Motorists Mut. Ins. Co. v. Trainor, 72-376

• Citation: 294 N.E.2d 874,62 O.O.2d 402,33 Ohio St.2d 41
• Decision Date: 28 March 1973
• Docket Number: No. 72-376,72-376
• Parties: , 62 O.O.2d 402 MOTORISTS MUTUAL INSURANCE CO., Appellant and Cross-Appellee, v. TRAINOR, a Minor, et al., Appellees and Cross-Appellants.
• Court: United States State Supreme Court of Ohio

Page 41

33 Ohio St.2d 41

294 N.E.2d 874, 62 O.O.2d 402

MOTORISTS MUTUAL INSURANCE CO., Appellant and Cross-Appellee, v. TRAINOR, a Minor, et al., Appellees and Cross-Appellants.

No. 72-376.

Supreme Court of Ohio.

March 28, 1973.

Syllabus by the Court

1. An insurance company, which by contract is obligated to defend its insured in a negligence action, may defend in good faith without waiving its right to assert at a later time the policy defenses it believes it has, provided that it gives its insured notice of any reservation of rights.

2. The test of the duty of an insurance company, under a policy of liability insurance, to defend an action against an insured, is the scope of the allegations of the complaint in the action against the insured, and where the complaint brings the action within the coverage of the policy the insurer is required to make defense, regardless of the ultimate outcome of the action or its liability to the insured. (Socony-Vacuum Oil Co. v. Continental Cas. Co., 144 Ohio St. 382, 59 N.E.2d 199, approved and followed.)

3. Where a clear duty to defend an action against an insured is admitted by the insurer, and is obvious from the complaint filed, the insurer cannot excuse itself from that duty by seeking to require the insured to enter into a bilateral nonwaiver agreement as a condition precedent to making such a defense.

4. Where an insurer wrongfully refuses to defend an insured in a negligence action unless the insured agrees to additional conditions not included as policy provisions, the insured is entitled to recover from the insurer his expenses, including reasonable attorney fees, in defending the action.

On June 7, 1966, Michael Trainor, age 11, was involved in a scuffle with a playmate, Thomas Harvilla, age 8, who had an eye condition from a previous injury. As a result of the scuffle, Thomas Harvilla's eye condition was allegedly aggravated, leaving him totally blind in that eye.

There was in existence, at that time, a homeowners insurance policy from Motorists Mutual Insurance Company to John D. Trainor, Jr., and Kathryn J. Trainor, parents of Michael, under the terms of which he was an insured. The incident was reported by the Trainors, and on July 1, 1966 an agent of the insurer took a statement from Michael, wherein he stated that he did not intentionally hit the Harvilla boy in the eye, he 'was just hitting him.'

Subsequently, suit was filed against the Trainors to recover damages for the resulting injuries, alleging negligent conduct. The complaint was transmitted to Motorists, which replied, advising the Trainors that 'there had been a rejection of coverage' because the act was 'voluntary.' However, Motorists advised that if the Trainors would agree to a reservation of rights, it would proceed to assign the case for defense. The Trainors were urged to respond immediately, as answer date was approaching. Two weeks before the answer date another letter was sent by Motorists, reemphasizing its position.

The Trainors made no answer to either letter, and on October 15, 1966, a default in pleading was entered. Finally, on November 23, after demanding that Motorists defend, and informing it that it would be held liable for attorney fees, expenses and possible judgment, the Trainors' private counsel undertook the defense of the negligence action.

On February 25, 1967, Motorists filed a declaratory judgment action against the Trainors, setting up the pertinent policy provisions, its previous denial of coverage and its current willingness to defend and 'do all the things its policy requires it to do on behalf of its insureds,' provided the Common Pleas Court of Medina County would declare that such defense would not 'constitute a waiver of, nor impair, any of its rights to contest the question of its coverage of the Trainors under the terms of the aforesaid policy.'

The Trainors, on January 30, 1968, answered, admitting the policy and pending negligence action, and cross-petitioned for their attorney fees to date, as well as attorney fees to protect their interests by preventing Motorists from taking advantage of a patent conflict of interest between them-all of which was denied by Motorists.

The trial court, on September 28, 1970, determined that the plaintiff, Motorists, was obligated to defend the Trainors without waiving any right to assert a future policy defense, and that the Trainors were entitled to recover their attorney fees for services received in both the declaratory judgment action and the negligence action to date. The court made no finding concerning the alleged conflict-of-interest charge raised in the Trainors' cross-petition. The negligence action has not yet been tried.

The judgment was then appealed by Motorists and cross-appealed by the Trainors to the Court of Appeals, which affirmed the judgment of the trial court and determined that a conflict of interest was present. The cause is before this court pursuant to the allowance of a motion to certify the record.

Weston, Hurd, Fallon, Sullivan & Paisley, Mark O'Neill, Cleveland, Williams & Batchelder and William G. Batchelder, Jr., Medina, for appellant and cross-appellee.

Griesinger & Jeandrevin, John T. Jeandrevin, Skidmore & Hall and L. Thomas Skidmore, Medina, for appellees and cross-appellants.

CELEBREZZE, Justice.

Motorists, prior to June 7, 1966, had issued its Homeowners Policy No. H-70. 175802 to John D. Trainor, Jr., and Kathryn J. Trainor, husband and wife, and parents of Michael T., a minor, which policy, in pertinent part, provided as follows:

'COVERAGE E-PERSONAL LIABILITY:

'(a) LIABILITY: To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury * * * and the company shall defend any suit against the insured alleging such bodily injury * * * and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; but the company may make such investigation and settlement of any claim or suit as it deems expedient.

'* * *

'Section II of this policy does not apply:

'* * *

'(c) Under coverages E * * * to bodily injury * * * caused intentionally by or at the direction of the insured * * *.

'* * *

'Insured: The unqualified word 'insured' includes (1) the named insured and (2) if residents of his household * * * any other person under the age of twenty-one in the care of an insured.'

Although the policy between the Trainors and Motorists provides that 'the company shall defend any suit against the insured' (emphasis added), the Common Pleas Court and the Court of Appeals have well stated that the law does not require an insurer to waive its contract rights when it has a duty to defend, as follows:

'The plaintiff Motorists Mutual Insurance Company is obligated to defend the Trainors in the Harvilla action * * * in good faith toward its insured, without waiving its right to assert at any later time the policy defenses it believes it has.' ^*

Motorists could reserve its right through a bilateral nonwaiver agreement with the Trainors, or through a unilateral reservation of rights. It chose to try to set up a bilateral nonwaiver agreement even though the petition alleged a pure negligence action. The manner in which the following letters to the Trainors were drafted made clear the insurer's intent that it would not defend unless this agreement was reached:

'If you are agreeable to our proceeding under a reservation of rights * * * the company will go into the defense of this case * * *. It would have to be agreed to on your part that the company is reserving its right to withdraw from this case at any time before or after judgment is taken, without thereby incurring any liability for any judgment which might result.' (Emphasis added.) (First letter from Motorists' chief counsel to Trainors.)

'* * * I do not feel free, however, to have our counsel * * * appear in this case until I have heard from you.' (Second letter from Motorist's chief counsel to Trainors.)

This conduct represented neither a bilateral nonwaiver agreement nor a unilateral reservation of rights. A bilateral nonwaiver agreement disclaims liability under the terms of the policy, reserves to each party his respective rights, and provides that the insurer will defend the suit at its own expense, and that nothing which is done under the agreement will be deemed to constitute a waiver of his respective rights. A unilateral reservation of rights is a notice given by the insurer that it will defend the suit, but reserves all rights it has based on noncoverage under the policy.

The Trainors failed to answer those letters and the case went to default. The trainors were under no obligation to assent to or deny the alleged nonwaiver agreement. The policy and the tenor of the Harvilla petition gave them a clear right to expect a defense by the insurer, and the Trainors had paid a premium for this service. The insurer demanded that the Trainors do more than the policy required.

Motorists gave no reservation-of-rights notice. There is no way of knowing what the Trainors might have done...