American Financial Corp. v. Fireman's Fund Ins. Co.

• Citation: 239 N.E.2d 33,44 O.O.2d 147,15 Ohio St.2d 171
• Decision Date: 10 July 1968
• Docket Number: No. 41148,41148
• Parties: , 44 O.O.2d 147 AMERICAN FINANCIAL CORP. et al., Appellants, v. FIREMAN'S FUND INS. CO., Appellee.
• Court: United States State Supreme Court of Ohio

Page 171

15 Ohio St.2d 171

239 N.E.2d 33, 44 O.O.2d 147

AMERICAN FINANCIAL CORP. et al., Appellants, v. FIREMAN'S FUND INS. CO., Appellee.

No. 41148.

Supreme Court of Ohio.

July 10, 1968.

Syllabus by the Court

Where the purpose of a policy of insurance is to protect an employer from losses caused by an error or omission in the performance of his duty by an employee, the doctrine of imputed knowledge will not operate to defeat recovery by the employer under the policy where there is an exclusion from liability clause based on notice to the employer and only the employee at fault has actual knowledge as to his own error or omission.

American Financial Corporation and American Home Savings Association, appellants herein, instituted an action in the Court of Common Pleas against Fireman's Fund Insurance Company, appellee herein, to recover under an insurance contract.

Plaintiff American Home Savings Association is a savings and loan institution. To protect its interests in real property as mortgagee plaintiff requires the mortgagors to insure their property. As a precaution to see that such insurance is maintained in force, plaintiff requires an employee to review such policies. The procedure followed is that upon receipt of notice of expiration of a policy the plaintiff's employee notifies the mortgagor. In the event the mortgagor then neglects to provide coverage plaintiff itself pays the premium and adds the charges thus incurred to the account of the mortgagor.

To further protect itself from loss, plaintiff secured a contract of insurance with defendant to cover any loss occasioned by the failure of plaintiff's employee to perform the above described duties.

The policy reads in part:

'(1) Subject to the limit of liability, and the exclusions and conditions applying to Section I, this company agrees to indemnify the insured against loss to the insured's mortgagee interest * * * in real property arising by reason of error or accidental omission in the operation of the insured's customary procedure in requiring, procuring and maintaining valid insurance * * * if, by reason of such error or accidental omission, requisite insurance is not in force at the time of the loss.'

The policy contains the following exclusion: 'This company shall not be liable for loss resulting from:

'(1) any occurrence taking place more than ten (10) days after the insured had knowledge that an error or accidental omission had occurred * * *.'

While this policy was in effect, plaintiff's employee received notice of cancellation of a policy of insurance on one of the properties of which plaintiff was mortgagee. The notice stated that the cancellation would be effective on March 5, 1964, unless premiums were paid by that date. As to this cancellation, plaintiff's employee did not follow the usual procedure but waited until March 5th to write the mortgagor about renewal of the policy. Again ignoring customary procedure, the employee did not pay the premiums on behalf of plaintiff. No other employees of plaintiff had knowledge of this cancellation of insurance until April 3, 1964, when the property in question was destroyed by wind.

The trial court found that the employee had knowledge of the error more than ten days before the loss, that the employee 'was the agent of the plaintiffs, and they are bound by her act,' and that plaintiffs were barred from recovery under the ten-day notice exclusionary provision in the policy. Thus, judgment was entered for the defendant.

The Court of Appeals affirmed the judgment and the cause is now before this court following allowance of a motion to certify the record.

Keating, Muething & Klekamp, John L. Muething and Gary P. Kreider, Cincinnati, for appellants.

Rendigs, Fry, Kiely & Dennis and John A. Kiely, Cincinnati, for appellee.

MATTHIAS, Judge.

The question raised is due to the fact that the policy of insurance in the instant case contained the following provision:

'This company shall not be liable for loss resulting from:

'(1) any occurrence taking place more than ten (10) days after the insured had knowledge that an error or accidental omission had occurred * * *.'

It is a fundamental rule of law that a contract of insurance prepared by an insurer and in language selected by the insurer must be construed liberally in favor of the insured and strictly against the insurer if the language used is doubtful, uncertain or ambiguous. Munchick v. Fidelity & Casualty Co. of New York, 2 Ohio St.2d 303, 209 N.E.2d 167, and Butche v. Ohio Casualty Ins. Co., 174 Ohio St. 144, 187 N.E.2d 20. This is especially true where an exception or exclusion from liability is contained in the policy. Home Indemnity Co. v. Village of Plymouth, 146 Ohio St. 96, 64 N.E.2d 248.

In other words, the insurer, being the one who selects the language, must be specific in its use, and an exclusion from liability must be clear and exact in order to be given effect. In the instant case, the...