Buckeye Union Insurance v. New England Insurance

BUCKEYE UNION INSURANCE COMPANY, RESPONDENT, v. NEW ENGLAND

INSURANCE COMPANY, PETITIONER.

[Cite as Buckeye Union Ins. Co. v. New England Ins. Co. (1999), 87 Ohio St.3d

280.]

Insurance — Insurer found guilty of bad faith with actual malice in failing to settle

a tort case against its insured — Such conduct does not constitute the type of

intentional tort that is uninsurable under Ohio law.

(No. 98-1268 — Submitted March 10, 1999 — Decided December 22, 1999.)

ON ORDER from the United States Court of Appeals for the Sixth Circuit Certifying

Questions of State Law, No. 97-3356.

Buckeye Union Insurance Company (“Buckeye”) brought this underlying

action in federal district court to recover under a professional liability insurance

policy issued to it by New England Insurance Company (“New England”).

Pursuant to the policy, New England agreed to indemnify Buckeye as to any:

“(A) Loss which the Insured shall become legally obligated to pay, from any

claim made against the Insured during the Policy Period, by reason of any act,

error or omission committed or alleged to have been committed in the rendering of

or the failing to render professional services.

“(B) Costs and expenses incurred by the Insured in the defense of any claim

for which coverage is provided by this Policy.”

The policy contained an exclusion from coverage that set forth that “this

Insurance shall not cover any Insured whose personal dishonesty, fraudulent

breach of trust, or intention to deceive or defraud has been finally adjudicated or

may be established.”

The policy is at issue because of events that began to unfold over twenty

years ago. Various incarnations of the case have been winding their way through

the legal system since then—one aspect was decided by this court in Leber v. Smith
(1994), 70 Ohio St.3d 548, 639 N.E.2d 1159 (“Leber II”), which more fully sets

forth the underlying facts. Briefly, on April 7, 1979, Erie County Deputy Steven

Smith, while attempting to apprehend Eugene Leber, accidentally shot Leber,

rendering him a paraplegic. In June 1983, Leber and his parents filed a personal

injury action in the Erie County Court of Common Pleas against Deputy Smith, the

Sheriff of Erie County, and the Board of Commissioners of Erie County (“Board”).

(“Leber I”)

At the time of the accident, the Sheriff’s department was insured by

American Home Assurance Company, while the Board and its employees were

insured by Buckeye.

Prior to the trial, the Lebers offered to settle for the limits of both insurance

policies. Buckeye refused the settlement offer, claiming that the Board was not

liable to the Lebers, since Smith was not an employee of the Board. The trial jury

found that both Deputy Smith and the Sheriff were negligent, and awarded the

Lebers damages in the amount of $10,390,000, which the trial judge remitted to

$10,150,000. The trial judge also ruled that the Board was vicariously liable as a

matter of law.

Both sides appealed the verdict but dismissed the appeals when they reached

a settlement agreement. As part of the settlement agreement, the Board assigned

its indemnity rights against Buckeye to the Lebers.

Leber, as the Board’s assignee, then sued Buckeye for bad-faith refusal to

settle Leber’s claim against the Board (“Leber II”). The jury in that case returned a

verdict against Buckeye, finding in jury interrogatories that “Buckeye Union

Insurance Company’s conduct in failing to settle the Leber’s [sic] claims was

motivated by actual malice,” and that Buckeye’s conduct “imported a dishonest

purpose, moral obliquity, conscious wrongdoing, breach of a known duty through

some ulterior motive or ill will partaking of the nature of fraud or embracing actual

2
intent to mislead or deceive another.” The trial court entered a total judgment of

$13,336,232.80 against Buckeye.

Buckeye launched a successful appeal. The court of appeals reversed the

trial court, holding that since Buckeye’s insured was not liable for the injury

caused by Deputy Smith, Buckeye could not have acted in bad faith in refusing to

settle the Lebers’ claim. This court, however, reversed the court of appeals and

reinstated the jury verdict against Buckeye.

On December 14, 1994, Buckeye paid $23,044,279.28 to the Lebers, which

included $9,708,046.48 in postjudgment interest. After paying the Leber judgment

in full in December 1994, Buckeye made a claim for reimbursement under the

professional liability policy issued by New England. New England refused the

claim. On April 27, 1995, Buckeye brought the present underlying suit in the

United States District Court for the Northern District of Ohio against New

England, seeking a declaration of coverage under the policy and seeking damages

for New England’s breach of contract.

Both parties filed motions for summary judgment. The judge granted New

England’s motion, ruling that the Leber II jury verdict and interrogatory answers

judicially established that Buckeye had committed an intentional tort with an intent

to injure, therefore precluding any insurance coverage.

Buckeye appealed to the Sixth Circuit Court of Appeals. That court has

certified three questions to this court:

“1. When an insurance company is found by Ohio courts to be guilty of ‘bad

faith’ with ‘actual malice’ because it failed to settle a tort case against its insured,

does such conduct constitute the type of intentional tort that is uninsurable under

Ohio law?

“2. Does such a finding of bad faith with actual malice collaterally estop

Buckeye from litigating this case?

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 “3. Under Ohio law does an exclusion in an insurance policy barring

coverage for personal dishonesty, fraudulent breach of trust, intention to deceive,

or intent to defraud embrace an insurer’s bad faith with actual malice caused by its

failure to settle a tort case?”

__________________

Squire, Sanders & Dempsey, L.L.P., and David J. Young; Chester, Wilcox &

Saxbe, L.L.P., and John J. Chester, for respondent.

Thompson, Hine & Flory, L.L.P., and Bruce M. Allman; Louis G. Adolfsen

and S. Dwight Stephens, pro hac vice, for petitioner.

__________________

PFEIFER, J. We answer the certified questions thusly: (1) No, (2) No, and

(3) We decline to answer.

Question 1

“When an insurance company is found by Ohio courts to be guilty of ‘bad

faith’ with ‘actual malice’ because it failed to settle a tort case against its insured,

does such conduct constitute the type of intentional tort that is uninsurable under

Ohio law?”

We find that an insurer found to be guilty of bad faith with actual malice in

failing to settle a tort case against its insured is not necessarily guilty of the type of

intentional tort that is uninsurable under Ohio law.

Not all intentional torts are uninsurable in Ohio. Ohio law, on public policy

grounds, generally prohibits liability insurance from covering damage caused by

intentional torts. Gearing v. Nationwide Ins. Co. (1996), 76 Ohio St.3d 34, 38, 665

N.E.2d 1115, 1118; Harasyn v. Normandy Metals, Inc. (1990), 49 Ohio St.3d 173,

176, 551 N.E.2d 962, 965.

But intentional acts sometimes lead to unintentional harms. In Harasyn, this

court discussed the different levels of intent involved with intentional acts. “The

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first level, * * * ‘direct intent,’ is where the actor does something which brings

about the exact result desired. In the second, the actor does something which he

believes is substantially certain to cause a particular result, even if the actor does

not desire that result.” Harasyn, 49 Ohio St.3d at 175, 551 N.E.2d at 964. The

court concluded that insurance coverage should be prohibited only for direct-intent

torts.

In Physicians Ins. Co. of Ohio v. Swanson (1991), 58 Ohio St.3d 189, 569

N.E.2d 906, syllabus, this court held that “[i]n order to avoid coverage on the basis

of an exclusion for expected or intentional injuries, the insurer must demonstrate

that the injury itself was expected or intended.” In Swanson, the insured fired a BB

gun toward a group of children. While he intended to shoot the gun, he did not

intend to hit any of the children. This court held that the insurer must provide

coverage to the shooter for injuries one of the children suffered.

Thus, an intent to injure, not merely an intentional act, is a necessary

element to uninsurability. Whether the insured had the necessary intent to cause

injury is a question of fact. Swanson, 58 Ohio St.3d at 193, 569 N.E.2d at 911. In

very limited instances, this court has held that the intent to injure can be inferred as

a matter of law under certain circumstances. In Preferred Risk Ins. Co. v. Gill

(1987), 30 Ohio St.3d 108, 30 OBR 424, 507 N.E.2d 1118, intent to injure was

inferred from the defendant’s criminal conviction for aggravated murder, an

essential element of which is that the perpetrator intended to cause the death. In

Gearing, this court held that the intent to injure could be inferred from the

insured’s plea of guilty to charges involving the sexual molestation of minors. The

court reasoned that the act and the harm are so intertwined in regard to molestation

of children that to intend the act is also to intend the harm.

In both of the above cases, insureds were found to have committed wrongful

acts, acts that are intentionally injurious by definition. Here, Buckeye claims to

5
have intended to assert what it believed were its rights under an insurance contract.

In certain circumstances, insurers are perfectly right to take such a stand. Murder

and molestation do not enjoy similar sometime rectitude, and we therefore will not

place failure to settle an insurance claim on their same plane. This court does not

infer specific intent to injure from an act of contract interpretation.

Therefore, in this case we apply the normal standard of determining intent to

injure, a factual determination relating to this unique case. A jury has already

spoken somewhat to Buckeye’s conduct. Our duty is to determine whether the jury

found that Buckeye had committed a direct-intent tort. New England argues that

the jury expressed that finding in three ways: through the general verdict of bad

faith, through its interrogatory answer regarding bad faith, and through its

interrogatory answer regarding actual malice. We disagree.

When the Leber II litigation commenced in 1987, the standard for bad-faith

failure to settle an insurance claim was that contained in Slater v. Motorists Mut.

Ins. Co. (1962), 174 Ohio St. 148, 21 O.O.2d 420, 187 N.E.2d 45. The second

paragraph of the syllabus in Slater set forth the standard:

“A lack of good faith is the equivalent of bad faith, and bad faith, although

not susceptible of concrete definition, embraces more than bad judgment or

negligence. It imports a dishonest purpose, moral obliquity, conscious

wrongdoing, breach of a known duty through some ulterior motive or ill will

partaking of the nature of fraud. It also embraces actual intent to mislead or

deceive another.”

The jury instructions in Leber II contained the above language from the

Slater syllabus. However, the instructions also contained language from Hoskins

v. Aetna Life Ins. Co. (1983), 6 Ohio St.3d 272, 6 OBR 337, 452 N.E.2d 1315, a

case that applied a “reasonable justification” standard for bad-faith claims. This

court in Hoskins stated that “when an insure[r] insists that it was justified in

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refusing to pay a claim of its insured because it believed there was no coverage of

the claim, ‘ * * * such a belief may not be an arbitrary or capricious one. The

conduct of the insurer must be based on circumstances that furnish reasonable

justification therefor.’ “ Hoskins at 277, 6 OBR at 341, 452 N.E.2d at 1320. The

above Hoskins language also appeared in the jury instruction on bad faith in Leber

II.

Intent as a necessary aspect of bad faith is missing from both Hoskins and

Slater. As this court stated in Zoppo v. Homestead Ins. Co. (1994), 71 Ohio St.3d

552, 554, 644 N.E.2d 397, 399, “the element of intent had been noticeably absent

from this court’s definition of when an insurer acts in bad faith” until this court’s

decision in Motorists Mut. Ins. Co. v. Said (1992), 63 Ohio St.3d 690, 590 N.E.2d

1228.

While the Slater language in the jury instruction does mention intent, it is

not described as a necessary element of bad faith. The Hoskins language is

completely void of intent. And in no case is the intent to injure an elemental part

of bad faith. Thus we do not determine that the jury found an intent to injure in

arriving at its verdict of bad faith.

The Slater language arises again in this case in jury Interrogatory No. 4.

The question mimics the Slater language from the jury instruction, and asks:

“Do you find, by a preponderance of the evidence, that the Buckeye Union

Insurance Company’s conduct at any time imported a dishonest purpose, moral

obliquity, conscious wrongdoing, breach of a known duty through some ulterior

motive or ill will partaking of the nature of fraud or embracing actual intent to

mislead or deceive another.”

The jury responded affirmatively to the interrogatory. The jury did not

break down all of the listed instances of what might constitute bad faith. The only

certainty we can derive from the response is that the jury found that Buckeye’s

7
conduct imported one of the following: (1) a dishonest purpose, (2) moral

obliquity, (3) conscious wrongdoing, (4) breach of a known duty through some

ulterior motive, or (5) ill will partaking of the nature of fraud or embracing actual

intent to mislead or deceive another. While intent may be assumed from any of the

five instances of bad faith, only the fifth instance contains an element of intent to

injure. For example, this court has stated that conscious wrongdoing “requires the

party to possess knowledge of the harm that might be caused by his behavior.”

Preston v. Murty (1987), 32 Ohio St.3d 334, 335, 512 N.E.2d 1174, 1176.

Knowledge of the harm that might befall another is entirely different from that

harm being the motivating factor for one’s behavior. We cannot assume from the

jury’s response that it found an intent by Buckeye to injure.

Interrogatory No. 3 is also offered by New England as proof of Buckeye’s

direct intent. That interrogatory reads as follows:

“Do you find, by a preponderance of the evidence that the Buckeye Union

Insurance Company’s conduct in failing to settle the Leber’s [sic] claims was

motivated by actual malice.”

The jury responded “Yes.” Again, we must look to the jury instructions and

to case law to determine the significance of that response. The jury was instructed

as follows:

“Malice in the law is the intentional or unlawful design to injure another

without just cause or proof occasion [sic]. The term malice not only includes an

intentional act, an intent to cause harm to another party, but also encompasses

conduct evidenced by callous and conscious disregard of the rights of another.

Actual malice, which is the basis upon which punitive damages may be awarded,

may be inferred from intentional acts which cause injury or damage to another.

“Punitive damages may be awarded in a case involving bad faith claims

against insurance companies upon proof of malice, fraud or insult by the insurance

8
company. Malice may also take the form of the defendant’s expressed ill will,

hatred or spirit of revenge or from willful or wanton behavior inferred from the

conduct and the surrounding circumstances. * * *” (Emphasis added.)

A key statement in the jury instruction is that “[t]he term malice not only

includes an intentional act, an intent to cause harm to another party, but also

encompasses conduct evidenced by callous and conscious disregard of the rights of

another.” (Emphasis added.) That is an accurate statement of the law in Ohio.

The syllabus in Preston holds that malice can be found where there is either

conduct “characterized by hatred, ill will or a spirit of revenge, or * * * a

conscious disregard for the rights and safety of other persons that has a great

probability of causing substantial harm.”

The jury instruction sets forth several bases for a finding of actual malice:

(1) callous and conscious disregard for the rights of others, (2) expressed ill will,

hatred, or revenge, or (3) willful or wanton behavior. In regard to wanton conduct,

this court has held that “[i]t is not necessary that an injury be intended or that there

be any ill will on the part of the actor toward the person injured as a result of such

conduct.” Tighe v. Diamond (1948), 149 Ohio St. 520, 526, 37 O.O. 243, 246, 80

N.E.2d 122, 126.

Moreover, the instruction stated that malice could be inferred from

intentional acts that result in injury. As we have noted above, intentional acts that

result in injury are not necessarily direct-intent torts, i.e., torts committed with an

intent to injure. Whether there was an intent to injure is the relevant inquiry, and it

is an inquiry left unresolved by a finding of malice in this case.

Clearly, the jury’s finding of actual malice was presented within the context

of whether Buckeye should be liable for punitive damages. “Actual malice is

necessary for an award of punitive damages, but actual malice is not limited to

cases where the defendant can be shown to have had an ‘evil mind.’ “ Cabe v.

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Lunich (1994), 70 Ohio St.3d 598, 601, 640 N.E.2d 159, 162. We find that in

deciding that Buckeye acted with actual malice the jury did not necessarily find

that Buckeye acted with an “evil mind,” i.e., with an intent to injure.

Since the jury did not specifically find that Buckeye acted with an intent to

injure, Buckeye’s bad-faith failure to settle the insurance claim was itself not

necessarily an uninsurable act. New England’s attempt to make bad faith and

malice equal intent to injure is misplaced and also affects our resolution of the

second question posed by the federal court.

Question 2

“Does such a finding of bad faith with actual malice collaterally estop

Buckeye from litigating this case?”

We find that the jury’s finding of bad faith with actual malice does not

collaterally estop Buckeye from litigating this case. Our reasoning is similar to

that in our response to the above question. New England is trying to expand the

meaning of bad faith and actual malice to necessarily include the intent to injure.

Due process requires a party asserting collateral estoppel to prove that the

identical issue was (1) actually litigated, (2) directly determined, and (3) essential

to the judgment handed down in the prior action. Goodson v. McDonough Power

Equip., Inc. (1983), 2 Ohio St.3d 193, 201, 2 OBR 732, 739, 443 N.E.2d 978, 985.

The issue to be litigated in this case is whether Buckeye acted with the direct

intent to injure. The issue in this case is not whether Buckeye acted in bad faith

and with actual malice such that it is liable for punitive damages. Thus, the issues

litigated in the two cases are not identical. Certainly then, we cannot conclude that

the issue of Buckeye’s intent was directly determined.

Also, the jury’s finding of actual malice was not essential to the prior

judgment. The jury’s finding of bad faith was not dependent on a finding of

malice. Malice was relevant only toward the issue of punitive damages, which the

10
jury did not award. The jury’s interrogatory response thus became irrelevant in

Leber II. It was not a part of the judgment—the judgment against Buckeye would

have been the same whether the question had been asked or not.

Thus, we conclude that the jury’s finding of bad faith with actual malice

does not estop Buckeye from litigating this case.

Question 3

“Under Ohio law does an exclusion in an insurance policy barring coverage

for personal dishonesty, fraudulent breach of trust, intention to deceive, or intent to

defraud embrace an insurer’s bad faith with actual malice caused by its failure to

settle a tort case?”

We decline to answer the third certified question. It is a question properly

resolved at the trial level.

Judgment accordingly.

MOYER, C.J., concurs.

COOK and LUNDBERG STRATTON, JJ., concur in judgment only.

DOUGLAS, RESNICK and F.E. SWEENEY, JJ., concur in part and dissent in

part.

__________________

COOK, J., concurring in judgment only. I concur with the majority’s

outcome as to each of the three issues certified by the Sixth Circuit Court of

Appeals. I write separately, however, because I disagree with the majority’s

analysis of each of the issues.

I

Though the majority correctly resolves the first certified issue, I believe that

its analysis misconstrues Ohio law by overlooking the standard set forth in

Gearing v. Nationwide Ins. Co. (1996), 76 Ohio St.3d 34, 665 N.E.2d 1115.

A

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 The Sixth Circuit has asked us to determine under current Ohio law whether

an insured’s bad-faith refusal to settle is the type of intentional tort that is excluded

from insurance coverage under public policy. Rather than deciding this question

under Gearing, this court’s most recent pronouncement on the issue, the majority

returns to a standard set forth ten years ago in Harasyn v. Normandy Metals, Inc.

(1990), 49 Ohio St.3d 173, 551 N.E.2d 962. Such an approach incorrectly states

the law and summarily erases the strides taken in Gearing towards a more

reasonable and appropriate analysis of the insurability of intentional torts.

My differences with the majority’s analysis can best be understood by

examining three decisions reached by this court over the last decade. The first is

Harasyn, where the court announced a distinction between “direct-intent” torts

and “substantial-certainty” torts for purposes of insurance coverage. To arrive at

the distinction, the court first acknowledged the fundamental public policy

principle that intentional torts are excluded from insurance coverage. Intentional

torts, however, encompass “two different levels of intent.” Id. at 175, 551 N.E.2d

at 964. The first level, referred to as direct intent, “is where the actor does

something which brings about the exact result desired. In the second level, the

actor does something that he believes is substantially certain to cause a particular

result, even if the actor does not desire that result.” Id. Having clarified the two

levels of intent, the Harasyn court concluded that public policy excludes from

insurance coverage only direct-intent torts.

Consideration of the intentional-tort issue continued in Physicians Ins. Co.

of Ohio v. Swanson (1991), 58 Ohio St.3d 189, 569 N.E.2d 906. There, the

Swanson court concluded that an insured who fired at a group of people seventy

feet away causing severe injuries, but who testified that he did not mean to hurt

anyone, did not have the level of necessary intent to exclude his actions from

coverage. Thus, Swanson, for the most part, continued the Harasyn-type analysis,

12
requiring evidence of direct intent to injure before an act would be excluded from

coverage. In its conclusion, however, the Swanson court opened the door for its

upcoming decision in Gearing: “In this case the exclusion is inapplicable because

the trial court’s determination that Todd Baker’s injury was not intentionally

inflicted or substantially certain to occur is supported by competent, credible

evidence.” Id. at 193-194, 569 N.E.2d at 911. Unlike Harasyn, Swanson implied

that substantial-certainty torts are excluded from insurance coverage. Because

actual application of this substantial-certainty prong of the test was missing from

Swanson, however, we were left to assume that the facts in that case did not reach

the substantial-certainty level.

In our most recent case on this issue, Gearing v. Nationwide Ins. Co., supra,

we more fully developed the substantial-certainty suggestion contained in

Swanson. In Gearing, we expanded the intentional-tort exclusion beyond direct-

intent torts, outlining a two-part analysis. The first part, as in Harasyn, requires

subjective consideration of the tortfeasor’s direct intent. Where direct intent does

not exist, however, the analysis proceeds to the second step, which considers

objectively whether the tortfeasor’s intentional act was substantially certain to

cause injury. In such instances “determination of an insured’s subjective intent, or

lack of subjective intent, is not conclusive of the issue of coverage.” Id., 76 Ohio

St.3d at 39, 665 N.E.2d at 1119. Rather, where substantial certainty exists, intent

to harm will be inferred as a matter of law.

As the last case decided on this issue, Gearing represents current Ohio law.

But instead of following Gearing, the majority resurrects the Harasyn view that

direct-intent torts are excluded from coverage while substantial-certainty torts are

not. Apparently recognizing that this approach alone is insufficient, however, the

majority augments it with a nebulously defined category of acts. This category

covers acts that are “intentionally injurious by definition” and for which no direct

13
intent is needed. While the majority’s creation of this category is aimed at solving

the shortcomings of the direct-intent approach, it produces instead an inherently

ambiguous rule, as we are left to wonder precisely what this category contains.

Indeed, the majority provides us with only two hints: (1) the category is very

limited, and (2) it has been applied only to sexual molestation and murder.

The majority then assigns Gearing to this category of acts, relegating it to

nothing more than an anomaly limited in application to the sexual-molestation

scenario. While Gearing was decided in the sexual-molestation context, its

application is certainly not so limited. First, the Gearing court itself applied the

“substantial-certainty” analysis to a context other than sexual molestation, as it

discussed it in the context of the Swanson case. See id. at 39-40, 665 N.E.2d at

1119. Furthermore, one need only review the numerous post-Gearing appellate

decisions to appreciate the precedential effect that courts have afforded that case.

Ohio’s appellate courts have repeatedly and without hesitation followed Gearing

as an effective means of analyzing coverage issues regarding intentional torts.

In Snell v. Katafias (Mar. 19, 1999), Montgomery App. No. 17440,

unreported, 1999 WL 148229, for instance, the appellate court conducted a two-

part analysis under Gearing of whether intentional infliction of emotional distress

is excluded from insurance coverage. Determining first that the insured did not

intend the injury, the court next asked whether the “injury resulting from an

intentional infliction of emotional distress [was] objectively certain.” Id.

Concluding that it was and that the claim was not covered, the court reasoned: “At

some point where harm appears to have been objectively certain, we no longer ask

whether the insured subjectively intended the resulting harm.” Id.

Also relying on Gearing, the court in Nationwide Mut. Ins. Co. v. Finkley

(1996), 112 Ohio App.3d 712, 715, 679 N.E.2d 1189, 1191, concluded that “where

an insured willfully and purposefully attempts to elude the police in an automobile

14
chase through an urban area in reckless disregard of traffic control devices, his

actions are substantially certain to result in injury.” Inferring intent to injure on

that basis, the court reasoned that “[d]etermining that an individual could obtain

insurance coverage for damages caused by intentional criminal activity, by willful

flight from the police, flies in the face of * * * established public policy.” Id. at

716, 679 N.E.2d at 1191. Accordingly, the court held that the wrongful act was

excluded from insurance coverage.

The court in Allstate Ins. Co. v. Ray (Dec. 18, 1998), Mahoning App. No.

96CA20, unreported, 1998 WL 896366, also followed Gearing to conclude that a

point-blank shooting was substantially certain to cause injury and therefore

inferred intent to injure as a matter of law. Under the same reasoning, an insured’s

act of punching another individual in the face, although purportedly done without

intent to injure, was also substantially certain to injure and therefore excluded from

coverage. Aguiar v. Tallman (Mar. 15, 1999), Mahoning App. No. 97 C.A. 116,

unreported, 1999 WL 148367. Similarly, intent to injure was inferred under

Gearing to the act of chopping down a neighbor’s trees, since that act was

considered substantially certain to cause harm. Cogar v. Commercial Union Ins.

Co. (Feb. 9, 1999), Medina App. No. 2816-M, unreported, 1999 WL 74620.

Not only is Gearing the current state of the law in Ohio, but because it

embodies an objective analysis, it also constitutes the better-reasoned approach. In

fact, a significant number of jurisdictions across the country impose similar

objective tests, rejecting the inadequacies of the subjective analysis. See, e.g., Am.

Bankers Ins. Co. of Florida v. Gilberts (C.A.8, 1999), 181 F.3d 931, 932; CNA Ins.

Co. v. McGinnis (1984), 282 Ark. 90, 666 S.W.2d 689; Wright v. White Birch

Park, Inc. (1982), 118 Mich.App. 639, 325 N.W.2d 524. See, also, Annotation

(1984), 31 A.L.R.4th 957. A Missouri appeals court, for instance, explained the

superiority of the objective test in the following manner:

15
 “Supplanting an objective standard with a subjective standard for

determining whether the act or conduct of an insured is ‘intentional’ or ‘expected

or intended’ for purposes of assessing coverage would emasculate apposite policy

provisions by making it impossible to preclude coverage for intentional acts or

conduct absent admissions by insureds of a specific intent to harm or injure.

Human nature augers against any viable expectation of such admissions.” Truck

Ins. Exchange v. Pickering (1982), 642 S.W.2d 113, 116.

The inadequacy of a subjective standard such as the majority’s becomes

particularly clear when viewed in a Swanson-type context. In Swanson, the

tortfeasor’s act of shooting towards a group of bystanders was not excluded from

coverage because he lacked intent to injure. While this result may be palatable

where the insured shot from a distance of seventy feet, had the insured fired from

only ten or even five feet away, causing the same injuries and also claiming the

same lack of intent, certainly a different result should follow due to the

foreseeability of the injury. But under the majority’s approach, that shooting

would not be excluded from coverage because the lack of direct intent to injure is

all that precludes coverage. Nor would the shooting likely fall into the majority’s

“intentionally injurious by definition” category, as it involves neither murder nor

sexual molestation.

As we set forth in Gearing, “[l]iability insurance does not exist to relieve

wrongdoers of liability for intentional, antisocial, criminal conduct.” 76 Ohio

St.3d at 38, 665 N.E.2d at 1118. Rather, insurance policies are purchased “ ‘as

protection against calamity.’ ” Transamerica Ins. Group v. Meere (1984), 143

Ariz. 351, 355, 694 P.2d 181, 185, quoting Noble v. Natl. Am. Life Ins. Co. (1981),

128 Ariz. 188, 189, 624 P.2d 866, 867. Thus, “[t]he intentional exclusion is

necessary to the insurer to enable it to set rates and supply coverage only if losses

under policies are uncertain from the standpoint of any single policyholder, and if a

16
single insured is allowed through intentional or reckless acts to consciously control

risks covered by policy, the central concept of insurance is violated.” 7A

Appleman, Insurance Law and Practice (Rev.1979) 21, Section 4492.01. By

permitting coverage of intentional acts that are substantially certain to occur, the

majority places control of such risks squarely into the tortfeasor’s hands.

In sum, then, this court ought not to depart from Gearing, as the departure

does nothing to clarify the analysis of this issue. Rather, it imposes an inadequate

subjective test, coupled with an undefined category of inferred intent acts. More

importantly, the majority’s standard violates public policy by allowing coverage

for wrongful acts that are substantially certain to cause injury.

B

Though I disagree with the standard used by the majority to decide the first

certified question, I do concur with the resolution it reaches. The majority

correctly concludes that direct intent does not necessarily exist where a jury’s

verdict of bad-faith refusal to settle with actual malice is based upon the

interrogatories and instructions involved here. While a jury’s finding of actual

malice may signal the existence of direct intent in various instances, when a jury’s

instructions imply that actual malice may be found on grounds other than intent,

the jury’s verdict does not necessarily include a finding of direct intent.

Under Gearing, however, the analysis should not end there. Rather, we

must ask whether as a matter of law we are to infer intent to injure from such a

verdict. Both the bad-faith verdict and the actual-malice findings returned against

Buckeye in Leber II concern Buckeye’s subjective intent. Such intent, however, is

irrelevant to the Gearing substantial-certainty determination. What is relevant is

whether Buckeye’s refusal to settle was substantially certain to injure the Lebers.

Buckeye claimed that it had no duty to the Lebers because they were not insureds

under the contract. Although reversed by this court, the appellate court agreed

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with Buckeye in Leber II and concluded that the Lebers were not covered under

the policy and therefore had no claim against Buckeye. Because contracts are

inherently subject to differing interpretations, I believe that a verdict of bad-faith

refusal to settle with actual malice does not rise to the level of substantial certainty

to injure under these circumstances.

I would conclude, therefore, that a jury’s verdict of bad-faith refusal to settle

with actual malice does not evidence the type of intentional tort that is excluded

from insurance coverage where the jury instructions and interrogatories do not

clarify the requirement of intent to injure (Harasyn). Furthermore, such a verdict

does not satisfy the objective portion of the intentional-tort inquiry, as the act of

bad-faith refusal to settle is not necessarily, as a matter of law, substantially certain

to injure (Gearing).

II

I agree with the majority’s conclusion that Buckeye is not collaterally

estopped from litigating the issue of direct intent. Based upon the above rationale,

however, I would also include within that analysis the issue of substantial certainty

to injure. I do, however, disagree with the majority’s discussion of the third prong

of the Goodson collateral-estoppel test.

In order to assert collateral estoppel, a party must prove that the identical

issue was (1) actually litigated, (2) directly determined, and (3) essential to the

judgment handed down in the prior action. Goodson v. McDonough Power Equip.,

Inc. (1983), 2 Ohio St.3d 193, 201, 2 OBR 732, 739, 443 N.E.2d 978, 985. The

majority begins its analysis with the second prong of this test, and correctly

decides that the issues here were not “directly determined.” In so concluding, the

majority emphasizes that the issues to be litigated here are not whether Buckeye

acted in bad faith with actual malice. Rather, the relevant issue is whether

Buckeye acted with direct intent (and I would include substantial certainty) to

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injure. Because these exact issues were not “directly determined,” the Goodson

standard is not met and Buckeye is not collaterally estopped from litigating these

issues.

Because one of the prongs has not been met, the analysis should end here.

The majority, however, continues its consideration of the Goodson test, concluding

that the third prong of Goodson was also not satisfied. In analyzing the third

prong, however, the majority appears to confuse the relevant issues. While the

majority correctly emphasizes in its analysis of the second prong that the issues to

be litigated are not bad faith with actual malice but instead direct intent, when

analyzing the third prong it focuses upon actual malice as the issue to be litigated.

Specifically, the majority concludes that the actual-malice finding was not

essential to the judgment handed down in the prior action. Actual malice should

play no part, however, in the analysis. Although this third prong does not need to

be addressed, if it is, the question to be asked is whether the issues of direct intent

and substantial certainty were essential to the judgment handed down in the prior

action.

Nonetheless, the majority reaches the correct resolution. Based upon that

conclusion, I would hold that the issues of direct intent and substantial certainty to

injure have not been directly determined in the prior action and therefore Buckeye

is not collaterally estopped from litigating its case.

III

While I agree with the majority’s response to the third certified question, I

believe that elaboration on the rationale supporting this determination would be of

use. As the majority concluded, the issue of whether New England’s policy

excludes Buckeye’s act of refusing to settle is an issue more appropriate for the

trial court. This conclusion is proper because the verdict returned here is not, as a

matter of law, the equivalent of the exclusion contained in the policy.

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 The relevant exclusion in the New England policy provides:

“(a) This Insurance shall not cover any Insured whose personal dishonesty,

fraudulent breach of trust, or intention to deceive or defraud has been finally

adjudicated or may be established.”

Neither the jury’s verdict nor the accompanying interrogatories and

instructions contained the language used in the exclusion. New England contends

that the items contained in the exclusion and the jury’s findings are essentially

equivalent and therefore the claim should be excluded. Exclusion (a), however, is

ambiguous as to whether it excludes a claim for bad-faith refusal to settle with

actual malice. The language of the exclusion does not mirror the elements of bad

faith or actual malice, nor does it at any point mention them by name.

It is axiomatic that where language in an insurance policy is susceptible of

more than one meaning, the court will construe it liberally in favor of the insured

and strictly as against the insurer. Buckeye Union Ins. Co. v. Price (1974), 39 Ohio

St.2d 95, 99, 68 O.O.2d 56, 58, 313 N.E.2d 844, 846. Accordingly, if it was New

England’s intent to exclude bad-faith refusal to settle either with or without malice

from its professional liability policy, it certainly could have used specific language

to create such an exclusion.1 Construing the ambiguous exclusion language against

New England, then, I believe that the exclusion neither corresponds to the elements

of bad-faith refusal to settle or to actual malice, nor does it specifically set forth

such exclusions. Provision (a), therefore, does not, as a matter of law, exclude

from coverage a claim based upon a judgment of bad-faith refusal to settle with

actual malice.

LUNDBERG STRATTON, J., concurs in the foregoing opinion.

FOOTNOTE:

1. In fact, Buckeye’s merit brief suggests that New England marketed the

policy as specifically covering bad-faith claims. Furthermore, the policy explicitly

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covers punitive damages.

__________________

Douglas, J., concurring in part and dissenting in part. I concur only in

the judgment of the majority with regard to the responses to questions one and two.

I respectfully dissent from the judgment of the majority with regard to question

three. I would answer question three and would answer it in the negative.

RESNICK and F.E. SWEENEY, JJ., concur in the foregoing opinion.

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