Opinion ID: 767608
Heading Depth: 3
Heading Rank: 2

Heading: Rose's Indictment and His Bad Faith Claim

Text: 18 We also disagree with Hartford's claim that Ohio courts have created a per se rule that precludes a plaintiff who has been indicted on arson charges from bringing a bad faith claim against an insurance company when the company refuses to honor its fire insurance policy. The Ohio Supreme Court has held that an insurance company does not act in bad faith when it refuses to honor an insurance policy as long as the company has a reasonable justification for refusing to honor a claim. Zoppo v. Homestead Ins. Co., 644 N.E.2d 397, 399-400 (Ohio 1994); see also Thomas v. Allstate Ins. Co., 974 F.2d 706, 711 (6th Cir. 1992) (The test, therefore, is not whether the defendant'sconclusion to deny benefits was correct, but whether the decision to deny benefits was arbitrary or capricious, and there existed a reasonable justification for the denial.). Hartford claims that a grand jury indictment on arson charges is irrefutable proof that an insurance company had a reasonable justification for denying a fire insurance claim. 19 Although Hartford fails to cite any Ohio cases directly on point, it does rely on two unreported cases from the U.S. District Court for the Northern District of Ohio. See Thomas v. Allstate Ins. Co., 1:96-CV-1529, slip op. at 3-8 (N.D. Ohio Aug. 15, 1997); Auto-Owners Mut. Ins. Co. v. Koenig, 3:94-CV-7201, slip op. at 3-6 (N.D. Ohio Aug. 31, 1995). In Koenig, for instance, the district court concluded that a plaintiff who had been indicted on arson charges could not assert a bad faith claim against his insurance company. As the district court explained, The law appears well-settled that 'where an insured is indicted for arson in connection with a fire loss, the insurer's conclusion that the insured was responsible for the loss is reasonably justified, and he is precluded from recovery of 'bad faith' damages.' Koenig, 3:94-CV-7201 at 6 (quoting Southern Fire & Cas. Ins. Co. v. Northwest Georgia Bank, 434 S.E.2d 729, 730-32 (Ga. Ct. App. 1993)). 20 Both Koenig and Thomas can be distinguished from the present case, however, because these cases involved a bad faith claim that was dismissed on a motion for summary judgment, whereas the dispositive issue in the present case turns on whether Rose's proposed bad faith claim could survive a Rule 12(b)(6) motion to dismiss. As we discussed above, the addition of a bad faith claim to a complaint is not necessarily futile even if the claim may ultimately be dismissed on a motion for summary judgment. Furthermore, we do not believe that the Ohio Supreme Court, if given the opportunity to address the issue, would follow Koenig and Thomas and hold that a criminal indictment automatically precludes a plaintiff from pursuing a bad faith claim against an insurance company - particularly in cases like this one where an insured is indicted after an insurance company decides not to honor its policy. 1 Indeed, if an insured is indicted after an insurance company has already refused to honor a claim, then the indictment is of little, if any, value in determining whether the insurance company had reasonable justification for the denial because, under Ohio law, an insurance company must have a reasonable justification at the time it refuses to honor its policy. See Zoppo, 644 N.E.2d at 400 ([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.) (quoting Staff Builders, Inc. v. Armstrong, 525 N.E.2d 783, 788 (Ohio 1988)). 21 If an insured is indicted before an insurance company refuses to honor its policy, by contrast, then an indictment on arson charges certainly would be strong evidence that shows that the insurance company had a reasonable justification for the denial of a fire insurance claim, assuming that the insurance company knew about the indictment at the time it refused to honor the claim. Nevertheless, a per se rule or conclusive presumption is not appropriate because cases could exist in which a prosecutor has maliciously pursued arson charges against an individual, or an insurance company has tampered with a grand jury. We believe that the better approach is to apply ordinary summary judgment principles, even in cases where a criminal indictment on arson charges has led an insurance company to refuse to honor a fire insurance claim. Thus, upon a summary judgment motion or a conversion of a Rule 12(b)(6) motion with the requisite notice to the parties, a court should considerthe indictment - along with all the other evidence in the record - in the light most favorable to the non-moving party when deciding whether a reasonable juror could conclude that an insurance company had a reasonable justification for refusing to provide coverage under an insurance policy. 22 Here, however, Rose filed a motion for leave to amend the complaint, which was opposed by Hartford and summarily denied by the district court. Under these circumstances, it is premature to undertake a summary judgment evaluation.