Ohio Supreme Court Slams Brakes On Liability Insurer's Attempt To Automatically Deny Coverage To Landlord Sued By Prospective Tenant For Alleged Discrimination Under Fair Housing Act

From a recent article appearing in the insurance industry publication, Claims Journal:

• [T]he Ohio Supreme Court recently considered application of the inferred-intent doctrine(1) in a federal fair housing discrimination lawsuit. Granger v. Auto-Owners Ins., 144 Ohio St.3d 57, 40 N.E.3d 1110 (Ohio 2015).
  
  In Granger, the insured [ie. the landlord] owned various rental properties. Those properties were insured by Auto-Owners Insurance Group with a primary dwelling policy that included landlord-liability coverage and a second umbrella policy. The primary policy was issued by Auto-Owners Mutual Insurance Company and the second policy was issued by Owners Insurance Company.
  
  Both policies covered personal injuries. However, the definition of what constituted a “personal injury” differed between the policies. The primary policy defined “personal injury” in terms of causes of action, i.e., libel, slander, defamation, false arrest, invasion of privacy, wrongful eviction, etc. The definition of “personal injury” contained within the umbrella policy was broader in scope. The umbrella policy definition included reference to particular types of damages rather than only particular types of causes of action. The broader definition of “personal injury” in the umbrella policy included within the definition “humiliation.”
  
  The insured refused to rent one of the insured properties because the proposed renter was African-American and had a six year old son who would be living with her at the property. It was determined that the insured had discriminated against the tenant on the basis of familial status and race in violation of 42 U.S.C. 3604 and R.C. 4112 .02(H). Part of the damages sought by the putative tenant was emotional distress.(2)
  
  The umbrella policy also contained an intentional act exclusion. Specifically, the policy excluded coverage when “the personal injury … was expected or intended.” Auto-Owners asserted that the exclusion was applicable. Auto-Owners argued that “discriminatory intent is inferred as a matter of law for purposes of an intentional act exclusion under an umbrella policy of insurance on a claim for pre-leasing housing discrimination.” 144 Ohio St.3d at 64, 40 N.E.3d at 1117.
  
  Auto-Owners was seeking application of the inferred-intent doctrine. Under the inferred-intent doctrine, “when there is no evidence of direct intent to cause harm and the insured denies the intent to cause any harm, the insured’s intent to cause harm will be inferred as a matter of law in certain instances.” Auto-Owners argued that it could be inferred as a matter of law from the nature of the insured’s act—pre-leasing housing discrimination—that the insured intended to cause the putative tenant’s personal injuries and, therefore, the exclusion applied.
  
  The Ohio Supreme Court in Granger disagreed.
  
  Previously, the Ohio Supreme Court had rejected the “substantially certain” test in inferred-intent cases. 144 Ohio St.3d at 65, 40 N.E.3d at 1118. Under the “substantially certain” test, any harm that was substantially certain to result from an intentional act would fall under the intentional act exclusion of the policy.
  
  The Ohio Supreme Court adopted a different test for application of the inferred-intent doctrine. Under Ohio law, “the doctrine of inferred intent applie[d] only in cases in which the insured’s intentional act and the harm caused [were] intrinsically tied so that the act [had] necessarily resulted in the harm.” 144 Ohio St.3d at 65, 40 N.E.3d at 1118.
  
  The Ohio Supreme Court then found that humiliation was not so intrinsically tied to pre-leasing discrimination that the insured’s act necessarily resulted in the harm suffered by the putative tenant.
  
  While acknowledging that emotional distress damages were available under the law to victims of housing discrimination, the Court found that such damages were not automatically awarded.
  
  Therefore, the Court remanded the case to the trial court so that the trier of fact could determine whether the insurance company was able to demonstrate that the insured intended to cause humiliation to the putative tenant without the benefit of the inferred-intent doctrine removing that burden of proof.

For the article, see Ohio High Court Rejects Inferred-Intent Doctrine in Fair Housing Discrimination Case.

For the court ruling, see Granger v. Auto-Owners Ins., 144 Ohio St.3d 57, 40 N.E.3d 1110 (Ohio 2015).

See also, Landlord Owed Defense In Bias Row, Ohio High Court Says (may require subscription; if no subscription, TRY HERE, then click the appropriate link for the story).

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(1) In Ohio, the inferred-intent doctrine is a judicially-created rule that liability insurers often rely on when attempting to wiggle their way out of providing coverage denying coverage to a policy holder when the insurer claims that the conduct of an insured that gives rise to harm was as a result of an intentional act, thereby triggering the intentional act exclusion in the insurance policy (which allows the insurer to deny coverage).

The court describes the inferred-intent doctrine as follows:

• Under the inferred-intent doctrine, "when there is no evidence of direct intent to cause harm and the insured denies the intent to cause any harm, the insured's intent to cause harm will be inferred as a matter of law in certain instances." Campbell, 128 Ohio St.3d 186, 2010-Ohio-6312, 942 N.E.2d 1090, ¶ 9, citing Gearing v. Nationwide Ins. Co., 76 Ohio St.3d 34, 36, 665 N.E.2d 1115 (1996), paragraph one of the syllabus.

(2) A summary of the facts that led up to the landlords' lawsuit against the insurance company (including a description of their alleged conduct that triggered the fair housing lawsuit against them), as roughly abstracted from the court ruling, follows:

1. In June, 2010, the prospective tenant ("Kozera") first made contact with the landlord.
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2. After being discouraged by the landlord from applying for a vacant apartment available for rental on the subject premises, a four-unit property in Akron, Ohio, Kozera contacted the Fair Housing Contact Service, Inc. ("FHCS"), a local, independent non-profit fair housing organization, which investigated her housing discrimination claims by using trained testers to interact with the landlord ("Granger").
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3. One tester inquired about the property by e-mail, and Granger replied, "Truely [sic] a lovely and large apartment and in a very well keep [sic] apartment house. No pets or children."
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4. Granger later sent an additional e-mail to the same tester, stating, "Yes it is still available as I am selective as to who [sic] I rent to and I run a background check on any possible tenant, just so you know. It is an adult apartment house so it is quite [sic] and very will keep [sic] with no children or pets permitted."
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5. He sent a proposed lease to at least one tester; one of its terms was "No children or pets are permitted—period."
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6. Further, FHCS related that Granger told only an African-American tester that he ran background checks on prospective tenants because "he didn't want a rapist in the building"; he did not make the same comment to a Caucasian tester.
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7. Based on information from Kozera and the testers, FHCS contended that Granger had discriminated against Kozera, an African-American, on the basis of familial status and race in violation of 42 U.S.C. 3604 and R.C. 4112.02(H).
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8. In March, 2011, (nine months after her initial contact with the landlord), Kozera, along with FHCS, filed a fair housing lawsuit in federal court against Granger and one, Steigerwald, (Granger's partner/co-landlord), individually and in their capacities as trustees of the trust that held title to the subject rental property).
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9. Kozera claimed that she had "experienced out of pocket costs and emotional distress as a result of Defendants' conduct"; FHCS alleged that it had "expended its resources and was harmed in its mission by Defendants' conduct."
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10. In May, 2011 (two months after getting hit with the fair housing lawsuit), Granger and Steigerwald forwarded the lawsuit to their insurance agent, who then contacted the insurance company, seeking coverage under one of the policies, including the providing of a legal defense to the fair housing lawsuit (ie. the insurer's "duty to defend"),
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11. A month later, citing various reasons, the insurer denied coverage on one of the policies; they immediately requested coverage under their second policy (the umbrella policy), but they never heard back from the insurer,
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12. On July 11, 2011, Granger and Steigerwald settled the federal case with Kozera and FHCS for $32,500. Separate payments went to the two plaintiffs: $5,000 to Kozera and $27,500 to FHCS.
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13. On July 22, 2011 (less than two weeks thereafter), the landlords, Granger and Steigerwald, sued the insurance company (unfortunately for the insurance agency and the individual insurance agent, they too got roped into the landlord's lawsuit) for claims relating to the insurer's failure to provide coverage.