CHAPTER 7

• Jurisdiction: United States

CHAPTER 7

Conditions, Warranties, and Exclusions

A. Conditions

The word “condition” in contract law refers to an event, the occurrence or non-occurrence of which alters the previously existing relations of the parties by creating or extinguishing a legal duty. The condition in an insurance policy imposes duties on the insured (the promisor) and gives a corresponding right to the insurer (the promisee). Breach of a condition in an insurance policy gives the insurer legal justification for refusing to perform its obligations under the policy.

As you read the following case identify the conditions in the policy that were at issue and if there were sufficient facts to allow an insurer to prove that the conditions were breached.

MBE Collection, Inc. v. Westfield Cos., Inc.
No. 79585 (Ohio App. Apr. 18, 2002)

The appellant, MBE Collections (MBE), appeals the decision of the Cuyahoga County Court of Common Pleas in granting motions for summary judgment for Westfield Companies, Inc. (Westfield) and James B. Oswald Company (Oswald). For the reasons set forth below, we affirm the decision of the trial court. The appellant, MBE, was formerly owned and operated by Marsha Everett. On or about July 12, 1996, MBE purchased a Westfield insurance policy through Oswald. The policy was in effect from June 17, 1996 through June 17, 1997. On or about August 12, 1997, MBE renewed the Westfield policy for the period of June 17, 1997 through June 17, 2000.

On or about June 22, 1998, MBE received a cease and desist letter from Ty, Inc., the manufacturer of Beanie Babies, which requested MBE to stop manufacturing and selling certain Charmies products as they bear a resemblance to the Beanie Babies manufactured and sold by Ty, Inc. The letter claimed that MBE was using the Beanie Baby image to promote the selling of the Charmies and that their continued use of the likeness is in direct violation of Ty, Inc.’s copyrighted images and trademark.

One month later, the president of MBE, Marsha Everett, contacted the office of the Oswald Company and spoke with an account manager by the name of Betsy Harting. Ms. Harting testified that the conversation regarded a price quote for patent/copyright insurance coverage, and her testimony is supported by her telephone records for that day. However, Ms. Everett stated that during the conversation, she read the portions of the cease and desist letter to Ms. Harting and further asked if her company’s insurance policy covered copyright infringement claims. Ms. Everett further claims that she was informed at that point that MBE’s policy did not provide for such coverage; however, Ms. Everett continued to believe she was, in fact, covered throughout the period of the suit with Ty, Inc. Ms. Everett stated that she reviewed the policy several times and always concluded that the company was, in fact, covered for copyright violations. In August 1998, MBE received a formal complaint which had been filed by Ty, Inc. in the United States District Court for the Northern District of Illinois, claiming violations of copyright infringements and unfair competition. Ms. Everett retained counsel to defend against the lawsuit without sending a copy of the complaint or any subsequent filings to the Oswald Company or Westfield. At no time did MBE send any type of a written inquiry to either Oswald or Westfield regarding the extent of coverage under the policy as it would pertain to the Ty, Inc. lawsuit.

In December 1998, MBE decided to settle with Ty, Inc. in exchange for the payment of $600,000 and the discontinued sale of all items alleged by Ty, Inc. to be in copyright violation.

On or about June 21, 1999, MBE contacted Ms. Harting at Oswald Company informing her that they had settled a lawsuit with Ty, Inc. in December 1998. Ms. Harting contends that this was the first time MBE had apprised Oswald of the Ty, Inc. lawsuit. Ms. Harting immediately informed the claims department of the lawsuit and settlement. The claims manager then contacted MBE for a copy of the complaint and the subsequent settlement agreement. MBE produced only a copy of the settlement agreement, which Oswald then forwarded to Westfield for the claim.

Westfield investigated the claim by MBE and on November 3, 1999, informed them that coverage of the lawsuit was denied for failure to comply with the express notice provisions of the policy.

MBE then filed the current action alleging breach of written contract, negligence and bad faith. The appellees, Westfield and Oswald, both filed motions for summary judgment, which were granted by the trial court. MBE now appeals those decisions of the trial court and asserts the following assignments of error:

I. THE TRIAL COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT FAILED AS A MATTER OF LAW TO PROVIDE REASONABLE NOTICE OF AN INSURANCE CLAIM TO DEFENDANT-APPELLEE UNDERWRITER WHEN PLAINTIFF’S DELAY IN COMPLYING WITH WRITTEN NOTICE AND PROOF OF LOSS REQUIREMENTS WAS CAUSED BY THE UNDERWRITER’S AGENT INCORRECTLY TELLING PLAINTIFF THAT THE CLAIM WAS NOT COVERED BY THE INSURANCE POLICY.

II. THE TRIAL COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT’S NEGLIGENCE CLAIM AGAINST DEFENDANT-APPELLEE INSURANCE AGENT WAS BARRED BECAUSE PLAINTIFF DID NOT NAME AN EXPERT WITNESS TO TESTIFY TO THE STANDARD OF CARE FOR INSURANCE AGENTS AFTER DEFENDANT DID NAME SUCH AN EXPERT.

We will first address appellant’s second assignment of error wherein MBE contends that the trial court erred in granting Oswald’s motion for summary judgment because the appellant failed to produce an expert report to establish that Oswald breached any legal duty or standard of care.

The standard of review for an appellate court on a lower court’s granting of summary judgment is de novo. De novo review means that this court uses the same standard that the trial court should have used, and we examine the evidence to determine if as a matter of law no genuine issues exist for trial. Brewer v. Cleveland Bd. of Edn., 122 Ohio App.3d 378 (1997); citing Dupler v. Mansfield Journal Co., 64 Ohio St.2d 116, 119-120 (1980).

Summary judgment is appropriate where it appears that (1) there is no genuine issue as to any material fact; (2) the moving party is entitled to judgment as a matter of law; and (3) reasonable minds can come to but one conclusion, and that conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in his favor. Harless v. Willis Day Warehousing Co., 54 Ohio St. 2d 64, 66 (1978); Civ. R. 56(C).

The movant possesses the burden of establishing that no genuine issue of material fact exists. This burden must be satisfied by specifically producing evidence contained within the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence, and written stipulations, which demonstrate the nonmoving party’s lack of support toward his claims. Dresher v. Burt, 75 Ohio St. 3d 280, 293 (1996).

It is well established in Ohio that liability and negligence will not lie in the absence of a duty owed by the defendant. Nielsen Enterprises, Inc. v. Ins. Unlimited Agency, Inc., Franklin App. No. 85AP-781, unreported, 1986 Ohio App. LEXIS 6754, at 6 (Ohio Ct. App. May 8, 1986), citing Gelbman v. Second Natl. Bank of Warren, 9 Ohio St. 3d 77, 78 (1984). In regard to the actions of an insurance agent, this court has held that an insurance agent has a duty to exercise good faith and reasonable diligence in obtaining insurance requested by a customer, and in advising the customer who relies on the agency’s expertise. Lawson v. Ohio Cas. Ins. Co., Cuyahoga App. No. 65336, unreported, 1994 Ohio App. LEXIS 2367, at 7 (June 2, 1994), citing First Catholic Slovak Union of U.S. & Canada v. Buckeye Union Ins. Co., 27 Ohio App. 3d 169 (1986). This court has also found it necessary to establish the standard of care of an insurance agent through expert testimony; expert testimony is appropriate to establish the standard of care of an insurance agent. Lawson, supra 8, citing Frank W. Schaefer, Inc. v. C. Garfield Mitchell Agency, Inc., 82 Ohio App. 3d 322 (1992).

In this case, the appellant filed a brief in opposition to the parties’ motions for summary judgment which failed to include any form of evidence which would indicate that the insurance agent breached the appropriate standard of care. Therefore, even assuming Ms. Everett’s description of the conversation with the agent was correct, MBE failed to show that the agent’s conduct was in breach of the standard of care. Appellant’s second assignment of error is without merit.

In appellant’s first assignment of error, MBE maintains that the trial court erred when it concluded that appellant failed as a matter of law to provide Westfield the proper notice necessary under the appellant’s insurance contract to file a claim for reimbursement.

The insurance policy provides in part:

2. Duties in the event of occurrence, offense, claim or suit

a. You must see to it we are notified as soon as practicable of an occurrence or an offense which may result in a claim. To the extent possible, notice should include:

(1) How, when and where the occurrence or offense took place;

(2) The names and addresses of any injured persons and witnesses; and

(3) The nature and location of any injury or damage arising out of the occurrence or offense.

b. If a claim is made or suit is brought against any insured, you must:

(1) Immediately record the specifics of the claim or suit and the date received; and

(2) Notify us as soon as possible. . . .

A notice provision is a requirement that goes to the very essence of an insurance contract. Felicity-Franklin Local Sch. Dist. Bd. Of Educ. v. Nationwide Mut. Ins. Co., 56 Ohio Misc. 2d 19 (Com. Pl. 1989), citing Zurich Ins. Co. v. Valley Steel Erectors, 13 Ohio App. 2d 41 (1963). The notice provision in an insurance contract acts as a condition precedent. A party claiming...