United Dept. Stores Co. No. 1 v. Continental Cas. Co., C-860067

• Decision Date: 01 July 1987
• Docket Number: No. C-860067,C-860067
• Citation: 534 N.E.2d 878,41 Ohio App.3d 72
• Parties: UNITED DEPARTMENT STORES COMPANY NO. 1 et al., Appellants, v. CONTINENTAL CASUALTY COMPANY, Appellee.
• Court: Ohio Court of Appeals

Page 72

41 Ohio App.3d 72

534 N.E.2d 878

UNITED DEPARTMENT STORES COMPANY NO. 1 et al., Appellants, v. CONTINENTAL CASUALTY COMPANY, Appellee.

No. C-860067.

Court of Appeals of Ohio, First District, Hamilton County.

July 1, 1987.

Syllabus by the Court

1. Insureds' action against insurer, alleging that insurer acted in bad faith in adjusting damage claims, is essentially a tort action governed by the four-year statute of limitations for torts and is not subject to the contractual limitation period contained in the insurance policy.

2. When there is credible evidence presented at trial to show that the insureds' property damage was caused by lightning, a directed verdict cannot be granted to the insurer on the ground that the damage falls within the policy provisions excluding coverage for "[a]ny electrical injury or disturbance * * * caused by electrical arcing."

Cohen, Todd, Kite & Stanford and Michael J. Boylan, Cincinnati, for appellants.

Rendigs, Fry, Kiely & Dennis, Michael E. Maundrell, Donald C. Adams, Jr., Cincinnati, and John W. Waters, Jr., for appellee.

PER CURIAM.

This cause came on to be heard upon an appeal from the Court of Common Pleas of Hamilton County.

In February 1980, appellants purchased a policy of insurance, issued by appellee, from Herb Kuppin through Thomas E. Wood, Inc. ("Wood Agency") in Cincinnati. The policy covered the Orleans East Apartments located in New Orleans, Louisiana, which are owned by appellants. In April 1980, an endorsement to the policy was issued. The endorsement added the Louisiana standard fire policy as required by Louisiana state law for any insurance policy covering property located in Louisiana. Appellants deny that the policy endorsement was ever delivered to them. Appellants also purchased an insurance policy from Lumberman's Mutual which specifically covered certain machinery at the apartment complex including the air conditioning system.

The central air conditioning system for the Orleans East Apartments was installed at the time the apartments were built (1964-1965). The system utilizes two chillers which circulate cold water for air conditioning to individual apartments. On June 11, 1980, a fire occurred which resulted in damage to the electrical wiring for the chillers. Although the chillers were inoperable while repairs were made to the wiring, they were returned to service in approximately two days.

On August 29, 1980, the apartment complex experienced a power failure. When the power was restored, the chillers could not be restarted. One of the chillers was restarted August 31, 1980. Apparently, the apartments were not adequately air-conditioned until two weeks later when a portable chiller was put into use. Appellants allege that during the period when the apartments were inadequately air-conditioned, several apartments were vacated and re-rentals became difficult.

Appellants notified their insurance agent, Herb Kuppin, of both the June 11 and August 29 occurrences, and submitted various forms documenting their claims for losses. In January 1981, appellee paid appellants $7,335.03 for the June 11, 1980 claim. In a letter dated October 1, 1981, appellee refused further payment of the claims. Resultantly, appellants filed a lawsuit in Louisiana based upon the contract of insurance. In that action, appellee asserted a one-year period of limitation which appellee claimed was contained in the endorsement to the insurance policy. Apparently, the Louisiana action is still pending.

Appellants filed the within action December 29, 1983, alleging bad faith and fraud on the part of appellee in adjusting appellants' claims. A jury trial commenced August 19, 1985. At the close of appellants' case, the court granted appellee's motion for a directed verdict. Appellants filed a motion for a new trial which the trial court denied. Appellants timely appealed. The above factual recitation is intended as an overview of the action sub judice; additional facts will be developed in our discussion of appellants' assignments of error.

Appellants' first assignment of error alleges:

"The trial court erred to the prejudice of the plaintiffs by dismissing the plaintiffs' claims and granting the defendant's motion for directed verdict at the conclusion of the plaintiffs' case."

Initially, appellants argue under their first assignment of error that the trial court erred in determining that the bad-faith claim was barred by the limitation period contained in the policy of insurance.

An insurer has the duty to act in good faith in the handling and payment of the claims of its insured. A breach of this duty will give rise to a cause of action in tort against the insurer. Hoskins v. Aetna Life Ins. Co. (1983), 6 Ohio St.3d 272, 6 OBR 337, 452 N.E.2d 1315, paragraph one of the syllabus. The tort claim is independent of the contract of insurance and is not subject to the limitation period contained in the policy. Plant v. Illinois Employers Ins. of Wausau (1984), 20 Ohio App.3d 236, 20 OBR 297, 485 N.E.2d 773, paragraph three of the syllabus. Appellants' action, alleging that appellee insurer acted in bad faith in adjusting appellants' claims, is essentially a tort action and is governed by the four-year statute of limitations for torts. See Wolfe v. Continental Cas. Co. (C.A. 6, 1981), 647 F.2d 705, certiorari denied (1981), 454 U.S. 1053, 102 S.Ct. 597, 70 L.Ed.2d 588. Therefore, the trial court erred in determining that appellants' claim of bad faith was barred by the limitation period contained in the insurance policy.

Appellants also argue under this assignment of error that the trial court erred in holding that appellee was entitled to a directed verdict under the "arcing exclusion" contained in the policy of insurance.

The policy of insurance provides in pertinent part:

"E. EXCLUSIONS

"This Coverage Part does not insure against loss caused by, resulting from, contributed to or aggravated by any of the following:

"1. Any electrical injury or disturbance to electrical appliances, devices, fixtures or wiring caused by electrical arcing * * *."

At the outset, we note it is clear that the damage which occurred as a result of the June 11, 1980 fire is not excluded from coverage under the "arcing exclusion."

The record reveals that George Lillich, general property manager of the Orleans East Apartments, testified that on August 29, 1980, an electrical storm caused a power outage at the apartment complex. When the power was restored, the chillers could not be restarted. Appellants presented the expert testimony of George A. Hero, an electrical engineer and mechanical contractor, and Joseph E. Leininger, a consulting mechanical engineer. Both Hero and Leininger testified that the August 29 damage to the air conditioning system was caused by lightning striking the power lines serving the apartment complex at some unknown location.

During his testimony, Hero was asked if there was any evidence that arcing could have occurred. Hero stated, "There is damage to the windings from heat and a short that could have been some arcing after the unit was re-energized." Hero further stated, "I believe that the damage occurred at the moment that the lights went out, which is when the lightning stroke would have hit the power lines causing the outage."

Appellee argues that Hero's testimony compels the conclusion that the August 29, 1980 damage is excluded from coverage under the "arcing exclusion." We disagree. Following a complete review of the record, it is clear that Hero's testimony was that the August 29 damage was caused by lightning. Hero did not affirmatively state that any electrical arcing occurred, he merely stated that some arcing may have taken place when the attempt was made to restart the chillers. In addition, Leininger testified that lightning was the cause of the damage which occurred on August 29.

Appellee argues that even if the August 29 damage was caused by lightning, it is excluded from coverage under the "arcing exclusion" because lightning is a form of electrical arcing. We have reviewed the policy of insurance and we find that the "arcing exclusion" does not contemplate lightning damage. We point out that during trial the trial court stated:

"The only reservation I would make is I would think that the electrical arcking [sic ] would mean arcking [sic ] by DC or AC current rather than by lightning."

Under the state of the record, we cannot say reasonable minds could only come to the conclusion that the August 29 damage is excluded from coverage under the "arcing exclusion." Therefore, the trial court erred in holding that appellee was entitled to a directed...