Thomas v. Allstate Ins. Co.

• Decision Date: 31 August 1992
• Docket Number: No. 91-4184,91-4184
• Citation: 974 F.2d 706
• Parties: Shirley J. THOMAS, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 706

974 F.2d 706

Shirley J. THOMAS, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.

No. 91-4184.

United States Court of Appeals, Sixth Circuit.

Argued June 15, 1992.

Decided Aug. 31, 1992.

Kreig J. Brusnahan, Stanley Morganstern (briefed), Lynn B. Schwartz (argued), Cleveland, Ohio, for plaintiff-appellant.

Richard D. Sweebe (argued and briefed), Ulmer & Berne, Cleveland, Ohio, for defendant-appellee.

Before: MARTIN and SUHRHEINRICH, Circuit Judges, and WELLFORD, Senior Circuit Judge.

WELLFORD, Senior Circuit Judge.

This dispute involves a claim by plaintiff, Shirley J. Thomas ("Thomas"), against her insurance carrier, Allstate Insurance Company ("Allstate"), for damages caused by two fires that destroyed her home in Vermilion, Ohio, a town of 11,000 population. Both of the fires, each of strongly suspected incendiary origin, occurred six days apart in January of 1990. Allstate conducted an investigation and learned that it was likely that the damaging fires were of incendiary origin, and that Thomas' son, Jerry, had been in the immediate vicinity at about the time of the second fire. It formally denied coverage in December of 1990 by reason of its suspicion that Thomas had caused the fires.

Thomas sued Allstate in February of 1991 in the Common Pleas Court of Erie County claiming $110,000 in damage to her home and $82,500 in damage to personalty and for loss of use. Thomas also claimed $175,000 for defendant's breach of its policy and refusal to honor Thomas' claim, and $500,000 in punitive damages and fees. The case was removed to federal court based upon diversity of citizenship.

It is undisputed that Thomas finished building the house in question in 1989. At that time, she was living there with her son, her son's wife, and their new baby. Shortly after Christmas of 1989, everyone living in the home moved to West Virginia with Bill Cain, ¹ whom Thomas considered her "common law husband."

Thomas claimed that she had spent $110,000 in building her home in Vermilion, yet upon its completion, she bought fire insurance with Allstate worth $85,000. Her later explanation was that this amount covered only the materials in the home. Within a month before the fires, she placed the home for sale and increased her insurance coverage to $110,000. The house was on low ground, and during construction it experienced drainage problems. Thomas disputed with her neighbor about the manner of correcting the drainage problem. She also had problems with the original contractor and fired him from the job before completion.

While Thomas had steady income, she was not free from debt. Her live-in son, Jerry, was on welfare and apparently had no other means of support during late 1989 and early 1990. In December, 1989, Bill Cain had been laid off and his unemployment benefits expired during the month of the final fire. In January, 1990, Thomas was making payments on two vehicles, totalling about $566, and either Thomas or Cain began making payments on a West Virginia home.

Cain testified that Thomas told him that it cost her between $95,000 and $100,000 to build the house in Vermilion, and he conceded that he told the investigating fire marshall that the figure was between $80,000 and $95,000. The latter range is in conformity with the original insurance coverage. About her unemployed son, age nineteen, Thomas conceded that "Jerry is not real, real smart, he doesn't take instruction or whatever real well, so, and Jerry is real forgetful.... Jerry had gotten into a couple of fights at school and like that...." ² Jerry's young wife was also unemployed, but Jerry denied that his mother was supporting him and his family.

Thomas had borrowed money to finish construction of the house in question, having previously taken out a loan to buy her brother's house in Vermilion for $50,000. The rental payment she received on her brother's former house concededly did not cover her costs in that house. She put the other property up for sale at about the time she moved to West Virginia for less than what she had paid for it. (At trial, Thomas was evasive about her asking price and the appraised price.) Thomas also conceded that there was a mechanic's lien outstanding on the house in dispute at the time of the fires.

Allstate moved for summary judgment, asserting that the breach of contract claim was barred by the policy's one-year time limitation, and that it was "reasonably justified" in denying Thomas' claim. The district court granted defendant's motion, and Thomas appeals, relying on a statutory limit for bringing the breach of contract claim, and claiming that there were genuine material issues of fact on her bad faith claim.

We review a grant of summary judgment de novo, and we recognize the "new era" standard for scrutinizing motions for summary judgment. McAdoo v. Dallas, 932 F.2d 522, 523 (6th Cir.1991); Street v. J.C. Bradford & Co., 886 F.2d 1472, 1476 (6th Cir.1989). Summary judgment is appropriate when the evidence, viewed in a light most favorable to the non-movant, shows that no genuine issue of material fact exists and that the movant is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-323, 106 S.Ct. 2548, 2552-2553, 91 L.Ed.2d 265 (1986); Canderm Pharmacal, Ltd. v. Elder Pharmaceuticals Inc., 862 F.2d 597, 601 (6th Cir.1988).

I. LIMITATIONS BAR

Ohio Revised Code § 2305.06 (1991) provides:

Except as provided in section 1302.98 of the Revised Code, an action upon a specialty or an agreement, contract, or promise in writing shall be brought within fifteen years after the cause thereof accrued.

Under Ohio case law, however, parties to a contract may agree to shorten the fifteen-year time limitation in which to sue, provided that the fixed period of limitation is reasonable. Appel v. Cooper Ins. Co., 76 Ohio St. 52, 80 N.E. 955 (1907); see also Colvin v. Globe American Casualty Co., 69 Ohio St.2d 293, 23 O.O.3d 281, 432 N.E.2d 167 (1982); Hounshell v. American States Ins. Co., 67 Ohio St.2d 427, 21 O.O.3d 267, 424 N.E.2d 311 (1981). "To reduce the time for suit provided by the statute of limitations, an insurance policy must be written in terms that are clear and unambiguous to the policyholder." Lane v. Grange Mutual Companies, 45 Ohio St.3d 63, 64, 543 N.E.2d 488, 489 (1989).

The policy in question provided:

15. Suit Against Us

No suit or action may be brought against us unless there has been full compliance with all the policy terms. Any suit or action must be brought within one year after the date of loss.

(emphasis added). Thomas argues that the "time-to-sue" provision must be read in conjunction with another policy provision:

Conformity to State Statutes

When the policy provisions are in conflict with the statutes of the state in which the residence premises is located, the provisions are amended to conform to such statute.

Thomas raises three arguments to avoid the contractual one-year limitation. First, she argues that because the "time-to-sue" provision conflicts with Ohio Rev.Stat. § 2305.06, then that provision must conform to the 15-year statute of limitations pursuant to the "conformity" provision. Next, she claims that, due to the difficult "conformity" provisions quoted, the insurance policy is ambiguous as to the time limitation for suit. Finally, Thomas contends that the one-year time limitation in the contract is unreasonable.

The defendant responds that the contractual provisions, read in conjunction, are not "in conflict" and are not ambiguous. The defendant cites a Tennessee case involving the same policy provisions, Smith v. Allstate Insurance Co., No. 92364-Q, 1987 WL 30150 (Tenn.Ct.App. Dec. 30, 1987), that decided this issue in favor of the defendant insurance company:

We find no merit to plaintiff's argument. While the limitation period as provided for in the policy is different from that provided for by the statutes of this state, they are not "in conflict." The law in Tennessee is simply to the effect that absent an agreement to the contrary, any aggrieved party has six years to sue for the enforcement of a contract.... Language pertaining to conformity is obviously in the insurance contract to accommodate any jurisdiction that may have a statutory provision prohibiting language in an insurance contract restricting the time in which suit might be filed.

Smith, slip op. at 2-3. Similarly, the defendant argues that the "time-to-sue" provision in this insurance contract is not "in conflict" with the statutory limitations period, since Ohio case law clearly allows parties to contract for a shorter time limitation.

We find the reasoning of the Tennessee court in Smith to be a proper resolution of the similar issues in this case. The "conformity" provision simply emphasizes that parties cannot contract to do that which the state legislature has forbidden. For example, as pointed out in Smith, if Ohio had a statute that clearly prohibited parties from shortening the time in which a party could bring suit on a contract, then any provision in the contract that purported to shorten a statute of limitations would be resolved in favor of the statutory limitation. See Interstate Life & Accident Co. v. Hunt, 171 Tenn. 119, 100 S.W.2d 987 (1937). Ohio does not have a statute that prohibits parties from contractually shortening the time to sue. On the contrary, "provisions limiting the time within which suit shall be brought are universally sustained by the courts...." Appel, 76 Ohio St. at 61, 80 N.E. at 958; Bartley v. National Businessmen's Association, 109 Ohio St. 585, 589, 143 N.E. 386, 387 (1924).

We further conclude that the insurance policy at issue is not ambiguous. The "conformity" provision is only applicable where the contract is "in conflict" with a state statute. Because the "time-to-sue" provision is not "in conflict" with Ohio Rev.Code § 2305.06 (or any other Ohio statute), the...