No Damage to Vexatious Litigant

Liability insurance policies are designed to protect those insured against claims seeking damages from the insured. Some suits, however, seek equitable remedies and no damages. In such a case, where damages are neither alleged nor proven, the availability of coverage for defense is questionable. The question was brought

again in Ohio by a vexatious litigator.
In 2007 James C. Helfrich (Appellant) commenced a civil action against various defendants in the Licking County, Ohio, Court of Common Pleas. In April 2007, the Licking County defendants filed a counterclaim against appellant seeking a declaration that appellant was a vexatious litigator pursuant to an Ohio statute. Appellant forwarded a copy of the counterclaim to Allstate seeking coverage under two separate policies of insurance. Allstate denied coverage and refused to provide appellant with a defense in the Licking County action.
On March 4, 2011, the trial court entered judgment against appellant on the counterclaim and declared him to be a vexatious litigator. Appellant subsequently dis- missed his complaint. On August 19, 2011, the trial court ruled that appellant had engaged in frivolous conduct and ordered appellant to pay the Licking County defendants’ attorney fees in the amount of $118,451.08.

Appellant subsequently sued Allstate seeking a declaration that Allstate had a contractual duty to indemnify and defend him in the Licking County action, pursuant to a policy of insurance. Appellant also asserts claims for damages sounding in breach of contract and bad faith.

The trial court granted summary judgment in favor of Allstate and denied appelant’s motion for summary judgment. In so doing, the trial court determined that Allstate did not owe a duty to provide either a defense or indemnification to appellant in the Licking County litigation. The trial court also determined that the denial of coverage was consistent with the policy terms and not in bad faith. In Helfrich v. Allstate Insurance Co., 12AP- 559 (Ohio App. Dist.10 09/30/2013) an Ohio appellate court resolved the dispute.

ASSIGNMENTS OF ERROR

1. The Trial Court Erred in Denying the Plaintiff’s Motion for Summary Judgment.
2. The Trial Court Erred in Granting the Defendant’s Motion for Summary Judgment.

ANALYSIS

An insurance policy is a contract between the insurer and the insured. The rules of construction of an insurance con- tract are well-settled. The interpretation of that insurance contract is a question of law to be decided by a judge. Where language in a contract of insurance is doubtful, uncertain or ambiguous, the language will be construed strictly against the insurer and liberally in favor of the insured. If a contract is clear and unambiguous, then its interpretation is a matter of law, and there is no issue of fact to be determined.

Appellant seeks recovery under two policies of insurance with Allstate: a Landlord Package policy, and a Personal Umbrella Package policy. The Landlord Package policy reads in relevant part as follows:

Subject to the terms, conditions and limitations of this policy, All- state will pay compensatory dam- ages which an insured person becomes legally obligated to pay because of * * * personal injury * * * arising from a covered occurrence.

** *
“Personal injury” means damages resulting from:
** *
c) libel; slander; humiliation; defamation of character; invasion of rights of privacy.

Appellant argued that Allstate is required to provide a defense even if there are no damages alleged, where the insured is sued as a result of a “personal injury,” even if damages are not alleged.

In Ohio, the scope of the allegations in the pleading filed against the insured determines whether an insurance company has a duty to defend the insured. The insurer must defend the insured in an action when the allegations state a claim that potentially or arguably falls within the liability insurance coverage, but the insurer need not defend any action or claims with- in the complaint that are clearly and indisputably outside the contracted coverage.

The policy specifically states that a personal injury “means damages.” Accordingly, absent damages, a claim is not a personal injury as the term is defined in the policy. Damages are a necessary and indispensable element of every personal injury covered under the policy. There is simply no other reasonable interpretation of the policy.

Damages are unavailable in an action brought pursuant to the vexatious litigator statute. To the extent that appellant argues that the damages requirement in the policy is satisfied by the attorney fees leveled against him for frivolous conduct, the court of appeals in Siemientkowski v. State Auto. Mut. Ins. Co., 8th Dist. No. 87299, 2006-Ohio-4122, held that the award of costs and attorney fees imposed against insureds for frivolous conduct in a prior litigation do not constitute an “injury” covered by the insured’s homeowner’s insurance policy.

Accordingly, Allstate owed no duty to appellant under the policy to indemnify or defend appellant in the Licking County action.

The Personal Umbrella Package policy contains different coverages, including personal injury. Unlike the Landlord Package policy, the Personal Umbrella Package does not specifically state “personal injury means damages.” However, the duty to defend arises only when the pleading filed against the insured potentially or arguably falls within the liability insurance coverage. The Personal Umbrella Package policy employs the phrase “when we pay” in defining the limits of liability insurance coverage. Accordingly, liability insurance coverage is tied inextricably to instances where the insured may be legally required to pay damages.

Thus, the court found that, in the absence of a prayer for damages, the counterclaim filed in the Licking County action did not state a claim against appellant that arguably or potentially fell within the coverage provided by the Personal Umbrella Package policy. Accordingly, Allstate did not owe appellant a duty to defend him in the Licking County action.

Moreover, even if the court were to accept appellant’s argument that the duty to defend under the Personal Umbrella Package policy arises whenever the insured is sued for a personal injury, the court finds that the counterclaim filed in Licking County does not allege a personal injury.

There was no question that the counterclaim alleged a meritorious claim under the vexatious litigator statute. Indeed, the court of appeals affirmed the trial court judgment against appellant on the counterclaim. It does not and the appellate court refused to impose a duty to defend based on allegations outside the complaint, where the allegations in the complaint are not vague or ambiguous and do not state a claim potentially or arguably within pol- icy coverage.

The court will relieve Allstate of its duty to defend only if the claim(s) alleged in the pleadings are clearly and indisputably outside the contracted coverage. The purpose of the vexatious litigator statute is clear. It seeks to prevent abuse of the system by those persons who persistently and habitually file lawsuits without reasonable grounds and/or otherwise engage in frivolous conduct in the trial courts of this state. Such conduct clogs the court dockets, results in increased costs, and oftentimes is a waste of judicial resources — resources that are supported by the taxpayers of this state. The unreasonable burden placed upon courts by such baseless litigation prevents the speedy consideration of proper litigation.

The vexatious litigator statute vindicates the right of the courts and the tax- payers of this state to be free from the delay and expense associated with baseless litigation, whereas common-law defamation vindicates an individual’s right to be free from false statements that injure the individual’s character or reputation. The two claims are nothing alike.

The context in which the allegations of the counterclaim are framed, including the prayer for declaratory relief and the absence of a prayer for damages, the court could come to no other conclusion. Allstate was justified in denying coverage under the Personal Umbrella Package pol- icy and in refusing to defend appellant and the appellate court concluded that Allstate was entitled to judgment as a matter of law on appellant’s claims for breach of contract and bad faith.

ZALMA OPINION

This is a perfect example of the Yiddish term “chutzpah” or “unmitigated gall.” After being found to be a vexatious litigator by a trial and appellate court, he sued his insurer for defense of the suit he lost as a vexatious litigator where it was clear that no one sought damages against him so that there was no way that coverage could apply. The appellate court should have assessed additional damages against him for bringing a vexatious and worthless suit against Allstate.