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IN THE SUPREME COURT OF OHIO
NATIONWIDE MUTUAL FIRE : Case No. 2018-1137
INSURANCE COMPANY,
:
Appellant,
:
On Appeal from the Seventh
v. : Appellate District, Mahoning County
(C.A. Case No. 17 MA 0117)
BARBARA PUSSER, et al., :
Appellees. :
MERIT BRIEF OF AMICUS CURIÆ, OHIO ASSOCIATION FOR JUSTICE,
IN SUPPORT OF APPELLEES, BARBARA PUSSER, ET AL.
Timothy J. Cunning (0088084)
Counsel of Record
SCULLIN & CUNNING, LLC
940 Windham Court, Suite 4
Boardman OH 44512
Telephone: (330) 953-2045
Facsimile: (330) 953-2058
Email: [email protected]
Counsel for Appellee, Estate of Robert D. Boak
Dennis M. Pilawa (0003035)
Counsel of Record
RAWLIN GRAVENS & PILAWA CO., L.P.A.
The Hanna Building, Suite 500
1422 Euclid Avenue
Cleveland OH 44115
Telephone: (216) 579-1602
Facsimile: (216) 579-9463
Email: [email protected]
Counsel for Appellee, Barbara Pusser
Michael H. Carpenter (0015733)
Counsel of Record
Michael N. Beekhuizen (0065722)
David J. Barthel (0079307)
CARPENTER LIPPS & LEELAND LLP
280 Place, Suite 130
280 North High Street
Columbus OH 43215
Telephone: (614) 365-4100
Facsimile: (614) 365-9145
Email: [email protected]
Kirk E. Roman (0030615)
4125 Highlander Parkway, Suite 200
Richfield OH 44286
Telephone: (234) 400-3130
Facsimile: (855) 348-0387
Email: [email protected]
Counsel for Appellant, Nationwide Mutual
Fire Insurance Company
Supreme Court of Ohio Clerk of Court - Filed January 30, 2019 - Case No. 2018-1137
2
David R. Stadler (0073471)
Counsel of Record
ANKUDA STADLER & MOELLER LTD.
1120 Oswald Centre
1100 Superior Avenue East
Cleveland OH 44114
Telephone: (216) 772-3112
Facsimile: (216) 672-4459
Email: [email protected]
Counsel for Appellee Dennis J. Lehman
John C. Pfau (0006470)
Counsel of Record
PFAU, PFAU & MARANADO LLC
Post Office Box 9070
Youngstown OH 44513
Telephone: (330) 702-9700
Facsimile: (330) 702-9704
Email: [email protected]
Donna Jewell McCollum (0027867)
3685 Stutz Drive, Suite 100
Canfield OH 44406
Telephone: (330) 702-0200
Facsimile: (330) 702-0204
Email: [email protected]
Counsel for Appellee, Thomas Kane,
Legal Guardian of Diane Lapaze
Margaret M. Murray (0066633)
MURRAY & MURRAY CO., L.P.A.
111 East Shoreline Drive
Sandusky OH 44870
Telephone: (419) 624-3000
Facsimile: (419) 624-0707
Email: [email protected]
Counsel for Amicus Curiæ,
The Ohio Association for Justice
Natalia Steele (0082530)
Vorys, Sater, Seymour and Pease LLP
200 Public Square, Suite 1400
Cleveland OH 44114
Telephone: (216) 479-6187
Facsimile: (216) 937-3755
Email: [email protected]
Thomas E. Szykowny (0014603)
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street, Post Office Box 1008
Columbus OH 43216-1008
Telephone: (614) 464-5671
Facsimile: (614) 719-4990
Email: [email protected]
Counsel for Amicus Curiæ,
Ohio Insurance Institute
Robert P. Rutter (0021907)
RUTTER & RUSSIN, LLC
One Summit Office Park, Suite 650
4700 Rockside Road
Cleveland OH 44131
Telephone: (216) 642-1425
Facsimile: (216) 642-0613
Email: [email protected]
Counsel for Amicus Curiæ,
Rutter & Russin, LLC
i
TABLE OF CONTENTS
TABLE OF AUTHORITIES ......................................................................................................... iii
INTRODUCTION ...........................................................................................................................1
IDENTIFICATION OF AMICUS CURIÆ .....................................................................................5
STATEMENT OF FACTS ..............................................................................................................6
ARGUMENT .................................................................................................................................11
A. The “Unseemly” History of the “Technical Warranty.” ........................................11
B. The Literal Performance Rule in America .............................................................13
C. In Ohio, to Qualify as a Warranty, the Statement Must Appear on the
Policy’s Face or be Plainly Incorporated into the Policy, and the Policy
Must Plainly Warn that a Misstatement Will Render the Policy Void from
its Inception ............................................................................................................16
D. Nowhere in the Policy or Application Does Nationwide Clearly and
Unambiguously Warn that an Applicant’s Failure to Disclose a Household
Member of Driving Age Shall Render the Policy Void Ab Initio .........................17
E. Barbara Pusser was Not a “Driver[],” “Operator[],” or “Use[r]” of the
Insured Vehicle at the Time of the Application .....................................................19
F. Nationwide’s Policy Language that a Breach “May” Void the Policy is
Incompatible with a Warranty Because It is Not a Plain Warning as
Required by Boggs. ................................................................................................20
G. “Most Lower Courts” have Not Held that May/Could Language is
Sufficient to Create a Warranty .............................................................................27
1. Cincinnati Equitable Ins. Co. v. Sorrell, 9th Dist. Lorain No.
05CA008703, 2006-Ohio-1906, 2006 WL 1007425 .................................28
2. Jaber v. Prudential Ins. Co. of Am., 113 Ohio App.3d 507, 681
N.E.2d 478 (6th Dist. 1996) .......................................................................29
3. Personal Service Ins. Co. v. Lester, 4th Dist. Athens No. 06CA12,
2006-Ohio-5199, 2006 WL 2796253 .........................................................29
4. Medical Protective Co. v. Fragatos, 190 Ohio App.3d 114, 2010-
Ohio-4487 (8th Dist.) .................................................................................30
ii
H. “Public Policy Goals” Do Not Support Forfeiture; Application of
Established Warrant Law does Not “Encourage Fraud and Crime.” .....................31
CONCLUSION ..............................................................................................................................36
CERTIFICATE OF SERVICE ......................................................................................................37
iii
TABLE OF AUTHORITIES
Cases:
Allstate Ins. Co. v. Boggs,
27 Ohio St.2d 216, 271 N.E.2d 855 (1971) ........................................................................... passim
Am. Family Ins. Co. v. Johnson,
8th Dist. Cuyahoga No. 93022, 2010-Ohio-1855, 2010 WL 1712240 ............................2, 6, 27, 31
Buell v. Connecticut Mut. Life Ins. Co.,
4 F. Cas. 590, 1877 U.S. App. LEXIS 1627 (C.C.N.D. Ohio 1877) .............................................22
Byers v. Farmers Ins. Co.,
35 Ohio St. 606, 1880 Ohio LEXIS 193 (1880) ........................................................................3, 22
CARE Risk Retention Group v. Martin,
191 Ohio App.3d 797, 2010-Ohio-6091, 947 N.E.2d 1214 (2d Dist.) ............................................6
Cincinnati Ins. Co. v. CPS Holdings, Inc.,
2007-Ohio-4917, 115 Ohio St.3d 306, 875 N.E.2d 31 ............................................................25, 28
City of Mt. Healthy v. Fraternal Order of Police, Ohio Labor Council, Inc.,
1st Dist. Hamilton No. C-170072, 2017-Ohio-9117, 101 N.E.3d 1163 ........................................26
Columbus & T.R. Co. v. Steinfeld,
42 Ohio St. 449, 1884 Ohio LEXIS 280 (1884) ............................................................................10
Connecticut Mut. Life Ins. Co. v. Pyle,
44 Ohio St. 19 (1886)...............................................................................................4, 22, 23, 24, 34
De Hahn v. Hartley,
99 Eng. Rep. 1130 (K.B. 1786) .....................................................................................................12
Diesinger v. Am. & Foreign Ins. Co.,
138 F.2d 91 (3d Cir. 1943).............................................................................................................20
First Nat. Bank v. Hartford Fire Ins. Co.,
95 U.S. 673, 24 L. Ed. 563 (1877) .................................................................................................14
Frazier v. Life Ins. Co. of N. Am.,
725 F.3d 560 (6th Cir. 2013) .........................................................................................................26
Goodman v. Medmarc Ins.,
8th Dist. Cuyahoga No. 97969, 2012-Ohio-4061, 977 N.E.2d 128 .................................2, 6, 27, 31
iv
Hartford Protection Ins. Co. v. Harmer,
2 Ohio St. 452, 1853 Ohio LEXIS 212 (1853) ........................................................2, 15, 21, 23, 33
Holterhoff v. Mutual Ben. Life Ins. Co.,
1874 Ohio Misc. LEXIS 11, 1874 WL 5359 (Super. Court, Cincinnati, June 1874) ..........3, 22, 23
Hore v. Whitmore,
98 Eng. Rep. 1360 (K.B. 1778) .....................................................................................................12
Hosford v. Germania Fire Ins. Co.,
127 U.S. 399, 8 S.Ct. 1199, 32 L. Ed. 196 (1888) .........................................................................20
Illinois State Bar Ass’n Mut. Ins. Co. v. Coregis Ins. Co.,
355 Ill. App.3d 156, 821 N.E.2d 706 (2004) ...........................................................................23, 35
Jaber v. Prudential Ins. Co. of Am.,
113 Ohio App.3d 507, 681 N.E.2d 478 (6th Dist. 1996) ...............................................................29
James v. Safeco Ins. Co. of Illinois,
195 Ohio App.3d 265, 2011-Ohio 4241 (8th Dist.) .................................................2, 10, 26, 27, 31
John Hancock Life Ins. Co. v. William R. Ufer, Sr., Irrevocable Trust,
N.D. Ohio No. 3:11-cv-02344, 2013 WL 2297094 (May 24, 2013) .............................................26
Kinzel v. Bank of Am.,
N.D. Ohio No. 3:10-CV-02169, 2013 WL 5221231 (Sept. 17, 2013)...........................................26
Lane v. Travelers Indem. Co.,
391 S.W.2d 399, 1965 Tex. LEXIS 250 (Tex. 1965) ....................................................................23
Lester v. State Farm Mut. Auto. Ins. Co.,
64 Ohio App.3d 52, 580 N.E.2d 793 (12th Dist. 1989) .................................................................26
Lowe v. Elec. Supply Co. v. Rexel, Inc.,
M.D. Ga. No. 5:14-CV-335, 2014 WL 5585857 (Nov. 3, 2014) ..................................................35
MacDowall v. Fraser,
99 Eng. Rep. 170 (K.B. 1779) .......................................................................................................12
McGuire v. Erie Ins. Exchange,
5th Dist. Coshocton No. 92-CV-5, 1992 WL 518771 (Dec. 11, 1992) ...........................................6
Medical Protective Co. v. Fragatos,
190 Ohio App.3d 114, 2010-Ohio-4487, 940 N.E.2d 1011 (8th Dist.) ............................... 6, 30-31
v
Metropolitan Life Ins. Co. v. Felix,
73 Ohio St. 46, 75 N.E. 941 (1905) .....................................................................................3, 33, 34
Monarch Constr. Co. v. Ohio School Facilities Comm.,
150 Ohio App.3d 134, 2002-Ohio-6281, 779 N.E.2d 844 (10th Dist.) .........................................35
Moulor v. Am. Life Ins. Co.,
111 U.S. 335, 4 S.Ct. 466, 28 L. Ed. 447 (1884) ...........................................................................18
Nail v. Leader Nat. Ins. Co.,
2nd Dist. Montgomery No. 12535, 1992 Ohio App. LEXIS 2061, 1992 WL 80786
(Apr. 22, 1992) ...............................................................................................................................25
Nationwide Mut. Fire Ins. Co. v. Pusser,
7th Dist. Mahoning No. 17 MA 0117, 2018-Ohio-2781, 2018 Ohio App. LEXIS 2988 ..............10
Nationwide Mut. Fire Ins. Co. v. Pusser,
7th Dist. Mahoning No. 17 MA 0117, 2018-Ohio-3597, 2018 Ohio App. LEXIS 3911 ..28, 30, 31
O’Donnell v. Financial Am. Life Ins. Co.,
S.D. Ohio No. 2:14-CV-1071, 2017 WL 10296897 (Sept. 20, 2017) .................................2, 27, 31
Pawson v. Watson,
98 Eng. Rep. 1361 (K.B. 1778) .....................................................................................................12
Personal Service Ins. Co. v. Lester,
4th Dist. Athens No. 06CA12, 2006-Ohio-5199, 2006 WL 2796253 ..................................... 29-30
Ramirez v. Clinica Perea, Inc.,
108 D. P.R. 477 (P.R. Feb. 23, 1979) ............................................................................................13
Republic Mut. Ins. Co. v. Wilson,
66 Ohio App. 522, 35 N.E.2d 467 (4th Dist. 1940) .......................................................................21
Smith v. Vainik,
Case No. 303140, 2012 Mich. App. LEXIS 1455, 2012 WL 3054145
(Mich. Ct. App., July 26, 2012) .....................................................................................................35
Unencumbered Assets, Trust v. Great Am. Ins. Co.,
817 F.Supp.2d 1014 (S.D. Ohio 2011) ............................................................................................6
Universal Underwriters v. Gran,
114 N.E.2d 501, 1952 Ohio Misc. LEXIS 316 (Trumbull County) ........................................ 32-33
Wilburn Boat Co. v. Fireman’s Fund Ins. Co.,
348 U.S. 310, 75 S.Ct. 368, 99 L. Ed. 337 (1955) .......................................................11, 12, 13, 14
vi
Wilmington Sav. Fund Soc’y, FSB v. PHL Variable Ins. Co.,
D. Del. No. CV 13-499, 2014 WL 1389974 (Apr. 9, 2014) ..........................................................35
Workman v. Wright,
33 Ohio St. 405, 1878 Ohio LEXIS 203 (1878) ............................................................................35
Other Authorities:
57 Ohio Jurisprudence 3d, Insurance, Section 622 (2018) ........................................................2, 15
57 Ohio Jurisprudence 3d, Insurance, Section 624 (2018) ............................................................15
57 Ohio Jurisprudence 3d, Insurance, Section 627 (2018) ............................................................15
57 Ohio Jurisprudence 3d, Insurance, Section 628 (2018) ............................................................15
6 Couch, Couch on Insurance, Section 81:1 (3d Ed. 2018) ....................................................11, 13
6 Couch, Couch on Insurance, Section 81:15 (3d Ed. 2018) ........................................................20
6 Couch, Couch on Insurance, Section 83:1 (3d Ed. 2018) .................................................... 15-16
6 Couch, Couch on Insurance, Section 83:13 (3d Ed. 2018) ........................................................23
6 Couch, Couch on Insurance, Section 83:19 (3d Ed. 2018) ........................................................23
6 Couch, Couch on Insurance, Section 83:7 (3d Ed. 2018) ..........................................................16
Black’s Law Dictionary (7th Ed. 1999) ...................................................................................16, 22
Restatement (1st) of Contracts, Section 475 (1932) ......................................................................35
Vance, William, Ph.D., LL. B., The History of the Development of the Warranty in Insurance
Law, 20 Yale L.J. 523 (1911) ............................................................................1, 11, 12, 13, 14, 36
1
INTRODUCTION
Appellant Nationwide Mutual Fire Insurance Company’s (“Nationwide’s”) entire merit
brief is built upon the argument that Ms. Diane Lapaze’s automobile insurance policy (the
“Policy”) lists a series of nine warranties that, if breached, void the Policy ab initio. Policy [R. 1,
Ex. 1] at G4. Nationwide contends that Ms. Lapaze breached one of those nine enumerated
warranties by stating in her application that she was “the only household member of driving age”
when in reality her sister, Ms. Barbara Pusser, was living at her house at the time. Nationwide’s
Merit Brief (“Br.”) at 1. Therefore, Nationwide reasons that it should be permitted to void Ms.
Lapaze’s coverage.
The obvious and threshold problem for Nationwide is that none of the nine enumerated
warranties in Ms. Lapaze’s Policy include statements regarding household members of driving
age. Nationwide instead argues that Ms. Lapaze’s failure to identify Ms. Pusser is covered by
alleged warranties regarding “[a]ll drivers and other operators in the household” and “[u]se of the
insured vehicle.” Br. at 4. But undisputed facts show that Ms. Pusser was not a driver, operator,
or user of the vehicle at the time of the application because Ms. Pusser had not driven in
approximately 15 years and had no intention of ever driving again. See Pusser Dep. Tr. [R. 49]
at 18:10-16; 31:17-19; 65:1-4. It was only after Ms. Lapaze’s Alzheimer’s disease1 progressed
to the point that she could no longer safely drive that Ms. Pusser began to drive the vehicle. Put
1 The very first sentence of the Ohio Insurance Institute’s (“OII’s”) Amicus Curiæ Brief (“OII
Br.”) brazenly accuses Ms. Lapaze of “lying to Nationwide,” an accusation that is repeated
throughout the brief. To be clear, Ms. Lapaze was never deposed in this case because of her
advanced Alzheimer’s disease. Neither OII nor Nationwide has any evidence that Ms. Lapaze’s
failure to list her sister as a “household member of driving age” was anything other than an
innocent mistake, a possibility OII acknowledges later in its brief while ironically arguing that
insurers, if given the chance, will give their insureds “an opportunity to explain” and the “benefit
of the doubt.” OII Br. at 5.
2
simply, the Policy’s failure to list “household member of driving age” as a warranty is
dispositive of Nationwide’s appeal without regard to the merit of its other arguments.
But even if Nationwide could somehow shoehorn Ms. Lapaze’s failure to disclose Ms.
Pusser – an unlicensed, non-driving member of the household – into the “driver,” “operator,” and
“use[r]” language of the Policy, Nationwide’s appeal would still be meritless. Under established
law, as the Seventh District correctly determined below, an insurer wishing to create a warranty
must “clearly and unambiguously” warn insureds in the policy that such a misstatement in the
application “shall render the policy void ab initio.” (Emphasis added.) Allstate Ins. Co. v.
Boggs, 27 Ohio St.2d 216, 219, 271 N.E.2d 855 (1971). But the Policy at issue merely states
that a misstatement “may” or “could” void the policy. A virtually unbroken line of Ohio
authorities has held that an application’s warning that a misstatement “may” or “could” void a
policy is insufficient to create a warranty.2
A warranty is a “stipulation inserted in writing on the face of the policy, on the literal
truth *** of which the validity of the entire contract depends.” (Emphasis sic.) Hartford
Protection Ins. Co. v. Harmer, 2 Ohio St. 452, 463, 1853 Ohio LEXIS 212 (1853); 57 Ohio
Jurisprudence 3d, Insurance, Section 622 (same). A breach of a warranty – regardless of fault or
materiality – renders the policy void from its inception, regardless of whether liability has
already accrued on the policy. Accordingly, “[c]ourts do not favor warranties, or forfeitures from
the breach thereof, and a statement as to conditions does not constitute a warranty unless the
2 See James v. Safeco Ins. Co. of Illinois, 195 Ohio App.3d 265, 2011-Ohio-4241, ¶ 25-26 (8th
Dist.) (“[T]he policy language ‘we may void this policy’ is not a clear warning to the insured that
a misstatement shall render the policy void.” (Internal quotes and citations omitted.)); Am.
Family Ins. Co. v. Johnson, 8th Dist. Cuyahoga No. 93022, 2010-Ohio-1855, 2010 WL 1712240,
¶ 16-17 (similar); O’Donnell v. Financial Am. Life Ins. Co., S.D. Ohio No. 2:14-CV-1071, 2017
WL 10296897, *8 (Sept. 20, 2017); Goodman v. Medmarc Ins., 8th Dist. Cuyahoga No. 97969,
2012-Ohio-4061, 977 N.E.2d 128, ¶ 20 (similar).
3
language of the policy, construed strictly against the insurer, requires such an interpretation.”
(Emphasis added.) Boggs, 27 Ohio St.2d at 219. In other words, “[i]f it is [an insurer’s] purpose
to provide that a misstatement by the insured shall render the policy void ab initio, such facts
must appear clearly and unambiguously from the terms of the policy.” (Emphasis added.) Id.
Nationwide argues that it intentionally selected the words “may” and “could” in the
Policy to give it the ability to determine, after a claim is filed, whether the insured’s
misstatement was material. Br. at 18. According to Nationwide, providing it with the unilateral
discretion either to affirm the contract or to void it ab initio is a benefit to policyholders because
if given the chance, Nationwide will act altruistically and pay claims despite the insured’s breach
of a warranty as long it determines that the breach was not material. Id. There are two main
problems with this argument. First, it is fundamentally incompatible with the nature of
warranties. “Warranties are conditions precedent to a valid policy, whether such conditions are
material or not***.” Byers v. Farmers Ins. Co., 35 Ohio St. 606, 615, 1880 Ohio LEXIS 193
(1880). “Indeed, one of the very objects of the warranty is to preclude all controversy about the
materiality or immateriality of the statement. The only question is, ‘Has the warranty been kept?’
There is no room for construction, no latitude, no equity.” Holterhoff v. Mut. Ben. Life Ins. Co.,
1874 Ohio Misc. LEXIS 11, *32, 1874 WL 5359, *14 (Super. Court, Cincinnati, June 1874).
Second, Nationwide’s argument defies common sense. Nationwide, as a rational
economic actor, is not going to pay on a claim it could avoid unless it perceives a net benefit to
itself. See, e.g., Metropolitan Life Ins. Co. v. Felix, 73 Ohio St. 46, 52, 75 N.E. 941 (1905)
(doubting that an insurer would engage in such a “sporadic case of philanthropy” by paying a
claim it was not legally obligated to pay). And this is where Nationwide’s argument crosses into
extremely dangerous territory. Because the risk never attaches to an insurance contract that is
4
void ab initio, the law normally requires the insurer to return all premiums paid on the policy.
See, e.g., Connecticut Mut. Life Ins. Co. v. Pyle, 44 Ohio St. 19, 32 (1886). This requirement
serves as an important deterrent to insurers from drafting their policies to include unfair,
technical, or trivial warranties. But this deterrent is removed if the insurer is permitted to
unilaterally choose which warranty breaches to enforce. The savvy insurer would pack their
policies with a multitude of warranties designed to generate even innocent mistakes – e.g., dates
of speeding tickets, VIN numbers, former addresses – and then collect premiums until the
insured makes a claim.3 If the value of the claim is large in comparison to the premiums
collected, the insurer would choose to refund the premiums in exchange for avoiding having to
pay the claim. If the value of the claim is modest in comparison to the premiums collected (and
with automobile insurance policies automatically renewing every six months, the insurer could
have collected years’ worth of premiums), the economic calculation changes and the insurer
would pay the claim and keep the premiums. This is post-claim underwriting at its worst because
the insured always loses.
Nationwide’s Policy language effectively blurs the line between the “two classes” of
statements made by an insured: a representation (which if untrue renders the policy voidable at
the option of the insurer but only before liability accrues) and a warranty (which if untrue voids
the policy ab initio regardless of whether liability has accrued). See Boggs, 27 Ohio St.2d at 218
(“Statements by an insured fall into two classes – those which constitute warranties, and those
which constitute representations.”). Through this blurred line, Nationwide attempts to create a
new, third class of statement not contemplated by Boggs. Like a representation, this third class
renders the policy void at the option of the insurer. Like a warranty, it immunizes the insurer
3 This is not mere speculation. For a thorough discussion of how courts have historically battled
back against insurers that were creating such a “wilderness of warranties,” see infra at 13.
5
even though liability has already accrued. In essence, Nationwide wants this Court to bless the
creation of a super representation that is not subject to common law restrictions on
representations that they “may not be used to avoid liability after the accident has occurred.”
Boggs, 27 Ohio St.2d at 221.
The danger in Nationwide’s argument is greatly compounded by the fact that Boggs has
been applied in a myriad of insurance coverage contexts, including professional liability
coverage for attorneys and physicians. If this Court were to shatter the centuries’ old distinction
between warranties and representations set forth in Boggs, the consequences could be severe.
Not only will insurers begin to pack automobile policies with dozens of meaningless warranties,
but legal and medical malpractice insurers will follow suit. Suddenly, doctors and lawyers who
thought they had insurance coverage could find the assets they acquired through a lifetime of
work at risk because of an innocent mistake made perhaps years earlier at the time of application.
The Seventh District’s decision should be affirmed.
IDENTIFICATION OF AMICUS CURIÆ
The Ohio Association for Justice is a statewide association of attorneys whose mission is
to preserve the legal rights of all Ohioans by protecting their access to the civil justice system. In
this case, Nationwide is attempting to void the auto insurance coverage of an elderly widow who
has been rendered incapacitated and helpless by Alzheimer’s disease in order to avoid
compensating the estate of an innocent pedestrian killed by an insured vehicle. In seeking to
overturn the Seventh District’s opinion below, Nationwide seeks to gut long-established
protections for insureds against insurers’ use of “strict warranties” to void coverage after liability
has accrued. If Nationwide is successful, there will be more uninsured drivers, and more people
exposed to significant liability even though they reasonably thought they were insured.
6
But the damage would not end there. Although Boggs itself happened to involve an
automobile policy, courts have not limited its application solely to cases involving auto policies.
To the contrary, Boggs has been applied to many different types of insurance, including
homeowner’s policies, professional liability policies, commercial premises policies, and Director
& Officer’s policies.4
Because it is impossible to predict the negative repercussions if the Court upsets
established precedent, the undersigned files this brief in support of Appellees and urges the Court
to affirm the decision of the Seventh District Court of Appeals.
STATEMENT OF FACTS
Diane Lapaze lost her husband of 35 years when he passed away in December 2009.
Pusser Dep. Tr. at 11:19-20. Alone and depressed, Ms. Lapaze asked her younger sister, Barbara
Pusser, to move in with her. Id. at 63:19-20; 65:11-12. Ms. Pusser cooked for sister, cleaned for
sister, and helped her sister with household chores. Id. at 64:19-25. However, Ms. Pusser did
not drive for her sister. Id. at 65:1-4. In fact, Ms. Pusser had not driven any vehicle in
approximately 15 years. Id. at 18:10-16; 31:17-19.
On March 17, 2011, Ms. Lapaze drove (with Ms. Pusser as a passenger) to the office of a
local Nationwide agent, Lee Monit. Id. at 39:23-41:6. She wanted to save money by switching
her home and automobile insurance from State Farm to Nationwide. Id. at 72:1-22. After
4 See, e.g., Am. Family Insurance Co. v. Johnson, 8th Dist. Cuyahoga No. 93022, 2010-Ohio-
1855, 2010 WL 1712240 (homeowner’s policy); Goodman v. Medmarc Ins., 8th Dist. Cuyahoga
No. 97969, 2012-Ohio-4061, 977 N.E.2d 128 (professional liability policy); Medical Protective
Co. v. Fragatos, 190 Ohio App.3d 114, 2010-Ohio-4487, 940 N.E.2d 1011 (8th Dist.) (medical
malpractice policy); CARE Risk Retention Group v. Martin, 191 Ohio App.3d 797, 2010-Ohio-
6091, 947 N.E.2d 1214 (2d Dist.) (medical malpractice policy); McGuire v. Erie Ins. Exchange,
5th Dist. Coshocton No. 92-CA-5, 1992 WL 518771 (Dec. 11, 1992) (commercial premises
policy); Unencumbered Assets, Trust v. Great Am. Ins. Co., 817 F.Supp.2d 1014 (S.D.Ohio
2011) (Director & Officer’s policy).
7
discussing her insurance needs with Mr. Monit, Ms. Lapaze signed the application
(“Application”). Id. at 48:20-22. The Application included a section requesting the applicant to
list all “household members of driving age and non-resident operators.” Application [R. 50, Ex.
B-1] at p. 1. Ms. Lapaze listed herself but did not include Ms. Pusser. Id. The Application also
required the applicant to initial a series of boxes verifying the accuracy of several small print
statements. Application at p. 6. One such statement provides as follows:
All operators and drivers who may operate the vehicle(s) identified in this
application or may have access to the vehicle(s) for the purpose of operating
and/or driving the vehicle(s) and all persons residing at the address listed on this
application and at the garaging address(es) of said vehicle(s), have been disclosed
and listed on this or another Nationwide application, with the exception of
resident parents or grandparents insured with a company other than Nationwide.
(Emphasis added.) Application at p. 6. Ms. Lapaze initialed the box. Id. The Application
warned that a “MISREPRESENTATION OF INFORMATION ON THIS APPLICATION,
INCLUDING FAILURE TO DISCLOSE A DRIVER OR MEMBER OF THE HOUSEHOLD,
COULD VOID SOME OR ALL OF MY COVERAGES.” Id. at p. 5.
Nationwide issued the Policy to Ms. Lapaze on March 17, 2011. See Policy at
Declaration. The vehicle insured under the Policy was Ms. Lapaze’s Dodge Neon. Id. Under
the heading “FRAUD AND MISREPRESENTATION” in the “General Policy Conditions”
section of the Policy, it provides:
A) THIS POLICY WAS ISSUED IN RELIANCE ON THE INFORMATION
YOU PROVIDED AT THE TIME OF YOUR APPLICATION FOR
INSURANCE COVERAGE. WE MAY VOID THIS POLICY, DENY
COVERAGE UNDER THIS POLICY, OR, AT OUR ELECTION, ASSERT
ANY OTHER REMEDY AVAILABLE UNDER APPLICABLE LAW, IF
YOU, OR ANY INSURED PERSON SEEKING COVERAGE UNDER
THIS POLICY, KNOWINGLY CONCEALED, MISREPRESENTED OR
OMITTED ANY MATERIAL FACT OR ENGAGED IN FRAUDULENT
CONDUCT AT THE TIME THE APPLICATION WAS MADE OR AT
ANY TIME DURING THE POLICY PERIOD.
8
B) WE MAY VOID THIS POLICY, DENY COVERAGE FOR AN
ACCIDENT OR LOSS, OR AT OUR ELECTION, ASSERT ANY OTHER
REMEDY AVAILABLE UNDER APPLICABLE LAW, IF ANY INSURED
PERSON OR ANY OTHER PERSON SEEKING COVERAGE UNDER
THIS POLICY HAS KNOWINGLY CONCEALED OR
MISREPRESENTED ANY MATERIAL FACT OR ENGAGED IN
FRAUDULENT CONDUCT IN CONNECTION WITH THE FILING OR
SETTLEMENT OF ANY CLAIM.
(Emphasis added.) Id. at G3, ¶ 8. Under the heading “REPRESENTATIONS AND
WARRANTIES IN THE APPLICATION,” the Policy states:
The application for this policy is incorporated herein and made a part of this
policy. When we refer to the policy, we mean this document, the application, the
Declarations page, and the endorsements. The policyholder agrees that the
statements in the Declarations and the application for this policy are his or her
agreements, representations and warranties. The policyholder agrees that this
policy is issued in reliance upon the truth of such representations and warranties.
If it is determined that any warranty made by the policyholder is incorrect, this
policy may be held void ab initio, or void back to the date of inception, upon
return of the policyholder’s premium.
Warranties which, if incorrect, could void the policy from the beginning are:
(1) Registered owner of the vehicle;
(2) All drivers and other operators in the household;
(3) Use of the insured vehicle;
(4) Make/model/year (identity) of the insured vehicle;
(5) Correct address of the policyholder and correct garaging address;
(6) status of driver’s license;
(7) prior motor vehicle accidents;
(8) prior claims involving loss to motor vehicles;
(9) existing damage to your auto.
(Emphasis added.) Id. at G4-G5, ¶ 13.
Ms. Lapaze’s health subsequently deteriorated and she was diagnosed with Alzheimer’s
disease in 2012. [R. 35] At some point after the Application was submitted and the Policy
issued, Ms. Pusser began driving the insured vehicle approximately three times per month to run
essential errands, like buying groceries and doctor visits. Pusser Dep. Tr. at 51:13-52:5; 70:25-
9
71:10. Ms. Pusser testified that she knew that she should not be driving the vehicle, but felt it
was necessary to care for her ailing sister:
Q. At any time in the process of applying for the Nationwide auto policy on
the Neon, did anyone notify anybody from Nationwide that you were going to be
a driver of the Dodge Neon?
A. No. I never really thought I would have to be. But it turned out I had to.
Id. at 52:14-19.
Q. Do you know whether anyone ever told you under no circumstances can
drive this vehicle, the Dodge Neon?
A. I don’t remember. I imagine not. I wasn’t covered by it. So I imagine – I
didn’t have to ask that question, right? I was just that I wasn’t supposed to be
driving it. The only reason I drove it was because we needed –
Q. I’m sorry. What was that?
A. I just did stuff we needed to do to live.
Id. at 70:14-23.
On August 13, 2012, Ms. Pusser was driving the insured vehicle when it struck and killed
Robert Boak as he was walking on Midlothian Boulevard. A third party, Dennis Lehman, was
also operating a vehicle that was involved in the accident. The Policy was in effect at that time.5
On January 31, 2014, Nationwide filed this declaratory judgment action against Ms.
Pusser, Ms. Lapaze (through her brother and legal guardian, Thomas Kane), Mr. Lehman, and
the estate of Mr. Boak (the “Estate”) seeking a declaration that it does not owe liability coverage
under the Policy to the benefit of Lehman or the Estate. [R. 1] Nationwide filed a motion for
summary judgment asserting, among other things, that no genuine issues of material fact existed
and the Policy was void ab initio due to a breach of the warranties contained therein regarding
5 Although the Policy was originally issued on March 17, 2011 for a period of six months, it was
renewed two additional consecutive six month periods. [R. 50, Ex. B ¶ 8]
10
disclosure of all “drivers” and “operators” in the household and disclosure of the “use” of the
insured vehicle. [R. 50] The Estate filed a response in opposition and a competing motion for
summary judgment asserting, among other things, that the Policy was not void ab initio. [R. 57]
The trial court granted Nationwide’s motion for summary judgment and denied the Estate’s
motion for summary judgment. [R. 60] In so doing, the court found the Policy was void ab
initio due to a breach of the warranties in the Application and the Policy concerning the
disclosure of all drivers and other operators in Ms. Lapaze’s household. The Estate filed a timely
notice of appeal on July 25, 2017. [R. 64]
On appeal, a unanimous panel of the Seventh District reversed the trial court’s decision,
ruling that the Policy and Application failed to provide an adequate warning that a breach of
warranty would render the policy void from its inception, as required by Boggs:
The language employed by Nationwide in both the Application and the Policy is
not a plain warning that a misstatement as to the warranty will render the policy
void from its inception. Neither the Application nor the Policy states
unconditionally that a misstatement as to a warranty will render the Policy void ab
initio. Instead, the insurer chose to use the words “may” and “could” in the
phrases “such a misstatement may void the policy”, “this policy may be held void
ab initio”, and “[w]arranties which, if incorrect, could void the policy from the
beginning.” The use of these words speaks of possibilities, not certainties. Thus,
they do not provide a plain warning as required by Boggs.
Opinion and Judgment Entry, [R. 76], 2018-Ohio-2781, 2018 Ohio App. LEXIS 2988, ¶ 30. In
other words, the Seventh District found that Nationwide’s use of “we may void this policy”
merely reflected the long-standing point of law that a “contract induced by fraud is not void, but
it is voidable at the election of the one defrauded.” (Emphasis sic.) Id. at ¶ 31, citing James, 195
Ohio App.3d at ¶ 25; Columbus & T.R. Co. v. Steinfeld, 42 Ohio St. 449, 455, 1884 Ohio LEXIS
280 (1884)). Nationwide now appeals the Seventh District’s decision, arguing that “(1) it
misapplies this Court’s holding in [Boggs]; (2) most lower courts considering the issue have held
11
that may/could language in an insurance policy satisfies Boggs; (3) it is not necessary to use any
particular ‘magic words’ to satisfy the Boggs standard; and (4) the Seventh District’s decision
does not further any public policy goals***.” Br. at 8.
ARGUMENT
A. The “Unseemly” History of the “Technical Warranty.”
The history of the technical warranty in insurance law is instructive in showing
how a rule, never very good or necessary, may, like more human creatures, so
degenerate through later associations and changed conditions as to become
positively bad, and so injurious to society that it must needs be brought to an end by legal process. In the United States, the reign of the technical warranty is
almost over. For over a century it has been condemned by courts and text writers
as an instrument of oppression and unfair dealing***. [T]he warranty has been
deserted even by its only friends, the underwriters. It is seldom that one now finds
a trace of the warranty in the policies of reputable life insurance companies; and
in the standard fire policy, now almost universally in use, warranties have been
confined to a small and relatively unobjectionable field.
(Emphasis added.) Vance, William R., Ph.D., LL.B, The History of the Development of the
Warranty in Insurance Law, 20 Yale L. J. 523, 523 (1911).
The distinction between warranties and representations traces its roots to Eighteenth
Century English marine insurance. A warranty is an anachronism from a time when ultra-strict,
draconian protections for insurers were thought to be needed to encourage wealthy private
individuals to insure wooden ships they could not inspect and cargos they could not verify during
treacherous voyages they could not supervise.6 Because it has been centuries since the insurance
industry bore any resemblance to the characteristics that gave birth to the warranty, the “old
common-law doctrine of forfeiting all right of recovery in the absence of strict and literal
performance of warranties” is widely viewed as a “breeder of wrong and injustice***.” Wilburn
Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310, 320, 75 S.Ct. 368, 99 L.Ed. 337 (1955).
6 See generally Vance, 20 Yale L. J at 526-27; 6 Couch, Couch on Insurance, Section 81:1 (3d
Ed. 2018).
12
When Lord Mansfield ascended to Chief Justice of King’s Bench in 1756, he issued a
series of rulings that created the distinction between warranties and representations from whole
cloth, holding that a warranty is part of the contract, while a misrepresentation is a collateral
statement which is not part of the policy. Vance, 20 Yale L. J at 526-27 (citing Pawson v.
Watson, 98 Eng. Rep. 1361, 1362-63 (K.B. 1778)). Mansfield ruled that although a false
representation will void a policy only if the representation was material to the risk, warranties
must be strictly complied with. Id.7 This principle is sometimes referred to as the “literal
performance rule.” See, e.g., Wilburn Boat Co., 348 U.S. at 315. Mansfield’s warranty was a
condition on which the very existence of a contract depends:
There is a material distinction between a warranty and a representation. A
representation may be equitably and substantially answered: but a warranty must
be strictly complied with. Supposing a warranty to sail on the 1st of August, and
the ship did not sail till the 2d, the warranty would not be complied with. A
warranty in a policy of insurance is a condition or a contingency, and unless
that be performed, there is no contract. It is perfectly immaterial for what
purpose a warranty is introduced; but, being inserted, the contract does not exist unless it be literally complied with. Now in the present case, the condition
was the sailing of the ship with a certain number of men; which not being
complied with, the policy is void
(Emphasis added.) De Hahn v. Hartly, 99 Eng. Rep. 1130, 1131 (K.B. 1786).
In light of the “striking and surprising legal consequences” flowing from newfound
distinction between warranties and representations, “it naturally was a matter of great interest to
the underwriters to know when a statement descriptive of a risk was a warranty and when a
representation.” Vance, 20 Yale L. J. at 530. Mansfield determined that a “statement should
bear the magical potency of the warranty if it was written anywhere on the face of the policy as
on the margin, straight or obliquely; but if the written statement was inscribed on a different
7 See also Hore v. Whitmore, 98 Eng. Rep. 1360, 1360 (K.B. 1778); MacDowall v. Fraser, 99
Eng. Rep. 170, 170-71 (K.B. 1779); Kenyon v. Berthon, 99 Eng. Rep. 10 (K.B. 1779).
13
paper folded within the policy, or even fastened by a wafer to the policy, it was no more than a
representation***.” (Citations omitted.) Id. Notably, the mere fact that a description was written
into the text of a policy was itself sufficient to determine its character as a warranty and no other
evidence regarding the intention of the parties was necessary. Id.
The legacy of Lord Mansfield’s warranty rulings has been an “unseemly struggle”
between “unwise insurers who sought so to frame their policies as to compel the courts to allow
them the dishonest benefit of forfeitures unsuspected by the insured, and the courts who sought
by liberal construction, and sometimes distortion of the language of the policies, to do justice in
spite of the warranties.” Vance, 20 Yale L. J. at 534.
B. The Literal Performance Rule in America
In the United States, the literal performance rule has “been treated not as an admiralty
rule but as a general warranty rule applicable to many types of contracts including marine and
other insurance.” Wilburn Boat Co., 348 U.S. at 315. According to Professor Vance – who has
been cited as an authority on warranties by both the United States Supreme Court and a leading
treatise on insurance8 – the “harsh rule of the warranty was allowed to continue in all its rigour
[in the United States], although scarcely a vestige of the doubtful reason which had excused its
establishment in marine insurance could apply to insurances on life and property on land.”
Vance, 20 Yale L. J. at 534. Predictably, “insurers tried to hold on to this distinction in order to
turn every statement into a warranty, thus reducing the scope of their liability.” Ramirez v.
Clinica Perea, Inc., 108 D. P.R. 477, 508 (P.R. Feb. 23, 1979). As a result, “[p]olicies became
overgrown with a wilderness of warranties, many of the most trivial character, in which the
8 See Wilburn Boat Co., 348 U.S. at 316 n.14; 6 Couch, Couch on Insurance, Section 81:1, n.1
(3d Ed. 2018).
14
rights of the policy holder, however honest and careful, were in grave danger of being lost. It
was necessary for the courts to go to the rescue of the public.” Vance, 20 Yale L. J. at 534.
In response to growing warranty abuse by insurers, American courts fashioned the rule
that no stipulation, even if written into the text of a policy, shall be construed as a warranty
unless it was clearly and unmistakably so intended by the parties, as indicated by the
unequivocal language of the policy. Id. The burden rests on the insurer as drafter of the policy
to remove all possible doubt as to the parties’ intention to create a warranty, with the policy
language construed “most strongly” against it:
[W]hen a policy of insurance contains contradictory provisions, or has been so
framed as to leave room for construction, rendering it doubtful whether the parties
intended the exact truth of the applicant's statements to be a condition precedent
to any binding contract, the court should lean against that construction which
imposes upon the assured the obligations of a warranty. The company cannot
justly complain of such a rule. Its attorneys, officers, or agents prepared the policy
for the purpose, we shall assume, both of protecting the company against fraud,
and of securing the just rights of the assured under a valid contract of insurance. It
is its language which the court is invited to interpret, and it is both reasonable and
just that its own words should be construed most strongly against itself.
(Emphasis added.) First Nat. Bank v. Hartford Fire Ins. Co., 95 U.S. 673, 678–79, 24 L. Ed. 563
(1877).
Many states, “deeming the old [literal performance] rule a breeder of wrong and injustice,
have abandoned it in whole or in part.” Wilburn Boat Co., 348 U.S. at 320. “Some States for
example have denied companies the right to forfeit policies in the absence of an insured’s bad
faith or fraud. Other States have thought this kind of rule inadequate to stamp out forfeit
practices deemed evil. The result *** has been state statutes like that of Texas which go to the
root of the evil and forbid forfeiture for an insured’s breach of policy terms unless the breach
actually contributes to bring about the loss insured against.” (Internal quotes omitted.) Id.
15
In Ohio, the literal performance rule still governs most types of insurance, and warranties
“must be literally true in the absence of other statutory provisions as applicable to life insurance
[R.C. 3911.06] and accident and sickness insurance policies [R.C. 3923.14].” 57 Ohio
Jurisprudence 3d, Insurance, Section 622 (2018). See also OII Br. at 8-9 (asserting that the
literal performance rule is the law in Ohio). Ohio law defines a warranty as a “stipulation
inserted in writing on the face of the policy, or properly embodied therein, on the literal truth or
fulfillment of which the validity of the entire contract depends.” 57 Ohio Jurisprudence 3d,
Insurance, Section 622, citing Harmer, 2 Ohio St. at 452. The fact that a warranty is immaterial
to the risk does not affect its operation. Id. A warranty is binding on the insured without regard to
whether its breach proceeds from negligence, misinformation, or any other cause. Id. Proof of
intent or fraud is not required to vitiate and void a contract of insurance for the breach of
warranties. 57 Ohio Jurisprudence 3d, Insurance, Section 624 (2018). A breach of warranty
voids the policy ab initio. 57 Ohio Jurisprudence 3d, Insurance, Section 622.
Whether a statement made by the insured in a policy of insurance is a warranty depends
upon the intention of the parties, as determined by a consideration of the entire contract, the
language used, the subject matter, and the position of the parties, and upon whether the minds of
both parties consented that such should be the interpretation of the statements made. 57 Ohio
Jurisprudence 3d, Insurance, Section 627 (2018). A statement is a warranty, such that a
misstatement by an insured in an application for an insurance policy renders the policy void ab
initio, if the language of the policy, construed strictly against the insurer, requires such an
interpretation. (Emphasis sic.) 57 Ohio Jurisprudence 3d, Insurance, Section 628 (2018).
Statements contained in an application for insurance will not be considered warranties unless the
provisions of the application and policy taken together leave no room for any other
16
construction. (Emphasis sic.) Id. This is because “[i]n accordance with the general rules of
construction of insurance policies, courts do not favor warranties***.” 6 Couch, Couch on
Insurance, Section 83:1 (3d Ed. 2018). “In modern practice, there is essentially a presumption
against warranties.” 6 Couch, Couch on Insurance, Section 83:7 (3d Ed. 2018).
C. In Ohio, to Qualify as a Warranty, the Statement Must Appear on the
Policy’s Face or be Plainly Incorporated into the Policy, and the Policy Must
Plainly Warn that a Misstatement Will Render the Policy Void from its
Inception.
All parties agree that this case is governed by Allstate v. Boggs, 27 Ohio St.2d 216, 271
N.E.2d 855 (1971). In that case, like here, an insurance company wanted to rescind an auto
insurance policy after its insured had filed a claim based on a misstatement the insured made on
the insurance application. This Court explained that “[s]tatements by an insured fall into two
classes – those which constitute warranties, and those which constitute representations.” Boggs at
218. “The consequences of a misstatement of fact by an insured are entirely different, depending
on whether the statement is a warranty or a representation.” Id. at 218. “If the statement is a
warranty, a misstatement of fact voids the policy ab initio.” (Emphasis added.) Id. at 218-19.
See Black’s Law Dictionary 1568 (7th Ed. 1999) (defining “void ab initio” as “[n]ull from the
beginning, as from the first moment when a contract is entered into. A contract is void ab initio if
it seriously offends law or public policy, in contrast to a contract that is merely voidable at the
election of one party to the contract.”). “However, if the statement is a representation, a
misstatement by the insured will render the policy voidable, if it is fraudulently made and the
fact is material to the risk, but it does not void the policy ab initio.” (Emphasis added.) Boggs at
219. See Black’s Law Dictionary 1568 (7th ed. 1999) (defining “voidable” as “[v]alid until
annulled *** capable of being affirmed or rejected at the option of one of the parties”).
17
The distinction is critically important because if the misstatement in the insurance
application is a representation rather than a warranty, it may be “grounds for cancellation of the
policy, but *** may not be used to avoid liability after the accident has occurred.” (Emphasis
added.) Boggs at 221. In other words, because the accident has already occurred in this case,
Nationwide must establish a breach of warranty to avoid liability.
“Boggs is generally interpreted as having established a two-pronged test for deciding if a
misrepresentation or misstatement qualifies as a warranty. The first prong requires that the
misrepresentation appear on the policy’s face or be plainly incorporated into the policy. Under
the second prong, the policy must plainly warn that a misstatement or misrepresentation renders
the policy void from its inception.” Martin, 191 Ohio App.3d at 807-8. “The fundamental
principle is that inasmuch as policies of insurance are in the language selected by the insurer they
are to be construed strictly against the insurer, and liberally in favor of the insured. In other
words, an insurer is bound by the provisions which he chooses to incorporate in his policy. If it is
his purpose to provide that a misstatement by the insured shall render the policy void ab initio,
such facts must appear clearly and unambiguously from the terms of the policy.” Boggs at 219.
D. Nowhere in the Policy or Application Does Nationwide Clearly and
Unambiguously Warn that an Applicant’s Failure to Disclose a Household
Member of Driving Age Shall Render the Policy Void Ab Initio.
Under the second prong of the Boggs test, in order to qualify as a warranty, the insurer
must plainly warn that the misstatement renders the policy void from its inception. In this case,
the Policy purports to list nine categories of statements as warranties:
Warranties which, if incorrect, could void the policy from the beginning are:
(1) Registered owner of the vehicle;
(2) All drivers and other operators in the household;
(3) Use of the insured vehicle;
(4) Make/model/year (identity) of the insured vehicle;
18
(5) Correct address of the policyholder and correct garaging address;
(6) status of driver’s license;
(7) prior motor vehicle accidents;
(8) prior claims involving loss to motor vehicles;
(9) existing damage to your auto.
Policy at G4-G5, ¶ 13. Statements regarding the identity of household members of driving
age are not one of the listed categories. This fact alone is fatal to Nationwide’s position. The
fact that the Policy identifies nine categories of statements as warranties but omits household
members of driving age conclusively proves that the parties did not intend to make statements
about household members of driving age a warranty. See Boggs, 27 Ohio St.2d at 220 (fact that
policy explicitly referenced prior convictions and prior policy cancellations but not driver’s age
suggested that age was not intended by parties to be a warranty). Because the Policy does not
“plainly warn” that an insured’s failure to identity all household members of driving age will
render the policy void from its inception, Ms. Lapaze’s failure to disclose Ms. Pusser in her
application was a misrepresentation, not a breach of warranty.
This result is also consistent with language of the Application, which describes
“FAILURE TO DISCLOSE A *** MEMBER OF THE HOUSEHOLD” as a
“MISREPRESENTATION” that “COULD VOID SOME OR ALL OF MY COVERAGES.”
(Emphasis added.) Application at p. 6. In addition to expressly using the word
misrepresentation, the Application’s warning that “some” but not all coverages may be “void” is
fundamentally inconsistent with the existence of a warranty, because a breach of warranty would
– by definition – void the entire Policy from its inception. See Moulor v. Am. Life Ins. Co., 111
U.S. 335, 342–43, 4 S.Ct. 466, 470, 28 L.Ed. 447 (1884) (“Thus, we have one part of the
contract apparently stipulating for a warranty, while another part describes the statements of the
assured as representations. The doubt, as to the intention of the parties, must, according to the
19
settled doctrines of the law of insurance, recognized in all the adjudged cases, be resolved
against the party whose language it becomes necessary to interpret. The construction must,
therefore, prevail which protects the insured against the obligations arising from a strict
warranty.”).
E. Barbara Pusser was Not a “Driver[],” “Operator[],” or “Use[r]” of the
Insured Vehicle at the Time of the Application.
Even though the Policy does not include “household members of driving age” among the
purported warranties listed, Nationwide argues that it is sufficient that the Policy generally states
that the insured’s statements “regarding household members” are warranties. Br. at 2. More
specifically, Nationwide points to the Policy language identifying “[a]ll drivers and other
operators in the household” and “[u]se of the insured vehicle” as purported warranties. Neither
helps Nationwide’s cause.
The record is clear that when Ms. Lapaze applied for insurance and submitted the
Application, she was the only “driver,” “operator,” and “use[r]” of the vehicle in the household.
Ms. Pusser did not have a valid driver’s license, and had not driven a vehicle in approximately
fifteen years. See Pusser Dep. Tr. at 17:16-20 (“[Q.] Did you have a valid driver’s license as of
March of 2011, when the process was begun to apply for the Nationwide auto policy that’s in
question in this case? A. No.”); id. at 31:18 (“I wasn’t driving for about fifteen years. I didn’t
drive.”); 65:2-4 (“But I didn’t drive her car at all ***. I didn’t drive.”). And Ms. Pusser testified
that she had no intention of starting to drive when Ms. Lapaze submitted the Application:
Q. At any time in the process of applying for the Nationwide auto policy on
the Neon, did anyone notify anybody from Nationwide that you were going to be
a driver of the Dodge Neon?
A. No. I never really thought I would have to be. But it turned out I had to.
(Emphasis added.) Id. at 52:14-19.
20
Q. Do you know whether anyone ever told you under no circumstances can
drive this vehicle, the Dodge Neon?
A. I don’t remember. I imagine not. I wasn’t covered by it. So I imagine – I
didn’t have to ask that question, right? I was just that I wasn’t supposed to be
driving it. The only reason I drove it was because we needed –
Q. I’m sorry. What was that?
A. I just did stuff we needed to do to live.
Id. at 70:14-23.
In other words, when Ms. Lapaze stated in her Application that she was the only “driver,”
“operator,” and “use[r]” of the vehicle in the household, the statement was 100% accurate. The
fact that Ms. Pusser subsequently and illegally drove Ms. Lapaze’s vehicle due to her declining
health does not somehow render Ms. Lapaze’s description of the facts in the application false.9
Nationwide identifies no authority permitting an insurer to void an incapacitated widow’s
insurance policy based on her failure to accurately predict future events in her application.
F. Nationwide’s Policy Language that a Breach “May” Void the Policy is
Incompatible with a Warranty Because It is Not a Plain Warning as
Required by Boggs.
Even if the Policy’s “driver,” “operator,” and “use[r]” language could somehow be
contorted to include non-driving household members of driving age like Ms. Pusser, Nationwide
would still not be able to establish a breach of warranty. This is because, as the Seventh District
9 The law presumes that warranties are affirmative (i.e., describe the facts at the time of
application) rather than promissory (i.e., promise that facts will continue to be exist in future)
unless no other reasonable construction can be given. See generally 6 Couch, Couch on
Insurance, Section 81:15 (3d Ed. 2018); Diesinger v. Am. & Foreign Ins. Co., 138 F.2d 91, 92
(3d Cir. 1943) (“A warranty proper, carrying with it the avoidance of the policy in case the fact is
not as warranted, is limited to the warranty of an existing fact and will not be extended so as to
include promises or agreements as to the future acts.”); Hosford v. Germania Fire Ins. Co., 127
U.S. 399, 8 S.Ct. 1199, 32 L. Ed. 196 (1888) (insured’s smoking on premises after warranting in
application that no smoking was permitted did not void policy because answer referred merely to
the rule at the time of the application, and not whether that rule might be kept or broken in the
future).
21
correctly found below, the Policy’s use of the conditional phrases “may” and “could” do not
plainly warn that a misstatement or misrepresentation “shall render the policy void ab initio” as
required to create a warranty. Boggs, 27 Ohio St.2d at 219.
The language employed by Nationwide in both the Application and the Policy is not a
plain warning that a misstatement as to the warranty will render the policy void from its
inception. Instead, Nationwide chose to use the words “may” and “could” in the phrases “such a
misstatement may void the policy,” “this policy may be held void ab initio,” and “[w]arranties
which, if incorrect, could void the policy from the beginning.” The use of these words speaks of
possibilities, not certainties. Thus, they do not provide a plain warning as required by Boggs.
Nationwide contends that the Seventh District erred by requiring “magic words,” and that
it was appropriate for it to use the phrases “may” and “could” in the Policy because “[a]s this
Court noted in Boggs, a misstatement must be material in order to render a policy void ab initio.”
Br. at 18. Therefore, Nationwide reasons, “use of the words ‘may’ and ‘could’ are consistent
with this need to determine the materiality.” Br. at 18 (“While the materiality of some
misstatements may be immediately obvious, in other cases, materiality may not be determinable
until after an insured-against risk has occurred.”).
As a threshold matter, Boggs did not state that “a misstatement must be material in order
to render a policy void ab initio,” as Nationwide contends. Rather, the Court merely recited the
centuries’ old definition of a “warranty” as “a statement, description or undertaking by the
insured of a material fact either appearing on the face of the policy or in another instrument
specifically incorporated in the policy. Boggs, 27 Ohio St.2d at 219 (citing Harmer, 2 Ohio St.
at 452.).
22
Nationwide’s argument reflects a fundamental misunderstanding as to what it means to
be a warranty. Unlike a representation, a warranty is by definition material. See Republic Mut.
Ins. Co. v. Wilson, 66 Ohio App. 522, 525, 35 N.E.2d 467, 468 (4th Dist.1940) (“[W]arranties
are conclusively presumed to be material, while a representation must be proved by the insurer to
be material before its falsity will avoid the policy of insurance.” (Internal quotes omitted.)). See
also Black’s Law Dictionary 1581 (7th ed. 1999) (“A warranty differs from a representation in
four principal ways *** (3) a warranty is conclusively presumed to be material, while the burden
is on the party claiming breach to show that a representation is material***.”).
In other words, the mere fact that the parties chose to make the statement a warranty
makes it material: “Warranties are conditions precedent to a valid policy, whether such
conditions are material or not, if the parties have regarded them as material, and clearly intended
them to be so treated.” Byers, 35 Ohio St. at 615. “Indeed, one of the very objects of the
warranty is to preclude all controversy about the materiality or immateriality of the statement.
The only question is, ‘Has the warranty been kept?’ There is no room for construction, no
latitude, no equity. If the warranty be a statement of facts, it must be literally true.” (Emphasis
sic.) Holterhoff, 1874 Ohio Misc. LEXIS 11, *33, 1874 WL 5359, at *14.10
Nationwide’s justification for using “may” and “could” in the Policy – that it is consistent
with the need to determine whether the insured’s misstatement is material – reflects a
misconception regarding what it means to be a warranty. The central, defining characteristic of a
warranty is that the parties intended that the policy should stand or fall on the literal truth or
10
See also Buell v. Connecticut Mut. Life Ins. Co., 4 F. Cas. 590, 591, 1877 U.S. App. LEXIS
1627 (C.C.N.D. Ohio 1877) (“Statements in the application for insurance[,] in the declaration, or
answers to the questions are either warranties or representations. If warranties then materiality,
or want of materiality as to the risk has nothing to do with the contract. The only question is were
they untrue, and if so the policy is void. But if representations, then to avoid the policy they must
be substantially and materially untrue, or made for the purpose of fraud.”).
23
falsity of the statement. See, e.g., Pyle, 44 Ohio St. at 30 (“A contract of insurance, like other
contracts, is avoided by an untrue statement by either party as to a matter vital to the agreement,
though there be no intentional fraud***.” (Internal quote omitted.)); Harmer, 2 Ohio St. at 463
(explaining that breach of warranty renders policy void ab initio because “the risk assumed is not
the one intended to be assumed by the parties”); Holterhoff, 1874 Ohio Misc. LEXIS 11, *32,
1874 WL 5359, *14 (explaining that no warranty may be found unless it is the “intention of the
parties to make the validity of the contract depend on the literal truth *** of the statement”);
Lane v. Travelers Indem. Co., 391 S.W.2d 399, 402, , 1965 Tex. LEXIS 250 (Tex. 1965) (“the
central idea that for a statement in a policy to constitute a warranty, the parties must have
intended that the policy stand or fall on the literal truth or the falsity of the statement”). “This
means that there can be no variance or departure in any particular way as to any matter warranted
since the validity of the entire contract depends on absolute truth and conformity, the very
purpose and meaning of a strict warranty being to preclude all questions as to the purpose, if any,
for which it was made.” 6 Couch, Couch on Insurance, Section 83:13 (3d Ed. 2018). “[I]t is
immaterial that the breach was in no manner whatsoever connected with, or that it did not at all
occasion, the loss, for the warranty is a condition on which the validity of the contract rests,
which failing, the contract fails.” 6 Couch, Couch on Insurance, Section 83:19 (3d Ed. 2018).
Notably, if a warranty is breached that means not only that there is no policy, but that
there never was a policy. Pyle, 44 Ohio St. at 32 (“There is no contract between Pyle as the
‘insured,’ and the company as the ‘insurer.’ Under this policy Pyle never was insured, and the
company never was an insurer of Pyle. The policy has always been void***.” (Emphasis sic.)).
In other words, a breach of warranty renders the policy void ab initio and not simply voidable at
the option of the insurer. See, e.g., Illinois State Bar Ass’n Mut. Ins. Co. v. Coregis Ins. Co., 355
24
Ill. App.3d 156, 164-65, 821 N.E.2d 706 (2004) (“The difference between a contract that is void
ab initio and one that is merely voidable is that a voidable contract can be ratified and enforced
by the obligor, though not by the wrongdoer, while the void contract cannot be***.”).
Under established Ohio law, “[s]tatements by an insured fall into two classes – those
which constitute warranties, and those which constitute representations.” Boggs, 27 Ohio St.2d at
218. By claiming the unilateral power to determine which warranty breaches are to be enforced,
Nationwide blurs the line between a representation (which if untrue renders the policy voidable
at the option of the insurer but only before liability accrues) and a warranty (which if untrue
voids the policy ab initio regardless of whether liability has accrued) and attempts to create a
new, third class of statement: A super representation that grants the insurer the option to void a
policy even after liability has accrued. In other words, Nationwide has attempted to contract
around the common law restriction on representations that they “may not be used to avoid
liability after the accident has occurred.” Id. at 221.
The reason why Nationwide wants the ability to unilaterally decide which warranty
breaches are to be enforced is obvious: Post-claim underwriting. When a warranty is breached,
the insurance contract is void ab initio, and the insurer is normally required to return all
premiums collected because the risk never attached. See, e.g., Pyle, 44 Ohio St. at 32. The
requirement to return all premiums collected serves as an important deterrent to insurers from
packing their policies with numerous unfair, technical, or trivial warranties, because no insurer
wants to forfeit years’ worth of premiums due to an insured’s minor typographical error.11
But if
11
For an example of such a trivial warranty, one needs to look no further than the Policy, which
purports to make failure to disclose “existing damage to your auto” grounds for voiding the
Policy ab initio. Policy, at G5. To hold that statements of this character are warranties leads to
absurd results. For instance, Nationwide could escape liability by proving that the insured failed
to disclose a door ding, torn seat, or malfunctioning tail light in her application.
25
Nationwide is permitted to unilaterally choose which warranty breaches to enforce, this deterrent
is removed. Insurers like Nationwide would be free to pack their policies with a multitude of
warranties designed to trip up insureds and then collect premiums until the insureds make a
claim. If the potential liability of the claim is large compared to the premiums collected, the
insurer would choose to refund the premiums in exchange for avoiding having to pay the claim.
If the claim is modest in comparison to the premiums collected, the economic calculation
changes and the insurer would prefer to pay the claim and keep the premiums. And in the
meantime, the insurer earns income from the invested premiums. The insurer always wins; the
insured always loses. Cf. Martin, 191 Ohio App.3d at 811 (“The insurance company is …
attempting to create a situation in which it can declare the policy void ab initio if a potential
claim materializes but collect premiums if no potential claim surfaces. Shorter version: ‘We'll
cover you if, and only if, you can assure us that there’s nothing to cover.’”).
Essentially, Nationwide wants the freedom to draft its policies as warranty traps for the
unwary so that it can more effectively boost profits. Because there is no basis for this in the law,
the Court should affirm the decision of the Seventh District Court of Appeals
Nationwide argues that the Ohio Supreme Court has “cautioned against the unreasonable
interpretation of the words of the policy,” and criticizes Plaintiff and Boggs’ progeny for relying
on a “meaningless distinction between the use of ‘may’ rather than ‘shall’ ***.” Br. at 12 (citing
Cincinnati Ins. Co. v. CPS Holdings, Inc., 2007-Ohio-4917, ¶ 8, 115 Ohio St.3d 306, 308, 875
N.E.2d 31, 34 (“Ambiguity in an insurance contract is construed against the insurer and in favor
of the insured. This rule, however, will not be applied so as to provide an unreasonable
interpretation of the words of the policy.”). This argument is baseless.
26
Courts have long recognized in construing contracts that the terms “shall” and “may” are
not interchangeable. Compare Nail v. Leader Nat. Ins. Co., 2nd Dist. Montgomery No. 12535,
1992 Ohio App. LEXIS 2061, 1992 WL 80786, at *2 (Apr. 22, 1992), cert. denied, 65 Ohio
St.3d 1412, 598 N.E.2d 1164 (1992) (“The word ‘shall’ as used in contracts is ordinarily
regarded as mandatory.”) and City of Mt. Healthy v. Fraternal Order of Police, Ohio Labor
Council, Inc., 1st Dist. Hamilton No. C-170072, 2017-Ohio-9117, 101 N.E.3d 1163, ¶ 24
(referring to “shall” as meaning “mandatory” in the context of contract interpretation) with
Kinzel v. Bank of Am., N.D. Ohio No. 3:10-CV-02169, 2013 WL 5221231, at *6 (Sept. 17, 2013)
(referring to “may” as meaning “permissive” in the context of contract interpretation) and
Frazier v. Life Ins. Co. of N. Am., 725 F.3d 560, 571 (6th Cir. 2013) (similar). There is nothing
“unreasonable” about assigning words their normal everyday meaning when construing
insurance contracts.
Nationwide could have drafted the Policy differently but elected not to do so. It is not the
role of this Court to save a sophisticated insurance company from the consequences of its
drafting decisions. See, e.g., John Hancock Life Ins. Co. v. William R. Ufer, Sr., Irrevocable
Trust, N.D. Ohio No. 3:11-cv-02344, 2013 WL 2297094, at *4 (May 24, 2013) (“As the drafter
of the policy, [the insurer] had many options available to it; it chose the option it chose and it
cannot now twist the language it chose into something different.”); Lester v. State Farm Mut.
Auto. Ins. Co., 64 Ohio App.3d 52, 54, 580 N.E.2d 793, 795 (12th Dist.1989) (“any reasonable
construction which results in coverage of the insured must be adopted by the trial court”).
G. “Most Lower Courts” have Not Held that May/Could Language is Sufficient
to Create a Warranty.
The Seventh District’s decision below was hardly a matter of first impression. Rather, it
followed the well-worn path of Ohio courts that have previously concluded that an insurer’s use
27
of permissive language such as “may” or “could” is insufficient under the second prong of the
Boggs test. For example, in James v. Safeco Ins. Co. of Illinois, the court stated:
[T]he policy language “we may void this policy” is not a clear warning to the
insured that a misstatement shall render the policy void. Rather, it is a general
statement reflecting the long-standing point of law that a contract induced by
fraud is not void, but it is voidable at the election of the one defrauded.
Accordingly, we hold that plaintiff’s alleged misstatements or nondisclosures
were representations and thus they render the policy voidable if they were
fraudulently made and material to the risk. A voidable policy may be canceled by
the insurer but may not be used to avoid liability arising under the policy after
such liability has been incurred.
(Internal quotes and citations omitted.) 195 Ohio App.3d at ¶ 25-26. See also Johnson, 2010-
Ohio-1855, at ¶ 16-17 (finding the clause, “We may void this policy if the statements you have
given us are false and we have relied on them,” fails to meet the second prong of the Boggs test
because it “does not specifically state that a misrepresentation as to prior claims would render the
policy void ab initio”); O’Donnell v. Financial Am. Life Ins. Co., S.D. Ohio No. 2:14-CV-1071,
2017 WL 10296897, *8 (Sept. 20, 2017) (explaining that to meet the second prong of the Boggs
test, “the policy must unequivocally state that a misrepresentation will void the policy; a clause
that gives the insurer discretion to void the policy will not suffice” (Emphasis sic.)); Goodman v.
Medmarc, Inc., 8th Dist. Cuyahoga No. 97969, 2012-Ohio-4061, 977 N.E.2d 128, ¶ 20
(“language stating ‘we may void this policy ***,’ is not a clear warning to the insured that a
misstatement shall render the policy void” (quoting James, 2011-Ohio-4241, ¶ 25) (Emphasis
sic.)). Even Boggs itself specifically noted that “there is no provision in the policy to the effect
that any misstatement or misrepresentation made by the insured shall render the policy void.”
(Emphasis added.) Boggs, 27 Ohio St.2d at 219. Virtually every Ohio court that has ever
considered this issue has held that conditional language like “may” or “could” is not sufficient to
28
serve as a clear and unambiguous warning to an insured that a misstatement in the application
will render the policy void ab initio.
Confronted with overwhelming adverse case law directly on point, Nationwide
nevertheless argues that “court after court has held that may/could language in a policy, similar
to Policy language here, satisfies Boggs***.” Br. at 12. This is simply untrue, as the Seventh
District found below. Nationwide urged the Seventh District to certify a conflict to this Court
based on the same four cases it cites now. A unanimous panel of the Seventh District
emphatically disagreed: “Because none of the judgments of cases cited by appellee are in conflict
with the judgment of this court upon the same question, we must deny appellee’s motion.”
Opinion [R. 83], 7th Dist. Mahonig No. 17 MA 0117, 2018-Ohio-3597, ¶ 14.
1. Cincinnati Equitable Ins. Co. v. Sorrell, 9th Dist. Lorain No. 05CA008703,
2006-Ohio-1906, 2006 WL 1007435.
In Sorrell, the court did not even mention Boggs, the words warranty and representation
do not appear in the decision, and the court did not consider the impact of the phrases “may void
the policy” or “could void the policy.” Although the trial court had “granted summary judgment
based on two separate legal conclusions,” the Ninth District stated that “the two conclusions are
independent and in the alternative; accordingly, this Court can affirm on either conclusion.” ¶
13. The Ninth District chose to affirm on the grounds that the insured’s daughter was excluded
from coverage because she was not listed on the insurance policy by her mother. Id. at ¶ 22
(“Based upon the clear and unequivocal language in the insurance application and the policy, we
find that Appellant’s daughter was excluded from coverage because she was not reported as a
driver and therefore, Appellee CEI was not liable.”). At no point did the Sorrell court consider
whether the insurer was permitted to void the policy. Any suggestion to the contrary is simply
wrong. See OII Br. at 13-14 (incorrectly stating that “the Ninth Circuit explicitly cited and relied
29
upon incorporation and the permissive ‘may’ warning language to find that representations
concerning drivers in the household constituted warranties, and that falsity of those warranties
rendered the policy void” (Emphasis removed.)).
2. Jaber v. Prudential Ins. Co. of Am., 113 Ohio App.3d 507, 681 N.E.2d 478
(6th Dist. 1996).
Jaber appears to exclusively rely on the following policy language to conclude that the
policy at issue satisfied the second prong of the Boggs test: “By accepting this policy, you agree
that the statements on your Application are true and correct. This policy is issued relying on the
accuracy of those statements.” (Emphasis sic.) Id. at 512. Based solely on this language, the
court concluded that the policy was “sufficient to warn [the insured] that any misstatements in
his application would render the policy void from its inception,” that the “statements made in his
application constituted warranties,” and that “those misstatements voided the policy ab initio.”
Id.
Curiously, there is no indication in Jaber that the policy identified any particular
statement in the application as a “warranty,” or that a misstatement would void the contract, from
its inception or otherwise. It is challenging to square the absence of such language with a
conclusion that the policy was sufficient under Boggs. See Boggs, 27 Ohio St.2d at 219 (“If it is
[the insurer’s] purpose to provide that a misstatement by the insured shall render the policy void
ab initio, such facts must appear clearly and unambiguously from the terms of the policy.”) In
any event, Jaber certainly does not support Nationwide’s assertion that “court after court has
held that may/could language in a policy, similar to the Policy language here, satisfies Boggs” –
especially since the relevant portion of the contract at issue in did not even contain the terms
“may” or “could.” Br. at 12.
30
3. Personal Service Ins. Co. v. Lester, 4th Dist. Athens No. 06CA12, 2006-
Ohio-5199, 2006 WL 2796253.
As the court below explained, Lester “did not examine whether the conditional word
‘may’ clearly and unambiguously put the insured on notice that a misstatement would render a
policy void ab initio.” Opinion [R. 83], 2018-Ohio-3597, ¶ 10. Indeed, there is nothing in the
opinion suggesting that either party argued that “may” was insufficient. “Instead, Lester
examined whether the misstatement at issue was indeed a ‘material’ fact or circumstance as was
required under the term of the policy.” Id. See Lester, 2006-Ohio-5199, at ¶ 18 (“The question,
therefore, becomes whether Michael Schultz’s misstatement regarding his criminal history
constitutes a material fact or circumstance.”). In no way did the Lester court “hold” that “‘we
may void coverage’ sufficiently put plaintiff on notice of the consequence of a misstatement,” as
Nationwide wrongly suggests. Br. at 13. Even OII is forced to concede that the Lester court’s
alleged conclusion that “may void” language is sufficient under Boggs was, at best, an “indirect”
holding. OII Br. at 12. But a twenty-three year old “indirect” holding of a lower court is far
from persuasive authority.
4. Medical Protective Co. v. Fragatos, 190 Ohio App.3d 114, 2010-Ohio-4487,
940 N.E.2d 1011 (8th Dist.)
Even though Fragatos comes the closest of any of the four decisions cited by Nationwide
to consider the issue whether “may void” policy language is sufficient to satisfy Boggs, the court
never actually engaged the issue, and in light of subsequent cases from the same court, it is of
dubious value. In Fragatos, the court considered policy language reserving to the medical
malpractice insurer “the right to rescind this policy, or any covered provided herein, for any
material misrepresentations made by the Insured,” along with the conditional phrase, “may act to
render any contract of insurance null and without effect or provide the company with the right to
31
rescind it.” Id. at ¶ 32. The Fragatos court found such language was sufficient under Boggs,
but there is no indication that either party challenged the “may” language as insufficient, or that
the court actually examined the issue. Indeed, the Fragatos court inaccurately characterized the
policy language as “warning that any material misrepresentation would render the policy null and
without effect***.” (Emphasis added.) Id. at ¶ 33. The Seventh District below was not impressed
with Fragatos, and noted that in two more recent decisions, “[w]hen faced with policy language
almost identical to the language in the case at bar, the Eighth District reached the same
conclusion as this court, that the Boggs test was not satisfied.” Opinion [R. 83], 2018-Ohio-
3597, ¶ 12 (citing Goodman, 2012-Ohio-4061 and James, 2011-Ohio 4241). In contrast to
Fragatos, the Goodman and James courts actually considered and discussed the import of the
word “may” before concluding that such conditional language did not satisfy Boggs. Goodman,
2012-Ohio-4061; James, 2011-Ohio-4241. Similarly, Judge Watson of the Southern District of
Ohio recently examined the Fragatos decision in light of other Eighth District decisions
(including Johnson, 2010-Ohio-1855) and concluded that “this body of case law suggests that
Fragatos is an outlier that does not alter the court’s analysis.” O’Donnell, 2017 WL 10296897,
at *7 n. 5.
Collectively, these four cases cited by Nationwide in no way represent the majority view
in Ohio regarding whether an insurer’s use of “may” or “could” in a policy satisfies the second
prong of the Boggs test. To the contrary, the case law is overwhelmingly – and effectively
exclusively – in favor of Appellees, as the Seventh District recognized below.
H. “Public Policy Goals” Do Not Support Forfeiture; Application of Established
Warranty Law Does Not “Encourage Fraud and Crime.”
Nationwide argues that the Seventh District’s decision below “encourages insurance
fraud and crime (as occurred here) by requiring insurers like Nationwide to provide coverage
32
despite misstatements of the insured***.” Br. at 18. OII – an advocacy group for property and
casualty insurance companies, on which Nationwide has a leadership position – goes further by
repeatedly and falsely accusing Ms. Lapaze of knowingly “lying” to Nationwide when applying
for coverage. OII Br. at 1. OII argues that by refusing to void the Policy ab initio, the Seventh
District “encourage[s] and reward[s] fraud by removing any consequences for outright lying on
insurance applications and forc[es] insurers to cover claims regardless of whether a policy was
produced by fraudulent means.” OII Br. at 4. Both Nationwide and OII contend that if the
Seventh District’s decision stands, it will result in higher premiums for Ohio insureds. See Br. at
24; OII Br. at 4 (“The associated unanticipated increases in costs and uncertainties created by the
shake up in the insurer’s risk calculations will ultimately require an adjustment in the rates that
other policyholders would have to pay for their coverage.”); OII Br. at 5 (“The likely results of
the radical remaking of the warranty concepts Appellee surge [sic] will include a spike in
litigation and higher premiums for all market participants.”).
First, despite Nationwide and OII’s concerted efforts to impugn the character of an
elderly woman in the throes of dementia, there is zero evidence in the record of fraud committed
by the insured, Ms. Lapaze. The attacks from Nationwide and OII are little more than
inappropriate guilt by association. At most, Ms. Lapaze negligently failed to disclose a non-
driving household member of driving age. If that were sufficient to constitute a breach of
warranty as Nationwide contends, the Policy would have been void ab initio even if Ms. Pusser
never subsequently drove the vehicle and even if there never was an accident. To treat such
statements regarding household members of driving age as warranties would lead to absurd
results. For instance, every household containing a teenager would have its insurance voided ab
initio the moment the teenager turns 16 years old. Cf. Universal Underwriters v. Gran, 114
33
N.E.2d 501, 502, 1952 Ohio Misc. LEXIS 316 (Trumbull County) (refusing to treat location
where vehicle is garaged as warranty because something as commonplace as a breakdown would
void the policy, rendering “a great many policies *** unconscionably subject to forfeiture”).
Nor did the Seventh District “radically remake” the requirements for creating a warranty,
as OII suggests. Instead, the court faithfully applied established principles that date back more
than a century. Warranties are disfavored and will only be found to exist if the parties clearly so
intended, as clearly and unambiguously reflected from the terms of the policy. See also Hartford
Fire Ins. Co., 95 U.S. at 679 (“[T]he court should lean against that construction which imposes
upon the assured the obligations of a warranty.”).
As for the argument that Ohio insureds will face increased rates if Nationwide is not
allowed to void Ms. Lapaze’s policy, this Court long ago recognized that “if the shrewd and
intelligent are only to obtain insurance at low rates, by allowing underwriters to deprive others of
the indemnity upon which they have honestly relied, upon technicalities or their own negligence,
that the sacrifice demanded is much greater than the object to be attained.” Harmer, 2 Ohio St. at
477 (affirming judgment in favor of insured despite insured’s failure to disclose recent fire in
application).
Lastly, Nationwide and OII argue that “by requiring an insurer to use the word ‘shall,’ the
Seventh District has taken discretion away from the insurer – to the detriment of the insured.”
Br. at 18. See also OII Br. at 5 (“But even more damaging will be the effect on the insurers’
ability to give their policyholders and innocent third parties claiming through them, like the
Appellees, a benefit of the doubt and an opportunity to explain when a misrepresentation is
discovered.”). This Court rejected a similar argument more than a century ago. In Felix, 73 Ohio
St. 46, 75 N.E. 941, a wife purchased a policy insuring the life of her husband without his
34
knowledge or consent, but the policy language incorporated a requirement that the insured know
of and consent to the insurance. The wife subsequently filed suit seeking the return of the
premiums she paid because her husband’s lack of consent and knowledge was a breach of
warranty that rendered the policy void ab initio. Id. The insurer argued that it should not be
required to return the premiums because it “was ready and willing to carry out the terms and
conditions of said policy” until the insured stopped paying the premiums. Felix, 73 Ohio St. at
52.
Skeptical of the insurer’s stated willingness to honor a defective policy as a “sporadic
case of philanthropy,” this Court looked to the policy language “rather than the insurer’s
“ineffectual declarations respecting its intentions.” Id. This is because the “rule requires the
presumption that [an insurer] would have paid the amount of the policy only in performance of a
binding obligation to do so.” Id. (“The company’s willingness to keep the contract alive while
that consisted only in accepting premiums may be readily believed; but the choice of its attitude,
if the life insured had ended, would have been determined by other considerations.”). Based
upon the plain language of policy, the Court found that the husband’s lack of awareness
constituted a breach of warranty that rendered the policy void ab initio:
The distinction between a policy void, and voidable at the election of the insurer,
cannot be important here. It is of the essence of the doctrine stated by Lord
Mansfield, and approved in the considerate cases upon the subject that, there
being no fraudulent conduct by the beneficiary, to constitute a consideration for
the payment of premiums there must be a contract against which at the time of
its execution the insurer cannot interpose a valid defense. Such a ground of
defense is shown in the stipulations and facts stated. The judgment below is in
accordance with the doctrine of Insurance Co. v. Pyle***.
(Emphasis added.) Id. at 53.
The lessons from Felix are twofold. First, the law presumes that an insurer will only
perform on a policy by paying a claim if there is a binding legal obligation on it to do so. Id. at
35
52. Stated another way, the law presumes that an insurer will use any means available to it to
avoid paying a claim. This is because insurers are not in the business of paying claims based on
“sporadic case[s] of philanthropy.” Id.
Second, a breach of a warranty renders the policy void ab initio, despite the insurer’s
stated intention to honor the agreement. Id. at 53. This is because the breach of warranty
renders the policy void ab initio, as opposed to voidable at the option of the insurer. See also
Illinois State Bar Ass’n Mut. Ins. Co. v. Coregis Ins. Co., 355 Ill.App.3d at 164-65 (“The
difference between a contract that is void ab initio and one that is merely voidable is that a
voidable contract can be ratified and enforced by the obligor, though not by the wrongdoer,
while the void contract cannot be ***. In other words, a contract that is void ab initio is treated
as though it never existed; neither party can choose to ratify the contract by simply waiving its
right to assert the defect. On the other hand, if a contract is merely voidable, a party can either
opt to void the contract based upon the defect, or choose, instead, to waive that defect and ratify
the contract despite it.” (Internal quote omitted.)); Restatement (1st) of Contracts, Section 475,
Comment b (1932) (“[A] contract which is voidable may be ratified while a void transaction
cannot be.”).12
12
See also Workman v. Wright, 33 Ohio St. 405, 407, , 1878 Ohio LEXIS 203 (1878) (“Where
the original act was one merely voidable in its nature, the principal may ratify the act of his
agent, although it was unauthorized. But where that act was void, as in case of a forgery, it is
said no ratification can be made, independent of the principle of estoppel***.”); Monarch
Constr. Co. v. Ohio School Facilities Comm., 150 Ohio App.3d 134, 146, 2002-Ohio-6281, 779
N.E.2d 844 (10th Dist.) (“[T]he contract was voidable, not void ab initio. As a result, the action
of OSFC to ratify the contract *** is permissible and lawful.”); Wilmington Sav. Fund Soc’y,
FSB v. PHL Variable Ins. Co., D. Del. No. CV 13-499, 2014 WL 1389974, at *12 (Apr. 9, 2014)
(“Certain agreements *** are so egregiously flawed that they are void at the outset. These
arrangements are often referred to as void ab initio. *** A court may never enforce agreements
void ab initio, no matter what the intentions of the parties.”); Lowe Elec. Supply Co. v. Rexel,
Inc., M.D. Ga. No. 5:14-CV-335, 2014 WL 5585857, at *7 (Nov. 3, 2014) (“a contract term that
was void ab initio cannot be reaffirmed to life by a subsequent ratification”); Smith v. Vainik,
36
CONCLUSION
Nationwide’s appeal is nothing less than a frontal assault on the centuries-old distinction
between warranties and representations. According to Nationwide, it intentionally drafted its
Policy to grant itself unilateral authority to determine which warranty breaches should be
enforced, thereby contracting around the common law restriction on representations that they
“may not be used to avoid liability after the accident has occurred.” Boggs, 27 Ohio St.2d at
221. But as a matter of black letter law, a breach of warranty by its very nature renders the
contract void ab initio. If Nationwide is allowed to pick and choose which warranties to enforce,
Ohio’s insurance market will soon once again resemble a “wilderness of warranties.” Vance, 20
Yale L. J. at 534. Because the Policy does not “clearly and unambiguously” warn insureds that
the failure to disclose a household member of driving age “‘shall render the policy void ab
initio,’” Boggs, 27 Ohio St.2d at 219, the Ohio Association for Justice respectfully requests that
this Honorable Court affirm the decision of the Seventh District Court of Appeals.
Respectfully submitted,
s/ Margaret M. Murray
Margaret M. Murray (0066633)
MURRAY & MURRAY CO., L.P.A.
111 East Shoreline Drive
Sandusky OH 44870
Telephone: (419) 624-3000
Facsimile: (419) 624-0707
Email: [email protected]
Counsel for Amicus Curiæ,
The Ohio Association for Justice
Case No. 303140, 2012 Mich. App. LEXIS 1455, 2012 WL 3054145, at *2 (Mich. Ct. App. July
26, 2012) (“a contract that is void ab initio may not be ratified”).
37
CERTIFICATE OF SERVICE
A copy of the foregoing Merit Brief of Amicus Curiæ, The Ohio Association for Justice
in Support of Appellees, Barbara Pusser, et al. was served by electronic mail pursuant to Civ.R.
5(B)(2)(f) on this 30th day of January 2019 to the following:
Timothy J. Cunning
SCULLIN & CUNNING, LLC
940 Windham Court, Suite 4
Boardman OH 44512
Email: [email protected]
Counsel for Appellee, Estate of Robert D. Boak
Dennis M. Pilawa
RAWLIN GRAVENS & PILAWA CO., L.P.A.
The Hanna Building, Suite 500
1422 Euclid Avenue
Cleveland OH 44115
Email: [email protected]
Counsel for Appellee, Barbara Pusser
David R. Stadler
ANKUDA STADLER & MOELLER LTD.
1120 Oswald Centre
1100 Superior Avenue East
Cleveland OH 44114
Email: [email protected]
Counsel for Appellee Dennis J. Lehman
John C. Pfau
PFAU, PFAU & MARANADO LLC
Post Office Box 9070
Youngstown OH 44513
Email: [email protected]
Counsel for Appellee, Thomas Kane,
Legal Guardian of Diane Lapaze
Donna Jewell McCollum
3685 Stutz Drive, Suite 100
Canfield OH 44406
Email: [email protected]
Counsel for Appellee, Thomas Kane,
Michael H. Carpenter
Michael N. Beekhuizen
David J. Barthel
CARPENTER LIPPS & LEELAND LLP
280 Place, Suite 130
280 North High Street
Columbus OH 43215
Email: [email protected]
Counsel for Appellant, Nationwide Mutual
Fire Insurance Company
Kirk E. Roman
4125 Highlander Parkway, Suite 200
Richfield OH 44286
Email: [email protected]
Counsel for Appellant, Nationwide Mutual
Fire Insurance Company
Natalia Steele
Vorys, Sater, Seymour and Pease LLP
200 Public Square, Suite 1400
Cleveland OH 44114
Email: [email protected]
Counsel for Amicus Curiæ,
Ohio Insurance Institute
Thomas E. Szykowny
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street, Post Office Box 1008
Columbus OH 43216-1008
Email: [email protected]
Counsel for Amicus Curiæ,
Ohio Insurance Institute
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Legal Guardian of Diane Lapaze
Robert P. Rutter
RUTTER & RUSSIN, LLC
One Summit Office Park, Suite 650
4700 Rockside Road
Cleveland OH 44131
Email: [email protected]
Counsel for Amicus Curiæ,
Rutter & Russin, LLC
s/ Margaret M. Murray
Margaret M. Murray (0066633)
MURRAY & MURRAY CO., L.P.A.
111 East Shoreline Drive
Sandusky OH 44870
Telephone: (419) 624-3000
Facsimile: (419) 624-0707
Email: [email protected]
Counsel for Amicus Curiæ,
The Ohio Association for Justice