Last week, the Ohio Supreme Court dismissed a lawsuit filed by an insured seeking reimbursement of expenses pursuant to the terms of a motor vehicle policy. The Court in Kincaid v. Erie Insurance Co., 2010-Ohio-6036 held that an insured must notify an insurance company of their damages for a loss before the insured can sue the insurance company. On its face, the Kincaid decision is relatively straightforward but has potential legal ramifications for the insurer-insured relationship. In particular, Kincaid, arguably provides that an insurance company does not have a duty to seek out an insured’s damages for a known loss.
In Kincaid, Don Kincaid was involved in a motor vehicle accident with a bicycle. Mr. Kincaid’s insurer, Erie Insurance Co., hired counsel on his behalf and provided a defense and indemnity for the accident. During the litigation, Mr. Kincaid incurred expenses such as copy charges, postage, transportation, parking costs and missed time from work. The parties admitted that Erie’s policy provided coverage for the expenses. The parties also admitted that Mr. Kincaid never notified Erie of the expenses until he sued Erie seeking reimbursement. In fact, Mr. Kincaid’s attorneys attempted to file a class action lawsuit on behalf of all similarly situated insureds who were never reimbursed expenses and filed similar lawsuits against other insurers. However, the class was never certified in this case.
Instead, the trial court granted Erie’s Motion to Dismiss Mr. Kincaid’s complaint for breach of contract, bad faith, declaratory relief and unjust enrichment.
The Eighth District Court of Appeals reversed the trial court. The Court of Appeals reasoned that Erie’s insurance policy did not specifically state that an insured was required to notify the insurer of covered expenses incurred. Therefore, the Court reasoned that an insured can sue their insurer when the insurer does not voluntarily offer to pay unsubmitted expenses. The Court of Appeals held that while “it may seem illogical that an insurer is required to pay for expenses that the insured never notified the company about,” Erie was still required to defend Plaintiff’s claims.
On review, the Ohio Supreme Court addressed whether an insured has standing to sue an insurer when the insured did not inform the insurer of the requested damages. Ultimately, Justice Stratton, writing for the majority, ruled in favor of the insurer and reversed the Court of Appeals, reinstating the trial court’s order dismissing Mr. Kincaid’s claims. The Ohio Supreme Court concluded that if an insured never informs an insurer of covered damages, an insurer has not “denied” coverage and an actual controversy does not exist. Thus, an insured does not have standing to sue its insurer until the insurer receives notice of the damages and has an opportunity to pay or deny them.
This case implicitly represents that an insurer does not have an affirmative duty to seek out an insured’s damages for a covered claim. In other words, it is the insured’s burden to know or learn the coverages provided by the policy. If the insured incurred damages covered by the policy, the insured has an affirmative obligation to notify the insurance company before they can sue the insurer. The crux of this case prevents plaintiffs from attempting to sue insurers for bad faith when an insured has not notified an insurer of their damages and afforded the insurer the opportunity to respond. It also prevents class action lawsuits from proceeding against insurers based on broad pleadings without more specific facts to establish a prima facie cause of action.
For more information or to discuss this case further, feel free to contact any of our attorneys in our Insurance Coverage Practice Group.