Milestone Invest. Ents., Inc. v. Mt. Vernon Fire Ins., Co.

2019 Ohio 2732

Opinion

[Cite as Milestone Invest. Ents., Inc. v. Mt. Vernon Fire Ins., Co., 2019-Ohio-2732.]

COURT OF APPEALS RICHLAND COUNTY, OHIO FIFTH APPELLATE DISTRICT

MILESTONE INVESTMENT JUDGES: ENTERPRISES, INC. Hon. William B. Hoffman, P.J Hon. Craig R. Baldwin, J. Plaintiff-Appellant Hon. Earle E. Wise, Jr., J.

-vs- Case No. 18CA122

MOUNT VERNON FIRE INSURANCE CO., et al. O P I N IO N Defendant-Appellee

CHARACTER OF PROCEEDINGS: Appeal from the Richland County Court of Common Pleas, Case No. 17-CV-610 D

JUDGMENT: Affirmed

DATE OF JUDGMENT ENTRY: July 1, 2019

APPEARANCES:

For Plaintiff-Appellant For Defendant-Appellee

J. JEFFREY HECK LORREE L. DENDIS The Heck Law Offices, Ltd. Williams & Petro Co., LLC One Marion Avenue, Suite 215 338 S. High Street, 2nd Floor Mansfield, Ohio 44903 Columbus, Ohio 43215 Richland County, Case No. 18CA0122 2

Hoffman, P.J. {¶1} Appellant Milestone Investment Enterprises, Inc. appeals the summary

judgment entered by the Richland County Common Pleas Court dismissing its claims for

breach of contract, bad faith, negligence, and breach of fiduciary duty against Appellee

Mount Vernon Fire Insurance Co.

STATEMENT OF THE FACTS AND CASE

{¶2} At some point prior to 2012, Appellant acquired a three-story commercial

building with six storefronts in Mansfield, Ohio. Appellant is owned by John Dilts, an

attorney, and Eric Johnson, who owns a pawn shop. When Appellant refinanced the

property with First Merit Bank, the bank required Appellant to obtain property insurance.

{¶3} Because of the age of the building and the fact the second and third stories

were gutted, the property was not eligible for a conventional policy. Appellant’s insurance

agent, Dumbaugh Insurance Agency, asked for help form the Ohio Insurance Exchange

to obtain suitable coverage for Appellant’s building. The Ohio Insurance Exchange

referred Dumbaugh to a wholesale insurance broker, Morstan General Insurance Agency.

{¶4} Morstan obtained coverage for Appellant from Appellee effective August 16,

2012. However, a condition of the policy was Appellee would have the property inspected

in order to inform Appellant of any repairs necessary to keep the policy’s coverage in

place. The property was later inspected by Lynne Miller, an independent contractor.

{¶5} Based on the inspection, Appellee sent an email to Appellant and the

insurance agents on October 15, 2012, which stated, in pertinent part:

A recently conducted inspection has developed the following

mandatory recommendations: Richland County, Case No. 18CA0122 3

 Install functioning and operational ABC type fire

extinguishers, full charged and tagged in all units. Fire

extinguishers must be mounted at a height between 39 & 42

inches from the floor to be made available in case of an

emergency.

 A three foot clearance must be maintained between storage

and the electrical panel in the basement of area of Rocky’s

Pub & Grill.

 Open junction boxes and exposed electrical wiring was visible

throughout the basement storage area of the jewelry store. In

addition, wiring relics were left over from previous electrical

installations. Obtain the services of a licensed and insured

electrical contractor to remove the old wiring and install proper

junction boxes.

 A structural engineer must be hired to inspect the balconies

on the second and third floor levels and the fire escapes in the

rear of the building to ensure they can be used safely.

 The second and third floors have begun renovations

resulting in the removal of walls. Unprotected vertical

openings must be protected in accordance with NFPA

101 29.3, 8.6 (The first floor exit leading to the outside

exit). The stairway leading from the second floor to the

third floor must be protected by an [sic] one hour fire Richland County, Case No. 18CA0122 4

resistant barrier with one hour fire rated doors. In

addition, any openings in the floor must be closed to

prevent rapid fire spread throughout the combustible

construction. The stairwell is open through the floors on

all sides.

 The trash dumpster must be maintained at least 35 feet from

the building.

 Obtain certificates of general liability insurance from all

commercial tenants leasing space within your building. These

certificates must be obtained when the tenant moves in and

on a yearly basis thereafter.

 Please comply with the recommendations and confirm in

writing by signing and returning this form within 45 days to

avoid cancellation of your policy. (Emphasis added).

{¶6} After negotiation, Appellee relented on the fourth and sixth bullet points.

John Dilts was concerned complying with bullet point five, quoted in bold above, would

be expensive. Consequently, Appellant, through Morstan, asked Appellee for clarification

of the fifth bullet point:

Bullet 5 “The second and third floors have begun renovations…” 1)

Clarification of unprotected vertical openings 2) Stairway protection from Richland County, Case No. 18CA0122 5

2nd to 3rd floor barrier? Is that the fire resistive door? 3) Where are the

openings in the floor? 4) The stairwell is open?

{¶7} The request was forwarded to Lynne Miller, and she responded by email on

November 5, 2012, as follows:

I will try to make this more clear, but it was so dark up there on the

second floor that when I dropped the lens cap for the camera we had to go

get a flashlight to search for it.

There are two stories that they began to renovate, the second and

third floors. These are gutted. Due to the economy these two floor [sic]

remain unfinished.

There is no heat, electric, or plumbing on these two floors, therefore

no lighting.

There is a staircase leading up to the second floor that has entrance

through a private door through a key located in the front of the buildings.

This is open at the top to the entire second floor. There is no door at the

top of the stairs. It just opens up to the entire second floor.

The unprotected vertical openings refers to the stairs between the

2nd and third floors which are wide open, no walls, doors, not even backs to

the steps, anything. These cannot even be considered as real pedestrian

stairs as it takes very large steps to go up them, like a foot tall each step. It

was like climbing a ladder. These are open on the sides. There are no fire Richland County, Case No. 18CA0122 6

doors or any doors. They lead to the third floor also wide open no door or

walls.

There are also holes in the floors – open to the space below. This is

not seen from the first floor as there are drop ceilings.

I hope this helps a little. Perhaps better photos would have helped.

{¶8} Discussions continued between Appellant, Dumbaugh, Morstan, and the

Ohio Insurance Exchange concerning what Appellant needed to do to comply with Bullet

Point 5. On November 29, 2012, Dumbaugh expressed concern to the Ohio Insurance

Exchange via email as follows:

I was concerned because the 45 days is up 12-01-12. I am assuming

we will have some additional time since we are still working things out.

Please let me know if I should send any kind of response at this time in

regards to the items the insured has taken care of…

{¶9} Tami Washington responded on behalf of the Ohio Insurance Exchange:

I will make certain my underwriter is aware. The company is the

delay in responding so…they will need to work with us. I apologize this has

been such a pickle. Thanks for your patience… Richland County, Case No. 18CA0122 7

{¶10} However, Appellant took no action to make repairs to attempt to comply with

Bullet Point 5, choosing to wait for clarification. On January 2, 2013, Appellee mailed a

notice of cancellation of the policy to Appellant and Morstan. The notice stated it was

effective February 3, 2013, and the reason for the cancellation was Appellant’s failure to

make the mandatory repairs specified after the inspection. On April 9, 2013, Morstan

issued a premium refund of $1,157.10 to the Ohio Insurance Exchange, which delayed

passing the refund to Appellant until August 7, 2013.

{¶11} On August 12, 2013, which was four days before the expiration date of the

original policy, a fire damaged a portion of Appellant’s building. Appellant demanded

payment from Appellee. Appellee responded that the policy had been cancelled prior to

the fire.

{¶12} Appellant filed the instant action against Appellee, the Dumbaugh Insurance

Agency, Inc., and Mark Dumbaugh. Appellant voluntarily dismissed Mark Dumbaugh

personally from the action. Appellee filed a motion for summary judgment. The trial court

granted Appellee’s motion for summary judgment, finding the policy cancellation issued

January 2, 2013, and effective February 3, 2013, to be valid.

{¶13} Appellant filed a notice of appeal to this Court (Case No. 18CA75). We

dismissed the appeal for want of a final, appealable order, as the Dumbaugh Insurance

Agency, Inc. remained a party to the action and the entry did not include Civ. R. 54(B)

language. Appellant subsequently dismissed the Dumbaugh Insurance Agency from the

action, rending the summary judgment in favor of Appellee a final, appealable order.

{¶14} It is from the July 23, 2018, summary judgment of the Richland County

Common Pleas Court Appellant prosecutes this appeal, assigning as error: Richland County, Case No. 18CA0122 8

THE TRIAL COURT ERRED IN GRANTING SUMMARY

JUDGMENT TO APPELLEE.

{¶15} Summary judgment proceedings present the appellate court with the unique

opportunity of reviewing the evidence in the same manner as the trial court. Smiddy v.

The Wedding Party, Inc., 30 Ohio St.3d 35, 36 (1987). As such, we must refer to Civ. R.

56(C) which provides in pertinent part:

Summary judgment shall be rendered forthwith if the pleadings,

depositions, answers to interrogatories, written admissions, affidavits,

transcripts of evidence, and written stipulations of fact, if any, timely filed in

the action, show that there is no genuine issue as to any material fact and

that the moving party is entitled to judgment as a matter of law. No evidence

or stipulation may be considered except as stated in this rule. A summary

judgment shall not be rendered unless it appears from the evidence or

stipulation, and only from the evidence or stipulation, that 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, that party being

entitled to have the evidence or stipulation construed most strongly in the

party’s favor.

{¶16} Ohio Civ. R. 56 Pursuant to the above rule, a trial court may not enter

summary judgment if it appears a material fact is genuinely disputed. The party moving Richland County, Case No. 18CA0122 9

for summary judgment bears the initial burden of informing the trial court of the basis for

its motion and identifying those portions of the record which demonstrate the absence of

a genuine issue of material fact. The moving party may not make a conclusory assertion

that the non-moving party has no evidence to prove its case. The moving party must

specifically point to some evidence which demonstrates the moving party cannot support

its claim. If the moving party satisfies this requirement, the burden shifts to the non-

moving party to set forth specific facts demonstrating there is a genuine issue of material

fact for trial. Vahila v. Hall, 77 Ohio St.3d 421, 429, 1997-Ohio-259, citing Dresher v.

Burt, 75 Ohio St.3d 280, 1996-Ohio-107.

{¶17} Appellant first argues the court erred in granting summary judgment to

Appellee because Appellee failed to provide the requested clarification of Bullet Point 5

prior to cancelling the contract.

{¶18} The insurance contract between the parties provides as follows:

Cancellation

The first Named Insured shown in the Declarations may cancel this

policy by mailing or delivering to us advance written notice of cancellation.

We may cancel this policy by mailing or delivering to the first Named

Insured written notice of cancellation at least:

10 days before the effective date of cancellation if we cancel for

nonpayment of premium

30 days before the effective date of cancellation if we cancel for any

other reason. Richland County, Case No. 18CA0122 10

We will mail or deliver our notice to the first Named Insured’s last

mailing address known to us.

Notice of cancellation will state the effective date of cancellation. The

policy period will end on that date.

If this policy is cancelled, we will send the first Named Insured any

premium refund due. If we cancel, the refund will be pro rata. If the first

Named Insured cancels, the refund may be less than pro rata. The

cancellation will be effective even if we have not made or offered a refund.

If notice is mailed, proof of mailing will be sufficient proof of notice.

{¶19} Policy No. CF 2554691, Common Police Conditions, Cancellation, IL 00 17

11 98, p. 1.

{¶20} There is no evidence Appellee violated these provisions in cancelling the

contract, and Appellant does not argue Appellee failed to comply with these provisions.

{¶21} Rather, Appellant argues Appellee breached the contract and acted in bad

faith by failing to provide the requested clarification regarding what action needed to be

taken by Appellant to comply with Bullet Point 5 of the inspection report.

{¶22} Appellant first argues Appellee’s duty to provide such clarification arises

from R.C. 3932.26(B)(6), which provides in pertinent part:

(B) After a policy of commercial property insurance, commercial fire

insurance, or commercial casualty insurance other than fidelity or surety

bonds, medical malpractice insurance, and automobile insurance as Richland County, Case No. 18CA0122 11

defined in section 3937.30 of the Revised Code, has been in effect for more

than ninety days, a notice of cancellation for such policy shall not be issued

by any licensed insurer unless it is based on one of the following grounds:

(6) Failure of an insured to correct material violations of safety codes

or to comply with reasonable written loss control recommendations[.]

{¶23} Appellant argues Appellee could not cancel the policy for its failure to

comply with the written loss control recommendations because Bullet Point 5 was not

reasonable. Appellant points to evidence in the record demonstrating Appellant did not

understand what it needed to do to comply with Bullet Point 5, and Appellee failed to

provide requested clarification of this point.

{¶24} Appellant cites no authority for its proposition that to be reasonable, the

recommendations must be subjectively understood by the insured, nor does it provide

any authority for the proposition the insured must provide detailed instructions on how to

correct the condition leading to the written loss control recommendation. If the legislature

intended “written loss control recommendations” to have effect only when clearly

understood by the insured, it could have written the statute that way. However, as written

in R.C. 3937.26(B)(6), we find the word “reasonable” modifies “written loss control

recommendations,” not the failure of the insured to comply with such recommendations.

Appellant’s argument calls into question the reasonableness of its failure to comply with

the loss control recommendation in a timely fashion, rather than the reasonableness of

the loss control recommendation itself. Richland County, Case No. 18CA0122 12

{¶25} Appellant also argues the cancellation violated Appellee’s internal policy

regarding cancellation. The Cancellation/Reinstatement Guidelines of USLIC provides in

pertinent part:

When reviewing the request to issue a notice of cancellation, we

need to verify the following:

The reason on the request – reason needs to comply with the statute

regulations and the policy language. Make sure the reason is clear and

understandable. If the reason is unclear refer back to underwriting for

clarification or review with your leader.

{¶26} We find this internal company guideline refers not to the notice of

cancellation provided to the insured, but to the internal request to issue a notice of

cancellation to the insured. The guideline is directed to the internal communications in

the company regarding a request to issue a notice of cancellation, and does not direct the

reason to be clear and understandable to the insured in the notice of cancellation.

{¶27} Nothing in this internal policy creates a duty to the insured separate and

apart from the requirements of the contract between the parties and the statutory

requirements.

{¶28} Finally, Appellant argues Appellee is vicariously liable for the actions of its

agent, Morstan. Appellant argues Morstan did not respond to communications requesting

clarification of Bullet Point 5 in a timely manner, thus leading to the cancellation of the

policy. Richland County, Case No. 18CA0122 13

{¶29} As discussed earlier in this opinion, Appellee did not breach the contract or

violate the statute in cancelling the contract. Even if Morstan did not communicate

between Appellant and Appellee in a timely fashion, Appellant failed to take any steps to

correct the condition or to seek additional time to comply, even after issuance of the

Notice of Cancellation. The failure of Appellant to correct the condition caused the

cancellation of the contract, not any failure or delay in communication by Morstan. We

find the trial court did not err in granting summary judgment, as Appellee was entitled to

judgment as a matter of law.

{¶30} The assignment of error is overruled.

{¶31} The judgment of the Richland County Common Pleas Court is affirmed.

By: Hoffman, P.J. Baldwin, J. and Wise, Earle, J. concur