To the non-coverage lawyer, a statute might seem to perfectly answer the question. Ohio Revised Code Section 3937.182 plainly states that no insurance policy for automobiles, motor vehicles, causality, or liability insurance covered by sections 3937.01 through 3937.17 of the Revised Code shall provide coverage for judgments or claims against an insured for punitive or exemplary damages. R.C. 3937.182(B). While there are some exceptions, Ohio Revised Code Sections 3937.01 through 3937.17 apply to many types of insurance policies issued in Ohio, and would appear to settle the question.
It is evident, however, that Ohio courts do not construe the statute as broadly as one might expect. Multiple Ohio state and federal courts have ruled that “Ohio law does not prohibit insurance coverage of punitive damages in all cases.” Foster v. D.B.S. Collection Agency, S.D. Ohio No. 01-CV-514, 2008 WL 755082 (March 20, 2008) (citing The Corinthian v. Hartford Fire Insurance Company, 143 Ohio App.3d 392 (8th Dist. 2001)). Essentially, the determination of whether a punitive damages award is insurable is based on the grounds upon which punitive damages were awarded. For example, Ohio courts typically agree that when punitive damages are awarded after a finding of malice or ill will, public policy prohibits insurance coverage of those damages. Ohio courts also have consistently held that because punitive damages are assessed for punishment and not compensation, “a positive element of conscious wrongdoing is always required.”
The intersection of R.C. 3937.182(B), public policy considerations, and the terms of the insurance policy is on display in a case currently pending in the Ohio Supreme Court. In World Harvest Church v. Grange Mut. Cas. Co., an insured claimed its insurer was obligated to indemnify punitive damages awarded against it directly and secondarily from a personal injury lawsuit. World Harvest Church v. Grange Mut. Cas. Co., 10th Dist. No 13AP-290, 2013 WL 6843615 (Dec. 24, 2013).
The 10th District Court of Appeals cited several reasons why the insurer had no duty to provide coverage for punitive damages awarded against the insured. Three of the most important were:
- The court cited R.C. 3937.182(B) and stated that commercial general liability and commercial umbrella policies are policies covered by that statute. Because the statute applied to the policies at issue in the case, the insurer was prohibited from providing coverage for punitive damages.
- The court further explained that public policy prevents insurance agreements from insuring punitive damages stemming from an insured’s malicious conduct.
- The court also noted that the commercial umbrella policy included an endorsement expressly excluding insurance coverage for punitive damages.
While the sum of this reasoning was that the punitive damages were not insurable in this case, the opinion was not precise with respect to which of these factors was the most persuasive and/or necessary to reach the decision. Would the result be the same if R.C. 3937.182(B) applied to the policies, but the punitive damages claim did not stem from the insured’s own malicious conduct?
This and other questions could possibly have been answered by the Ohio Supreme Court. The insurer in World Harvest Church appealed the 10th Appellate District’s ruling on other issues in the case. The insured filed a cross appeal. Two of the several propositions of law included in the insured’s cross appeal were:
- When an insurance policy provides coverage for punitive damages, the insured is entitled to be indemnified for a punitive damage award returned against it even if such coverage was issued in violation of R.C. 3837.182.
- The public policy of Ohio allows for insurance coverage for punitive damages when an insured entity is found liable for punitive damages not because of the conduct of a person with a significant ownership or managerial role, but because of the insured's legal responsibility for the acts of another.
Unfortunately for those looking for more clarity on this issue, the Ohio Supreme Court declined to accept jurisdiction over the insured’s cross appeal while accepting jurisdiction based on the insurer’s appeal on other issues.
So where does this leave Ohio policyholders? In Ohio, punitive damages are usually awarded in two situations: (1) when a plaintiff proves that the wrongdoer acted with actual malice; or, (2) when another legal basis exists, such as a statutory provision, for imposing punitive damages. Public policy prevents insurance coverage for punitive damages that result from a finding of malice. However, a policyholder may obtain insurance coverage for punitive damages when there is an absence of ill will by the insured. Policyholders are well-served to engage competent coverage counsel early in order to effectively advocate for coverage for punitive damages that do not include a finding of “malice.”