Landis v. Grange Mutual Insurance

Two separate issues are raised in the controversy before us: (1) whether Landis is entitled to prejudgment interest pursuant to R.C. 1343.03(A) and (2) whether, Grange is liable for the attorney fees that Landis incurred pursuant to a contingency fee contract. For the reasons that follow, we answer the first question in the affirmative and the second question in the negative, and address each question separately.

R.C. 1343.03(A) states that “when money becomes due and payable upon any * * * instrument of writing * * * and upon all judgments * * * for the payment of money arising out of tortious conduct or a contract or other transaction, the creditor is entitled to interest at the rate of ten per cent per annum.”

Grange spent considerable effort attempting to persuade us that uninsured/underinsured motorist insurance (“UMI”) claims are based on tortious conduct and therefore that R.C. 1343.03(A) does not allow prejudgment interest. Landis spent considerable effort attempting to persuade us that UMI claims are contract claims and therefore that R.C. 1343.03(A) does allow prejudgment interest. We conclude that Landis’s UMI claim is a contract claim, while acknowledging that there would be no UMI claim absent tortious conduct, the accident. Kraly v. Vannewkirk (1994), 69 Ohio St.3d 627, 632, 635 N.E.2d 323, 327 (legal basis for recovery of UMI benefits is contract); Motorists Mut. Ins. Co. v. Tomanski (1971), 27 Ohio St.2d 222, 223, 56 O.O.2d 133, 134, 271 N.E.2d 924, 925 (right to recovery of UMI benefits is on the contract).

In the declaratory judgment action, the trial court determined that Landis was covered by the UMI provision. According to the declaratory judgment, when Landis applied for UMI benefits, Grange should have paid them to him. In other words, the benefits were due and payable to him based on an instrument of writing, the insurance contract. R.C. 1343.03(A). That the benefits were denied in good faith is irrelevant because lack of a good faith effort to settle is not a predicate to an award of prejudgment interest pursuant to R.C. 1343.03(A), as it is under R.C. 1343.03(C). The proper way to fully compensate Landis is to award prejudgment interest. Royal Elec. Constr. v. Ohio State Univ. (1995), 73 Ohio St.3d 110, 116-117, 652 N.E.2d 687, 692.

In dissent below, Judge Glasser stated that “awarding prejudgment interest under the circumstances of this case clearly discourages litigation of reasonable issues.” We disagree; parties will remain free to litigate reasonable issues. However, when they litigate, they will be subject to a prejudgment interest award, not as a punishment but as a way to prevent them from using money then due and payable to another for their own financial gain. We affirm the judgment of the court of appeals as to prejudgment interest under R.C. 1343.03(A).

Grange argues that even if prejudgment interest under R.C. 1343.03(A) is proper, no money was due and payable until the arbitration award was reduced to judgment. We disagree. According to the declaratory judgment, the money was due and payable. That the amount remained undetermined until arbitration does not bar recovery of prejudgment interest. Royal Elec. Constr. v. Ohio State Univ., 73 Ohio St.3d 110, 652 N.E.2d 687, syllabus.

If Grange had not denied benefits, the issue of damages would have gone directly to an arbitrator and the benefits would have become due and payable no later than upon entry of the arbitrator’s award. But Grange did deny benefits, and it scarcely seems equitable that the denial of benefits contractually owed to another that led both parties on a lengthy and tortuous journey through the judicial system should redound to Grange’s benefit. A determination that the benefits became due and payable upon the entry of the arbitrator’s award would, in this case, work an injustice by rewarding Grange for improperly denying benefits. See Hogg v. Zanesville Canal & Mfg. Co. (1832), 5 Ohio 410, 424 (“[prejudgment] interest is allowed, not only .on account of the loss which a creditor may be supposed to have sustained by being deprived of the use of his money, but on account of the gain being made from its use by the debtor.”).

Whether the prejudgment interest in this case should be calculated from the date coverage was demanded or denied, from the date of the accident, from the date at which arbitration of damages would have ended if Grange had not denied benefits, or some other time based on when Grange should have paid Landis is for the trial court to determine. Upon reaching that determination, the court should calculate, pursuant to R.C. 1343.03(A), the amount of prejudgment interest due Landis and enter an appropriate order.

The second issue concerns whether Grange can be held liable for the attorney fees that were incurred by Landis pursuant to a contingency fee contract to which Grange was not a party.

In Motorists Mut. Ins. Co. v. Brandenburg (1995), 72 Ohio St.3d 157, 648 N.E.2d 488, syllabus, this court stated that “a trial court has the authority under R.C. 2721.09 to assess attorney fees based on a declaratory judgment issued by the court. The trial court’s determination to grant or deny a request for fees will not be disturbed, absent an abuse of discretion.” Abuse of discretion “ ‘connotes more than an error of law or of judgment; it implies an unreasonable, arbitrary or unconscionable attitude on the part of the court.’ ” Pembaur v. Leis (1982), 1 Ohio St.3d 89, 91, 1 OBR 125, 127, 437 N.E.2d 1199, 1201, quoting Klever v. Reid Bros. Express, Inc. (1951), 154 Ohio St. 491, 43 O.O. 429, 96 N.E.2d 781, paragraph two of the syllabus.

Grange and Landis stipulated that the contingency fee agreement between Landis and Murray & Murray was “normal, ordinary, and customary.” As the court of appeals noted, “[s]uch agreements permit persons of ordinary means access to a legal system which can sometimes demand extraordinary expense. The mechanism by which this is accomplished is a contract between client and attorney whereby some or all of the risk involved in litigation is shifted to the attorney. The quid pro quo for relieving the client of this risk is that the agreement normally calls for the attorney to receive a percentage of any possible recovery. * * * To be sure, the contingency percentage is an arbitrary figure but, like liquidated damages in other contracts, is proper because it is a bargained for result.” (Citation omitted.)

This reasoning does not apply to Grange, an insurance company of considerable means. For instance, Grange did not receive the benefit of transferring risk to an attorney. Further, and most important, Grange did not bargain for the contingency fee contract. That the contingency fee agreement was normal and customary as to Landis and Murray & Murray does not mean that it can be enforced against a party that did not agree to it. See Branham v. CIGNA Healthcare of Ohio, Inc. (1998), 81 Ohio St.3d 388, 692 N.E.2d 137 (arbitration contract binds only contracting parties). We conclude that the trial court abused its discretion, not by requiring Grange to pay attorney fees, but by requiring Grange to pay attorney fees pursuant to a contract to which it was not a party.

Accordingly, we affirm the judgment of the court of appeals and remand to the trial court for determination of the amount of prejudgment interest and determination of an award of reasonable attorney fees pursuant to R.C. 2721.09. See Bittner v. Tri-County Toyota, Inc. (1991), 58 Ohio St.3d 143, 569 N.E.2d 464; DR 2-106(B).

Grange also argues that the trial court did not follow the procedural mandate of R.C. 2721.09 in awarding attorney fees. We agree with the court of appeals that the remand moots the issue.

Judgment affirmed.

Moyer, C.J., concurs.

Douglas and F.E. Sweeney, JJ., concur in part and dissent in part.

Reece, Cook and Lundberg Stratton, JJ., dissent in part and concur in part.

John W. Reece, J., of the Ninth Appellate District, sitting for Resnick, J.