September 13, 2011
By: William O. Krekstein and Molly E. Lang
This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
The Ohio Supreme Court has ruled that an insurer can enforce a one-year limitation-of-action clause in a homeowner's policy. In Dominish v. Nationwide Ins. Co., 2011 WL 3760046 (Ohio Aug. 23, 2011), a policyholder sought coverage in connection with storm damage to his home. Following an investigation of the claim, the insurer issued payment to the policyholder for the covered portion of the loss and denied the remainder. In the denial letter, the insurer cited a "Suit Against Us" clause in the policy, providing that any action against the insurer must be started within one year after the date of loss or damage. The policyholder returned the payment to the insurer claiming the amount was insufficient to cover the damage to his home.
Nearly two years after the loss occurred, the policyholder filed suit against the insurer alleging breach of contract, negligence, breach of fiduciary duty and bad faith. The trial court found that the lawsuit was barred by the limitation-of-action clause in the policy. The Eleventh District Court of Appeals reversed the trial court, concluding that the policy limitation-of-action clause was ambiguous. The Court of Appeals also held that the insurer waived its right to enforce the one-year limitation-of-action clause when it advised the policyholder it would further investigate the merits of the claim and made a settlement offer to the policyholder after the expiration of the one-year period.
The Ohio Supreme Court accepted discretionary review of the case. In analyzing the limitation-of-action clause, the Court recognized that although the word "start" is not commonly used to indicate the commencement of a lawsuit, it could be plainly understood when read in the context of the limitation-of-action clause in the policy. The Court also stated that there is no reason to think the word "action" refers to anything other than a lawsuit when used as part of a two-sentence provision entitled "Suit Against Us." After noting that the limitation-of-action clause could have been drafted more clearly, the Court nevertheless found that it was unambiguous.
The Court held that in order to waive its right to enforce the limitation-of-action clause, the insurer must have either recognized liability or held out a reasonable hope of adjustment, and by doing so induced the policyholder to delay filing a lawsuit until after the contractual period of limitation expired. The Court found that the insurer clearly stated that it was not liable beyond the amount of the payment to the policyholder. The Court also noted that the insurer properly advised the policyholder of the limitation-of-action clause and asserted it at every possible instance. Accordingly, a 7-0 majority of the Ohio Supreme Court ruled that the insurer could enforce the limitation-of- action clause and granted summary judgment in its favor.
The Dominish ruling provides insurers with additional support for asserting suit limitation clauses. Under Ohio law, a suit limitation clause will not be deemed waived where an insurer admits to partial liability, but clearly notifies the policyholder that it is not liable for the remainder of the claim and provides adequate notice of the policy's limitation-of-action clause.
