Title: Wagner v. Midwestern Indemn. Co

State: ohio

Issuer: Ohio Supreme Court

Document:

WAGNER ET AL., APPELLANTS AND CROSS-APPELLEES, v. MIDWESTERN INDEMNITY 
COMPANY, APPELLEE AND CROSS-APPELLANT, ET AL. 
[Cite as Wagner v. Midwestern Indemn. Co. (1998), ___ Ohio St.3d ___.] 
Insurance — Insurer intentionally acts in bad faith in the processing of a claim of 
its insured, when — Innocent spouse rule construed and applied — Civil 
procedure — Prejudgment interest awarded, when. 
(No. 96-2730 — Submitted April 22, 1998 at the Seneca County Session — 
Decided September 30, 1998.) 
APPEAL and CROSS-APPEAL from the Court of Appeals for Seneca County, No. 13-
95-51. 
 
Appellant and cross-appellee, Verlin L. Wagner, owned a family grocery 
store located in Fostoria, Ohio.  Before closing the store on the evening of August 
27, 1991, he decided to spray two cans of insecticide around the store due to a 
recent infestation of insects caused by bird seed that had been set out for sale.  
Since Wagner wanted to avoid spraying until after everyone had left, he waited till 
approximately 9:00 p.m., after the two employees working that night had gone.  
Mr. Wagner finished fumigating the store, set the store alarm located near the rear 
exit, and locked the door as he left a few minutes after 9:00 p.m. 
 
At approximately 9:10 p.m., the Fostoria Police and Fire Departments 
received an alarm from the store.  At home, Verlin’s wife Ruth was immediately 
notified of the alarm, and set out with other members of the family to the store.  
They intercepted Mr. Wagner on his way home, and together they returned to the 
store to discover that it was on fire. 
 
The grocery store was insured through Midwestern Indemnity Company 
(“Midwestern”), and Mr. Wagner notified his insurance agent of the fire the next 
day.  The following day, Midwestern sent a claims adjuster to the fire scene to 
 
2
whom Mr. Wagner recounted his actions prior to leaving the store.  Midwestern 
proceeded to hire a fire investigator and by September 27, 1991, the physical 
investigation had been completed.  Midwestern’s fire investigator did not establish 
who set the fire, but concluded that it was incendiary, that is, it had been 
deliberately set.  Prior to this determination, the Fostoria Fire Department had 
listed the cause of the fire as undetermined, but later amended its report to reflect 
that the fire was incendiary.  There is no evidence that Mr. Wagner was ever 
questioned, charged, or convicted of arson. 
 
In November 1991, Mr. Wagner filed a proof-of-loss claim with Midwestern 
as required by the terms of the insurance policy.  Pursuant to the policy, 
Midwestern had thirty days from the submission of the proof-of-loss to either pay 
or deny the claim.  However, Midwestern did nothing until approximately nine 
and one-half months later, when it informed Mr. Wagner that it was denying the 
claim because it suspected him of arson. 
 
On October 23, 1992, Verlin L. and Ruth A. Wagner filed suit against 
Midwestern, seeking recovery under their insurance policy for damages, alleging 
that Midwestern had breached its contract and acted in bad faith.1  The case went 
to trial on August 29, 1994.  At the conclusion of opening statements, the court 
granted a directed verdict on Ruth Wagner’s breach of contract claim, based on the 
fact that Midwestern would not present any evidence against her and that she was 
an innocent spouse. 
 
The jury returned a unanimous verdict in favor of the Wagners and awarded 
them attorney fees and punitive damages.  Specifically, the jury awarded Mr. 
Wagner $500,000 for breach of contract and $1,000,000 for bad faith.  The jury 
awarded Mrs. Wagner $500,000 for breach of contract, and $300,000 for bad faith.  
The trial court determined that Verlin and Ruth Wagner were entitled to punitive 
 
3
damages in the amount of $800,000, and also awarded the Wagners attorney fees 
and prejudgment interest. 
 
The court of appeals affirmed in part and reversed in part.  Specifically, the 
appellate court (1) ordered a remittitur of the contract damages to $197,701.98, (2) 
reversed the trial court’s directed verdict in favor of Mrs. Wagner, (3) reversed the 
judgment on the issue of bad faith and remanded those claims for retrial and, thus, 
also reversed the award of punitive damages, and (4) reversed the prejudgment 
interest award.  The Wagners filed an appeal, and Midwestern cross-appealed. 
 
The cause is now before this court pursuant to the allowance of a 
discretionary appeal and cross-appeal. 
__________________ 
 
Oxley, Malone, Fitzgerald & Hollister, Dennis M. Fitzgerald and Julie A. 
Davenport;  Hackenberg, Beutler & Rasmussen and Robert A. Beutler, for 
appellants and cross-appellees. 
 
Ulmer & Berne, L.L.P., Harold H. Reader and Diane Sheehy Sebold, for 
appellee and cross-appellant. 
__________________ 
 
FRANCIS E. SWEENEY, SR., J.  This appeal and cross-appeal presents a 
number of issues for our consideration.  First, we must decide whether the 
judgment of the court of appeals to remand the issue of the Wagners’ bad faith 
claims was proper.  Second, we must determine whether the appellate court’s 
decision to reverse the directed verdict in favor of Ruth Wagner on the breach of 
contract claim was appropriate, based on the application of the “innocent spouse” 
rule.  Next, we must decide whether the court of appeals erred when it found that 
the trial court abused its discretion in awarding prejudgment interest.  Finally, we 
must address Midwestern’s claim that it was entitled to a directed verdict on 
 
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Verlin and Ruth Wagner’s bad faith claims as a matter of law.  For the following 
reasons, we (1) affirm the court of appeals’ decision with respect to the directed 
verdict in favor of Ruth Wagner, (2) affirm the remittitur of contract damages to 
$197,701.98, (3) reverse the court of appeals’ decision to remand the issue of bad 
faith for a new trial pursuant to Zoppo v. Homestead Ins. Co. (1994), 71 Ohio 
St.3d 552, 644 N.E.2d 397, and reinstate the bad faith verdicts in favor of the 
Wagners, (4) reinstate the award of attorney fees and punitive damages, and (5) 
reinstate the trial court’s grant of prejudgment interest. 
I.  Remand of Bad Faith Issue Under Zoppo 
 
The court of appeals reversed the jury’s verdict, finding that Midwestern 
had acted in bad faith, as the jury instructions had been based on the now-defunct 
bad-faith standard set forth in Motorists Mut. Ins. Co. v. Said (1992), 63 Ohio 
St.3d 690, 590 N.E.2d 1228.  In Said, we held that “[a]n insurer has a duty of good 
faith towards its insured implied by law.  This duty may be breached by an 
intentional failure by the insurer to perform under its contract with the insured.”  
Id. at paragraph two of the syllabus.  In the interim between the jury verdict and 
the court of appeals’ decision, we overruled the intent requirement in Said and 
returned to a reasonable-justification standard in deciding bad faith cases.  In 
Zoppo, we held that “[a]n insurer fails to exercise good faith in the processing of a 
claim of its insured where its refusal to pay the claim is not predicated upon 
circumstances that furnish reasonable justification therefor.”  Id. at paragraph one 
of the syllabus.  We found it necessary to overrule Said on the intent issue because 
“[r]ather than clarify the standard of proof required in the area of bad faith * * * 
[the Said decision] caused greater confusion by erroneously making intent an 
element of the tort of bad faith.”  Zoppo, 71 Ohio St.3d at 554, 644 N.E.2d at 399. 
 
5
 
The court of appeals in this case determined that a remand on the bad faith 
issue was necessary based on the doctrine set forth in Peerless Elec. Co. v. Bowers 
(1955), 164 Ohio St. 209, 57 O.O. 411, 129 N.E.2d 467, that a decision of a court 
of supreme jurisdiction that overrules a former decision becomes retrospective in 
its operation, and the effect is not that the former decision was bad law, but that it 
never was the law.  Id. at 210, 57 O.O. at 411, 129 N.E.2d at 468. 
 
However, blind application of the Peerless doctrine has never been 
mandated by this court.  In Roberts v. United States Fid. & Guar. Co. (1996), 75 
Ohio St.3d 630, 665 N.E.2d 664, we refused to remand a case pursuant to Zoppo, 
where the trial court had applied the intent requirement of Said.  As this court 
stated, “We decline to extend Zoppo to this particular case of bad faith failure to 
defend, as Zoppo was decided after the trial court’s and court of appeals’ decisions 
in this case.  This case has been litigated for over ten years and should come to 
final resolution before this court.”  Roberts at 633, 665 N.E.2d at 667. 
 
Consideration should be given to the purpose of the new rule or standard 
and to whether a remand is necessary to effectuate that purpose.  The reasonable-
justification standard set forth in Zoppo lessened the standard of proof necessary 
to show that an insurer acted in bad faith, as proof of actual intent was no longer 
required.  See Said, 63 Ohio St.3d at 702, 590 N.E.2d at 1237-1238 (Douglas, J., 
dissenting).  It is axiomatic that a standard based on intent imposes a higher 
burden of proof than one based on reasonableness.  See, generally, Van Fossen v. 
Babcock & Wilcox (1988), 36 Ohio St.3d 100, 115, 522 N.E.2d 489, 503; see, also, 
Prosser & Keeton, Law of Torts (5 Ed.1984) 37, Section 8.  The jury in this case 
found that Midwestern intentionally acted in bad faith.  Therefore, it stands to 
reason that they would have found Midwestern liable under the lesser standard of 
reasonable justification. 
 
6
 
We have remanded other cases for a determination in accordance with 
Zoppo.  See, e.g., State Farm Mut. Auto. Ins. Co. v. Reinhart (1995), 71 Ohio St.3d 
654, 646 N.E.2d 1110.  However, such cases involved situations where the lower 
courts failed to find that the insurer had acted with intentional bad faith.  In this 
case, the jury found Midwestern liable under the stricter standard of intent under 
Said.  Midwestern suffered no prejudice, and, as in Roberts, judicial economy 
dictates that this case proceed to a final resolution.  We conclude that the court of 
appeals’ rigid application of Peerless was inappropriate in this situation.  
Therefore, we reverse the judgment of the court of appeals on this issue and 
reinstate the jury’s verdict in favor of Ruth and Verlin Wagner on their claims of 
bad faith.  Accordingly, we also reinstate the verdicts awarding them attorney fees 
of $85,193.12 and punitive damages in the amount of $800,000. 
II.  The Innocent Spouse Rule 
 
After opening statements, the Wagners moved for a directed verdict in favor 
of Ruth Wagner based on the “innocent spouse” rule.  The trial court granted her a 
directed verdict on her breach of contract claim, holding as a matter of law that 
Ruth Wagner was an innocent spouse and was entitled to one-half of any 
contractual damages.  The court of appeals, however, reversed the trial court’s 
directed verdict and held that the innocent spouse rule can be contractually 
nullified by the terms of the insurance contract and, in this case, the wording of the 
contract specifically negated the innocent spouse rule. 
 
Different theories have emerged concerning whether the fraudulent behavior 
of one spouse should be automatically imputed to the other coinsured spouse 
without proof of the latter’s misconduct.  See Vance v. Pekin Ins. Co. (Iowa 1990), 
457 N.W.2d 589, and cases cited therein.  Traditionally, older cases automatically 
denied an innocent spouse the right to recover under an insurance policy if the 
 
7
other spouse had committed misconduct, as the rights and obligations of the 
parties under the contract were presumed to be joint.  These older cases were 
based on the property ideal of the unseverability of estates, the notion that a 
husband and wife were a single entity, and concern that the guilty party would 
indirectly benefit through the innocent spouse because of the complicity of the 
marital relationship.  See, e.g., Matyuf v. Phoenix Ins. Co. (1933), 27 Pa.D & C.2d 
351; Kosior v. Continental Ins. Co. (1938), 299 Mass. 601, 13 N.E.2d 423; 
Watkins Schoenig, Property Insurance and the Innocent Co-Insured:  Was it All 
Pay and No Gain for the Innocent Co-Insured? (1995), 43 Drake L.Rev. 893, 896-
897.  However, modern cases have properly rejected this reasoning and instead 
have adopted an approach based on contract principles to determine whether the 
parties intended joint or several coverage.  Vance v. Pekin Ins. Co., 457 N.W.2d at 
592; Watson v. United Serv. Auto. Assn. (Minn.1997), 566 N.W.2d 683, 688-689; 
Buckeye Union Ins. Co. v. Phillips (Aug. 7, 1986), Defiance App. No. 4-84-7, 
unreported, 1986 WL 8684.  In determining whether the parties contemplated joint 
or several coverage, the terms of the contract are to be considered, Vance, 457 
N.W.2d at 592, and “[w]here provisions of a contract of insurance are reasonably 
susceptible of more than one interpretation, they will be construed strictly against 
the insurer and liberally in favor of the insured.”  King v. Nationwide Ins. Co. 
(1988), 35 Ohio St.3d 208, 519 N.E.2d 1380, syllabus. 
 
In this case, the insurance contract stated that along with the named insured: 
 
“The term ‘You’ or ‘Your’ in this policy means: 
 
“ * * * 
 
“2. Your spouse if you are an individual proprietor.” 
 
We find that the contract language clearly and unambiguously contemplated 
that Ruth and Verlin Wagner were jointly covered under the insurance policy and, 
 
8
therefore, she was not entitled to a separate recovery.  See, e.g., Hall v. State Farm 
Fire & Cas. Co. (C.A.5, 1991), 937 F.2d 210, 213-214; Vance, 457 N.W.2d at 
592-593.  Accordingly, we affirm the judgment of the court of appeals and hold 
that Ruth Wagner was not entitled to a directed verdict as an innocent spouse. 
 
We reject Midwestern’s claim that Ruth was precluded from suing in 
contract, regardless of whether she was an innocent spouse, since she had never 
separately and individually filed a proof-of-loss claim.  When filing a statement of 
proof of loss, “if there are several insured, any one may act.  It is not necessary to 
join all.”  3 Freedman’s Richards on Insurance (6 Ed.1990) 229, Section 17:30.  
Moreover, the contract language specifically stated that “[i]f more than one 
insured is named in this policy, the first one named shall act for all.”  Ruth Wagner 
was defined as an insured under the policy.  As such, it was unnecessary for her to 
file a separate proof-of-loss claim because Verlin had acted on behalf of all 
insureds under the policy. 
 
Ruth was not entitled to a directed verdict, but the court of appeals properly 
found that Ruth’s breach of contract claim would have been successful based on 
the jury’s verdict in favor of her husband’s claim.  Therefore, Ruth Wagner’s 
breach of contract claim is remanded and the trial court is instructed to enter 
judgment consistent therewith.  The court of appeals found that the jury’s award of 
$1,000,000 in contract damages was excessive and properly reduced damages to 
$197,701.98, to which Ruth Wagner is jointly entitled. 
III.  Prejudgment Interest 
 
The court of appeals determined that the trial court abused its discretion in 
awarding prejudgment interest based on the fact that the appellants never made a 
reasonable offer of settlement after initiation of their court action.  Appellants urge 
that the filing of their proof-of-loss claim constituted their offer of settlement and 
 
9
that the law does not require that a formal settlement offer be made only after a 
lawsuit has commenced.  The trial court had awarded prejudgment interest 
primarily based on the criteria set forth in Moskovitz v. Mt. Sinai Med. Ctr. (1994), 
69 Ohio St.3d 638, 635 N.E.2d 331, and Midwestern’s inordinate delay. 
 
Ohio’s prejudgment interest statute, R.C. 1343.03(C), stated: 
 
“Interest on a judgment, decree, or order for the payment of money rendered 
in a civil action based on tortious conduct and not settled by agreement of the 
parties, shall be computed from the date the cause of action accrued to the date on 
which the money is paid, if, upon motion of any party to the action, the court 
determines at a hearing held subsequent to the verdict or decision in the action that 
the party required to pay the money failed to make a good faith effort to settle the 
case and that the party to whom the money is to be paid did not fail to make a 
good faith effort to settle the case.”  139 Ohio Laws, Part I, 2034, 2035. 
 
A trial court’s grant of prejudgment interest will be upheld absent an abuse 
of discretion.  Kalain v. Smith (1986), 25 Ohio St.3d 157, 159, 25 OBR 201, 203, 
495 N.E.2d 572, 574. 
 
In Moskovitz v. Mt. Sinai Med. Ctr., supra, we elaborated on the “good faith 
effort to settle” requirement originally set forth in Kalain.  “The effect of Kalain is 
to place the burden of proof on a party seeking prejudgment interest.  This is, to a 
degree, unfortunate since much of the information needed to make a case for 
prejudgment interest is in the possession of the party resisting an award.  
Accordingly, it is incumbent on a party seeking an award to present evidence of a 
written (or something equally persuasive) offer to settle that was reasonable 
considering such factors as the type of case, the injuries involved, applicable law, 
defenses available, and the nature, scope and frequency of efforts to settle.  Other 
factors would include responses —or lack thereof — and a demand substantiated 
 
10
by facts and figures.  Subjective claims of lack of good faith will generally not be 
sufficient.  These factors, and others where appropriate, should be considered by a 
trial court in making a prejudgment interest determination.”  Moskovitz v. Mt. 
Sinai Med. Ctr., 69 Ohio St.3d at 659, 635 N.E.2d at 348. 
 
However, in Galayda v. Lake Hosp. Sys., Inc. (1994), 71 Ohio St.3d 421, 
644 N.E.2d 298, we found that a plaintiff is relieved of any obligation to continue 
efforts to negotiate where he or she is told that a settlement offer will never be 
made and any additional negotiation would be considered “a vain act.”  Id. at 429, 
644 N.E.2d at 304. 
 
At the prejudgment interest hearing, Midwestern’s trial attorney testified 
that he had already told the Wagners, after they had filed the proof-of-loss claims, 
that “we’re not paying you one thin dime.”  Based on Galayda, we conclude that 
the trial court did not abuse its discretion in determining that any further attempt 
by the Wagners to settle would have been in vain, since Midwestern had already 
announced that it would not pay anything.  The court of appeals failed to address 
the effect of Galayda, and the fact that the trial judge properly considered the 
factors set forth in Moskovitz.  In light of this, we reverse the judgment of the court 
of appeals on this point and reinstate the trial court’s decision awarding 
prejudgment interest on the Wagners’ compensatory damages.  The issue is 
remanded to the trial court to calculate interest in accordance with the reduced 
amount of $197,701.98 for breach of contract, as well as the reinstated amount of 
$1,300,000 in damages awarded for bad faith.2 
IV.  Cross-Appeal of Midwestern 
 
Midwestern, as cross-appellant, argues that an insurer who has a reasonable 
basis for denying coverage should not incur bad faith liability as a matter of law, 
 
11
and essentially submits that it was entitled to a directed verdict in its favor on the 
Wagners’ bad faith claims. 
 
Midwestern asks this court to adopt the “good faith as a matter of law” rule.  
Pursuant to this rule, Midwestern would not be liable for bad faith unless the trial 
court could have properly entered a directed verdict for the claimant on his or her 
contract claim.  However, Civ.R. 50(A)(4) provides, “When a motion for a 
directed verdict has been properly made, and the trial court, after construing the 
evidence most strongly in favor of the party against whom the motion is directed, 
finds that upon any determinative issue reasonable minds could come to but one 
conclusion upon the evidence submitted and that conclusion is adverse to such 
party, the court shall sustain the motion and direct a verdict for the moving party 
as to that issue.”  In Wagner v. Roche Laboratories (1996), 77 Ohio St.3d 116, 
671 N.E.2d 252, we stated further, “ ‘When a motion for a directed verdict is 
entered, what is being tested is a question of law, that is, the legal sufficiency of 
the evidence to take the case to the jury.  This does not involve weighing the 
evidence or trying the credibility of witnesses.’ ”  Id. at 119, 671 N.E.2d at 255, 
quoting Ruta v. Breckenridge-Remy Co. (1982), 69 Ohio St.2d 66, 68-69, 23 
O.O.3d 115, 116-117, 430 N.E.2d 935, 938.  Clearly, the record in this case 
demonstrates that the Wagners presented sufficient evidence to create a jury 
question on the issue of bad faith.  For instance, the evidence reveals that Mr. 
Wagner was cooperative and candid during the investigation of the claim, and 
there is no evidence that he was ever officially questioned or charged with arson.  
There was also expert testimony from which the jury could conclude that the fire 
could have been accidentally caused by an electrical spark that ignited the 
insecticide vapor.  Finally, the jury could reasonably have found bad faith from the 
 
12
fact that Midwestern waited nearly a full year after its physical investigation had 
been completed before refusing the claim. 
 
Accordingly, we affirm the judgment of the court of appeals with regard to 
the directed verdict in favor of Ruth Wagner and the remittitur of contract 
damages to $197,701.98.  We reverse the judgment of the court of appeals and 
hold that a remand of the bad faith issue is unnecessary and reinstate the verdicts 
finding Midwestern liable for bad faith.  We reinstate the jury’s award of punitive 
damages and attorney fees.  We also reverse the judgment of the court of appeals 
and reinstate the trial court’s award of prejudgment interest. We remand the issue 
for a calculation of prejudgment interest due on the reinstated awards for bad faith, 
as well as on the contract damages as reduced by the remittitur. 
Judgment affirmed in part, 
reversed in part 
and cause remanded. 
 
DOUGLAS, RESNICK and PFEIFER, JJ., concur. 
 
MOYER, C.J., COOK and LUNDBERG STRATTON, JJ., dissent in part. 
FOOTNOTES: 
1. 
The complaint also alleged that Midwestern was liable for defamation; 
however, the jury eventually returned a verdict in Midwestern’s favor on this 
issue. 
2. 
When this case was argued before this court, we had not yet announced our 
decision in Landis v. Grange Mut. Ins. Co. (1998), 82 Ohio St.3d 339, 695 N.E.2d 
1140.  Pursuant to Landis, the trial court, on remand, is directed to calculate the 
interest due on the breach of contract award under R.C. 1343.03(A), while the 
interest due on the bad faith award will be calculated under R.C. 1343.03(C). 
__________________ 
 
13
 
COOK, J., dissenting in part.  Because the Wagners failed to prove their 
bad faith claim at trial, I respectfully dissent. 
 
In Zoppo v. Homestead Ins. Co. (1994), 71 Ohio St.3d 552, 644 N.E.2d 397, 
paragraph one of the syllabus, the court set out the following test for determining 
whether an insurer breaches its duty to process claims in good faith: “An insurer 
fails to exercise good faith in the processing of a claim of its insured where its 
refusal to pay the claim is not predicated upon circumstances that furnish 
reasonable justification therefor.  (Hart v. Republic Mut. Ins. Co.  [1949], 152 
Ohio St. 185, 39 O.O. 465, 87 N.E.2d 347, and Staff Builders, Inc. v. Armstrong 
[1988], 37 Ohio St.3d 298, 525 N.E.2d 783, approved and followed;  Slater v. 
Motorists Mut. Ins. Co.  [1962], 174 Ohio St. 148, 21 O.O.2d 420, 187 N.E.2d 45, 
paragraph two of the syllabus, overruled;  Motorists Mut. Ins. Co. v. Said [1992], 
63 Ohio St.3d 690, 590 N.E.2d 1228, overruled to the extent inconsistent 
herewith.)” 
 
To demonstrate that the Wagners presented sufficient evidence to create a 
jury question on their bad faith claim, today’s majority cites evidence (1) that Mr. 
Wagner was cooperative and candid during the investigation of the claim, (2) that 
he was never officially questioned or charged with arson,  and (3) that there was 
expert testimony from which a jury could conclude that the fire could have been 
accidentally caused.  Additionally, the majority says that the bad faith claim could 
have been supported by Midwestern’s delay in refusing the Wagners’ claim.  None 
of the facts discussed by the majority, however, tends to prove the 
unreasonableness of Midwestern’s stated justifications for denying the Wagners’ 
claim as required by Zoppo.  Instead, they tend to prove only a breach of the 
insurance contract. 
 
14
 
Midwestern justified its refusal of the Wagners’ claims on two grounds: (1) 
that it suspected Mr. Wagner of  intentionally setting the fire, and (2) that, after the 
fire, Mr. Wagner seriously misrepresented his financial status to Midwestern.  The 
“Special Businessowners Policy” between Midwestern and the Wagners excludes 
coverage for losses caused by fraudulent or dishonest acts committed by Mr. 
Wagner.  It also would allow Midwestern to void the entire policy if Mr. Wagner, 
or someone on his behalf, made misrepresentations with an intent to deceive 
Midwestern. 
 
Bad faith is not shown by a mere breach of a contractual duty. Helmick v. 
Republic-Franklin Ins. Co. (1988), 39 Ohio St.3d 71, 529 N.E.2d 464, paragraph 
two of the syllabus.  Although Zoppo made it clear that actual intent is not a 
necessary element of a bad faith claim, it cannot be read to dispense with the 
insured’s duty to prove that the insurer committed some act above breaching the 
insurance contract. 
 
In Zoppo, the court pinned its approval of a bad faith award  on  the 
insurance company’s failure to adequately investigate a bar owner’s claim for fire 
damage.  As in the present case, the insurance company in Zoppo denied its 
insured’s claim because of its belief that the insured deliberately set fire to his 
business premises.  That, however, is where the similarities between Zoppo and 
the case now under consideration end.  At trial, the Zoppo plaintiff produced 
evidence that the insurance company failed to seriously explore leads that others 
had set the fire.  Those leads included the following: (1) that Zoppo had ousted 
several men from his bar, who then threatened to burn the bar down,  (2)  that 
three weeks before the fire in question, there had been an attempt to set the bar on 
fire, (3) that two men whom Zoppo had ousted from his bar publicly bragged that 
they were responsible for the attempted fire, and (4) that one of those men also 
 
15
told a group of bar patrons that he had set the actual fire.  The Zoppo plaintiffs 
additionally produced evidence that, despite these leads, and despite the fact that 
there appeared to be a break-in and robbery connected with the fire, the insurance 
company failed to locate key suspects, verify alibis (including Zoppo’s), follow up 
with witnesses, or ask anything but cursory questions of suspects other than 
Zoppo.  Finally, the Zoppo court noted that part of the insurer’s denial of the claim 
was based on its belief that Zoppo had a motive to destroy the bar — financial 
gain.  Zoppo purchased the bar six months before the fire for $10,000 and insured 
it for $50,000.  Other information, either possessed by or readily discoverable to 
the insurer, however, undermined the reasonableness of the insurer’s belief.  The 
insurer’s own initial underwriting report stated the building’s market value as 
$95,798.  Additionally, Zoppo had no debts and had actually made improvements 
to the bar before the fire.  Id., 71 Ohio St.3d at 555-556, 644 N.E.2d at 400. 
 
In contrast to Zoppo, when the evidence is construed most favorably to the 
plaintiffs’ in this case, there still is nothing to justify a finding of bad faith.  
Instead, the Wagners’ evidence provides only a foundation for the fact-finder to 
reject the insurer’s defenses to the breach of contract claim. 
 
At trial, Midwestern provided evidence that at the time it rejected the claim 
it was in possession of information tending to demonstrate that the fire at the 
Wagners’ store had been set deliberately, and that Mr. Wagner possessed both the 
means and a motive to set the fire.  Two separate reports — one by an independent 
consulting firm and another by the Fostoria Fire Department — stated that the fire 
had been incendiary in nature.  There were no signs of a forced entry into the 
store.  And, by his own account, Mr. Wagner locked the store up only minutes 
before the fire alarm sounded. 
 
16
 
Furthermore, Mr. Wagner had serious financial difficulties.  He had filed for 
bankruptcy, failed to pay payroll taxes for the previous year, and owed over 
$100,000 in federal income taxes.  Moreover, sales had been declining steadily at 
the Wagners’ store over the last five years and, over the last two to three years, the 
Wagners had unsuccessfully attempted to sell their business. 
 
Finally, Mr. Wagner twice misrepresented to a Midwestern investigator that 
he was current on his bills and denied that he was involved in a civil action despite 
his pending bankruptcy petition. 
 
Faced with the reasons stated by Midwestern for denying coverage, the 
Wagners failed to present sufficient evidence to raise a jury question that 
Midwestern’s actions were unreasonable and therefore gave rise to a bad faith 
claim. The Wagners’ expert opined that the fire was caused accidentally and that 
the source of ignition was an electrical spark that reacted with bug spray vapors to 
cause an explosion.  He also testified, however, that his theory of causation 
involved a rare phenomenon that is not generally known in fire department circles.  
The Wagners’ expert also criticized the investigative techniques and thoroughness 
of the Fostoria Fire Department and the insurance company’s independent 
investigator, but these criticisms fall far short of establishing bad faith on the part 
of the insurance company itself.  Compare Zoppo. 
 
Finally, Midwestern’s delay in denying the Wagners’ claims after Mr. 
Wagner filed a sworn proof of loss does not, in itself, provide a basis for a bad 
faith award.  While the delay arguably ran afoul of the contract terms, it did not 
render Midwestern’s denial of the Wagners’ claims unreasonable — which is the 
ultimate focus of the  Zoppo bad faith inquiry. 
 
Accordingly, I believe that the trial court erred in failing to direct a verdict 
in favor of Midwestern on the Wagners’ bad faith claims.  The Wagners should 
 
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not be permitted to recover bad faith damages and thus are not entitled to punitive 
damages or attorney fees. See Helmick v. Republic-Franklin Ins. Co., 39 Ohio 
St.3d at 75, 529 N.E.2d at 468.  And, as an additional consequence, prejudgment 
interest should be calculated on only the $197,701.98 breach of contract award.  
More important, however, I fear that today’s application of Zoppo will further blur 
the distinction between the proof required to create a jury question on a breach of 
contract committed by an insurer and a cause of action in tort for bad faith. 
 
MOYER, C.J., and LUNDBERG STRATTON, J., concur in the foregoing opinion.