[Cite as Goodman v. Medmarc Ins., 2012-Ohio-4061.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 97969
ALAN I. GOODMAN, ESQ.
PLAINTIFF-APPELLEE
vs.
MEDMARC INSURANCE
DEFENDANT-APPELLANT
JUDGMENT:
AFFIRMED
Criminal Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-734744
BEFORE: Rocco, P.J., E. Gallagher, J., and Kilbane, J.
RELEASED AND JOURNALIZED: September 6, 2012
[Cite as Goodman v. Medmarc Ins., 2012-Ohio-4061.]
ATTORNEY FOR APPELLANT
Brian D. Sullivan
Reminger Co., L.P.A.
101 West Prospect Avenue
Suite 1400
Cleveland, OH 44115
ATTORNEYS FOR APPELLEE
Lynn Sheftel
Daniel J. Nealon
55 Public Square
Suite 1300
Cleveland, OH 44113
KENNETH A. ROCCO, P.J.:
{¶1} Defendant-appellant Medmarc Insurance (“Medmarc”) appeals the
trial court’s decision granting plaintiff-appellee Alan I. Goodman’s
(“Goodman”) summary judgment motion and denying Medmarc’s summary
judgment motion. Medmarc asserts that it is not required to defend and/or
indemnify Goodman for legal malpractice allegations. Because the trial
court’s final judgment properly concluded that Medmarc is required to
provide Goodman with a legal defense and/or indemnification, we affirm.
The Underlying Lawsuit
{¶2} Goodman represented Jerry Stephens (“Stephens”) in an
employment case against the Veterans Administration. Stephens contends
that Goodman committed malpractice in his representation, including
Goodman’s failure to timely file an appeal.
{¶3} Stephens received an adverse ruling from the Merit Systems
Protection Board (“MSPB”) and planned to appeal the decision. Due to a
series of events, the brief was not timely filed and the United States Court of
Appeals, D.C. Circuit refused to reinstate the appeal. Goodman contacted
Stephens, advised him of what had occurred, and offered to refund the
retainer Stephens had paid for the appeal.
{¶4} Goodman and Stephens memorialized the agreement to refund the
money in a document dated June 16, 2009, entitled “Appeal Resolution.” At
this time, Stephens did not express dissatisfaction with Goodman’s
representation nor did he indicate that he planned to sue.
{¶5} Goodman did not hear from Stephens again until he received a
letter from Attorney Slavin dated February 18, 2010, stating that Stephens
was considering filing a malpractice action against Goodman. Stephens
avers that he had not contemplated suing Goodman until Stephens consulted
with a bankruptcy attorney in January 2010. The bankruptcy attorney
advised Stephens to contact another attorney regarding how Goodman had
handled the appeal. On March 8, 2010, Stephens filed a complaint against
Goodman for legal malpractice.
The Policy
{¶6} Goodman carried a policy with Medmarc from February 15, 2009,
to February 15, 2010. On February 14, 2010, Goodman completed a claims
made application (“Application”) with Medmarc, requesting the same limits
as in his previous policy. At the time that Goodman completed the
Application, he had not had contact with Stephens for approximately eight
months. The Application asked whether Goodman was aware of any possible
claims or to any errors or admissions that might reasonably be expected to be
the basis of any claims. Goodman replied “no” to these questions.
[Cite as Goodman v. Medmarc Ins., 2012-Ohio-4061.]
{¶7} Based on the Application, Medmarc issued the policy in issue
which provided professional liability coverage, effective at the
expiration of the earlier policy. Both policies provided coverage based
on when the claim was made.
{¶8} Medmarc denied any obligation to provide coverage to Goodman
for the Stephens’s action. On August 20, 2010, Goodman filed a complaint
for declaratory judgment seeking a declaration that Medmarc was obligated
to defend and/or indemnify Goodman for the allegations asserted against him
by Stephens. Medmarc filed a counterclaim, seeking a declaration that it
was not obligated to provide coverage to Goodman. Both parties filed
motions for summary judgment. The trial court granted Goodman’s motion
and denied Medmarc’s motion. Medmarc appeals the trial court’s entry of
final judgment and presents three assignments of error for review.
“I. The trial court incorrectly denied Medmarc’s motion for
summary judgment and in so doing improperly declared that
Medmarc has a duty to defend and/or indemnify Goodman for Mr.
Stephens’ allegations of legal malpractice.
“II. The trial court incorrectly granted Goodman’s motion for
summary judgment and in so doing improperly declared that
Medmarc has a duty to defend and/or indemnify Goodman for Mr.
Stephens’ allegations of legal malpractice.
[Cite as Goodman v. Medmarc Ins., 2012-Ohio-4061.]
“III. The trial court incorrectly denied Medmarc’s rescission
claim.”
{¶9} We consider the assignments of error together as the legal analysis
involved is the same. The trial court determined that the Policy required
that Medmarc defend and indemnify Goodman for Stephens’s malpractice
claim. First, the trial court determined that the claim was not made until
March 8, 2010, a date falling within the Policy period. Second, relying on
Allstate Ins. Co. v. Boggs, 27 Ohio St.2d 216, 271 N.E.2d 855 (1971), the trial
court determined that Medmarc was not entitled to rescind the Policy.
{¶10} On appeal, Medmarc contends that the claim was first made at
the time that Goodman and Stephens signed the “Appeal Resolution.”
Because this document was executed prior to the Policy period, Medmarc
argues that it is not required to defend and/or indemnify for this claim.
Alternatively, Medmarc contends that, even if the claim first arose during the
Policy period, Goodman had a reasonable basis to believe that his failure to
prosecute Stephen’s appeal was a breach of a professional duty and could
result in a claim against him. According to Medmarc, this renders the Policy
void ab initio. Neither of these arguments is well taken and so we overrule
the first and second assignments of error.
[Cite as Goodman v. Medmarc Ins., 2012-Ohio-4061.]
{¶11} We review summary judgment rulings de novo. Grafton v. Ohio
Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996). Summary judgment
is appropriate when 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.
Civ.R. 56(C); Gilbert v. Summit Cty., 104 Ohio St.3d 660, 2004-Ohio-7108, 821 N.E.2d 564,
¶ 6.
{¶12} The crux of this appeal involves two questions on the Application
and Goodman’s answers to those questions:
4. After inquiry of all lawyers and employees of the law firm,
including independent contractors, Of Counsel and any
other affiliated lawyers, is any such person aware of:
A professional liability claim made in the past 5 years
(either still open or closed)? ... Yes X No
An act or omission that might reasonably be expected to be
the basis of a claim? ... Yes X No
Medmarc makes a number of arguments contending that Goodman’s “no”
answers rendered the Policy void ab initio. We first address Medmarc’s
argument that the “Appeal Resolution” that was executed before the Policy
went into effect constituted a “claim.” The Policy covered only those claims
that were made during the Policy period. According to Medmarc, the
“Appeal Resolution” was the initiation of the claim, and because the “Appeal
Resolution” occurred prior to the Policy’s effective date, Medmarc is not
required to defend or indemnify Goodman for this claim. The Policy defines
a “Claim” as follows:
a demand for money or services made against any “Insured”,
including service of a suit, arbitration proceedings or a motion
against any “Insured”, alleging negligent acts or negligent
omissions, or alleging “Personal Injury”, resulting from the
performance of or failure to perform “Professional Services” by
any “Insured.” A “Claim” includes any complaint, grievance or
other allegation of wrongdoing made against any “Insured” to any
disciplinary agency or board. A “Claim” is deemed “made”
against any “Insured” when any “Insured” first receives notice,
either oral or written, of such “Claim.”
Policy § II.B.
{¶13} The uncontroverted affidavits from Goodman and Stephens
establish that, at the time the “Appeal Resolution” was executed, there was
no demand for money or services made against Goodman, nor any suit,
arbitration proceeding, motion, complaint, grievance, or other allegation of
wrongdoing. Rather, the affidavits establish that Goodman informed
Stephens that he had not filed the appeal; that Goodman agreed to return the
$6,000.00 Stephens had given him to file the appeal; and that at that time
neither party contemplated any further action. Stephens indicated in his
affidavit that he was not displeased with Goodman’s representation and did
not intend to sue Goodman at the time that they executed the “Appeal
Resolution.”
[Cite as Goodman v. Medmarc Ins., 2012-Ohio-4061.]
{¶14} Stephens did not communicate any intention to file a claim
against Goodman until he sent Goodman a letter, dated February 18, 2010.
The complaint was not filed until March 8, 2010. As the policy period was
from February 15, 2010 to February 10, 2011, the claim was made during the
policy period.
{¶15} Medmarc next argues that the Policy provides coverage only if
Goodman had no reasonable basis to believe that he committed acts or
omissions that could result in a claim against him. On the Application,
Goodman answered “no” to the question of whether he was aware of an act or
omission that might reasonably be expected to be the basis of a claim.
According to Medmarc, Goodman’s “no” answer constituted a warranty,
Goodman breached that warranty, and, therefore, the Policy was void ab
initio. We disagree.
{¶16} In Allstate Ins. Co. v. Boggs, 27 Ohio St.2d 216, 271 N.E.2d 855
(1971), the Ohio Supreme Court explained the difference between a warranty
and a representation when an insured is applying for insurance. The
difference is important because if a misstatement on an insurance application
constitutes a warranty, the policy is void ab initio. A statement “does not
constitute a warranty unless the language of the policy, construed strictly
against the insurer, requires such an interpretation.” Id. at 219. The
Court explained that “[i]f it is [the insurer’s] purpose to provide that a
misstatement by the insured shall render the policy void ab initio, such facts
must appear clearly and unambiguously from the terms of the policy.” Id.
If the misstatement constitutes a representation, the policy is voidable if the
misstatement is made fraudulently and the fact is material to the risk. But the policy is not
void ab initio. Id. at 218-219.
{¶17} Boggs established a two-pronged test for determining whether a
misstatement qualifies as a warranty. Am. Family Ins. Co. v. Johnson, 8th
Dist. No. 93022, 2010-Ohio-1855, ¶16. The first prong requires that the
“representation [] plainly appear on the policy [] or be plainly incorporated
into the policy * * *.” Id. Under the second prong, the policy must plainly
warn that a misstatement or misrepresentation renders the policy void from
its inception. Id.
{¶18} In Med. Protective Co. v. Fragatos, 190 Ohio App.3d 114,
2010-Ohio-4487, 940 N.E.2d 1011 (8th Dist.), we concluded that the
statements set forth in the insurance application were incorporated into the
policy and constituted warranties. In Fragatos, the policy in issue stated:
“It is understood and agreed that the statements made in the insurance
application are incorporated into, and shall form part of, this policy * * *.”
Id. at ¶31. Further, the application contained a “warning that any material
misrepresentation would render the policy ‘null and without effect,’ [which
was] equivalent to warning that the policy is void ab initio.” Id. at ¶33.
When viewed together, the policy and application language satisfied both
prongs of the Boggs test and the statements constituted warranties.
{¶19} Conversely, in Johnson we concluded that the statements
constituted only representations. In that case, the insurance policy stated:
* * * We will provide this insurance to you in reliance on the
statements you have given us in your application of insurance.
You warrant the statements in your application to be true and
this policy is conditioned upon the truth of your statements. We
may void this policy if the statements you have given us are false
and we have relied on them.
Johnson, 2010-Ohio-1855, ¶16. We concluded that “the policy merely
mentions the application; it does not state that the application is part of the
policy.” Id. ¶18. Further, the policy failed to “specifically state that a
misrepresentation as to prior claims would render the policy void ab initio.
Instead, it generally states that the false statements on the application may
void the policy.” Id. {¶20} Similarly, in James v. Safeco Ins. Co. of
Illinois, 195 Ohio App.3d 265, 2011-Ohio-4241, 959 N.E.2d 599 (8th Dist.), we
determined that the application statements constituted representations as
opposed to warranties. In James we concluded that language stating “‘we
may void this policy * * *,’ is not a clear warning to the insured that a
misstatement shall render the policy void.” Id. at ¶25, emphasis in original.
Such language is only “a general statement reflecting the long-standing point
11
of law that a ‘contract induced by fraud is not void, but is voidable at the
election of the one defrauded.’” Id., quoting RR. Co. v. Steinfeld, 42 Ohio St.
449, 455 (1884).
{¶21} In applying the two-part Boggs test and our prior case law, we
conclude that the statements made by Goodman on the Application constitute
representations, not warranties. The Policy states as follows:
K. Application
By acceptance of this Policy, the “Insureds” agree that: 1) the
statements in the application and in all additional materials
submitted by any “Insured” for this Policy or for any prior
Policies issued by this Company, which are made a part of this
Policy, are personal representations, that they shall be deemed
material and that this Policy is issued in reliance upon the truth
of such representations; ***.”
Policy § IV.K, emphasis in original.
{¶22} While the Policy does make explicit that Goodman’s answers to
the Application questions are incorporated into the Policy, the Policy fails
under prong two of the Boggs test, because it fails to plainly warn that a
misrepresentation about potential claims renders the policy void ab initio.
Accordingly, under our prior case law, Goodman’s “no” answers on the
Application do not constitute warranties under the Boggs test.
{¶23} Because the answers were representations and not warranties,
even if misrepresentations1 were made, they did not render the policy void ab
initio. Although an insurer may cancel a voidable policy, a representation
“may not be used to avoid liability arising under the policy after such liability
has been incurred.” Boggs, at paragraph one of the syllabus. Medmarc was
not entitled to cancel the Policy after Stephens filed the malpractice lawsuit
against Goodman. Under the terms of the Policy, Medmarc had a duty to
defend and/or indemnify Goodman for Stephens’s allegations of legal
malpractice. The trial court properly denied Medmarc’s motion for
summary judgment and granted Goodman’s motion for summary judgment.
The trial court properly declared that Medmarc has the legal duty to defend
and indemnify Goodman with respect to the Stephens’s claim. Accordingly,
we overrule Medmarc’s assignments of error.
{¶24} The trial court’s order is affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this
judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to
Rule 27 of the Rules of Appellate Procedure.
The parties vigorously dispute whether the “no” answers constitute misrepresentations.
1
__________________________________________
KENNETH A. ROCCO, PRESIDING JUDGE
EILEEN A. GALLAGHER, J., and
MARY EILEEN KILBANE, J., CONCUR