Sharonville v. Am. Employers Ins. Co.

• Decision Date: 17 May 2006
• Docket Number: No. 2004-1735.,2004-1735.
• Parties: CITY OF SHARONVILLE, Appellee, v. AMERICAN EMPLOYERS INSURANCE COMPANY; United National Insurance Company et al., Appellants; Cramer et al., Appellees.
• Court: Ohio Supreme Court

846 N.E.2d 833

109 Ohio St.3d 186

2006-Ohio-2180

CITY OF SHARONVILLE, Appellee, v. AMERICAN EMPLOYERS INSURANCE COMPANY; United National Insurance Company et al., Appellants; Cramer et al., Appellees.

No. 2004-1735.

Supreme Court of Ohio.

Submitted October 26, 2005.

Decided May 17, 2006.

COPYRIGHT MATERIAL OMITTED

Keating, Ritchie & Swick, Kevin L. Swick, and Thomas T. Keating, Cincinnati, for appellees.

Dinsmore & Shohl, L.L.P., Alan H. Abes, Cincinnati, and Susan M. Luken, for appellant Folksamerica Reinsurance Company.

Reminger & Reminger Co., L.P.A., Clifford C. Masch, and Holly M. Wilson, Cleveland, for appellant United National Insurance Company.

Shumaker, Loop & Kendrick, L.L.P., and Michael Sanderson, Toledo, for appellant Ohio Government Risk Management Plan.

Subashi, Wildermuth & Ballato, Nicholas Subashi, and Brian Wildermuth, Dayton, for appellant Scottsdale Insurance Company.

Kohnen & Patton, L.L.P., K. Roger Schoeni, and Kimberly A. Zamary, Cincinnati, for appellant North East Insurance Company.

Byron & Byron Co., L.P.A., Barry M. Byron, and Stephen L. Byron, Willoughby; and David E. Cruikshank, Painesville, urging affirmance for amicus curiae, Ohio Municipal Attorneys Association.

LANZINGER, J.

{¶ 1} This case, involving the question of an insurer's duty to defend law-enforcement officers in a civil rights action, is accepted upon a discretionary appeal.

{¶ 2} A federal action was filed against the city of Sharonville, Ohio and three of its current or former police officers.¹ The officers were sued in their official capacity over an alleged ongoing conspiracy to cover up evidence relating to the murders of Marie Wright Schuholz and Starla Burns on May 8, 1981. The third amended complaint alleges that James Cramer, William Nuss, Mike Schappa, and other unknown officers ("John Doe(s)") have destroyed evidence of a murder and conspired for over 20 years to cover up facts crucial to solving the murder. Four claims are asserted in the third federal amended complaint: a civil rights action under Section 1983, Title 42, U.S.Code, conspiracy under state law, spoliation of evidence, and intentional infliction of emotional distress.

{¶ 3} To obtain a defense in the federal suit, Sharonville and the named police officers filed a declaratory judgment action in the Hamilton County Court of Common Pleas against the various insurance companies that had provided coverage to the city from 1979 to 2002, alleging that the policies imposed a duty to defend. Each insurance company denied the allegations, and the trial court granted summary judgment to all insurers on the issues of defense and indemnity. Sharonville and the officers appealed.

{¶ 4} The Court of Appeals for Hamilton County affirmed in part and reversed in part. Sharonville v. Am. Employers Ins. Co., 158 Ohio App.3d 576, 2004-Ohio-4664, 818 N.E.2d 295. Summary judgment was found to have been proper for the general liability insurers, as they had no duty to defend either the city or the police officers. Id. at ¶ 49. Nevertheless, the appellate court reversed and granted judgment in favor of Sharonville and against the law-enforcement liability insurers (appellants North East Insurance Company, United National Insurance Company, Folksamerica Reinsurance Company, Scottsdale Insurance Company, and Ohio Governmental Risk Management Plan). Id.

{¶ 5} This cause is now before the court on a discretionary appeal. We review the granting of summary judgment de novo. Comer v. Risko, 106 Ohio St.3d 185, 2005-Ohio-4559, 833 N.E.2d 712, ¶ 8.

{¶ 6} An insurance policy is a contract whose interpretation is a matter of law. Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 241, 7 O.O.3d 403, 374 N.E.2d 146, paragraph one of the syllabus. Contract terms are to be given their plain and ordinary meaning. Gomolka v. State Auto. Mut. Ins. Co. (1982), 70 Ohio St.2d 166, 167-168, 24 O.O.3d 274, 436 N.E.2d 1347. If provisions are susceptible of more than one interpretation, they "will be construed strictly against the insurer and liberally in favor of the insured." King v. Nationwide Ins. Co. (1988), 35 Ohio St.3d 208, 519 N.E.2d 1380, syllabus. Additionally, "an exclusion in an insurance policy will be interpreted as applying only to that which is clearly intended to be excluded." (Emphasis sic.) Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd. (1992), 64 Ohio St.3d 657, 665, 597 N.E.2d 1096.

The Law-Enforcement Liability Policies

{¶ 7} The underlying federal complaint in this case alleges a conspiracy lasting over 20 years to cover up evidence of a murder. During that time, specifically between September 16, 1979, and April 26, 2002, Sharonville had a succession of law-enforcement liability policies issued by five different insurance companies.² Those policies stated that coverage included the defense either of groundless, false, or fraudulent claims or of "any" suit and the defense of claims for personal injury and wrongful acts. "Personal injury" was defined in the policies either by specific reference to the civil rights provisions of Title 42 of the United States Code or in general terms, such as a "deprivation of any rights, privileges, or immunities secured by the Constitution and Laws of the United States of America, or the State, for which the named insured may be held liable." The insurers conceded that they all have a duty to defend a "personal injury" claim filed under Section 1983, Title 42, U.S.Code. The term "wrongful act" (which included personal injuries) covers a breach of duty that occurs within an officer's scope of employment.

The Federal Complaint

{¶ 8} In the underlying federal action, the following four claims are alleged:

{¶ 9} "Defendant[s] City of Sharonville, Cramer, Nuss, Shappa [sic, Schappa], and Doe(s) have, under color of law, deprived plaintiffs of rights, privileges and immunities secured by the First and Fourteenth Amendment[s] to the United States Constitution, including but not limited to rights of access to courts, equal protection and to due process of law."

{¶ 10} "Defendants have engaged in a conspiracy that continues to this day to destroy evidence and cover-up the role of Albert J. Schuholz in the murder[s] of Marie Wright Schuholz and Starla Burns, and cover-up the role of defendant Cramer who aided Schuholz avoid prosecution, all thereby causing injury to the plaintiffs."

{¶ 11} "Defendants Cramer, Nuss, Schappa, and Doe(s) have willfully destroyed evidence related to the investigation of the death of Marie Schuholz thereby disrupting plaintiff's ability to pursue and present their claims in probate and in other litigation regarding her death."

{¶ 12} "Defendants Cramer, Nuss, Schappa, and Doe(s) have acted intentionally and with malice toward the plaintiffs causing severe emotional distress."

Duty to Defend

{¶ 13} An insurer's duty to defend is broader than and distinct from its duty to indemnify. Socony-Vacuum Oil Co. v. Continental Cas. Co. (1945), 144 Ohio St. 382, 29 O.O. 563, 59 N.E.2d 199, paragraph one of the syllabus; W. Lyman Case & Co. v. Natl. City Corp. (1996), 76 Ohio St.3d 345, 347, 667 N.E.2d 978. An insurer has an absolute duty to defend an action when the complaint contains an allegation in any one of its claims that could arguably be covered by the insurance policy, even in part and even if the allegations are groundless, false, or fraudulent. Sanderson v. Ohio Edison Co. (1994), 69 Ohio St.3d 582, 635 N.E.2d 19, at paragraph one of the syllabus. Once an insurer must defend one claim within a complaint, it must defend the insured on all the other claims within the complaint, even if they bear no relation to the insurance-policy coverage. Preferred Mut. Ins. Co. v. Thompson (1986), 23 Ohio St.3d 78, 80, 23 OBR 208, 491 N.E.2d 688. An insurer need not defend any action or any claims within the complaint when all the claims are clearly and indisputably outside of the contracted policy coverage. Preferred Risk Ins. Co. v. Gill (1987), 30 Ohio St.3d 108, 113, 30 OBR 424, 507 N.E.2d 1118. The duty to defend is further heightened when the insurer expressly states that it will defend claims that are groundless, false, or fraudulent. See Wedge Products, Inc. v. Hartford Equity Sales Co. (1987), 31 Ohio St.3d 65, 67-68, 31 OBR 180, 509 N.E.2d 74; Preferred Risk, supra, at paragraph two of the syllabus. The duty to defend an action is not determined by the action's ultimate outcome or the insurer's ultimate liability. Motorists Mut. Ins. Co. v. Trainor (1973), 33 Ohio St.2d 41, 62 O.O.2d 402, 294 N.E.2d 874, at paragraph two of the syllabus.

{¶ 14} Appellant insurers argue that the federal complaint's allegations describe conduct by the police officers that was outside the scope of their employment (covering up two homicides) and that it is bad public policy to require an insurer to defend intentional acts that are potential crimes or frauds. The insurers also contend that the alleged actions of the Sharonville Police Department in covering up a crime, especially Detective Cramer's actions, cannot be considered activities of law enforcement and that statements made to the victims' families constituted a fraud. The insurers argue that these intentional acts are expressly excluded from coverage as "willful violation[s] of a penal statute or ordinance" or as acts of fraud characterized by "affirmative dishonesty or actual intent to deceive or defraud."³

{¶ 15} Allegations of improper officer activity, with the exception of sexual assaults,⁴ have been held to be within the scope of employment. See McGhee v. Volusia Cty. (Fla.1996), 679 So.2d 729 (genuine issue of fact existed as to whether officer acted within scope of employment when he grabbed a handcuffed arrestee by the throat and kicked him during booking); Daigle v. Portsmouth (1987), 129 N.H. 561, 534 A.2d 689 (officer found to be acting within scope of employment when he assaulted theft suspect, even though officer was off duty,...