(Article from Insurance Law Alert, February 2018)
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The Ohio Supreme Court ruled that negligence claims against an insurance agency accrue at policy issuance rather than when the insurer denies coverage. LGR Realty, Inc. v. Frank & London Ins. Agency, 2018 WL 656095 (Ohio Jan. 16, 2018).
A realty company utilized the services of an insurance agency to obtain an Errors and Omissions policy from Continental Casualty. When a claim was filed against the realty company, it sought coverage under the policy. Continental denied the claim pursuant to an exclusion. Thereafter, the realty company sued the insurance agency for negligent procurement, alleging that it negligently misrepresented the coverage provided by the policy. An Ohio trial court ruled that the action was time-barred by the applicable four-year statute of limitations. The trial court reasoned that the cause of action against the agency accrued on the date the policy went into effect, which was five years prior to the lawsuit filing. An intermediate appellate court reversed, finding that under the “delayed-damage” rule, the cause of action did not accrue until the plaintiff “suffered an injury,” which occurred when Continental denied the claim for defense and indemnity. The Ohio Supreme Court reversed the appellate court decision.
Under Ohio law, the statute of limitations begins to run when “the injurious act complained of is perpetrated, although the actual injury is subsequent.” One exception to this rule is the “delayed-damage” rule, which provides that “where the wrongful conduct complained of is not presently harmful, the cause of action does not accrue until actual damage occurs.” The Ohio Supreme Court ruled that the “narrow circumstances” under which the delayed-damages exception would apply were not present here. The court explained that the realty company “was damaged the moment it entered into the contract and became obligated to pay a premium for a professional-liability insurance policy that was less than the coverage that it believed it would receive.” In so ruling, the court emphasized that the policy specifically excluded the type of claim that the realty company believed was covered, distinguishing precedent in which the delayed-damage exception was applied to a negligent insurance procurement claim based on the lack of clarity as to the scope of coverage after consolidation of a property policy into an omnibus policy.