Hounshell v. American States Ins. Co.

• Decision Date: 05 August 1981
• Docket Number: No. 80-1522,80-1522
• Citation: 67 Ohio St.2d 427,21 O.O.3d 267,424 N.E.2d 311
• Parties: , 21 O.O.3d 267 HOUNSHELL et al., Appellees, v. AMERICAN STATES INSURANCE COMPANY, Appellant, et al.
• Court: Ohio Supreme Court

Page 427

67 Ohio St.2d 427

424 N.E.2d 311, 21 O.O.3d 267

HOUNSHELL et al., Appellees, v. AMERICAN STATES INSURANCE COMPANY, Appellant, et al.

No. 80-1522.

Supreme Court of Ohio.

Aug. 5, 1981.

Syllabus by the Court

An insurance company may be held to have waived a limitation of action clause in a fire insurance policy by acts or declarations which evidence a recognition of liability, or acts or declarations which hold out a reasonable hope of adjustment and which acts or declarations occasion the delay by the insured in filing an action on the insurance contract until after the period of limitation has expired.

Appellant, American States Insurance Company, appeals a judgment of the Court of Appeals which determined that, by making an offer of settlement of a claim under the circumstances presented, the company had waived its contractual right of asserting a one-year limitation for bringing an action against the company as set forth in the policy.

The facts giving rise to the issues presented upon this appeal are as follows:

On August 27, 1975, a parcel of real estate located on Xenia Avenue, in Dayton, titled in the names of appellees, Charles R. and Catherine S. Hounshell, was destroyed by fire. At the time of the fire loss, the property was being sold by land contract to Edward Perkins. Under an insurance policy issued by appellant, American States Insurance Company, to the Hounshells, the property was insured for $30,000. Under an insurance policy issued by Lumbermen's Mutual Insurance Company to Edward Perkins, the property was insured for $32,000.

Subsequent to the loss, the Hounshells executed a general power of attorney authorizing Bea Monteith, the mother of Charles R. Hounshell, to settle the claim for damages caused by the fire. By letter dated January 20, 1976, Bea Monteith was offered a settlement from American States in the amount of $12,024.19. In this letter, American States explained that it was unwilling to pay the full $30,000 claimed by appellees for the fire loss for two reasons. First, appellees, as vendors under a land contract, had already received $5,100 from the vendee on the $30,000 purchase price, $3,000 as a down payment and $2,100 in monthly payments. Thus, according to American States, the appellees' insurable interest in the property was only $24,900. Second, a $32,000 insurance policy had been written on the same property by Lumbermen's Mutual Insurance Company, thereby making the total amount of insurance on the property $62,000. Thus, according to American States, its liability under the policy was limited to its pro rata share of the total insurance on the property. Accordingly, the company made an offer of $12,024.19 in settlement of the loss.

Following further negotiation between American States and the Alex N. Sill Company, a public adjusting firm representing the appellees, American States, by letter dated July 7, 1976, raised its settlement offer to $16,000. The appellees did not respond to this offer.

On July 15, 1976, the Alex N. Sill Company sent a letter to Lumbermen's requesting that the company pay the difference between the American States' settlement offer and appellees' total demand. Lumbermen's attorney informed the Sill Company's representative that the claim had been denied and would not be paid.

On November 23, 1976, the appellees commenced the present action in the Court of Common Pleas of Montgomery County. On February 14, 1977, American States moved for summary judgment on the ground that the action was barred by the 12-month limitation of action provision contained in the insurance policy. Such provision in the policy is as follows:

"SUIT. No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with and unless commenced within twelve months next after inception of the loss."

The trial court sustained American States' motion for summary judgment. The Court of Appeals reversed the trial court on the general basis that the company, in making offers of settlement in the manner of this case, had estopped itself from asserting the terms of the one-year limitation for bringing actions, as provided by its policy.

This cause is before the court pursuant to an allowance of a motion to certify the record.

Rudd, Silverberg, Zaharieff & Orlins Co., L.P.A., J. Gordon Rudd, Eric Silverberg and David A. Orlins, Xenia, for appellees.

Ulmer, Berne, Laronge, Glickman & Curtis, Marvin L. Karp, Cleveland, Bieser, Greer & Landis and Howard P. Krisher, Dayton, for appellant.

HOLMES, Justice.

It is our view that the majority of the Court of Appeals applied the correct law to the facts presented in this cause.

There seems to be no dispute here that an insurance contract may lawfully limit the time within which a suit may be brought on that contract of insurance if the period fixed in the policy is not unreasonable. Appel v. Cooper Ins. Co. (1907), 76 Ohio St. 52, 80 N.E. 955. Such provisions are valid even though the limitation period provided in the contract of insurance is shorter than the period specified in the applicable statute, and a limitation on periods for the commencement of actions to a period of 12 months is not unreasonable. Appel, supra.

However, as aptly stated by the Court of Appeals herein, the right to assert the limitation as provided for in the policy may be lost by estoppel or waiver. Which theory, either that of waiver or estoppel, should be applied in a given case, is not always completely clear. However, under the facts of this case, since the limitation on bringing actions is a right the company has provided itself by contract, then relinquishment of such right by its own acts would reasonably constitute a waiver.

In determining whether there has been a waiver, we must look to the purpose generally of the statute of limitations as provided by law, and the stance of the parties to an insurance contract who are confronted under the circumstances of a given case with a provision limiting the period for bringing actions on the contract.

In construing a fire insurance policy, which contained a 15-month limitation of action clause, the California Supreme Court, in Bollinger v. National Fire Ins. Co. of Hartford (1944), 25 Cal.2d 399, 154 P.2d 399, 25 Cal.2d at pages 406-407, 154 P.2d 399, said:

"Under the circumstances it would be a perversion of the policy of the statute of limitation to deny a trial on the merits. As the Supreme Court of The United States declared in Order of R. Telegraphers v. Railway Exp. Agency, 1944, 321 U.S. 342, 348 (64 S.Ct. 582, 586, 88 L.Ed. 788) 'Statutes of limitation ... in their conclusive effects are designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared. The theory is that even if one has a just claim it is unjust not to put an adversary on notice to defend within the period of limitation and the right to be free of stale claims in time comes to prevail over the right to prosecute them. * * * The short statutory limitation period in the present case is the result of long insistence by insurance companies that they have additional protection against fraudulent proofs, which they could not meet if claims could be sued upon within four years as in the case of actions on other written instruments. * * * "

The court, in Bollinger, supra, at page 25 Cal.2d 405, 154 P.2d 399, also stated:

" * * * While courts are diligent to protect insurance companies from fraudulent claims and to enforce all regulations necessary to their protection, it must not be forgotten that the primary function of insurance is to insure. When claims are honestly made, care should be taken to prevent technical forfeitures such as would ensue from an unreasonable enforcement of a rule of procedure unrelated to the merits. * * * "

The major question presented in this case is what are the circumstances or criteria which would constitute a waiver of a limitation of action clause as contained in an insurance contract.

Appellant argues that an insurance company does not waive a limitation of action clause in the policy merely by making a settlement offer of a claim made by an insured, in the absence of any evidence that such offer was coupled with statements or acts which misled the insured into forbearing suit until after the limitation period has expired.

The basic stance of the appellant is that the law of waiver, if applied, should only apply where it is found that the insurance company, by its overt acts, misled the insured into forbearing suit until after the limitation period had expired. We believe this to be too narrow an interpretation of the law of waiver to be applied to this type of case. We feel that we should view such limitations on the realistic basis under which they were entered into as suggested by the court in Schafer v. Buckeye Union Ins. Co. (Ind.App.1978) 381 N.E.2d 519, at 522, as follows:

"By definition, contractual limitations are in derogation of the time period fixed by the legislature for bringing such actions. And they arise from adhesion contracts where the insured rarely, if ever, has a voice in bargaining."

We hold that a waiver in these types of cases may occur when the insurer, by its acts or declarations, evidences a recognition of liability under the policy, and the evidence reasonably shows that such expressed recognition of liability and offers of settlement have led the insured to delay in bringing an action on the insurance contract.

The facts in the instant case show that there was more than negotiation or discussion concerning the liability of the company on the policy. The offers made by American States implicitly led the appellees to believe that the company would be liable under the policy for the pro rata share of...