer’s stated, Colony’s “Having accepted court benefit, its own marily for offer of a defense with a reservation of the costs forced to reimburse should not be reimbursement, E ought to seek G & expends for its own bene- that the insurer whole, Colony in fairness make now that it 4. Final Br. at Appellee’s fit.” judicially has been determined that no this The court did address district duty to defend ever existed.” Id. The it decided Na- because argument looked to contract law and court also basic solely the basis § 2202 motion on tional’s stated, accept “A tendered party cannot National was a “volunteer” that United performance unilaterally altering while underlying patent when it defended on which it is offered.” Id. material terms suit. (citing RESTATEMENT Of CONTRACTS (SECOND) Court has Supreme Because the Ohio (1981)). that, § The court found when 69 us, the issue before we not determined defense, it also accepted the insured data, all available ascertain from must offer, including a accepted the terms оf the law of the state’s including the decisional potential for reimbursement. Id. law, courts, law restatements lower commentaries, decisions review In Mutual Reinsurance Co. v. Grinnell “majori- jurisdictions on the from other (S.D.Ill.1998), Shierk, F.Supp. 996 836 rule, highest court ty” what the state’s jurisdictions guid- court looked to other for the issue. decide faced with would was deciding ance in whether insurer Mann, & Inc. v. American Grantham for defense entitled to reimbursement (6th Inc., Prods., 831 F.2d 608 Safety that to be entitled costs. The court stated omitted). Cir.1987) (citations 1) reimbursement, an insurer must: directive, with this we ex- In accordance to seek reim- specifically reserve and rationales from other amine decisions 2) insured; pro- bursement from its jurisdictions specific that have decided this with notice of adequate vide the insured issue, law, consid- general Id. at 839. potential reimbursement. this determining hоw guidance erations The court held: likely Court would de- Supreme the Ohio this issue. cide accepted the Grinnell’s Shierk benefit Further, fully ap- defense. Shierk A. Decisions from Other Jurisdictions reserved its prised that Grinnell court National contends this event that it reimbursement in the seek should, Supreme Court and the Ohio that it had no was later determined would, jurisdic- decisions from other follow result, although it to defend him. As a de- that allow an insurer to recover tions courts have not that the Illinois appears costs when the insurer had no fense to address yet opportunity had an to defend. reimbursement, issue of precise E v. & Tires Colony In Insurance Co. G if the Illinois Su- predicts that Court (Fla.Ct. Service, Inc., 777 1034 & So.2d pre- this faced with preme Court were the court decided whether App.2000), issue, the relief' it would authorize cise could be reimbursed for insurer 918 F.Supp.

sought by and order reimburse- america Title Insurance 793 Grinnell (citations (D.Colo.1992) omitted), ment the costs of defense. 269 stated, company the court “An insurance omitted). (citations Id. deny may also reserve its Resure, Inc. v. Chemical Distribu- any to defend and later recover for attor tors, Inc., (M.D.La.1996), F.Supp. ney paid.” fees The court determined that sought the insurer reimbursement of de- object because the insured did not following fense costs a reservation of its insurer’s reservation of the insurer right to reimbursement. The court deter- Id. was entitled reimbursement. mined that the insured was entitled to reimbursement, stating: cases, however, A few have not allowed timely

Resure reserved its recoupment of defense costs. See Terra policy. specifically That reservation Inc., Nova Ins. Bar Co. 887 F.2d possibility referred to the that Resure (3d Cir.1989); Hansel, In re 160 B.R. might seek for any reimbursement (Bankr.S.D.Tex.1993); Shoshone First all nothing costs of defense. There is Co., 2 Employers Bank v. Ins. P.3d Pacific suggest objected the record to CDI cases, however, (Wyo.2000). These re- Accordingly, the reservation. Resure is ject demands for on the basis entitled to for all reimbursement costs of of in rights, defects the reservation of defense. rather than on the basis that Id. at 194. an depends express agreement by on the

In Knapp v. Commonwealth Land Title ‍​​​‌​‌​​‌‌​​​​​​‌‌‌​​‌​‌‌​‌‌‌‌​​​​​​​‌​‌​​​​​​‌‌‍insured. (D.Minn. Insurance 932 F.Supp. 1169 Nova, In Terra 887 F.2d at 1217 and 1996), insurer, in a reservation of 1219, example, appointed the insurer letter, rights stated it would subject general counsel for its insured to a dispute costs in a land title and reserved rights letter. The court the right attorneys’ to seek fees and costs found the insurer was not reim- entitled to later. The court found that an insurer had bursement for defense costs because of the right to recover defense costs. Id. at general nature of the reservation of rights. (“[Wjhere properly insurer has Hansel, Id. In 160 B.R. at the court met and subsequently successfully stated, challenges policy coverage, it should be Nowhere does either letter mention that entitled to the full benefit of such a chal Republic expects the insureds to reim- lenge and be for the it reimbursed benefits burse it for the costs of defense of the insured.”). bestowed, faith, good in to its state tort suit should be found to have The court stated that an insurer must no to defend the insureds.... clearly indicate a reservation of its Republic Even assuming could have cre- seek reimbursement. Id. The court con through ated this a subsequent cluded, circumstances, “Under these insureds, agreement with the these let- Court finds it appropriate to determine put ters fail to on reader notice that Knapp’s silence in response to Com such a is claimed. letter, monwealth’s reservations of subsequent acceptance of the defense that, The court found because the insurer Commonwealth, provided by constitutes an provide timely did not of the notice reser- implied agreement to the reservation of vation, the insurer was not entitled to re- rights.” Id. In imbursement. Id. Shoshone First Bank, stated, 2 P.3d at court “we Savings First Federal & Loan Asso Fargo, ciation recovery North Dakota v. Trans hold that the allocation and of the surrounding the circumstances defense of claims attributable costs by of parties’ reasonably not covered transactions make it that were Wyoming intended.”) permitted is not insurance agreement certain that an more of the claims long as one or law so Columbus, Hocking Tole- (citing Valley & policy.” covered alleged is Ry. Gaffney, do Co. v. 65 Ohio St. (1901)). consis- jurisdictions thus A implied other N.E. 152 contract Courts entitled that an insurer is tently have held meeting law occurs when there is no of the when for defense costs to reimbursement minds, obligation and the law creates an on to defend did not have the insurer and would person who received benefit claims where the insur- any of the asserted by the Id. unjustly be enriched benefit. 1) reserves its timely explicitly er: Hummel, at (quoting Ohio St. 2) costs; provides 923). possi- notice of the adequate specific National does not contend that United rule general The bility of reimbursement. law implied this case involves a contract that, if these conditions appears thus to be contract. National express United met, is enforce- are a reservation rather, parties had a contract by argues, express agreement able even absent implied (Appellant’s Reply in fact. Final the insured. 1) (“Because Br. at 2 n. National Law B. Ohio Contract recoupment only implied- seeks under an that SST’s ac- argues contract, claiming in-fact footnote 3 SST’s costs, Na- with United ceptance of defense attempt that ‘United National’s to obtain created an tional’s reservation rejected must ...’ equitable relief to the reserva- agreeing irrelevant.”) (alteration original). tion. usually occur Implied fact contracts Ohio, “it is well-established with party provides party when a another simple of contracts: there are three classes materials under circumstances services or fact, implied and express, implied typically is made for the payment where a Tarr, 1, 6, 44 Legros v. Ohio St.3d law.” Lucas, matеrials. 13 Ohio services or (1989) v. (citing N.E.2d 257 Hummel 540 (“The 369, law is at 469 N.E.2d 927 App.3d Hummel, 520, 525, 14 Ohio St. obligation part an on the ‘imply’ said to (1938); Wheeling Dollar Sav. Rice v. from the services or person who benefits Co., 391, Trust 155 Ohio St. 99 N.E.2d & received to for the services materials (1951)). express An contract occurs materials.”) Henahan, v. (citing Ashley or parties’ to a contract’s when the assent (1897)); 559, 574, 47 N.E. 573 56 Ohio St. an expressed through offer terms Rizzo, 9-96-26, No. 1996 WL Evans v. Hummel, 133 acceptance. (quoting Id. 3648, 479565, *2, 1996 App. Ohio LEXIS at 923). 525, A con at 14 N.E.2d Ohio St. 1996) (“To 20, the exis prove (Aug. at *6 meeting implied in fact occurs when tract contract, services must implied tence of an by the minds is demonstrated surround rendered, materials performed, work be circumstances, allowing a factfinder ing under to another by party furnished one by a contract tacit infer the existence of receiving par circumstances that the such Hummеl, 133 understanding. (quoting Id. known, knew, have that such ty or should 923); also at 14 N.E.2d see Ohio St. expecta the were rendered with services Costantini, App.3d 13 Ohio Lucas v. their (“A on the basis of (1983) being paid tion of contract 469 N.E.2d 927 worth.”) Corp. v. (citing Terex by showing reasonable may proved in fact implied 80, 82, Na- Welding App.3d accepted 58 Ohio the reservation and Grim (1989)). See, 568 N.E.2d 739 tional’s payment defense costs. (“Under e.g., Knapp, 932 at 1172 F.Supp. the To establish existence of circumstances, ap- these the Court finds it contract, in fact implied plaintiff “the must propriate Knapp’s to determine that si- prove requested that the defendant either response lence in to Commonwealth’s res- conduct under condi or assented such letter, rights subsequent ervations of precluding tions an inference that acceptance provided plaintiff gratuitоusly.” (citing acted Id. Commonwealth, implied constitutes 152); Gaffney, 65 Ohio St. 61 N.E. agreement rights.”). reservation of Freeman, 68, 74, Stepp App.3d of rights The reservation letter shows that (1997) (“To 694 N.E.2d 510 establish a gratuitously. United National did not act implied in fact a plaintiff must demonstrate that the circumstances sur argues parties that the did not cre- SST rounding parties’ transaction make it 1) implied ate an in fact contract because: reasonably certain that an agreement was did not provide consider- intended.”) (citation omitted). modify original ation to con- insurance 2) tract with rights; the reservation of Because United National contends unilaterally United National could not parties entered into an in fact contract; modify original insurance contract, prove United National must 3) accepted SST never the reservation accepted the with defense costs because silence inaction do under conditions dis acceptance. not constitute United Nation- allowing inference that United National Lucas, however, .not, gratuitously. modify acted 13 Ohio al did original (citing Gaffney, contract; 469 N.E.2d 927 instead, parties 152) (“[T]he plaintiff Ohio St. 61 N.E. agreement entered into new in which prove must that the defendant either re United National offered defense costs sub- quested or conduct assented to such ject potential reimbursement and SST precluding conditions an inference that the accepted that by accepting offer the de- plaintiff gratuitously.”). acted Stated dif fense costs. ferently, United National must show that United National’s conduct also entitles surrounding the circumstances the trans United National to reimbursement under reasonably action make it certain that the persuasive the addressing decisions this parties agree intended to that United Na specific jurisdictions. in other issue Under recoup tional would defense costs if United cases, discussed, previously that line of as duty National had no to the costs. United National is entitled to reimburse- at Stepp, 1) timely ment if United National: and 510. explicitly right recoup reserved to the United National has met this burden. 2) costs; specific and and provided ade- The evidence that demonstrates SST knew quate notice of the of possibility reim- of United National’s reservation of bursement. stating, because it received a letter “Unit- timely explicitly United National and re- ed National right recoup reserves ‍​​​‌​‌​​‌‌​​​​​​‌‌‌​​‌​‌‌​‌‌‌‌​​​​​​​‌​‌​​​​​​‌‌‍the to right recoup served its to costs defense any from SST defense costs and to fees because United Nаtional notified of SST paid subject to this on reservation letter reservation, the in a January letter dated duty the basis that no to defend now exists 21, 1997, prior payment to of the or has existed with defense regard tendered object suit.” at 115. did not to explicitly J.A. SST costs. The letter stated that existed, duty mined that no to defend or to re- National reserved if a court determined giving up defense costs all meritorious claims that a coup duty pro- had no to exists, National duty places that United to defend the insured (“United at 115 Na- vide such costs. J.A. position making in the a Hobson’s ... recoup any the to tional reserves choice.” costs-”). National also defense (citation omitted). 2 P.3d at 516 adequate notice of specific provided agree allowing that an insurer to We of reimbursement in this possibility under an in fact implied recover letter. theory long timely as so the insurer support further for its claim re- As explicitly recoup reserved its to imbursement, United National contends provided specific adequate costs and allowing an insurer to costs that possibility notice of reimbursement duty defend it did not have a to when promotes policy ensuring defenses will ensures that defenses be afforded even questionable are afforded even in cases. National ar- questionable cases. United payment When an insurer conditions “reservation-of-rights letters gues defense costs on the condition of reim- judicial promote economic use scarce duty bursement if the had no to insurer willing- by increasing resources insurers’ defend, part of an condition becomes questionable in cases of ness to defend in fact implied contract when Final Br. at 17. cоverage.” Appellant’s accepts payment. When faced with a res- stated, cites which Knapp, United National ervation of the insured can choose be consistent en- “The courts should 1) offer, pay to: decline the for the de- companies properly to couraging 2) fense, policy; and seek to recover on the to defend its insured meet their declaratory the offer and file a decline minimize party third claims and 3) action; accept the offer judgment enforce cover- unnecessary claims to subject rights. at 1172. age.” Knapp, F.Supp. SST, court, the district contends echoing into an Because SST entered un- benefits from defense that an insurer the defense by accepting fact contract der a reservation of because subject of the costs to a reservatiоn Ap- a claim for faith. insurer avoids bad court determined (“United Final Br. at National pellee’s had to defend no faith’ and any allegation ‘avoided of bad and a court found United SST if it pay damages responsibility avoided defend, United National is had no later determined that United Nation- were entitled to reimbursement of its underly- obligation al had an defend prejudgment interest. costs 186). action.”) fur- ing (citing J.A. contends that United National had ther II. Volunteer Status underlying controlling the benefit of the dis Contrary foregoing, litigation. quotes SST Shoshone Nation trict court determined that United in- argues reimbursement would force al was a volunteer and could sureds to make a difficult decision: law. defense costs Ohio “However, the insurer to force to allow a argues it was not National United choosing into between seek- the insured at because it defended SST volunteer run policy, a defense under the ing request and reserved SST’s having pay risk of for potential recoupment. if deter- subsequently this defense it is 922 (citations omitted); 88, In argues National was a vol- 67 N.E.2d 906

SST United unteer, Am., entitled to reim- at App.3d and therefore not surance Co. 118 Ohio of N. bursement, (citation 317, omitted); because United National made 692 N.E.2d 1028 money knowledge Amerisure, 241, a of the payment with App.3d 77 at 601 Ohio legal (citation without or contractual omitted); facts and obli- N.E.2d 577 Fireman’s gation. Fund, 91, at 117 N.E.2d 477 App. 95 Ohio (citation omitted). National how- United party making A is a volunteer if in a contract, ever seeks reimbursement under payment, “he has no or interest of pursuant principles not contribution protect, his own to and acts without obli- main equity. argument United National’s being moral or and without gation, legal, parties is that the entered intо by anyone liable on the obli- requested is, in fact contract and United National gation.” Aetna Cas. & Sur. Co. v. Buck- therefore, Co., 385, pur- entitled to reimbursement eye Union Cas. 157 Ohio St. 392- (1952) 93, plain- Am. that contract. (citing 105 N.E.2d 568 50 suant to Unlike 22); cases, § see also Farm Bureau Mut. Jur. tiffs SST’s cited Co., Buckeye Auto. Ins. Co. v. Union Cas. does not seek to recover as a matter of (1946) 79, 88, 147 Ohio St. 67 N.E.2d 906 See, e.g., Farm equity and contribution. (“one who, knowledge with of the facts and Bureau, 86, 147 N.E.2d Ohio St. at legal liability, payment without makes a (“[T]he plaintiff contention of the [was] volunteer”) (ci- money, thereby becomes in equity good conscience the omitted). tations pay defendant compelled should be money paid by share of the proportionate The applies pay- volunteer defense in full plaintiff settlement of the claims ing party pay- has not been asked fоr the collision.”); requested arising ment. the defense out of the SST costs Insurance by tendering Am., 314-15, from United National at App.3d Co. 118 Ohio of N. underlying (“[T]he litigation to United National secondary 692 N.E.2d 1028 insurer December, defense 1996. See J.A. possesses equitable to recover at 114. United National cannot be vol- insurer, primary from the as well as unteer because asked by way subrogation to recover costs. policy.... under the INA contends that it Travelers, secondary insurer to prop-

SST relies on several cases for the insurer, primary and therefore entitled to osition that National was a volun- Travelers.”) (citation recover from omit- teer and therefore not reim- entitled to Bureau, Amerisure, ted); bursement: Farm 147 Ohio at App.3d St. Ohio 906; 67 N.E.2d Insurance N. Co. 601 N.E.2d Aner- (“Plaintiff-appellant, Co., App.3d Am. v. Travelers Ins. 118 Ohio (‘Amerisure’), Companies isure filed a сom- (1997); 692 N.E.2d 1028 Amerisure plaint against for contribution defendants- Co., Cos. v. Statesman Ins. 77 Ohio appellees, Company Insurance Safeco (1991); 601 N.E.2d 577 Fireman’s (‘Safeco’), Company Insurance Statesman Fund Indem. v.Co. ‍​​​‌​‌​​‌‌​​​​​​‌‌‌​​‌​‌‌​‌‌‌‌​​​​​​​‌​‌​​​​​​‌‌‍Mutual Cas. 95 and Automobile Company State Insurance (1953). App. 117 N.E.2d 477 ‘Statesman’), (jointly for costs incurred not, however, authority These cases are in- settling two cases filed they easily distinguished because are from sured.”); Fund, App. Fireman’s 95 Ohio this case. (“This is an action an- by company compel one insurance to correctly the rule espoused

SST states company in these cases that will not other insurance to contribute “equity aid Bureau, money paid by volunteer.” Farm 147 Ohio at share of a sum of one St. volunteer, however, policies ratio their bear because United Na- proportion another.”). to one tionаl did not force defense costs on SST— requested SST the defense costs. Having National, furthermore, reserved United wanted, received what it properly can reimbursement, to unlike required be for what it thereby See, in the cases cited SST. plaintiffs gained. Bureau, 89-90, at e.g., Farm Ohio St. Am., 906; N. N.E.2d Insurance Co. The district court therefore erred in 1028; N.E.2d App.3d at finding National qualified as a vol-

Amerisure, at App.3d 77 Ohio unteer requested because SST Na- Fund, 577; N.E.2d Fireman’s 95 Ohio payment, tional’s United National asserted 91, 117 477. At one App. at least a claim contract and not in equity, controlling weight to the given court has United National reserved its to re- right. failure reserve its insurer’s coupment. America, North 118 Ohio Insurance Co. of (emphasis at 692 N.E.2d 1028 stated, added), point the court “At the CONCLUSION defense, it [plaintiff] which assumed reasons, For the foregoing we RE- (having a volunteer did so as failed judgment VERSE the of the district court rights), not as a result of [de- reserve and REMAND for proceedings further wrongful refusal to defend.” fendant’s] with accordance this decision. language in this is the court’s Implicit that, re- recognition plaintiff had CLAY, Judge, dissenting. Circuit not plaintiff

served its would case, In this have been volunteer. Unit- Despite any controlling pre- the lack of ed National could not be a volunteer be- cedent from the on Ohio courts this mat- specifically cause it reserved its to ter, majority opinion essentially holds recoupment. unilaterally insurer can alter the underlying the policy One of the issues an existing terms of contract and force an would, moreover, volunteer doctrine not be insured to reimburse the insurer for attor- by finding furthered United National was ney by way fees and costs of a unilateral pre- a volunteer. The volunteer defense letter. Because vents sellers with no market for their public policy law and considerations goods forcing goods those on unsus- strongly against reaching militate such a pecting seeking customers and then resti- I holding, respectfully dissent. tution, thereby creating right payment requires This case that we determine where one did not otherwise exist. See in good whether insurer that decides II, Jerry, Right Robert H. The Insurer’s claims, against faith to defend Costs, 42 to Reimbursement Defense are which the insurer is uncertain covered (“The (2000) princi- 56-57 ARiz. L.Rev. policy, may under the insurance unilateral- pal denying rationale for restitution in ly policy alter the of the insurance terms circumstances from the these devolves a court later defense costs when party might concern that a foist benefits makes an determination that after-the-fact upon unsuspecting people, using the law of policy did cover the claims payment restitution to create a not. below, explained the insured. As the an- goods or services where none would other- exist.”). question unequivocally swer to this is that would wise This not be allowed to do so. promoted by holding United National as a an insurer should 924 there is about whether the Ohio, duty a to defend Where doubt

In an insurer has an against a filed claims asserted complaint policy whenever covers insured allegations insured, insured contains interest against the it is the insurer’s or by policy insured, covered the expressly subject that are for the mount a defense potentially covered. arguably are even or City Willough rights. a reservation of v. Willoughby Hills Cincinnati City 1; Hills, N.E.2d at 559 n. see also by 459 555, Co., 177, 459 N.E.2d Ins. 9 St.3d Ohio Trainor, Ins. v. 33 Motorists Mut. Co. (1984). in the allegations the 558 Where (1973) 874, 41, 294 N.E.2d 877 St.2d Ohio underlying against suit complaint the that a “unilateral reservation (explaining in- ambiguous, or vague, “are the insured it by the insurer that rights given is notice for cover- ‘potential so that the complete, suit, rights the but reserves all will defend exists, duty by the insurer a defend age’ noncoverage on the it has based Co., v. Cas. exists.” Monsler Cincinnati added). ”) Otherwise, al (emphasis 1203, N.E.2d 1206 App.3d 598 Ohio that though might a court later determine (1991) (citation omitted); Grange see also underlying insurance contract does Rosko, App.3d Mut. Co. v. Ohio Cas. claim, a where the insurer particular cover 1230-31(2001) reserving the defense without undertakes (“Even duty to defend is unclear where deny coverage either or rights its complaint brought against from the defend, may estopped the insured doubt or where there exists some insured doing Liquidating later so. Turner from theory recovery falls about whether the Lines Ins. Surplus Co. v. St. Paul allega- scope policy, of the within the 638 N.E.2d arguably or may a claim which tions state (1994). Turner, instance, an insurer policy coverage, fall within potentially an insured in an action and then defended must, rule, the de- accept as a insurer the in couple of months later informed fense.”) providing a stop sured that it would soon in- If refuses to defend the an insurer Id. at 175. The insurer did not defense. sured, that a court later determines to withdraw the defense. reserve against the insured the claims asserted claiming that the insurer The insured sued in fact covered under the were withdrawing a defense precluded contract, may the insurer the insured sue' estoppel. of waiver and under the doctrines for breach of contract. See Centennial court stated appeals Id. The intermediate Co., 62 Ohio Liberty Mut. Ins. Ins. Co. general rule is that waiver and (1980) (“It 221, 404 N.E.2d St.2d coverage under a estoppel cannot create law in this state that an insurer is settled Thus, contract where none existed. Id. in de- good to exercise faith owes contract never inasmuch as the insurance settling against claims fending and brought against covered the claims will and that a breach of equitable place, insured in the first these in- by of action give rise to cause cov expand could not be used to doctrines sured.”) added). (emphasis In the instant However, none Id. erage where existed. case, Company Insurance recognized that there exists the court National”) (“United had some apparently is, rule. That exception general to this coverage whether existed concerns about insurer, reserving where without inasmuch as under the insurance contract a defense policy, provides under the “in caution” to agreed the abundance of the in period prejudice for such a as to action underlying patent defend SST the withdrawn, if the sured party. a third asserted 114.) (J.A. agent misrepre or its where the insurer

925 right the in creation of coverage [by way the extent of the such of a sents may then the insurer purchased, sured has unilateral reservation of ... rights letter] coverage. Id. estopped denying from be pro supersession to a tanto amount[s] of at 179. policy separate agreement without separate George consideration.” J. case,

In the instant United National 202:40, § Couch on Insurance at 202-98-99 rights of let contends that its reservation (3d ed.1999) (footnote and citations omit- it to do much more than to ter allowed ted). defending withdraw from SST Fitness (“SST”) deny coverage or to Corporatiоn Further, one of the most recent cases

in patent action asserted SST discussing this issue has expressly held court, and later this once the district rights that “a unilateral reservation let- Court, determined that such claims were rights ter cannot create not in contained policy. not covered under the United Na policy.” the insurance Texas Ass’n of right claims that it has the tional also County Mgmt. Counties Gov’tRisk Pool v. it expended be reimbursed for the funds Matagorda County, 52 S.W.3d in defending patent SST the action. How (Tex.2000) (citing Shoshone First Bank v. ever, National admits that the un United Employers Pac. Ins. P.3d 515- derlying that United (Wyo.2000) (rejecting the notion that National entered into with SST contains could base a right insurer to recover allowing recoup attorney it to provision no stating defense costs on a letter and “we fees where elects to ac United National permit will not the contract to be amended cept the tender of a defense and then later aby rights or altered reservation of let- that it discovers had no to do so. ter”)). out, points As SST it never assent- Thus, right United National seeks to any attempt ed to on United National’s case, in right assert this to reimburse which, part policy, to amend its insurance applicable ment under the of insur policy above, explained did not grant as ance, right is not a to which it is entitled right recoupment National the seeks noncoverage policy. based on to exercise. Mut., Motorists 294 N.E.2d at 877. contends, however, contends, however, that that it insur- does seek amend the from its this novel derives unilateral contract, ance but rather that the unilat- rights Despite letter.1 rights eral reservation of letter formed majority’s characterizatiоn that courts uni- em- majority opinion new contract. The versally allow of defense costs ar- unpersuasive braces United National’s response rights to reservation of letters that an new contract was gument entirely pres- under circumstances similar to those upon nothing into more entered based “[tjhere case, actuality ent the instant rights than letter uni- the reservation opinion is a difference of as to whether an laterally generated by United National. may insurer reserve ‍​​​‌​‌​​‌‌​​​​​​‌‌‌​​‌​‌‌​‌‌‌‌​​​​​​​‌​‌​​​​​​‌‌‍the to reim- Specifically, United National contends bursement of defense a unilat- [with costs implied-in- the letter constituted eral Under letter]. reservation view, agreement, separate apart fact pay- one an insurer has no However, underlying contract. set- policy, ment for such costs under 1. stated in on the basis that no The reservation letter vation letter regard pertinent part: with "United National reserves the defend now exists or has existed (J.A. any [patent] at 114— from SST Fitness to the tendered suit.” 15.) paid subject to be to this reser- costs fees as an assent to an offer considerations be construed tied law and clear ....’”) rejected. argument (quoting warrant this Williston on Contracts (4th ed.1991)). Moreover, § 6:49 while may express “A either be contract rule, exceptions general to this there are v. Com- implied-in-fact.” Campanella militate policy considerations strong Bank, App.3d merce 139 Ohio Exch. unilaterally allowing an insurer to against (citation (2000) 745 N.E.2d it can the costs of declare that omitted). The difference between the two an insured where it is later de- defending to show their proof is the form of used underlying termined that the proved are Express existence. contracts claim(s) not cover the asserted policy did written and oral state- by way “express of acceptance the insured. As the Third Circuit manifesting against ments” offer meeting the minds agreement, and a explained: has among parties. the Id. On the between or permitting recovery A rule such would hand, in fact implied other “[a] legal principles be inconsistent with the cir- may proved by showing that the be that an insurer’s to defend induce offer surrounding parties’ the trans- cumstances rights. Faced with that an reasonably make it certain actions duty indemnify, uncertainty as to its to See Lucas v. agreement was intended.” under reser- an insurer offers defense Costantini, 13 Ohio that an vation of to avoid the risks (1983) (citation omitted); 927, 929 un- inept or lackadaisical defense of the 745 N.E.2d at 1095 Campanella, see also derlying may expose action it to it (“In contracts, parties’ implied-in-fact duty indemnify. there is a to turns out by the meeting of the minds is shown time, At the the insurer wishes to same surrounding including circumstances to contest the to preserve declarations, making parties’ conduct and indemnify if the defense is unsuccessful. parties in- reasonably it inferable Thus, such an offer is made least as certain obli- binding tended to create own much for the insurer’s benefit as gations.”). If the insurer could re- insured’s. contends, and the ma- costs, the insured would cover defense the circum- jority opinion agrees, ac- required pay to for the insurer’s surrounding the unilateral reserva- stances protecting tion in itself the es- demonstrate that the tion-of-rights letter deny coverage that would be toppel binding into a parties intended enter if it undertook the defense with- agreement. Specifically, United reservation. out reservation contends that after it sent the Inc., Co., Bar, Ltd. v. Terra Nova Ins. SST, the latter did not letter to (3d Cir.1989) (cita- 887 F.2d 1219-20 object explicated the terms the letter omitted). tions payment National’s accepted Further, although accepted National there- the defense costs. United case, vigorously funds the instant also to bind attempts fore to use SST’s silence in the district court position defended its However, “in usual situation an it. and in this that United National Court cause the silence of the offeror cannot ” legal fees. pay indeed had a SST’s acceptance.... offeree to constitute National cannot claim that there Berjian v. Bell Tel. 54 Ohio St.2d truly meeting of the minds on the (1978); 375 N.E.2d see also (“as of whether SST intended to reim issue at 132 Matagorda County, 52 S.W.3d rule, paying National for SST’s and inaction will not burse United general ‘silence con vigorously places position when SST attorney fees National had a tended that United making a Hobson’s choice. Further- place. in the first Ma those fees more, endorsing such conduct is tanta- Cf. County, (holding at 133 tagorda S.W.3d allowing mount to the insurer to extract meeting of the minds to that there was no a unilateral amendment to the insur- contract where implied-in-faet establish ance contract. this became common If consistently the insured had contested practice, the insurance industry might position regarding coverage insurer’s arrangements extract coercive pay the insurer under the insisted insureds, destroying their the concept of policy). liability litigation insurance. clearly op- had other United National Bank, First (quot- Shoshone P.3d requested to it when SST tions available Ridco, Inc., ing America States Ins. v.Co. pay attorney National fees that United Inc., Jewelry, Berger, Riddles and Ken B. it National believed that had no (D.Wyo.1999)) No. (empha- Civ. 95CV158D patent to action. duty defend added). As quote sis the above demon- simply could example, For strates, majority the result reached However, defend in have refused to SST. opinion required result that is not un- potential protect its efforts to itself —a claim, opens policy it chose not to do der Ohio the door to bad breach of contract law— National should not now be practices by so. United and future coercive insurance duty to force a onto SST that the allowed companies. Id. bargain underly- for in the parties did not course, Ohio courts do enforce reser- Of court ing insurance contract. As one rights, suggest vations of and this is not to aptly explainеd:

wrestling with this issue See, Turner, e.g., otherwise. there is a question The as to whether However, point simply at 179. here is is a difficult duty to defend insured recoupment that the insurer cannot pursue one, that is the business of but because rights pre- of when the insured did not carrier, it is the insurance insurance underlying in serve the to do so If carrier’s to make that decision. fact, in insurance contract. the insurer an insurance carrier believes that no legal the instant case was so unsure of its exists, coverage deny then should that it clarifi- rights obligations sought beginning at the in- defense by filing declaratory cation of its duties defending attempting and later stead judgment action. recoup from its insured the costs of defending underlying action. Where con- underlying Because the insurance carrier is uncertain over the insurance provide tract involved this case did nоt coverage underlying for the attorney and no fees claim, proper course is for the insur- by way formed implied-in-fact ance carrier to tender a defense and National’s unilateral reservation of United declaratory judgment as to cover- seek letter, is However, to allow age policy. under the paid the costs it de- entitled to force the insured into the insurer Moreover, strong con- fending SST. seeking a un- choosing between refusing expand our support siderations run policy, potential der the risk insurance law to find to re- if it having for this defense attorney where such coupment of fees that no subsequently determined minimum, at a do not even exist existed, all giving up defend meritori- exists, ma- contract. Because the ous claims that a to defend the insurance conclusion, I jority contrary reaches dissent.

respectfully America,

UNITED STATES

Plaintiff-Appellee, CAMPBELL, Reed

Robert

Defendant-Appellant.

No. 01-5661. Appeals, Court of

United States

Sixth Circuit.

Argued: Oct. 2002.

Decided and Filed: Nov. 2002.

Case Details

Case Name: United National Insurance Company v. Sst Fitness Corporation

Court Name: Court of Appeals for the Sixth Circuit

Date Published: Nov 4, 2002

Citation: 309 F.3d 914

Docket Number: 00-4239

Court Abbreviation: 6th Cir.