Sanderson v. Ohio Edison Co. - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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OPINIONS OF THE SUPREME COURT OF OHIO
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Sanderson, Appellant, v. Ohio Edison Company et al.; Ohio Farmers
Insurance Company, Appellee.
[Cite as Sanderson v. Ohio Edison Co.(1994), Ohio St. 3d
.]
Insurance -- Absolute duty of insurer to defend exists, when --
Insurer voluntarily forgoes right to control litigation and
insured may make reasonable settlement without prejudice to
insured's rights under insurance policy, when -- Determining
whether an injury arose from use of an automobile --
Automobile not furnished for regular use of an insured, when.
1. An insurance policy which states that the insurer is obligated
to defend in any action seeking damages payable under the
policy against the insured, even where the allegations are
groundless, false or fraudulent, imposes an absolute duty
upon the insurer to assume the defense of the action where
the complaint states a claim which is partially or arguably
within policy coverage.
2. By unjustifiably refusing to defend an action, the insurer
voluntarily forgoes the right to control the litigation and
the insured may make a reasonable settlement without
prejudice to the insured's rights under the insurance policy.
3. In determining whether an injury arose from the use of an auto-
mobile, the relevant inquiry is whether the chain of events
resulting in the accident was unbroken by the intervention of
any event unrelated to the use of the vehicle. (Kish v.
Cent. Natl. Ins. Group of Omaha [1981], 67 Ohio St.2d 41, 2
O.O. 3d 26, 424 N.E.2d 288, followed.)
4. An automobile is not furnished for the regular use of an
insured where the insured has only occasional possession of
the automobile, which does not exceed ten occasions in one
year.
(No. 93-873 -- Submitted April 5, 1994 -- Decided July 20,
1994.)
Appeal from the Court of Appeals for Ottawa County, No.
91-OT-056.
On February 13, 1982, plaintiff-appellant, Johnnie Sanderson,
was injured when she was hit by a truck started by Dale Allen, the
ten-year-old son of Judith and Thomas Allen. The truck was owned

by defendant-appellee, Ohio Edison Company, the employer of Thomas
Allen, who had driven it to a dinner party while accompanied by
appellant and Dale Allen. Mr. Allen was in possession of the
vehicle because he was acting as a substitute foreman that
weekend. The injury occurred when Dale, who was unfamiliar with a
standard transmission, started the truck at the same time
appellant walked in front of it. The vehicle lurched forward,
pinning appellant between the truck and another parked vehicle.
Appellant filed an action against Dale Allen and Judith
Allen, who impleaded Ohio Edison and Thomas Allen, Judith's former
husband. Appellant alleged in her amended complaint that Dale
Allen had negligently operated the truck, that his parents had
negligently encouraged and taught him to operate motor vehicles,
and that her injuries were the direct and proximate consequence of
the Allens' joint negligence.
The Allens were insured by separate automobile liability
insurance policies issued by appellee, Ohio Farmers Insurance
Company. The policies are identical in coverage terms except for
the monetary limits of liability.
The insurer was given notice of the suit, but took the
position that coverage was not available under the policies, and
therefore refused to defend the suit or participate in any
settlement negotiations. The Allens settled the claim, on the day
set for trial, by admitting liability and allowing the court to
determine the amount of damages. In return, plaintiff agreed not
to seek collection from the Allens but, rather, to seek
satisfaction of the judgment from insurance proceeds.
The Ottawa County Court of Common Pleas found the Allens
negligent and awarded damages in the amount of $79,000 by judgment
entry dated September 18, 1985.
Plaintiff subsequently filed a supplemental complaint,
pursuant to R.C. 3929.06, naming Ohio Edison and three insurers,
including Ohio Farmers, as defendants. The other insurers,
homeowner insurers, were later dismissed from the action on the
basis of policy language that excluded coverage for bodily injury
arising out of the ownership, maintenance, or use of a motor
vehicle, leaving only Ohio Farmers as an insurer in the action.
On May 23, 1988, the trial court granted plaintiff's motion
for summary judgment, finding that coverage existed under the
insurer's policies. The court of appeals reversed and remanded,
concluding that genuine issues of material fact existed on the
issue of whether the vehicle was available for Thomas Allen's
regular use, whether the truck was a private passenger automobile,
and whether Dale Allen had permission of the owner to start the
truck. Sanderson v. Ohio Farmers Ins. Co. (June 2, 1989), Ottawa
App. No. OT-88-31, unreported.
The trial court found, on remand, that the policies provided
coverage and ordered the insurer to pay $79,000, plus interest.
On appeal, the judgment was reversed on the sole ground that, by
not seeking the assent and participation of the insurer before
entering into the settlement agreement, an express condition
contained in the policies, the Allens had breached the contract
and eliminated their right to coverage under the policies, thereby
precluding plaintiff from recovery. The other assignments of
error were deemed moot and were not addressed, under authority of
App.R. 12(A)(1)(c).
The policies contain the following coverage provision

regarding the insurer's duty to defend:
"[T]he company shall defend any suit alleging such bodily
injury or property damage and seeking damages which are payable
under the terms of the policy, even if any of the allegations of
the suit are groundless, false or fraudulent***."
The dissenting judge in the court of appeals opined that the
insurer had materially breached the contract by refusing to honor
its duty to defend the Allens and, consequently, could not invoke
those policy conditions relied upon by the majority to preclude
plaintiff from recovery on the judgment.
This cause is now before this court upon the allowance of a
motion to certify the record.
Murray & Murray, W. Patrick Murray and Steven C. Bechtel, for
appellant.
Jones & Bahret Co., L.P.A., Robert J. Bahret and Keith J.
Watkins, for appellee.
Nader, J. Plaintiff argues that the insurer breached its
contractual duty to defend, that this breach effected a waiver of
the conditions relied upon by the insurer, and that the court of
appeals erred in its conclusion that the Allens were required to
file a declaratory judgment action in response to the insurer's
refusal to defend. The insurer contends, in its first and second
propositions of law, that its duty to defend was not automatically
invoked by the plaintiff's allegations of negligence stated in her
pleadings, and that its incorrect determination not to defend did
not result in a waiver of the insureds' obligation to comply with
all the conditions contained in the policies. The insurer
asserts, in its third proposition of law, that, absent an
assignment or other contractual right, a judgment creditor does
not have standing in a supplemental proceeding to claim that the
insurer waived policy conditions by failing to defend its insureds
in the underlying action. On cross-assignments of error, the
insurer argues in its fourth and fifth propositions of laws that,
even if this court concludes that plaintiff's arguments are
meritorious, the negligence agreed upon in the underlying action
is not covered under the policies, and that the truck in issue is
not a covered, "non-owned" vehicle within the terms of the
policies. For the reasons set forth below, this court concludes
that the court of appeals erred in reversing the judgment of the
trial court.
Generally, an insurer in a supplemental proceeding under R.C.
3929.06 has available to it any defense arising from the insured's
failure, in the underlying action, to satisfy conditions in the
insurance policy which are a prerequisite to indemnification. See
Bennett v. Swift & Co. (1959), 170 Ohio St. 168, 10 O.O.2d 109,
163 N.E.2d 362; Miller v. Jones (1942), 140 Ohio St. 408, 24 O.O.
415, 45 N.E.2d 106. In the present case, the policies contain the
following condition:
"No action shall lie against the company *** until the amount
of the insured's obligation to pay shall have been finally
determined either by judgment against the insured after actual
trial or by written agreement of the insured, the claimant and the
company."
The parties agreed that the insureds did not comply with this
condition.
In Willoughby Hills v. Cincinnati Ins. Co. (1984), 9 Ohio
St.3d 177, 9 OBR 463, 459 N.E.2d 555, this court held in the

syllabus:
"Where the insurer's duty to defend is not apparent from the
pleadings in the action against the insured, but the allegations
do state a claim which is potentially or arguably within the
policy coverage, or there is some doubt as to whether a theory of
recovery within the policy coverage has been pleaded, the insurer
must accept the defense of the claim."
The policies in issue unambiguously state that the insurer
has the obligation to defend any action against the insured
seeking damages payable under the policies "even if any of the
allegations of the suit are groundless, false or fraudulent."
This language imposes upon the insurer the absolute duty to assume
the defense of the action where the underlying tort complaint
states a claim which is potentially or arguably within the policy
coverage. Id. Cf. Preferred Risk Ins. Co. v. Gill (1987), 30 Ohio
St.3d 108, 30 OBR 424, 507 N.E.2d 1118, paragraph two of the
syllabus. It is clear that the allegation set forth in
plaintiff's complaint presented a claim which was potentially or
arguably within the coverage of the policies.
"The duty to defend is of great importance to both the
insured and the insurer." Gen. Acc. Ins. Co. v. Ins. Co. of N.
Am. (1989), 44 Ohio St.3d 17, 21, 540 N.E.2d 266, 271. Thus, the
insurer's failure to honor that obligation constitutes a material
breach of the contract. This material breach relieves the insured
of the duty to seek the insurer's assent to and participation in a
proposed settlement.
In Hartford Acc. & Indemn. Co. v. Randall (1932), 125 Ohio
St. 581, 183 N.E. 433, at paragraph three of the syllabus, this
court held the following with respect to a provision requiring
notice of suit:
"Where a policy of indemnity casualty insurance obligates the
insurance company to defend, in the name and on behalf of the
assured, any suit against the assured within the terms of the
policy, and as a condition thereto requires that immediate notice
of such be given to the company, such notice is waived if, prior
to such suit, the company by its authorized agent disclaims
liability to indemnify and declares its intention not to defend
the suit for that reason."
Similarly, where an insurer unjustifiably refuses to defend
an action, leaving the insureds to fend for themselves, the
insureds are at liberty to make a reasonable settlement without
prejudice to their rights under the contract. By abandoning the
insureds to their own devices in resolving the suit, the insurer
voluntarily forgoes the right to control the litigation and,
consequently, will not be heard to complain concerning the
resolution of the action in the absence of a showing of fraud,
even if liability is conceded by the insureds as a part of
settlement negotiations.1
Also in accord with this decision is Aetna Cas. & Sur. Co. v.
Buckeye Union Cas. Co. (1952), 157 Ohio St. 385, 47 O.O. 270, 105
N.E.2d 568, in which this court held that a primary insurer
violates its duty to defend at its own peril, and that its breach
of that duty will make it liable for anything the secondary
insurer had to pay in a good-faith settlement of the claim as a
result of the primary insurer's breach of duty. The opinion
states that the primary insurer "could not escape ultimate
liability merely by denying coverage and refusing to defend the

action. It cannot be immunized from payment by its own breach of
contract." Id. at 392, 47 O.O. at 273, 105 N.E.2d at 571.
Fairness and justice demand that an insurer that breaches its
duty to defend an insured be estopped from asserting, as a defense
in a supplemental proceeding under R.C. 3929.06, that the insured
failed to obtain the consent of the insurer to settle the action.
Neither the insured nor the injured party is required to perform
conditions in a policy made vain and useless by reason of the
insurer's prior breach. See Hartford Acc. & Indemn. Co., 125 Ohio
St. at 586, 183 N.E. at 435, citing Bachman v. Independence
Indemn. Co. (1931), 112 Cal. App. 465, 297 P. 110, rehearing
denied (1931), 298 P. 57.
Moreover, contrary to the insurer's argument in its third
proposition of law, not raised in the court of appeals, the
judgment creditor has standing in the supplemental proceeding to
assert that the insurer waived policy conditions by failing to
defend its insured in the underlying action, even in the absence
of a written assignment or other contractual right. R.C. 3929.06
confers a statutory right of subrogation upon any judgment
creditor authorized by that provision to file a supplemental
petition. Hartford Acc. & Indemn. Co., 125 Ohio St. at 586, 183
N.E. at 435.
Finally, we conclude that the court of appeals erred in
imposing a duty upon an insured to file a declaratory judgment
action in response to an insurer's refusal to defend an action.
While a declaratory judgment action is a proper means by which to
expeditiously resolve the issue of coverage, it is also available
to the insurer and any injured party. Broz v. Winland (1994), 68
Ohio St.3d 521, 524-525, 629 N.E.2d 395, 398. Moreover, the issue
may be adequately adjudicated in the supplemental proceeding. We
discern no justification for requiring that this remedy be pursued
by any party.
In the insurer's fourth proposition of law, it argues that
the lower court erred in failing to reverse the trial court's
holding that the accident arose from the use of an insured
vehicle. We disagree.
The insurer contends that Judith and Thomas Allen's
negligence in teaching their son to operate motor vehicles and in
failing to supervise him did not arise out of the use of the
particular insured vehicle and therefore is not covered by the
insurance policy. This argument in inapposite. It is not the
negligence of the insured which is covered by the insurance
contracts. Instead, the insurance policies provide that an
insured will be indemnified for damages arising from use of a
covered automobile, which damages were proximately caused by the
negligence of the insured. Our review of the facts in light of
Ohio case law indicates that appellant's injuries did arise from
such use. In Kish v. Cent. Natl. Ins. Group of Omaha (1981), 67
Ohio St.2d 41, 21 O.O. 3d 26, 424 N.E.2d 288, a claim was made
against the decedent's wife's automobile insurance policy. The
decedent was driving his wife's car when he was truck from behind
by another vehicle. Upon existing the car to confer with the
driver, the decedent saw the other driver emerge with a shotgun,
and attempted to get back into his car, but was fatally shot
before he could do so. This court held, in determining whether
the death arose out of the use of the car, that the relevant
inquiry is "whether the chain of events resulting in the accident

was unbroken by the intervention of any event unrelated to the use
of the vehicle." Id. at 50, 21 O.O. 3d at 32, 424 N.E.2d at 294.
Thus, we determined that "the intentional, criminal act of the
murderer was an intervening cause of the injury unrelated to the
use of the vehicle" and therefore, that "'the death resulted from
an act wholly disassociated from and independent of the use of the
vehicle as such.'" Id.
In the instant case, appellant's injury was the result of a
chain of events which was unbroken by the intervention of any
event unrelated to the use of the vehicle. Judith and Thomas
Allen had negligently instructed and encouraged their minor son to
start automobiles in their possession. Thomas Allen negligently
allowed his minor son to have access to the keys of a truck with a
manual transmission, which the son did not know how to operate,
and negligently permitted him to operate this vehicle. Appellant
was injured as a direct result of this chain of events. There was
no intervening act independent of the use of the vehicle.
Additionally, in Hall v. United States Fid. & Guar. Co.
(1957), 107 Ohio App. 13, 7 O.O. 2d 344, 155 N.E.2d 462, the
claimant was injured when he was squeezed between two cars while
he and his employer, who owned both vehicles, were attempting to
start one by towing it with the other. The claimant brought suit
against his employer to recover for the injuries he sustained as a
result of his employer's negligence in allowing the operational
car, which the employer was driving, to slip backward. The
insurance company refused to assume the employer's defense,
arguing that the injury was the result of the use of the disabled
car. The court held that because the claimant and his employer
were attempting to start the car when the injury occurred, there
was a "clear [and] proximate connection between the ownership and
use of the [disabled car] *** and [claimant's] injuries. Id. at
17, 7 O.O. 2d at 345, 155 N.E. 2d at 465.
The facts of the instant case are similar to those in Hall.
In the instant case, appellant was pinned between two cars when
Judith and Thomas Allen's minor son attempted to start a vehicle
as appellant, Thomas Allen, and his minor son were leaving a
party. The attempt to start the vehicle clearly constituted use
of the vehicle, and this use of the vehicle was the direct cause
of appellant's injuries. As a result, the trial court did not err
in finding that appellant's injuries arose from the use of an
insured vehicle, and the insurer's first cross-assignment of error
is meritless.
In its fifth proposition of law, the insurer argues that the
lower court erred in failing to reverse the trial court's finding
that the Ohio Edison truck involved in the accident was not
furnished for the regular use of Thomas Allen. We disagree.
The insurance contracts provide coverage for liability for
bodily injury "arising out of the ownership, maintenance or use of
[an] owned automobile or any non-owned automobile." A "non-owned
automobile" is defined by the insurance contracts as "an
automobile or trailer not owned by or furnished for the regular
use of either the named insured or any relative, other than a
temporary substitute automobile." It is uncontroverted that the
insured, Thomas Allen, did not own the automobile in question.
Thus, coverage is required only if the automobile was not
furnished for Thomas Allen's regular use.
The meaning of the words "regular use" has been held to be

use that is frequent, steady, constant or systematic. Ohio Cas.
Ins. Co. v. Travelers Indemn. Co. (1975), 42 Ohio St. 2d 94, 71
O.O. 2d 69, 326 N.E.2d 263; Withrow v. Liberty Mut. Fire Ins. Co.
(1991), 72 Ohio App.3d 592, 595 N.E.2d 529; Motorists Mut. Ins.
Co. v. Sandford (1966), 8 Ohio App.2d 259, 37 O.O.2d 249, 221
N.E.2d 596. The insurer contends that Thomas Allen's use of the
Ohio Edison Truck is consistent with this definition of "regular
use." However, our review of the record leads to the opposite
conclusion.
The insurer argues that Thomas Allen testified that he
regularly used the Ohio Edison truck as a personal vehicle, in
contravention of Ohio Edison policy. However, Thomas Allen
testified not that he regularly used the truck as a personal
vehicle, but that he used the truck for personal purposes when he
had it. The insurer further argues that appellant testified that
Thomas Allen used the truck as a personal vehicle on many
occasions. This testimony, too, has been misconstrued by the
insurer. Appellant testified that Thomas Allen used the Ohio
Edison truck for personal purposes on one prior occasion, to take
appellant to an Alcoholics Anonymous meeting. In fact, appellant
testified that she could not recall any other occasion on which
she had ridden in the Ohio Edison truck.
Additionally, Thomas Allen took the Ohio Edison truck home
only when he was acting as temporary foreman. A temporary foreman
was designated by Ohio Edison only when the regular foreman was
unable to work. Thomas Allen testified that he had possession of
the Ohio Edison truck only eight to ten times over the course of
one year. We do not believe that this occasional possession of
the Ohio Edison truck constitutes frequent, steady, constant or
systematic use. We hold that an automobile is not furnished for
the regular use of an insured where the insured has only
occasional possession of the automobile, which does not exceed ten
occasions in one year.
The insurer cites our decision in Kenney v. Employer's Liab.
Assur. Corp. (1966), 5 Ohio St.2d 131, 34 O.O.2d 259, 214 N.E.2d
219, in support of the contention that Thomas Allen's use of the
Ohio Edison truck constituted regular use. However, the facts of
that case are clearly distinguishable from the case sub judice.
In Kenney, a city police officer sustained bodily injury while
using a police cruiser. The police officer was assigned to work
in a police cruiser one hundred twenty-two of one hundred
sixty-four working days. Based on these facts, this court held
that the police cruiser was furnished for the police officer's
regular use. In the instant case, Thomas Allen had possession of
the Ohio Edison truck only sporadically, when he was called upon
to act as foreman in the absence of the regular foreman. Thomas
Allen's possession of the truck did not exceed ten occasions in
one year, as opposed to the one hundred twenty-two of one hundred
sixty-four working days in Kenney. Thus, the Kenney case is
distinguishable on its facts, and does not require a holding that
Thomas Allen regularly used the Ohio Edison truck.
The insurer's argument that the lower court erred in failing
to reverse the trial court's finding that the Ohio Edison truck
was not furnished for Thomas Allen's regular use is meritless.
For the foregoing reasons, we conclude that the trial court
correctly entered judgment in favor of appellant. The judgment of
the court of appeals is hereby reversed and the judgment of the

court of common pleas is reinstated.
Judgment reversed.
Moyer, C.J., A.W. Sweeney, Douglas, Wright, F.E. Sweeney and
Pfeifer, JJ., concur.
Robert A. Nader, J., of the Eleventh Appellate District,
sitting for Resnick, J.
FOOTNOTE:
1 Appellee produced no evidence in the supplemental
proceeding below that the admission of liability was collusive or
fraudulent.