Fairless v. Acuity

2022 Ohio 10

• Court: Ohio Court of Appeals
• Decided: January 5, 2022
• Docket: C-210165
• Status: Published

Opinion

[Cite as Fairless v. Acuity, 2022-Ohio-10.]

IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

JOSEPH FAIRLESS, : APPEAL NO. C-210165 TRIAL NO. A-1800263 and :

BAYBERRY CROSSING, LLC, : O P I N I O N.

Plaintiffs-Appellees/Cross- : Appellants,

vs. :

ACUITY, A MUTUAL INSURANCE : COMPANY, : Defendant-Appellant/Cross- Appellee. :

Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Affirmed

Date of Judgment Entry on Appeal: January 5, 2022

Stagnaro, Saba, & Patterson Co., LPA, Jeffrey M. Nye and Joshua Smith, for Plaintiffs-Appellees/Cross-Appellants,

Lewis, Brisbois, Bisgard & Smith LLP, Judd R. Uhl and Katherine L. Kennedy, for Defendant-Appellant/Cross-Appellee. OHIO FIRST DISTRICT COURT OF APPEALS

ZAYAS, Presiding Judge.

{¶1} This case concerns an insurance coverage dispute in the context of the

duty to defend. Defendant-appellant/cross-appellee Acuity, A Mutual Insurance

Company, (“Acuity”) brings this appeal to challenge the trial court’s grant of

summary judgment in favor of plaintiffs-appellees/cross-appellants Bayberry

Crossing, LLC, (“Bayberry”) and Joseph Fairless (“Fairless”), arguing in a sole

assignment of error that the trial court erred in determining that it had a duty to

defend the underlying action. Plaintiffs-appellees/cross-appellants Bayberry and

Fairless bring their cross-appeal to challenge the trial court’s award of damages,

arguing in a sole assignment of error that the trial court erred in declining to award

them their reasonable attorney fees and costs for the present litigation. For the

following reasons, we overrule both assignments of error and affirm the judgment of

the trial court.

Facts

Background Information

{¶2} In 2016, Gavin Connor filed a complaint against Brookmeadow, LTD.,

(“Brookmeadow”) alleging that, on or about November 3, 2014, he fell and suffered

injury due to a dangerous condition on the premises at 15 Montgomery Way, Amelia,

Ohio.

{¶3} On July 5, 2017, Brookmeadow filed a third-party complaint against

Bayberry and Fairless, alleging claims for indemnity, contribution, and negligence.

The relevant allegations from the complaint are:

3. [Conner] filed his complaint against Defendant/Third Party

Plaintiff Brookmeadow, Ltd., * * * in the Clermont County Court of

Common Pleas, * * * claiming damages resulting from personal

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injuries allegedly sustained at the property located at 15 Montgomery

Way, Amelia, Ohio, 45102 (hereinafter “Premises”).

4. [Conner’s] Complaint alleges that on or about November 3,

2014 he sustained personal injuries as the result of the failure of

Defendant/Third-Party Plaintiff’s [sic] to properly maintain the

Premises at 15 Montgomery Way, Amelia, Ohio 45102.

5. On or about June 5, 2013, Third Party Plaintiff entered into a

Lease with Option to Purchase Agreement with Third-Party

Defendant, Joe Fairless. A true and accurate copy of the Lease with

Option to Purchase Agreement (hereinafter “Lease”) is attached hereto

as Exhibit 1.

6. Upon information and belief, on or about July 12, 2013,

Third-Party Defendant Joe Fairless assigned his interest in the Lease

to Bayberry Crossing, LLC. (See Contract for Sale attached hereto as

Exhibit 2).

7. The Lease required Third-Party Defendants Bayberry

Crossing, LLC and Joe Fairless to maintain the Premises in good

repair and condition. (See Exhibit 1).

8. The Lease required Third-Party Defendants Bayberry

Crossing, LLC and Joe Fairless to perform all necessary repairs and

maintenance in order to bring the Premises in compliance with all

laws, ordinances and regulations and other governmental orders.

9. Upon information and belief, Bayberry Crossing, LLC, was

the Lessor, operator and manager of Bayberry Apartments, 15

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Montgomery Way, Amelia, Ohio 45102 at the time Plaintiff alleges he

sustained personal injuries on the Premises.

{¶4} The “Lease with Option to Purchase Agreement” and the contract for

sale, entitled “Purchase, Sale, and Assignment Agreement,” were attached and

incorporated into the complaint.

{¶5} The “Lease with Option to Purchase Agreement” shows that, on June

5, 2013, Brookmeadow, as lessor and Fairless, as lessee, entered into a 53-month-

and-two-day lease agreement for the property located at 15 Montgomery Way,

Amelia, Ohio. The property was a 168-unit apartment complex known as Bayberry

Crossing. Under the agreement, Fairless was to pay monthly rent to Brookmeadow

and was to assume “all obligations under all leases and rental agreements with

existing tenants at the Premises.” The lease had the following relevant provisions:

11. Maintenance and Repair: Lessee, at its sole discretion, shall

keep and maintain the Premises and buildings and improvements and

all other portions of the Premises (including, but not limited to, all

heating, air conditioning, plumbing and electrical equipment and

apparatus, driveways, parking areas and landscaping) in good repair

and condition and shall make all repairs, replacements and renewals,

whether structural or non-structural, foreseen or unforeseen, ordinary

or extraordinary, interior or exterior, necessary to put or maintain the

Premises in that state of repair and condition. Lessee expressly waives

the right to (a) require lessor to maintain, repair or rebuild all or any

part of the Premises, or (b) to make repairs at the expense of Lessor

pursuant to any legal requirement, contract, agreement, covenant,

condition or restriction at any time in effect.

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***

14. Insurance: Lessee shall, during the Term, keep in force and

effect such insurance as Lessee deems appropriate, with coverage and

limits no less than as required under the mortgage. The policy shall

name Lessor and Lender as additional insureds, and shall provide that

the insurer may not cancel or change the insurance coverage in any

respect without first giving Lessor and Lender ten (10) days prior

written notice. Lessee shall pay for all insurance coverage related to

the Premises. A copy of the policy or a certificate of insurance shall be

delivered to Lessor on or before the Commencement Date and

whenever replaced. In the event of loss, any insurance proceeds

payable by reason of such loss shall be paid pursuant to the Loan

Documents. Lessee covenants and agrees that it will neither do nor

permit to be done any act or thing on the Premises or elsewhere which

will invalidate any insurance on the Premises or increase the

premiums for insurance thereon.

23. Conditional Assignment of Rents and Leases: Beginning on

the Commencement Date and continuing during the Term so long as

Lessee is not in default under the Lease, Lessor authorizes Lessee to

assume the management and operation of the Premises, including

collection of rents and income under all currently existing and future

tenant leases, rents, and security deposits for apartments located on

the Premises during the entirety of the Term. Lessee’s rights under

this Section shall immediately terminate upon any default by Lessee.

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38. Miscellaneous: b. Heir and Assigns: This lease with Option

to Purchase Agreement shall not be assigned by Lessee without the

prior consent of the Lessor, such consent shall not be unreasonably

withheld. This Lease with Option to Purchase Agreement shall be

binding on and inure to the benefit of Lessee and Lessor and their

respective heirs and assigns, successors, administrators, trustees,

representatives and executors.

{¶6} The “Purchase, Sale and Assignment Agreement,” shows an agreement

from 2016 which purports to sell the property to “15 Montgomery Way LLC.” The

agreement listed Bayberry as the “seller,” Fairless as the “original lessee,” and

Brookmeadow as the “fee owner.” Of relevance, the agreement asserted that Fairless

assigned all his interest in the “Lease Option Agreement” to Bayberry on or about

July 12, 2013. Additionally, the agreement stated that the property was “operated”

by Bayberry.

The Insurance Policy

{¶7} A “Commercial General Liability Coverage” policy was in place with

Acuity at the time of the alleged injury. On the first page of the policy, the Renewal

Declarations page, it lists “BROOKMEADOW LTD AN OHIO LLC DBA BAYBERRY

CROSSING” as the “First Named Insured.”

{¶8} Per the policy, the words “you” and “your” refer to the “Named Insured

shown in the Declarations, and any other person or organization qualifying as a

Named Insured under this policy.” The words “we,” “us,” and “our” refer “to the

Company providing the insurance.

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{¶9} Section I concerns coverages under the policy. In relevant part, the

coverage A section states:

We will pay those sums that the insured becomes legally

obligated to pay as damages because of bodily injury or property

damage to which this insurance applies. We will have the right and

duty to defend the insured against any suit seeking those damages.

However, we will have no duty to defend the insured against any suit

seeking damages for bodily injury or property damage to which this

insurance does not apply.

(Emphasis sic.)

{¶10} Section II concerns who is an insured under the policy. In relevant

part, this section lists the following as insured:

1.c. If you are designated in the Declarations as: A limited

liability company, you are an insured. Your members are also

insureds, but only with respect to the conduct of your business. Your

managers are insureds, but only with respect to their duties as your

managers.

2.b. Any person (other than your employee) or volunteer

worker or any organization while acting as your real estate manager.

{¶11} “Real estate manager” is not defined in the policy. Later in the policy,

there are two amendments to Section II, which are entitled “Additional Insured.”

The first is for the “mortgagee,” Union Central Life Insurance Company. The second

is for the “Co-Owner of Insured Premises,” “Bayberry Inc.” The address listed for

“Bayberry Inc” is 15 Montgomery Way, Amelia, Ohio. It states that Section II is

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“amended to include as an insured the person(s) or organization(s) shown in the

Schedule, but only with respect to their liability as co-owner of the premises shown

in the Schedule.”

Outcome of the Underlying Suit

{¶12} After several months of communication between the parties regarding

whether Acuity would provide coverage to Fairless, Brookmeadow voluntarily

dismissed the third-party complaint against Bayberry and Fairless on September 26,

2017, after reaching a settlement with the original plaintiff. On October 17, 2017,

counsel for Fairless sent a letter to Acuity demanding payment of all attorney fees

and expenses incurred in the matter in the amount of $5,399.13. The letter also

informed Acuity that Fairless intended to pursue all remedies available to him if

payment was refused, including but not limited to a declaratory judgment action and

claims of bad faith.

Procedural History

{¶13} On January 15, 2018, Fairless filed a complaint against Acuity,

asserting claims for a declaratory judgment, breach of contract, and lack of good

faith. With leave of court, Fairless filed an amended complaint on August 22, 2018,

which added Bayberry as an additional plaintiff.

{¶14} On June 28, 2019, Acuity filed a motion for summary judgment,

arguing that the insurance contract did not provide coverage for the third-party

claims. That same day, Fairless and Bayberry filed a joint motion for summary

judgment on counts I and II, arguing that the policy and the allegations in the

underlying third-party complaint, taken together, “make clear that Acuity owed

Plaintiffs a duty of defense and breached that duty when it refused to provide or

reimburse Plaintiffs for the same.” In an affidavit attached to Fairless and Bayberry’s

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joint motion for summary judgment, Fairless averred that he is the managing

member of Bayberry and that he obtained the insurance policy with Acuity pursuant

to his obligations under the lease agreement and made all premium payments. On

March 10, 2020, the trial court granted the plaintiffs’ motion for summary judgment

on counts I and II, finding that Acuity was required to defend Fairless and Bayberry

because the underlying suit “did arguably or potentially bring an action within the

insurance coverage provision of Acuity’s policy.”

{¶15} On September 25, 2020, plaintiffs filed a motion for an award of

damages and attorney fees as to counts I and II. Included with the motion was an

affidavit of Joshua Smith that stated that attorney fees and expenses in the amount

of $4,121.63 were charged to Fairless and Bayberry for defense of the third-party

complaint. The affidavit also claimed that attorney fees and expenses in the amount

of “$35,337,57” [sic] were charged to Fairless and Bayberry for the investigation,

preparation, and prosecution of the present litigation. The affidavit incorporated

invoices and time reports that were attached to the affidavit. On February 18, 2021,

the trial court entered an order for an award of attorney fees in the amount of

$4,121.63 to Fairless and Bayberry. The court found that “at this stage” attorney fees

were limited to fees incurred in defense of the third-party complaint.

{¶16} On March 5, 2021, Acuity filed a notice of appeal. On March 9, 2021,

plaintiffs filed their notice of cross-appeal. Plaintiff’s claim for lack of good faith,

which seeks compensatory and punitive damages, remains pending in the trial court.

Law and Analysis

Defendant-Appellant’s Assignment of Error

{¶17} Acuity raises a sole assignment of error that the trial court erred in

determining that Acuity had a duty to defend the underlying action. We review a

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grant of summary judgment de novo. City of Cincinnati v. Metro. Design & Dev.,

LLC, 1st Dist. Hamilton No. C-170708, 2019-Ohio-364, ¶ 14, citing Grafton v. Ohio

Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996).

{¶18} “An insurance policy is a contract.” William Powell Co. v. OneBeacon

Ins. Co., 2020-Ohio-5325, 162 N.E.3d 927, ¶ 26 (1st Dist.), citing Westfield Ins. Co. v.

Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, 797 N.E.2d 1256. “When presented

with an issue of contract interpretation, the role of a court is to give effect to the

intent of the parties to the agreement.” Id., citing Galatis. “ ‘We examine the

insurance contract as a whole and presume that the intent of the parties is reflected

in the language used in the policy.’ ” Id., quoting Galatis. “When the language of a

contract is clear, we may look no further than the writing itself to find the intent of

the parties.” Id., citing Galatis.

{¶19} “Under Ohio Law, an insurer’s duty to defend against an insured claim

is significantly broader than the duty to indemnify.” Metro. Design at ¶ 15, citing

Westfield Ins. Co. v. Factfinder Marketing Research, 168 Ohio App.3d 391, 2006-

Ohio-4380, 860 N.E.2d 145 (1st Dist.). “In determining the duty to defend, a court

reviews the allegations in the complaint and any allegations arising after the filing of

the complaint.” Id., citing Willoughby Hills v. Cincinnati Ins. Co., 9 Ohio St.3d 177,

179, 459 N.E.2d 555 (1984). “Where the allegations state a claim that is potentially

or arguably within the policy coverage, the insurer must accept the defense of the

claim regardless of the ultimate outcome of the action or the insurer’s liability to the

insured.” Id., citing Willoughby Hills. “But a duty to defend does not attach when

the conduct alleged is indisputably outside the scope of coverage.” Id., citing

Willoughby Hills.

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{¶20} Here, the policy unambiguously states that Acuity had a duty to defend

an insured from any suit seeking damages for bodily injury. The policy also

unambiguously states that any organization acting as “real estate manager” for

Brookmeadow was covered as an insured under the policy.

{¶21} Real estate manager is not defined in the policy so we must rely on its

plain and ordinary meaning. See Collins v. Auto-Owners Ins. Co., 2017-Ohio-880,

80 N.E.3d 542, ¶ 16 (12th Dist.), citing Prudential Property & Cas. Ins. Co. v. Koby,

124 Ohio App.3d 174, 177, 705 N.E.2d 748 (11th Dist.1997). The plain and ordinary

meaning of “real estate” is “property in buildings and land.” Merriam-Webster’s

Online Dictionary, https://www.merriam-webster.com/dictionary/real%20estate

(accessed Dec. 17, 2021). The plain meaning of “manager” is “one that manages.”

Merriam-Webster’s Online Dictionary, https://www.merriam-webster.com/

dictionary/manager (accessed Dec. 17, 2021). Thus, the plain meaning of “real estate

manager” is one who manages property in buildings or land.

{¶22} “When the insurer’s duty is not clear from the complaint, but the

allegations state a claim that is potentially or arguably within the policy coverage, or

there is some doubt as to whether a theory of recovery within the policy coverage had

been pleaded, the insurer must accept defense of the claim.” Westfield Cos. v. O.K.L.

Can Line, 155 Ohio App.3d 747, 2003-Ohio-7151, 804 N.E.2d 45, ¶ 8 (1st Dist.),

citing Willoughby Hills, 9 Ohio St.3d at 180, 459 N.E.2d 555.

{¶23} The third-party complaint alleged that “Upon information and belief,

Bayberry Crossing, LLC, was the Lessor, operator and manager of Bayberry

Apartments, 15 Montgomery Way, Amelia, Ohio 45102 at the time Plaintiff alleges he

sustained personal injuries on the Premises.” (Emphasis added.) The complaint also

alleged that “Third-Party Defendants Bayberry Crossing, LLC and Joe Fairless

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negligently maintained the premises located at 15 Montgomery Way, Amelia, Ohio

45102, which may have caused injury to Plaintiff.” Thus, the allegations in the

complaint expressly state a claim that is potentially or arguably within the policy

coverage for Bayberry because it alleged that Bayberry was the manager of the

apartments.

{¶24} Additionally, we consider the language in the lease because it was

attached and incorporated into the complaint. See Civ.R. 10(C) (“A copy of a written

instrument attached to a pleading is part of the pleading for all purposes.”). Under

the “Maintenance and Repair” provision, Fairless had “sole discretion” to “keep and

maintain the Premises and buildings and improvements,” and Fairless expressly

waived the right to require Brookmeadow to maintain or repair the premises. Under

the “Conditional Assignment of Rents and Leases” provision of the lease, Fairless

was “authorized” as the Lessee “to assume the management and operation of the

Premises, including collection of rents and income under all currently existing and

future tenant leases, rents, and security deposits for apartments located on the

Premises during the entirety of the term.” Further, the lease had a provision that

made the lease binding on the lessor, lessee, and their assigns. Thus, it is arguable

that Fairless was responsible for management of the premises, and we cannot say

that the suit against Fairless was indisputably outside the scope of coverage.

Accordingly, the claims in the underlying complaint against Fairless and Bayberry

were arguably within the policy coverage. Consequently, this assignment of error is

overruled.

Plaintiffs-Appellees’ Cross-Assignment of Error

{¶25} Fairless and Bayberry raise a sole assignment of error that the trial

court erred in declining to award them their reasonable attorney fees for the present

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litigation. Neither party disputes the trial court’s award of attorney fees for the

breach of the duty to defend the initial action. We review a trial court’s award of

attorney fees for an abuse of discretion. Westfield, 155 Ohio App.3d 747, 2003-Ohio-

7151, 804 N.E.2d 45, at ¶ 38.

Ohio follows the ‘American Rule,’ which generally requires that

an award of ‘costs’ in the form of attorney fees to a prevailing party in a

civil action or proceeding must be based upon an express authorization

of the General Assembly or upon a finding that the losing party has

acted in ‘bad faith, vexatiously, wantonly, obdurately, or for oppressive

reasons.’ But attorney fees are allowable as ‘damages’ in breach-of-

contract cases where the parties have bargained for this result and the

breaching party’s wrongful conduct has led to the legal fees being

incurred.

(Citations omitted.) Westfield at ¶ 28.

{¶26} Thus, a trial court properly awards legal fees to an insured for the legal

fees incurred in defending an action where the insurer contractually accepted the

duty to defend the insured against third-party lawsuits to which coverage potentially

applied. See id. at ¶ 29. However, where the parties do not contract to shift fees

incurred for litigation of the dispute between the insured and insurer, the award of

legal fees must “be authorized by legislation or by a finding that [the insurer] had

acted in ‘bad faith, vexatiously, wantonly, obdurately, or for oppressive reasons.’ ”

Id. at ¶ 30.

{¶27} Fairless and Bayberry cite to Motorist Mut. Ins. Co. v. Trainor, 33

Ohio St.2d 41, 47, 294 N.E.2d 874 (1973), for the proposition that insureds are

entitled to recovery of attorney fees to date based upon an insurer’s breach of its duty

13 OHIO FIRST DISTRICT COURT OF APPEALS

to defend. However, in Westfield, this court limited Trainor, and any subsequent

cases relying on Trainor, and held that, when the parties do not contract to shift fees

incurred for litigation of the dispute between the insured and insurer, attorney fees

may only be awarded in a declaratory judgment/breach of contract action when the

losing party has acted in bad faith, vexatiously, wantonly, obdurately, or for

oppressive reasons. Westfield at ¶ 31-37. Stare decisis dictates that we adhere to this

holding. See William Powell Co. v. Onebeacon Ins. Co, 2016-Ohio-8124, 75 N.E.3d

909, ¶ 31 (1st Dist.) (“Stare decisis ‘provides continuity and predictability in our legal

system, * * * thwart[s] the arbitrary administration of justice [and] provide[s] a clear

rule of law by which the citizenry can organize their affairs.’ ” (Ellipses sic.)).

{¶28} The parties have not pointed to, and we do not find, any contractual

provision which concerns fee shifting in a dispute between the insured and the

insurer. Since the trial court reserved the claim that Acuity failed to act in good faith

and has yet to rule on this issue, we cannot determine that the trial court abused its

discretion in declining to award attorney fees in the present litigation “at this point in

the case.” Consequently, this assignment of error is overruled to the extent that

Fairless and Bayberry argue that attorney fees should have been awarded for the

period leading up to this point in the litigation, regardless of whether there was bad

faith.

{¶29} Fairless and Bayberry also make the alternative argument that this

court should hold that the attorney fees were recoverable because Acuity’s actions

establish bad faith, or vexatious, wanton, obdurate, or oppressive conduct. However,

the trial court expressly reserved the determination of whether Acuity acted in bad

faith. Consequently, this portion of the cross-assignment of error is premature and

therefore we do not address it.

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Conclusion

{¶30} For the foregoing reasons, we overrule Acuity’s assignment of error,

overrule Fairless and Bayberry’s cross-assignment of error in part, and hold the

remaining portion of plaintiffs-appellees’ cross-assignment of error is premature.

Accordingly, we affirm the judgment of the trial court.

Judgment affirmed.

WINKLER and BOCK, JJ., concur.

Please note:

The court has recorded its own entry this date.