Experienced insurance-coverage attorneys and brokers know that in many cases the biggest expense to the insured is not the repayment of whatever damages are alleged by the plaintiff, but rather the insured’s own defense costs. Therefore, one of the main objectives of coverage litigation is often to ensure that the insurer honors its duty to pay for the defense of its insured. Parties frequently file motions for summary judgment on the issue of whether the insurer owes a duty to defend, and the outcome of those motions can be significant to settlement negotiations. What if neither party’s motion for summary judgment is granted, though? A recent decision from Ohio’s Ninth District Court of Appeals may allow the parties another bite at the apple by virtue of an immediate appeal.
The facts of Lexington Ins. Co. v. DunnWell, LLC, 9th Dist. Summit No. 27476, 2016-Ohio-5311, can be distilled down to the following summary. DunnWell and its insurer, Travelers, argued that West Bend Mutual Insurance owed DunnWell a duty to defend and indemnify for an underlying claim because DunnWell was an additional insured on a West Bend CGL policy issued to DunnWell’s subcontractor, ABCO. Naturally, West Bend and ABCO disagreed. (You don’t read many blog posts about parties harmoniously agreeing, do you?) The parties filed cross-motions for summary judgment seeking a declaratory judgment on that issue, but the trial court denied both motions because of genuine issues of material fact. ABCO appealed, and DunnWell and Travelers filed a cross-appeal.
Before addressing the merits of the appeal, the Ninth District raised the question of whether it had jurisdiction to hear the appeal at all. Under Ohio law, parties can only appeal from a “final, appealable order.” In Gen. Acc. Ins. Co. v. Ins. Co. of N.Am., 44 Ohio St.3d 17, 540 N.E.2d 266 (1989), the Ohio Supreme Court provided a two-step process for determining whether an order is final and appealable. First, the order must be final within the requirements of R.C. 2505.02. One of the varied types of final orders under R.C. 2505.02 is an order affecting a “substantial right made in a special proceeding.” The General Accident Insurance Court held that the duty to defend is a “substantial right” and that declaratory-judgment actions are “special proceedings” for purposes of R.C. 2505.02. The second step of the analysis is determining whether Civil Rule 54(B) language is required. Rule 54(B) provides that, in cases involving multiple claims or parties, an order that enters final judgment as to fewer than all of the claims or parties is a final appealable order only if the trial court expressly determines that “there is no just reason for delay” of an appeal of the order.
Questions of whether an order is final and appealable are often complex; however, one of the widely understood rules in this area is that an order denying summary judgment is generally not a final appealable order. Despite that general rule, in DunnWell the Ninth District reasoned that the trial court’s order denying the cross-motions for summary judgment was a final appealable order. The Ninth District reasoned that “[w]here the denial of a motion for summary judgment in the context of declaratory judgment gives rise … to the reasonable and logical inference that one party has in fact prevailed, the requirements of finality are satisfied.” DunnWell at ¶ 10. As support for its reasoning, the Ninth District cited Indiana Ins. Co. v. Alloyd Insulation Co., 2d Dist. Montgomery No. 18979, 2002-Ohio-3916, where the court held that an order denying the insurer’s motion for summary judgment was a final appealable order because the trial court “suggested that its negative ruling supported a positive inference that [the insurer] had a duty of coverage.” Id. at ¶ 4.
Turning to the facts before it, the Ninth District reasoned that the denial of the cross-motions for summary judgment gave rise to a “reasonable, positive inference that West Bend need not defend DunnWell” for the underlying claim. DunnWell at ¶ 11 (emphasis added). Furthermore, the court noted that denial of the cross-motions left DunnWell with the unattractive choice of either settling the underlying claim in order to avoid paying its own defense costs, or paying for its defense on its own and hoping to eventually prevail on the duty to defend at trial. Crucially, the Ninth District recognized that “[e]ither scenario impacts the substantial rights recognized by the Ohio Supreme Court” regarding the duty to defend. Id. The Ninth District further reinforced its reasoning by noting that the trial court certified its judgment as a final appealable order pursuant to Rule 54(B).
Unlike the Second District in Alloyd Insulation, the Ninth District did not highlight any particular phrasing or argument in the trial court’s order which led to the “reasonable, positive inference” that the order was a de facto victory for West Bend and ABCO. Rather, the simple fact that the order left DunnWell with “no legal recourse to compel West Bend to provide a defense” was sufficient. Id. Therefore, perhaps the crucial takeaway from DunnWell is that it arguably supports the proposition that, in a declaratory-judgment action, an order which does anything other than affirmatively grant the insured summary judgment on the duty to defend is a final appealable order. Think of the possible permutations: under General Accident Insurance, an order affirmatively granting summary judgment to the insurer is already a final order. Under Alloyd Insulation, an order denying summary judgment to the moving party but not granting it to the non-moving party is a final order because it arguably creates an inference of eventual judgment in the non-moving party’s favor. Now, under DunnWell, an order denying summary judgment to both the insurer and the insured on cross-motions for summary judgment is a final order because it creates an inference in the insurer’s favor. No matter how you slice it, therefore, any summary-judgment order which does anything other than affirmatively conclude that the insurer owes a duty to defend creates at least an inference that there is not a duty to defend, and is therefore a final order subject to immediate appeal (provided the court complies with Rule 54(B), if necessary). If that interpretation of DunnWell gains widespread acceptance, the implication on insurance-coverage litigation in Ohio could be significant: insureds may be more willing to aggressively litigate the duty to defend, knowing that even if they lose in the trial court on summary judgment they will have the opportunity to immediately appeal. In turn, the potential for increased litigation expenses could alter the settlement analysis for both insurers and insureds.
In a perfect world, courts would always grant insureds’ motions for summary judgment on the duty to defend. In the imperfect world we live in, however, insureds and their counsel would be well-served to keep DunnWell in their back pocket as a helpful precedent to support an immediate appeal of an order denying summary judgment on the duty to defend.