Title: Landis v. Grange Mut. Ins. Co.

State: ohio

Issuer: Ohio Supreme Court

Document:

LANDIS ET AL., APPELLEES AND CROSS-APPELLANTS, v. GRANGE MUTUAL 
INSURANCE COMPANY, APPELLANT AND CROSS-APPELLEE. 
[Cite as Landis v. Grange Mut. Ins. Co. (1998), ___ Ohio St.3d ___.] 
Insurance — Motor vehicles — Claim for underinsured motorist benefits under 
employer’s policy — Denial of claim by insurer — Determination of  
prejudgment interest pursuant to R.C. 1343.03(A) — Insurance company 
not liable for attorney fees incurred by claimants pursuant to a contingency 
fee contract, but liable for reasonable attorney fees pursuant to R.C. 
2721.09, when. 
(No. 97-707 — Submitted February 17, 1998 — Decided July 15, 1998.) 
APPEAL and CROSS-APPEAL from the Court of Appeals for Erie County, No. E-96-
034. 
 
Frederick Landis, an employee of Foster Chevrolet, Inc. (“Foster”), was a 
designated insured for underinsured motorist coverage in the amount of 
$1,000,000 pursuant to a policy obtained by Foster and issued by Grange Mutual 
Insurance Company (“Grange”).  On the night of June 5, 1988, while walking 
along Columbus Avenue in Sandusky, Ohio, Landis was negligently struck by an 
underinsured motorist.  The tortfeasor’s insurer paid $100,000, the liability limit 
of the tortfeasor’s policy, to Landis. 
 
Landis and his wife, Ruthann, presented their demand for underinsured 
motorist benefits under the Grange policy.  Grange denied the claim on its 
assertion that Landis was not a designated insured.  Subsequent to the denial of the 
claim, the Landises executed a contingency fee contract with the law firm of 
Murray & Murray Co., L.P.A.  On August 17, 1988, the Landises filed a complaint 
for declaratory judgment, seeking a declaration that Landis was entitled to 
underinsured motorist benefits under the Grange insurance policy. 
 
2
 
On June 14, 1993, the trial court issued its opinion, finding that Grange was 
required to provide underinsured motorist coverage for Landis.  The ruling was 
affirmed by the Erie County Court of Appeals.  The amount of damages was 
thereafter submitted to arbitration, and the Landises were awarded $1,300,000. 
The award was reduced to judgment on December 8, 1995, and Grange 
immediately paid the policy limit to the Landises.  (The Landises have disclaimed 
any right to the $300,000 in excess of the policy limit that was awarded by the 
judgment.)  Landis paid attorney fees in the amount of $333,333.33 to Murray & 
Murray, pursuant to the contingency fee contract. 
 
On December 8, 1995, Landis filed a motion for reimbursement of attorney 
fees and for prejudgment interest.  Landis did not assert that Grange’s denial of 
benefits constituted bad faith.  The trial court held that a claim for underinsured 
motorist coverage is based on tort and therefore that Landis had no claim for 
prejudgment interest under R.C. 1343.03(A) or (C).  The trial court granted the 
motion for reimbursement of attorney fees, finding the contingency fee contract to 
be reasonable and proper. 
 
On appeal, the court of appeals reversed the trial court’s denial of 
prejudgment interest and held that “the accumulation of interest pursuant to  R.C. 
1343.03(A) begins on the date the claim becomes due and payable.”  The court did 
not determine the date on which Landis’s claim became due and payable.  The 
court vacated the award of attorney fees, finding that Grange could not be held 
liable for a contractual agreement (the contingency fee contract) to which it was 
not a party.  The court remanded for determination of the amount of prejudgment 
interest to be awarded and a determination of a “proper award of attorney’s fees.”  
Grange appealed, and Landis filed a cross-appeal. 
 
3
 
The cause is now before this court pursuant to the allowance of a 
discretionary appeal and cross-appeal. 
__________________ 
 
Murray & Murray Co., L.P.A., James T. Murray and Joseph A. Zannieri, for 
appellees and cross-appellants. 
 
Buckingham, Doolittle & Burroughs, Donald A. Powell and Robert L. 
Tucker, for appellant and cross-appellee. 
 
Clark, Perdue, Roberts & Scott and Edward L. Clark, urging affirmance on 
the appeal for amicus curiae Ohio Academy of Trial Lawyers. 
 
Mazanec, Raskin & Ryder Co., L.P.A., and Edwin J. Hollern, urging 
reversal in part on the appeal for amicus curiae Great American Insurance 
Companies. 
__________________ 
 
PFEIFER, J.  Two separate issues are raised in the controversy before us: (1)  
whether Landis is entitled to prejudgment interest pursuant to R.C. 1343.03(A) 
and (2)  whether Grange is liable for the attorney fees that Landis incurred 
pursuant to a contingency fee contract.  For the reasons that follow, we answer the 
first question in the affirmative and the second question in the negative, and 
address each question separately. 
 
R.C. 1343.03(A) states that “when money becomes due and payable upon 
any * * * instrument of writing * * * and upon all judgments * * * for the payment 
of money arising out of tortious conduct or a contract or other transaction, the 
creditor is entitled to interest at the rate of ten per cent per annum.” 
 
Grange spent considerable effort attempting to persuade us that 
uninsured/underinsured motorist insurance (“UMI”) claims are based on tortious 
conduct and therefore that R.C. 1343.03(A) does not allow prejudgment interest.  
 
4
Landis spent considerable effort attempting to persuade us that UMI claims are 
contract claims and therefore that R.C. 1343.03(A) does allow prejudgment 
interest.  We conclude that Landis’s UMI claim is a contract claim, while 
acknowledging that there would be no UMI claim absent tortious conduct, the 
accident.  Kraly v. Vannewkirk (1994), 69 Ohio St.3d 627, 632, 635 N.E.2d 323, 
327 (legal basis for recovery of UMI benefits is contract); Motorists Mut. Ins. Co. 
v. Tomanski (1971), 27 Ohio St.2d 222, 223, 56 O.O.2d 133, 134, 271 N.E.2d 924, 
925 (right to recovery of UMI benefits is on the contract). 
 
In the declaratory judgment action, the trial court determined that Landis 
was covered by the UMI provision.  According to the declaratory judgment, when 
Landis applied for UMI benefits, Grange should have paid them to him.  In other 
words, the benefits were due and payable to him based on an instrument of 
writing, the insurance contract.  R.C. 1343.03(A).  That the benefits were denied 
in good faith is irrelevant because lack of a good faith effort to settle is not a 
predicate to an award of prejudgment interest pursuant to R.C. 1343.03(A), as it is 
under R.C. 1343.03(C).  The proper way to fully compensate Landis is to award 
prejudgment interest.  Royal Elec. Constr. v. Ohio State Univ. (1995), 73 Ohio 
St.3d 110, 116-117, 652 N.E.2d 687, 692. 
 
In dissent below, Judge Glasser stated that “awarding prejudgment interest 
under the circumstances of this case clearly discourages litigation of reasonable 
issues.”  We disagree; parties will remain free to litigate reasonable issues.  
However, when they litigate, they will be subject to a prejudgment interest award, 
not as a punishment but as a way to prevent them from using money then due and 
payable to another for their own financial gain.  We affirm the judgment of the 
court of appeals as to prejudgment interest under R.C. 1343.03(A). 
 
5
 
Grange argues that even if prejudgment interest under R.C. 1343.03(A) is 
proper, no money was due and payable until the arbitration award was reduced to 
judgment.  We disagree.  According to the declaratory judgment, the money was 
due and payable.  That the amount remained undetermined until arbitration does 
not bar recovery of prejudgment interest.  Royal Elec. Constr. v. Ohio State Univ., 
73 Ohio St.3d 110, 652 N.E.2d 687, syllabus. 
 
If Grange had not denied benefits, the issue of damages would have gone 
directly to an arbitrator and the benefits would have become due and payable no 
later than upon entry of the arbitrator’s award.  But Grange did deny benefits, and 
it scarcely seems equitable that the denial of benefits contractually owed to 
another that led both parties on a lengthy and tortuous journey through the judicial 
system should redound to Grange’s benefit.  A determination that the benefits 
became due and payable upon the entry of the arbitrator’s award would, in this 
case, work an injustice by rewarding Grange for improperly denying benefits.  See 
Hogg v. Zanesville Canal & Mfg. Co. (1832), 5 Ohio 410, 424 (“[prejudgment] 
interest is allowed, not only on account of the loss which a creditor may be 
supposed to have sustained by being deprived of the use of his money, but on 
account of the gain being made from its use by the debtor.”). 
 
Whether the prejudgment interest in this case should be calculated from the 
date coverage was demanded or denied, from the date of the accident, from the 
date at which arbitration of damages would have ended if Grange had not denied 
benefits, or some other time based on when Grange should have paid Landis is for 
the trial court to determine.  Upon reaching that determination, the court should 
calculate, pursuant to R.C. 1343.03(A), the amount of prejudgment interest due 
Landis and enter an appropriate order. 
 
6
 
The second issue concerns whether Grange can be held liable for the  
attorney fees that were incurred by Landis pursuant to a contingency fee contract 
to which Grange was not a party. 
 
In Motorists Mut. Ins. Co. v. Brandenburg (1995), 72 Ohio St.3d 157, 648 
N.E.2d 488, syllabus, this court stated that “a trial court has the authority under 
R.C. 2721.09 to assess attorney fees based on a declaratory judgment issued by the 
court.  The trial court’s determination to grant or deny a request for fees will not 
be disturbed, absent an abuse of discretion.”  Abuse of discretion “ ‘connotes more 
than an error of law or of judgment; it implies an unreasonable, arbitrary or 
unconscionable attitude on the part of the court.’ ”  Pembaur v. Leis (1982), 1 
Ohio St.3d 89, 91, 1 OBR 125, 127, 437 N.E.2d 1199, 1201, quoting Klever v. 
Reid Bros. Express, Inc. (1951), 154 Ohio St. 491, 43 O.O. 429, 96 N.E.2d 781, 
paragraph two of the syllabus. 
 
Grange and Landis stipulated that the contingency fee agreement between 
Landis and Murray & Murray was “normal, ordinary, and customary.”  As the 
court of appeals noted, “[s]uch agreements permit persons of ordinary means 
access to a legal system which can sometimes demand extraordinary expense.  The 
mechanism by which this is accomplished is a contract between client and attorney 
whereby some or all of the risk involved in litigation is shifted to the attorney.  
The quid pro quo for relieving the client of this risk is that the agreement normally 
calls for the attorney to receive a percentage of any possible recovery.  * * *  To 
be sure, the contingency percentage is an arbitrary figure but, like liquidated 
damages in other contracts, is proper because it is a bargained for result.”  
(Citation omitted.) 
 
This reasoning does not apply to Grange, an insurance company of 
considerable means.  For instance, Grange did not receive the benefit of 
 
7
transferring risk to an attorney.  Further, and most important, Grange did not 
bargain for the contingency fee contract.  That the contingency fee agreement was 
normal and customary as to Landis and Murray & Murray does not mean that it 
can be enforced against a party that did not agree to it.  See Branham v. CIGNA 
Healthcare of Ohio, Inc. (1998), 81 Ohio St.3d 388, 692 N.E.2d 137  (arbitration 
contract binds only contracting parties).  We conclude that the trial court abused 
its discretion, not by requiring Grange to pay attorney fees, but by requiring 
Grange to pay attorney fees pursuant to a contract to which it was not a party. 
 
Accordingly, we affirm the judgment of the court of appeals and remand to 
the trial court for determination of the amount of prejudgment interest and 
determination of an award of reasonable attorney fees pursuant to R.C. 2721.09.  
See Bittner v. Tri-County Toyota, Inc. (1991), 58 Ohio St.3d 143, 569 N.E.2d 464; 
DR 2-106(B). 
 
Grange also argues that the trial court did not follow the procedural mandate 
of R.C. 2721.09 in awarding attorney fees.  We agree with the court of appeals that 
the remand moots the issue. 
Judgment affirmed. 
 
MOYER, C.J., concurs. 
 
DOUGLAS and F.E. SWEENEY, JJ., concur in part and dissent in part. 
 
REECE, COOK and LUNDBERG STRATTON, JJ., dissent in part and concur in 
part. 
 
JOHN W. REECE, J., of the Ninth Appellate District, sitting for RESNICK, J. 
__________________ 
 
DOUGLAS, J., concurring in part and dissenting in part.  I concur with 
the majority in affirming the court of appeals on the prejudgment interest issue.  I 
respectfully dissent as to the attorney fees issue. 
 
8
 
In Motorists Mut. Ins. Co. v. Brandenburg (1995), 72 Ohio St.3d 157, 648 
N.E.2d 488, we said, at the syllabus, that “[a] trial court has the authority under 
R.C. 2721.09 to assess attorney fees based on a declaratory judgment issued by the 
court.  The trial court’s determination to grant or deny a request  for fees will not 
be disturbed, absent an abuse of discretion.”  In the case at bar, the trial court 
awarded attorney fees in the amount it cost the Landises to recover from their own 
insurance carrier what was due them pursuant to their underinsured motorist 
coverage.  To allow them, as the majority apparently does, less than what they paid 
to obtain what was owed to them results in the Landises’ being left less than 
whole.  It is, indeed, a curious world in which we live.  Buy insurance; have 
coverage denied; sue your company; win at the trial court, the court of appeals, 
and the Supreme Court levels; have attorney fees case law on your side; yet be 
awarded attorney fees in a sum less than what you paid attorneys to obtain the 
coverage you contracted for.  Confucius said:  “Do to every man as you would 
have him do to you; and do not unto another what you would not have him do to 
you.”  The International Dictionary of Thoughts (1969) 329.  Maybe, somehow, 
the Landises will understand. 
 
F.E. SWEENEY, J., concurs in the foregoing opinion. 
__________________ 
 
COOK, J., dissenting in part and concurring in part.  Against the grain of 
its customary treatment of  uninsured/underinsured motorist issues, a majority of 
this court has now decided successive appeals by recognizing the contractual 
nature of the relationship between insurer and insured.  In Ross v. Farmers Ins. 
Group of Cos. (1998), 82 Ohio St.3d 281, ___ N.E.2d ___, the majority permitted 
plaintiffs to avoid the setoff provision of R.C. 3937.18(A)(2) by applying former 
R.C. 3937.18(A)(2) as interpreted by Savoie v. Grange Mut. Ins. Co. (1993), 67 
 
9
Ohio St.3d 500, 620 N.E.2d 809, on the basis that it was the law in effect at the 
time of contracting.  Today’s majority holds that uninsured/underinsured motorist 
claims are based in contract and, pursuant to R.C. 1343.03(A), permits the 
plaintiffs to collect prejudgment interest on their underinsured motorist claim 
without a showing of bad faith. 
 
Overlooked, but not overruled, are this court’s decisions in State Farm 
Auto. Ins. Co. v. Alexander (1992), 62 Ohio St.3d 397, 583 N.E.2d 309, and Miller 
v. Progressive Cas. Ins. Co. (1994), 69 Ohio St.3d 619, 635 N.E.2d 317, which 
would seem to contain contrary logic.  Alexander overruled Dairyland  Ins. Co. v. 
Finch (1987), 32 Ohio St.3d  360, 513 N.E.2d 1324, paragraph two of the 
syllabus, reasoning that “R.C. 3937.18(A)(1) and (2) are premised on the 
tortfeasor’s legal liability to the injured insured.”  (Emphasis sic.) Alexander, 62 
Ohio St.3d at 400, 583 N.E.2d at 312.  Based on that reasoning, the Alexander 
court held that “[a]n automobile insurance policy may not eliminate or reduce 
uninsured or underinsured motorist coverage, required by R.C. 3937.18, to persons 
injured in a motor vehicle accident, where the claim or claims of such person arise 
from causes of action that are recognized by Ohio tort law.”  Id. at syllabus. 
 
The Alexander court’s abandonment of earlier holdings that R.C. 3937.18 
does not displace ordinary principles of contract law (see Stanton v. Nationwide 
Mut. Ins. Co. [1993], 68 Ohio St.3d 111, 113, 623 N.E.2d 1197, 1199, explicitly 
acknowledging the abandonment) was followed by a series of cases steadily 
eroding the contractual nature of the relationship between the insurer and the 
insured.  See, e.g., Holt  v. Grange Mut. Cas. Co. (1997), 79 Ohio St.3d 401, 683 
N.E.2d 1080 (policy definition of “insured” party inapplicable to exclude coverage 
of an insured’s wrongful death beneficiary); Schaefer v. Allstate Ins. Co. (1996), 
76 Ohio St.3d 553, 668 N.E.2d 913 (policy provision that subjects both a person 
 
10
sustaining bodily injury and a person asserting a derivative claim for loss of 
consortium based on that bodily injury to a single “per person” limitation invalid); 
Martin v. Midwestern Group Ins. Co. (1994), 70 Ohio St.3d 478, 639 N.E.2d 438 
(“other owned vehicle” exclusion unenforceable). 
 
The Miller court invalidated a policy provision requiring the plaintiffs to 
commence any action against their insurance carrier within one year of the 
accident causing injury.  Bypassing the notion that uninsured/underinsured 
motorist claims are actions sounding in contract, the Miller court ultimately held 
that the R.C. 2305.10 two-year statute of limitations for bodily injury limited the 
parties’ ability to contract for a shorter time period.  Accordingly, based on a 
statute of limitations designed to cover tort actions, the Miller court overruled the 
holding in Colvin v. Globe Am. Cas. Co. (1982), 69 Ohio St.2d 293, 295, 23 
O.O.3d 281, 282, 432 N.E.2d 167, 169, that “[g]enerally, in the absence of a 
controlling statute to the contrary, a provision in a contract may validly limit, as 
between the parties, the time for bringing an action on such contract to a period 
less than that prescribed in a general statute of limitations provided that the shorter 
period shall be a reasonable one.” 
 
Despite 
these 
cases 
which 
elevate 
the 
tort 
underpinnings 
of 
uninsured/underinsured motorist claims over their contractual origin, the majority 
today 
says 
that 
for 
purposes 
of 
awarding 
prejudgment 
interest, 
uninsured/underinsured motorist claims are based in contract and therefore 
governed by R.C. 1343.03(A).  This decision comes despite R.C. 1343.03(C)’s 
employment of the expansive phraseology “based in tortious conduct.”  The 
significance of this language was noted by the Franklin County Court of Appeals 
in deciding Woods v. Farmers Ins. of Columbus, Inc. (1995), 106 Ohio App.3d 
389, 396, 666 N.E.2d 283, 288: “Had the General Assembly wanted  R.C. 
 
11
1343.03(C) to apply only in tort cases, it could have used the simpler phrase ‘tort 
action,’ rather than ‘civil action based on tortious conduct.’   Indeed, the phrase 
‘based on tortious conduct’ appears to be unique in the Revised Code to R.C. 
1343.03.  Elsewhere in the Revised Code, the terminology encompassing tort 
actions is less expansive * * *.”1  For instance, “tort action” is used in former R.C. 
2309.01(A) and 2315.18, Am.Sub.S.B. No. 1, 142 Ohio Laws, Part I, 1661, 1684, 
1685-1686, and in R.C. 2317.45(A)(2), 2317.62(A)(3), and 2315.21(A)(4), and 
liability “in tort” is employed in R.C. 2307.31(A). 
 
Accordingly, with respect to prejudgment interest, support for treating 
uninsured/underinsured motorist claims under rules of tort rather than contract can 
actually be found in the language of the statute.  Present in this case, then, is a 
much stronger basis for applying R.C. 1343.03(C) — and consequently avoiding 
the contractual origin of an uninsured/underinsured motorist claim — than existed 
in the many cases where this court premised its avoidance of contract principles on 
its elastic interpretation of the uninsured/underinsured motorist statute’s public 
policy.  As a result, the majority’s failure to apply R.C. 1343.03(C) in this case is 
irreconcilable with existing law on the subject.  Because I do not read the court’s 
most recent opinions as signaling a return to treating an insurance policy primarily 
as a contract between the insurer and the insured (Ohio Farmers Ins. Co. v. 
Cochran [1922], 104 Ohio St. 427, 135 N.E. 537), I respectfully dissent. 
 
With respect to attorney fees, I concur in the majority’s decision to remand 
the issue to the trial court for further proceedings.  Before calculating reasonable 
fees pursuant to Bittner v. Tri-County Toyota, Inc. (1991), 58 Ohio St.3d 143, 569 
N.E.2d 464, however, the trial court, pursuant to the procedures set forth in R.C. 
2721.09, must first determine whether attorney fees are “necessary or proper.”  See 
 
12
Motorists Mut. Ins. Co. v. Brandenburg (1995), 72 Ohio St.3d 157, 160, 648 
N.E.2d 488, 490. 
 
REECE and LUNDBERG STRATTON, JJ., concur in the foregoing opinion. 
FOOTNOTE: 
1. 
The phrase “based on tortious conduct” now appears in R.C. 2743.18, 
dealing with interest on judgments in the Court of Claims, and in uncodified 
Section 6(A) of Am.Sub.H.B. No. 350, 146 Ohio Laws, Part II, 3867, 4029, 
referring to amendments to several other Revised Code sections dealing with 
interest on judgments.