Title: Cincinnati Ins. Co. v. CPS Holdings, Inc.

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Cincinnati Ins. Co. v. CPS Holdings, Inc., 115 Ohio St.3d 306, 2007-Ohio-4917.] 
 
 
 
CINCINNATI INSURANCE COMPANY, APPELLANT, ET AL., v. CPS HOLDINGS, 
INC., D.B.A. IQ SOLUTIONS, ET AL., APPELLEES. 
[Cite as Cincinnati Ins. Co. v. CPS Holdings, Inc., 
115 Ohio St.3d 306, 2007-Ohio-4917.] 
Insurance — Umbrella policy — Interpretation of contract —  Underlying 
insurance — Excess coverage — No duty to defend. 
(No. 2006-0722 – Submitted May 22, 2007 – Decided September 27, 2007.) 
APPEAL from the Court of Appeals for Cuyahoga County,  
Nos. 85967 and 85969, 2006-Ohio-713. 
__________________ 
 
LANZINGER, J. 
{¶ 1} We accepted this discretionary appeal to clarify the interpretation 
of language within an umbrella insurance policy.  We reverse the court of appeals 
because an insurer has no duty to defend when there is no applicable “underlying 
insurance.” 
Case Background 
{¶ 2} In late 2003, appellee Ohio Department of Administrative Services 
(“DAS”) sued appellees CPS Holding Company, Ltd., and IQ Solutions, L.L.C. 
(collectively, “CPS”), in the Franklin County Court of Common Pleas.  The 
complaint alleged that CPS, as a third-party administrator of a program to procure 
natural gas, had mismanaged state funds and failed to pay the natural gas 
suppliers pursuant to contract.  Nine causes of action were set forth, including 
negligence, professional negligence, breach of implied warranty, breach of 
contract, breach of express warranty, conversion, unjust enrichment, recovery of 
public funds under R.C. 117.28, and piercing of the corporate veil. 
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{¶ 3} CPS requested that appellant, Cincinnati Insurance Company, as 
well as other insurance companies, provide a defense.  Cincinnati Insurance had 
issued two policies to CPS: a common policy and a commercial umbrella liability 
policy.  After declining coverage, Cincinnati Insurance filed a declaratory 
judgment action against CPS in the Cuyahoga County Common Pleas Court to 
determine its duty to defend.  DAS was added later as a party.  Cincinnati 
Insurance filed a motion for summary judgment, and the trial court granted 
judgment in its favor. 
{¶ 4} On appeal, CPS abandoned any claim under Cincinnati Insurance’s 
common policy but continued to argue that the insurer had a duty to defend under 
its umbrella policy because Gulf Underwriters Insurance Company’s Specialty 
Errors & Omissions Liability Insurance Policy (“E & O policy”) potentially 
provided coverage for CPS in the Franklin County lawsuit.  The Eighth District 
Court of Appeals concluded that the claims against CPS fell within the scope of 
Gulf’s duty to defend.  The court of appeals then held that the clause “insurance 
available to the insured under all other insurance policies applicable to the 
‘occurrence,’ ” as used in Cincinnati Insurance’s umbrella policy, was ambiguous.  
Cincinnati Ins. Co. v. CPS Holdings, Inc., 8th Dist. Nos. 85967 and 85969, 2006-
Ohio-713, ¶ 26.  The court then construed this language liberally in favor of the 
insured to cover Gulf’s E & O policy as “underlying insurance.”  Id. ¶ 26-27.  We 
accepted Cincinnati Insurance’s discretionary appeal. 
Contract Principles 
{¶ 5} “An umbrella policy is a policy which provides excess coverage 
beyond an insured’s primary policies.”  Midwestern Indemn. Co. v. Craig (1995), 
106 Ohio App.3d 158, 164, 665 N.E.2d 712.  See, also, Cleveland Builders 
Supply Co. v. Farmers Ins. Group of Cos. (1995), 102 Ohio App.3d 708, 657 
N.E.2d 851.  Umbrella policies are different from standard excess insurance 
policies, since they provide both excess coverage (“vertical coverage”) and 
January Term, 2007 
3 
primary coverage (“horizontal coverage”).  Am. Special Risk Ins. Co. v. A-Best 
Prods., Inc. (1997), 975 F.Supp. 1019, 1022.  “The vertical coverage provides 
additional coverage above the limits of the insured’s underlying primary 
insurance, whereas the horizontal coverage is said to ‘drop down’ to provide 
primary coverage for situations where the underlying insurance provides no 
coverage at all.” Id. at 1022. 
{¶ 6} The duty to defend arises when a complaint alleges a claim that 
could be covered by the insurance policy.  Sharonville v. Am. Emps. Ins. Co., 109 
Ohio St.3d 186, 2006-Ohio-2180, 846 N.E.2d 833, ¶ 13.  An insurer, however, is 
not obligated to defend any claim that is clearly and indisputably outside the 
contracted policy coverage.  Preferred Risk Ins. Co. v. Gill (1987), 30 Ohio St.3d 
108, 113, 30 OBR 424, 507 N.E.2d 1118. 
{¶ 7} “An insurance policy is a contract whose interpretation is a matter 
of law.”  Sharonville, 109 Ohio St.3d 186, 2006-Ohio-2180, 846 N.E.2d 833, ¶ 6.  
In Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, 797 N.E.2d 
1256, ¶ 11, we stated, “When confronted with an issue of contractual 
interpretation, the role of a court is to give effect to the intent of the parties to the 
agreement.  Hamilton Ins. Serv., Inc. v. Nationwide Ins. Cos. (1999), 86 Ohio 
St.3d 270, 273, 714 N.E.2d 898, citing Employers’ Liab. Assur. Corp. v. Roehm 
(1919), 99 Ohio St. 343, 124 N.E. 223, syllabus.  See, also, Section 28, Article II, 
Ohio Constitution.  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.  Kelly 
v. Med. Life Ins. Co. (1987), 31 Ohio St.3d 130, 31 OBR 289, 509 N.E.2d 411, 
paragraph one of the syllabus.  We look to the plain and ordinary meaning of the 
language used in the policy unless another meaning is clearly apparent from the 
contents of the policy.  Alexander v. Buckeye Pipe Line Co. (1978), 53 Ohio St.2d 
241, 7 O.O.3d 403, 374 N.E.2d 146, paragraph two of the syllabus.  When the 
language of a written contract is clear, a court may look no further than the 
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writing itself to find the intent of the parties.  Id.  As a matter of law, a contract is 
unambiguous if it can be given a definite legal meaning.  Gulf Ins. Co. v. Burns 
Motors, Inc. (Tex.2000), 22 S.W.3d 417, 423.” 
{¶ 8} Ambiguity in an insurance contract is construed against the insurer 
and in favor of the insured.  King v. Nationwide Ins. Co. (1988), 35 Ohio St.3d 
208, 519 N.E.2d 1380, syllabus.  This rule, however, will not be applied so as to 
provide an unreasonable interpretation of the words of the policy.  Morfoot v. 
Stake (1963), 174 Ohio St. 506, 23 O.O.2d 144, 190 N.E.2d 573, paragraph one of 
the syllabus. 
Application of Legal Principles 
{¶ 9} With those principles in mind, we turn to the insurance policy at 
issue.  The insuring agreement within Cincinnati Insurance’s umbrella policy 
provides: 
{¶ 10} “We will pay on behalf of the insured the ‘ultimate net loss’ which 
the insured is legally obligated to pay as damages in excess of the ‘underlying 
insurance’ or for an ‘occurrence’ covered by this policy which is either excluded 
or not covered by ‘underlying insurance’ because of: 
{¶ 11} “1. ‘Bodily injury’ or ‘property damage’ covered by this policy 
occurring during the policy period and caused by an ‘occurrence’; or 
{¶ 12} “2. ‘Personal injury’ or ‘advertising injury’ covered by this policy 
committed during the policy period and caused by an ‘occurrence’.” (Emphasis 
added.) 
{¶ 13} CPS asserts that, pursuant to this provision, Cincinnati Insurance 
must defend the Franklin County litigation.1  DAS and CPS argue that a portion 
of the insuring agreement is ambiguous because it is unclear whether the two 
                                                 
1. 
CPS had also argued in the trial court that Cincinnati Insurance had a duty to defend 
because CPS had suffered an “occurrence” that was either excluded or not covered by underlying 
insurance.  The trial court rejected this claim, and CPS did not appeal on this issue. 
January Term, 2007 
5 
paragraphs following the words “because of” limit both the phrase “in excess of 
the ‘underlying insurance’ ” and the clause “for an ‘occurrence’ covered by this 
policy which is either excluded or not covered by ‘underlying insurance,’ ” or 
limit just the latter clause. 
{¶ 14} The first question that must be addressed is whether Gulf’s E & O 
policy qualifies as “underlying insurance.”  Cincinnati Insurance’s umbrella 
policy defines “underlying insurance” as “the policies of insurance listed in the 
Schedule of Underlying Policies and the insurance available to the insured under 
all other insurance policies applicable to the ‘occurrence’.  ‘Underlying insurance’ 
also includes any type of self-insurance or alternative method by which the 
insured arranges for funding of legal liabilities that affords coverage that this 
policy covers.”  The umbrella policy also provides that “occurrence” means “[a]n 
accident, including continuous or repeated exposure to substantially the same 
general harmful conditions, that results in ‘bodily injury’ or ‘property damage’.” 
{¶ 15} Thus, three types of insurance policies qualify as underlying 
insurance:  (1) any insurance policy listed in the Schedule of Underlying 
Insurance Policies attached to Cincinnati Insurance’s policy, (2) unlisted 
insurance policies applicable to an “occurrence,” that is, an accident that resulted 
in “bodily injury” or “property damage,” and (3) self-insurance or alternative 
methods of coverage. 
{¶ 16} Without referring to the definition of the term “occurrence,” which 
is found within the policy’s definition of underlying insurance, the Eighth District 
interpreted the clause “the insurance available to the insured under all other 
insurance policies applicable to the ‘occurrence’ ” as susceptible of more than one 
meaning.  The appellees make two arguments in support of this holding.  CPS 
asserts that we should ignore the policy’s definition of “occurrence” because the 
word is preceded by “the” instead of “an” and is simply a generic reference to the 
allegations of a complaint.  DAS maintains that since the word “occurrence” 
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refers only to an occurrence policy rather than a claims-made policy such as 
Gulf’s E & O policy, the definition of “underlying insurance” is ambiguous. 
{¶ 17} Neither argument, however, is persuasive.  The policy clearly 
states that “words and phrases that appear in quotation marks have special 
meaning.  Refer to Definitions (Section V).”  “We have long held that a contract 
is to be read as a whole and the intent of each part gathered from a consideration 
of the whole.  Foster Wheeler Enviresponse, Inc. v. Franklin Cty. Convention 
Facilities Auth. (1997), 78 Ohio St.3d 353, 361, 678 N.E.2d 519.  If it is 
reasonable to do so, we must give effect to each provision of the contract.  
Expanded Metal Fire-Proofing Co. v. Noel Constr. Co. (1913), 87 Ohio St. 428, 
434, 101 N.E. 348.”  Saunders v. Mortensen, 101 Ohio St.3d 86, 2004-Ohio-24, 
801 N.E.2d 452, ¶ 16. 
{¶ 18} Taking the definition of “occurrence” into consideration when 
interpreting the term “underlying insurance” does not create ambiguity or render 
the term unclear.  Nor does the use of the word “occurrence” mean that claims-
made policies are excluded as underlying insurance.  The purpose for including 
the term “occurrence” within the definition of “underlying insurance” is to limit 
the umbrella policy’s coverage to claims arising from accidents that resulted in 
bodily injury or property damage. 
{¶ 19} The Gulf E & O policy does not fall within one of the three types 
of “underlying insurance” defined under Cincinnati Insurance’s umbrella policy.  
It is not self-insurance nor listed in the Schedule of Underlying Policies.  Neither 
is the policy an insurance policy “applicable to the ‘occurrence,’ ” because it does 
not cover accidents that result in bodily injury or property damage.2 
                                                 
2. 
{¶ a} In its exclusion section, Gulf’s E & O policy clearly states: “We are not obligated 
to pay Damages or Claim Expenses or defend Claims for or arising directly or indirectly out of: 
 
{¶ b} “a. Bodily Injury or Property Damage.”   
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{¶ 20} CPS and DAS also argue that because the umbrella policy contains 
a special endorsement entitled “Exclusion of Designated Professional Services,” 
which does not exclude the type of services CPS provided for DAS, CPS’s 
alleged professional negligence is covered.3  This endorsement, however, is not an 
insuring provision but rather an exclusion of claims for “bodily injury,” “property 
damage,” “personal injury,” or “advertising injury” caused by certain professional 
services.  The complaint pending in the Franklin County Court of Common Pleas 
does not allege these type of claims.  Therefore, this policy provision is clearly 
inapplicable. 
{¶ 21} Because Cincinnati Insurance’s umbrella policy provides excess 
coverage for only those policies listed within its schedule or those applicable to 
accidents resulting in bodily injury or property damage, the Gulf E & O policy is 
not “underlying insurance.”  Cincinnati Insurance, therefore, does not have a duty 
to defend CPS in the Franklin County litigation.  The judgment of the Cuyahoga 
Court of Appeals is reversed. 
Judgment reversed. 
 
MOYER, 
C.J., 
and 
PFEIFER, 
LUNDBERG 
STRATTON, 
O’CONNOR, 
O’DONNELL, and CUPP, JJ., concur. 
__________________ 
 
Davis & Young, Richard M. Garner, and Dennis R. Fogarty, for appellant. 
 
Robert P. Rutter, for appellees IQ Solutions, L.L.C., CPS Holdings, Inc., 
CPS Holding Company, Ltd., CPS Utilities, Linda and Robert Kendall, and NCP 
Limited Partnership. 
                                                 
3. 
{¶ a} 
The endorsement states, “This insurance does not apply to ‘bodily injury’, 
‘property damage’, ‘personal injury’, or ‘advertising injury’ due to the rendering or failure to 
render any professional service shown in the schedule. 
{¶ b} 
“SCHEDULE 
{¶ c} 
“1. COMPUTER PROGRAMMING AND CONSULTING 
{¶ d} 
“2. COMPUTER MFG., COMPUTER SOFTWARE 
{¶ e} 
“3. ELECTRONIC DATA PROCESSING SERVICES” 
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Marc Dann, Attorney General, Stephen P. Carney, Deputy State Solicitor, 
and William J. Cole and James M. Evans, Assistant Attorneys General, for 
appellee Ohio Department of Administrative Services. 
______________________