Wagner v. Midwestern Indemn. Co - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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WAGNER ET AL., APPELLANTS AND CROSS-APPELLEES, v. MIDWESTERN INDEMNITY
COMPANY, APPELLEE AND CROSS-APPELLANT, ET AL.
[Cite as Wagner v. Midwestern Indemn. Co. (1998), ___ Ohio St.3d ___.]
Insurance -- Insurer intentionally acts in bad faith in the processing of a claim of
its insured, when -- Innocent spouse rule construed and applied -- Civil
procedure -- Prejudgment interest awarded, when.
(No. 96-2730 -- Submitted April 22, 1998 at the Seneca County Session --
Decided September 30, 1998.)
APPEAL and CROSS-APPEAL from the Court of Appeals for Seneca County, No. 13-
95-51.

Appellant and cross-appellee, Verlin L. Wagner, owned a family grocery
store located in Fostoria, Ohio. Before closing the store on the evening of August
27, 1991, he decided to spray two cans of insecticide around the store due to a
recent infestation of insects caused by bird seed that had been set out for sale.
Since Wagner wanted to avoid spraying until after everyone had left, he waited till
approximately 9:00 p.m., after the two employees working that night had gone.
Mr. Wagner finished fumigating the store, set the store alarm located near the rear
exit, and locked the door as he left a few minutes after 9:00 p.m.

At approximately 9:10 p.m., the Fostoria Police and Fire Departments
received an alarm from the store. At home, Verlin's wife Ruth was immediately
notified of the alarm, and set out with other members of the family to the store.
They intercepted Mr. Wagner on his way home, and together they returned to the
store to discover that it was on fire.

The grocery store was insured through Midwestern Indemnity Company
("Midwestern"), and Mr. Wagner notified his insurance agent of the fire the next
day. The following day, Midwestern sent a claims adjuster to the fire scene to

whom Mr. Wagner recounted his actions prior to leaving the store. Midwestern
proceeded to hire a fire investigator and by September 27, 1991, the physical
investigation had been completed. Midwestern's fire investigator did not establish
who set the fire, but concluded that it was incendiary, that is, it had been
deliberately set. Prior to this determination, the Fostoria Fire Department had
listed the cause of the fire as undetermined, but later amended its report to reflect
that the fire was incendiary. There is no evidence that Mr. Wagner was ever
questioned, charged, or convicted of arson.

In November 1991, Mr. Wagner filed a proof-of-loss claim with Midwestern
as required by the terms of the insurance policy. Pursuant to the policy,
Midwestern had thirty days from the submission of the proof-of-loss to either pay
or deny the claim. However, Midwestern did nothing until approximately nine
and one-half months later, when it informed Mr. Wagner that it was denying the
claim because it suspected him of arson.

On October 23, 1992, Verlin L. and Ruth A. Wagner filed suit against
Midwestern, seeking recovery under their insurance policy for damages, alleging
that Midwestern had breached its contract and acted in bad faith.1 The case went
to trial on August 29, 1994. At the conclusion of opening statements, the court
granted a directed verdict on Ruth Wagner's breach of contract claim, based on the
fact that Midwestern would not present any evidence against her and that she was
an innocent spouse.

The jury returned a unanimous verdict in favor of the Wagners and awarded
them attorney fees and punitive damages. Specifically, the jury awarded Mr.
Wagner $500,000 for breach of contract and $1,000,000 for bad faith. The jury
awarded Mrs. Wagner $500,000 for breach of contract, and $300,000 for bad faith.
The trial court determined that Verlin and Ruth Wagner were entitled to punitive

2

damages in the amount of $800,000, and also awarded the Wagners attorney fees
and prejudgment interest.

The court of appeals affirmed in part and reversed in part. Specifically, the
appellate court (1) ordered a remittitur of the contract damages to $197,701.98, (2)
reversed the trial court's directed verdict in favor of Mrs. Wagner, (3) reversed the
judgment on the issue of bad faith and remanded those claims for retrial and, thus,
also reversed the award of punitive damages, and (4) reversed the prejudgment
interest award. The Wagners filed an appeal, and Midwestern cross-appealed.

The cause is now before this court pursuant to the allowance of a
discretionary appeal and cross-appeal.
__________________

Oxley, Malone, Fitzgerald & Hollister, Dennis M. Fitzgerald and Julie A.
Davenport; Hackenberg, Beutler & Rasmussen and Robert A. Beutler, for
appellants and cross-appellees.

Ulmer & Berne, L.L.P., Harold H. Reader and Diane Sheehy Sebold, for
appellee and cross-appellant.
__________________

FRANCIS E. SWEENEY, SR., J. This appeal and cross-appeal presents a
number of issues for our consideration. First, we must decide whether the
judgment of the court of appeals to remand the issue of the Wagners' bad faith
claims was proper. Second, we must determine whether the appellate court's
decision to reverse the directed verdict in favor of Ruth Wagner on the breach of
contract claim was appropriate, based on the application of the "innocent spouse"
rule. Next, we must decide whether the court of appeals erred when it found that
the trial court abused its discretion in awarding prejudgment interest. Finally, we
must address Midwestern's claim that it was entitled to a directed verdict on

3

Verlin and Ruth Wagner's bad faith claims as a matter of law. For the following
reasons, we (1) affirm the court of appeals' decision with respect to the directed
verdict in favor of Ruth Wagner, (2) affirm the remittitur of contract damages to
$197,701.98, (3) reverse the court of appeals' decision to remand the issue of bad
faith for a new trial pursuant to Zoppo v. Homestead Ins. Co. (1994), 71 Ohio
St.3d 552, 644 N.E.2d 397, and reinstate the bad faith verdicts in favor of the
Wagners, (4) reinstate the award of attorney fees and punitive damages, and (5)
reinstate the trial court's grant of prejudgment interest.
I. Remand of Bad Faith Issue Under Zoppo

The court of appeals reversed the jury's verdict, finding that Midwestern
had acted in bad faith, as the jury instructions had been based on the now-defunct
bad-faith standard set forth in Motorists Mut. Ins. Co. v. Said (1992), 63 Ohio
St.3d 690, 590 N.E.2d 1228. In Said, we held that "[a]n insurer has a duty of good
faith towards its insured implied by law. This duty may be breached by an
intentional failure by the insurer to perform under its contract with the insured."
Id. at paragraph two of the syllabus. In the interim between the jury verdict and
the court of appeals' decision, we overruled the intent requirement in Said and
returned to a reasonable-justification standard in deciding bad faith cases. In
Zoppo, we held that "[a]n insurer fails to exercise good faith in the processing of a
claim of its insured where its refusal to pay the claim is not predicated upon
circumstances that furnish reasonable justification therefor." Id. at paragraph one
of the syllabus. We found it necessary to overrule Said on the intent issue because
"[r]ather than clarify the standard of proof required in the area of bad faith * * *
[the Said decision] caused greater confusion by erroneously making intent an
element of the tort of bad faith." Zoppo, 71 Ohio St.3d at 554, 644 N.E.2d at 399.

4

The court of appeals in this case determined that a remand on the bad faith
issue was necessary based on the doctrine set forth in Peerless Elec. Co. v. Bowers
(1955), 164 Ohio St. 209, 57 O.O. 411, 129 N.E.2d 467, that a decision of a court
of supreme jurisdiction that overrules a former decision becomes retrospective in
its operation, and the effect is not that the former decision was bad law, but that it
never was the law. Id. at 210, 57 O.O. at 411, 129 N.E.2d at 468.

However, blind application of the Peerless doctrine has never been
mandated by this court. In Roberts v. United States Fid. & Guar. Co. (1996), 75
Ohio St.3d 630, 665 N.E.2d 664, we refused to remand a case pursuant to Zoppo,
where the trial court had applied the intent requirement of Said. As this court
stated, "We decline to extend Zoppo to this particular case of bad faith failure to
defend, as Zoppo was decided after the trial court's and court of appeals' decisions
in this case. This case has been litigated for over ten years and should come to
final resolution before this court." Roberts at 633, 665 N.E.2d at 667.

Consideration should be given to the purpose of the new rule or standard
and to whether a remand is necessary to effectuate that purpose. The reasonable-
justification standard set forth in Zoppo lessened the standard of proof necessary
to show that an insurer acted in bad faith, as proof of actual intent was no longer
required. See Said, 63 Ohio St.3d at 702, 590 N.E.2d at 1237-1238 (Douglas, J.,
dissenting). It is axiomatic that a standard based on intent imposes a higher
burden of proof than one based on reasonableness. See, generally, Van Fossen v.
Babcock & Wilcox (1988), 36 Ohio St.3d 100, 115, 522 N.E.2d 489, 503; see, also,
Prosser & Keeton, Law of Torts (5 Ed.1984) 37, Section 8. The jury in this case
found that Midwestern intentionally acted in bad faith. Therefore, it stands to
reason that they would have found Midwestern liable under the lesser standard of
reasonable justification.

5

We have remanded other cases for a determination in accordance with
Zoppo. See, e.g., State Farm Mut. Auto. Ins. Co. v. Reinhart (1995), 71 Ohio St.3d
654, 646 N.E.2d 1110. However, such cases involved situations where the lower
courts failed to find that the insurer had acted with intentional bad faith. In this
case, the jury found Midwestern liable under the stricter standard of intent under
Said. Midwestern suffered no prejudice, and, as in Roberts, judicial economy
dictates that this case proceed to a final resolution. We conclude that the court of
appeals' rigid application of Peerless was inappropriate in this situation.
Therefore, we reverse the judgment of the court of appeals on this issue and
reinstate the jury's verdict in favor of Ruth and Verlin Wagner on their claims of
bad faith. Accordingly, we also reinstate the verdicts awarding them attorney fees
of $85,193.12 and punitive damages in the amount of $800,000.
II. The Innocent Spouse Rule

After opening statements, the Wagners moved for a directed verdict in favor
of Ruth Wagner based on the "innocent spouse" rule. The trial court granted her a
directed verdict on her breach of contract claim, holding as a matter of law that
Ruth Wagner was an innocent spouse and was entitled to one-half of any
contractual damages. The court of appeals, however, reversed the trial court's
directed verdict and held that the innocent spouse rule can be contractually
nullified by the terms of the insurance contract and, in this case, the wording of the
contract specifically negated the innocent spouse rule.

Different theories have emerged concerning whether the fraudulent behavior
of one spouse should be automatically imputed to the other coinsured spouse
without proof of the latter's misconduct. See Vance v. Pekin Ins. Co. (Iowa 1990),
457 N.W.2d 589, and cases cited therein. Traditionally, older cases automatically
denied an innocent spouse the right to recover under an insurance policy if the

6

other spouse had committed misconduct, as the rights and obligations of the
parties under the contract were presumed to be joint. These older cases were
based on the property ideal of the unseverability of estates, the notion that a
husband and wife were a single entity, and concern that the guilty party would
indirectly benefit through the innocent spouse because of the complicity of the
marital relationship. See, e.g., Matyuf v. Phoenix Ins. Co. (1933), 27 Pa.D & C.2d
351; Kosior v. Continental Ins. Co. (1938), 299 Mass. 601, 13 N.E.2d 423;
Watkins Schoenig, Property Insurance and the Innocent Co-Insured: Was it All
Pay and No Gain for the Innocent Co-Insured? (1995), 43 Drake L.Rev. 893, 896-
897. However, modern cases have properly rejected this reasoning and instead
have adopted an approach based on contract principles to determine whether the
parties intended joint or several coverage. Vance v. Pekin Ins. Co., 457 N.W.2d at
592; Watson v. United Serv. Auto. Assn. (Minn.1997), 566 N.W.2d 683, 688-689;
Buckeye Union Ins. Co. v. Phillips (Aug. 7, 1986), Defiance App. No. 4-84-7,
unreported, 1986 WL 8684. In determining whether the parties contemplated joint
or several coverage, the terms of the contract are to be considered, Vance, 457
N.W.2d at 592, and "[w]here provisions of a contract of insurance are reasonably
susceptible of more than one interpretation, they will be construed strictly against
the insurer and liberally in favor of the insured." King v. Nationwide Ins. Co.
(1988), 35 Ohio St.3d 208, 519 N.E.2d 1380, syllabus.

In this case, the insurance contract stated that along with the named insured:

"The term `You' or `Your' in this policy means:

" * * *

"2. Your spouse if you are an individual proprietor."

We find that the contract language clearly and unambiguously contemplated
that Ruth and Verlin Wagner were jointly covered under the insurance policy and,

7

therefore, she was not entitled to a separate recovery. See, e.g., Hall v. State Farm
Fire & Cas. Co. (C.A.5, 1991), 937 F.2d 210, 213-214; Vance, 457 N.W.2d at
592-593. Accordingly, we affirm the judgment of the court of appeals and hold
that Ruth Wagner was not entitled to a directed verdict as an innocent spouse.

We reject Midwestern's claim that Ruth was precluded from suing in
contract, regardless of whether she was an innocent spouse, since she had never
separately and individually filed a proof-of-loss claim. When filing a statement of
proof of loss, "if there are several insured, any one may act. It is not necessary to
join all." 3 Freedman's Richards on Insurance (6 Ed.1990) 229, Section 17:30.
Moreover, the contract language specifically stated that "[i]f more than one
insured is named in this policy, the first one named shall act for all." Ruth Wagner
was defined as an insured under the policy. As such, it was unnecessary for her to
file a separate proof-of-loss claim because Verlin had acted on behalf of all
insureds under the policy.

Ruth was not entitled to a directed verdict, but the court of appeals properly
found that Ruth's breach of contract claim would have been successful based on
the jury's verdict in favor of her husband's claim. Therefore, Ruth Wagner's
breach of contract claim is remanded and the trial court is instructed to enter
judgment consistent therewith. The court of appeals found that the jury's award of
$1,000,000 in contract damages was excessive and properly reduced damages to
$197,701.98, to which Ruth Wagner is jointly entitled.
III. Prejudgment Interest

The court of appeals determined that the trial court abused its discretion in
awarding prejudgment interest based on the fact that the appellants never made a
reasonable offer of settlement after initiation of their court action. Appellants urge
that the filing of their proof-of-loss claim constituted their offer of settlement and

8

that the law does not require that a formal settlement offer be made only after a
lawsuit has commenced. The trial court had awarded prejudgment interest
primarily based on the criteria set forth in Moskovitz v. Mt. Sinai Med. Ctr. (1994),
69 Ohio St.3d 638, 635 N.E.2d 331, and Midwestern's inordinate delay.

Ohio's prejudgment interest statute, R.C. 1343.03(C), stated:

"Interest on a judgment, decree, or order for the payment of money rendered
in a civil action based on tortious conduct and not settled by agreement of the
parties, shall be computed from the date the cause of action accrued to the date on
which the money is paid, if, upon motion of any party to the action, the court
determines at a hearing held subsequent to the verdict or decision in the action that
the party required to pay the money failed to make a good faith effort to settle the
case and that the party to whom the money is to be paid did not fail to make a
good faith effort to settle the case." 139 Ohio Laws, Part I, 2034, 2035.

A trial court's grant of prejudgment interest will be upheld absent an abuse
of discretion. Kalain v. Smith (1986), 25 Ohio St.3d 157, 159, 25 OBR 201, 203,
495 N.E.2d 572, 574.
In
Moskovitz v. Mt. Sinai Med. Ctr., supra, we elaborated on the "good faith
effort to settle" requirement originally set forth in Kalain. "The effect of Kalain is
to place the burden of proof on a party seeking prejudgment interest. This is, to a
degree, unfortunate since much of the information needed to make a case for
prejudgment interest is in the possession of the party resisting an award.
Accordingly, it is incumbent on a party seeking an award to present evidence of a
written (or something equally persuasive) offer to settle that was reasonable
considering such factors as the type of case, the injuries involved, applicable law,
defenses available, and the nature, scope and frequency of efforts to settle. Other
factors would include responses --or lack thereof -- and a demand substantiated

9

by facts and figures. Subjective claims of lack of good faith will generally not be
sufficient. These factors, and others where appropriate, should be considered by a
trial court in making a prejudgment interest determination." Moskovitz v. Mt.
Sinai Med. Ctr., 69 Ohio St.3d at 659, 635 N.E.2d at 348.
However,
in
Galayda v. Lake Hosp. Sys., Inc. (1994), 71 Ohio St.3d 421,
644 N.E.2d 298, we found that a plaintiff is relieved of any obligation to continue
efforts to negotiate where he or she is told that a settlement offer will never be
made and any additional negotiation would be considered "a vain act." Id. at 429,
644 N.E.2d at 304.

At the prejudgment interest hearing, Midwestern's trial attorney testified
that he had already told the Wagners, after they had filed the proof-of-loss claims,
that "we're not paying you one thin dime." Based on Galayda, we conclude that
the trial court did not abuse its discretion in determining that any further attempt
by the Wagners to settle would have been in vain, since Midwestern had already
announced that it would not pay anything. The court of appeals failed to address
the effect of Galayda, and the fact that the trial judge properly considered the
factors set forth in Moskovitz. In light of this, we reverse the judgment of the court
of appeals on this point and reinstate the trial court's decision awarding
prejudgment interest on the Wagners' compensatory damages. The issue is
remanded to the trial court to calculate interest in accordance with the reduced
amount of $197,701.98 for breach of contract, as well as the reinstated amount of
$1,300,000 in damages awarded for bad faith.2
IV. Cross-Appeal of Midwestern

Midwestern, as cross-appellant, argues that an insurer who has a reasonable
basis for denying coverage should not incur bad faith liability as a matter of law,
10

and essentially submits that it was entitled to a directed verdict in its favor on the
Wagners' bad faith claims.

Midwestern asks this court to adopt the "good faith as a matter of law" rule.
Pursuant to this rule, Midwestern would not be liable for bad faith unless the trial
court could have properly entered a directed verdict for the claimant on his or her
contract claim. However, Civ.R. 50(A)(4) provides, "When a motion for a
directed verdict has been properly made, and the trial court, after construing the
evidence most strongly in favor of the party against whom the motion is directed,
finds that upon any determinative issue reasonable minds could come to but one
conclusion upon the evidence submitted and that conclusion is adverse to such
party, the court shall sustain the motion and direct a verdict for the moving party
as to that issue." In Wagner v. Roche Laboratories (1996), 77 Ohio St.3d 116,
671 N.E.2d 252, we stated further, " `When a motion for a directed verdict is
entered, what is being tested is a question of law, that is, the legal sufficiency of
the evidence to take the case to the jury. This does not involve weighing the
evidence or trying the credibility of witnesses.' " Id. at 119, 671 N.E.2d at 255,
quoting Ruta v. Breckenridge-Remy Co. (1982), 69 Ohio St.2d 66, 68-69, 23
O.O.3d 115, 116-117, 430 N.E.2d 935, 938. Clearly, the record in this case
demonstrates that the Wagners presented sufficient evidence to create a jury
question on the issue of bad faith. For instance, the evidence reveals that Mr.
Wagner was cooperative and candid during the investigation of the claim, and
there is no evidence that he was ever officially questioned or charged with arson.
There was also expert testimony from which the jury could conclude that the fire
could have been accidentally caused by an electrical spark that ignited the
insecticide vapor. Finally, the jury could reasonably have found bad faith from the
11

fact that Midwestern waited nearly a full year after its physical investigation had
been completed before refusing the claim.

Accordingly, we affirm the judgment of the court of appeals with regard to
the directed verdict in favor of Ruth Wagner and the remittitur of contract
damages to $197,701.98. We reverse the judgment of the court of appeals and
hold that a remand of the bad faith issue is unnecessary and reinstate the verdicts
finding Midwestern liable for bad faith. We reinstate the jury's award of punitive
damages and attorney fees. We also reverse the judgment of the court of appeals
and reinstate the trial court's award of prejudgment interest. We remand the issue
for a calculation of prejudgment interest due on the reinstated awards for bad faith,
as well as on the contract damages as reduced by the remittitur.
Judgment affirmed in part,
reversed in part
and cause remanded.

DOUGLAS, RESNICK and PFEIFER, JJ., concur.

MOYER, C.J., COOK and LUNDBERG STRATTON, JJ., dissent in part.
FOOTNOTES:
1.
The complaint also alleged that Midwestern was liable for defamation;
however, the jury eventually returned a verdict in Midwestern's favor on this
issue.
2.
When this case was argued before this court, we had not yet announced our
decision in Landis v. Grange Mut. Ins. Co. (1998), 82 Ohio St.3d 339, 695 N.E.2d
1140. Pursuant to Landis, the trial court, on remand, is directed to calculate the
interest due on the breach of contract award under R.C. 1343.03(A), while the
interest due on the bad faith award will be calculated under R.C. 1343.03(C).
__________________
12

COOK, J., dissenting in part. Because the Wagners failed to prove their
bad faith claim at trial, I respectfully dissent.
In
Zoppo v. Homestead Ins. Co. (1994), 71 Ohio St.3d 552, 644 N.E.2d 397,
paragraph one of the syllabus, the court set out the following test for determining
whether an insurer breaches its duty to process claims in good faith: "An insurer
fails to exercise good faith in the processing of a claim of its insured where its
refusal to pay the claim is not predicated upon circumstances that furnish
reasonable justification therefor. (Hart v. Republic Mut. Ins. Co. [1949], 152
Ohio St. 185, 39 O.O. 465, 87 N.E.2d 347, and Staff Builders, Inc. v. Armstrong
[1988], 37 Ohio St.3d 298, 525 N.E.2d 783, approved and followed; Slater v.
Motorists Mut. Ins. Co. [1962], 174 Ohio St. 148, 21 O.O.2d 420, 187 N.E.2d 45,
paragraph two of the syllabus, overruled; Motorists Mut. Ins. Co. v. Said [1992],
63 Ohio St.3d 690, 590 N.E.2d 1228, overruled to the extent inconsistent
herewith.)"

To demonstrate that the Wagners presented sufficient evidence to create a
jury question on their bad faith claim, today's majority cites evidence (1) that Mr.
Wagner was cooperative and candid during the investigation of the claim, (2) that
he was never officially questioned or charged with arson, and (3) that there was
expert testimony from which a jury could conclude that the fire could have been
accidentally caused. Additionally, the majority says that the bad faith claim could
have been supported by Midwestern's delay in refusing the Wagners' claim. None
of the facts discussed by the majority, however, tends to prove the
unreasonableness of Midwestern's stated justifications for denying the Wagners'
claim as required by Zoppo. Instead, they tend to prove only a breach of the
insurance contract.
13

Midwestern justified its refusal of the Wagners' claims on two grounds: (1)
that it suspected Mr. Wagner of intentionally setting the fire, and (2) that, after the
fire, Mr. Wagner seriously misrepresented his financial status to Midwestern. The
"Special Businessowners Policy" between Midwestern and the Wagners excludes
coverage for losses caused by fraudulent or dishonest acts committed by Mr.
Wagner. It also would allow Midwestern to void the entire policy if Mr. Wagner,
or someone on his behalf, made misrepresentations with an intent to deceive
Midwestern.

Bad faith is not shown by a mere breach of a contractual duty. Helmick v.
Republic-Franklin Ins. Co. (1988), 39 Ohio St.3d 71, 529 N.E.2d 464, paragraph
two of the syllabus. Although Zoppo made it clear that actual intent is not a
necessary element of a bad faith claim, it cannot be read to dispense with the
insured's duty to prove that the insurer committed some act above breaching the
insurance contract.
In
Zoppo, the court pinned its approval of a bad faith award on the
insurance company's failure to adequately investigate a bar owner's claim for fire
damage. As in the present case, the insurance company in Zoppo denied its
insured's claim because of its belief that the insured deliberately set fire to his
business premises. That, however, is where the similarities between Zoppo and
the case now under consideration end. At trial, the Zoppo plaintiff produced
evidence that the insurance company failed to seriously explore leads that others
had set the fire. Those leads included the following: (1) that Zoppo had ousted
several men from his bar, who then threatened to burn the bar down, (2) that
three weeks before the fire in question, there had been an attempt to set the bar on
fire, (3) that two men whom Zoppo had ousted from his bar publicly bragged that
they were responsible for the attempted fire, and (4) that one of those men also
14

told a group of bar patrons that he had set the actual fire. The Zoppo plaintiffs
additionally produced evidence that, despite these leads, and despite the fact that
there appeared to be a break-in and robbery connected with the fire, the insurance
company failed to locate key suspects, verify alibis (including Zoppo's), follow up
with witnesses, or ask anything but cursory questions of suspects other than
Zoppo. Finally, the Zoppo court noted that part of the insurer's denial of the claim
was based on its belief that Zoppo had a motive to destroy the bar -- financial
gain. Zoppo purchased the bar six months before the fire for $10,000 and insured
it for $50,000. Other information, either possessed by or readily discoverable to
the insurer, however, undermined the reasonableness of the insurer's belief. The
insurer's own initial underwriting report stated the building's market value as
$95,798. Additionally, Zoppo had no debts and had actually made improvements
to the bar before the fire. Id., 71 Ohio St.3d at 555-556, 644 N.E.2d at 400.

In contrast to Zoppo, when the evidence is construed most favorably to the
plaintiffs' in this case, there still is nothing to justify a finding of bad faith.
Instead, the Wagners' evidence provides only a foundation for the fact-finder to
reject the insurer's defenses to the breach of contract claim.

At trial, Midwestern provided evidence that at the time it rejected the claim
it was in possession of information tending to demonstrate that the fire at the
Wagners' store had been set deliberately, and that Mr. Wagner possessed both the
means and a motive to set the fire. Two separate reports -- one by an independent
consulting firm and another by the Fostoria Fire Department -- stated that the fire
had been incendiary in nature. There were no signs of a forced entry into the
store. And, by his own account, Mr. Wagner locked the store up only minutes
before the fire alarm sounded.
15

Furthermore, Mr. Wagner had serious financial difficulties. He had filed for
bankruptcy, failed to pay payroll taxes for the previous year, and owed over
$100,000 in federal income taxes. Moreover, sales had been declining steadily at
the Wagners' store over the last five years and, over the last two to three years, the
Wagners had unsuccessfully attempted to sell their business.

Finally, Mr. Wagner twice misrepresented to a Midwestern investigator that
he was current on his bills and denied that he was involved in a civil action despite
his pending bankruptcy petition.

Faced with the reasons stated by Midwestern for denying coverage, the
Wagners failed to present sufficient evidence to raise a jury question that
Midwestern's actions were unreasonable and therefore gave rise to a bad faith
claim. The Wagners' expert opined that the fire was caused accidentally and that
the source of ignition was an electrical spark that reacted with bug spray vapors to
cause an explosion. He also testified, however, that his theory of causation
involved a rare phenomenon that is not generally known in fire department circles.
The Wagners' expert also criticized the investigative techniques and thoroughness
of the Fostoria Fire Department and the insurance company's independent
investigator, but these criticisms fall far short of establishing bad faith on the part
of the insurance company itself. Compare Zoppo.

Finally, Midwestern's delay in denying the Wagners' claims after Mr.
Wagner filed a sworn proof of loss does not, in itself, provide a basis for a bad
faith award. While the delay arguably ran afoul of the contract terms, it did not
render Midwestern's denial of the Wagners' claims unreasonable -- which is the
ultimate focus of the Zoppo bad faith inquiry.

Accordingly, I believe that the trial court erred in failing to direct a verdict
in favor of Midwestern on the Wagners' bad faith claims. The Wagners should
16

not be permitted to recover bad faith damages and thus are not entitled to punitive
damages or attorney fees. See Helmick v. Republic-Franklin Ins. Co., 39 Ohio
St.3d at 75, 529 N.E.2d at 468. And, as an additional consequence, prejudgment
interest should be calculated on only the $197,701.98 breach of contract award.
More important, however, I fear that today's application of Zoppo will further blur
the distinction between the proof required to create a jury question on a breach of
contract committed by an insurer and a cause of action in tort for bad faith.

MOYER, C.J., and LUNDBERG STRATTON, J., concur in the foregoing opinion.
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