Summary
holding that the duty to defend represents a "substantial right" to both the insurer and the insured
Summary of this case from Pilkington N. Am. v. TravelersOpinion
No. 88-677
Submitted April 11, 1989 —
Decided June 28, 1989.
Insurance — Duty to defend — Declaratory judgment action is special proceeding — R.C. 2505.02 — Final appealable orders and Civ. R. 54(B), discussed.
O.Jur 3d Insurance §§ 1035, 1037.
1. The duty to defend involves a substantial right to both the insured and the insurer.
O.Jur 3d Appellate Review §§ 36, 49. O.Jur 3d Declaratory Judgments § 44.
2. A declaratory judgment action is a special proceeding pursuant to R.C. 2505.02 and, therefore, an order entered therein which affects a substantial right is a final appealable order.
APPEAL from the Court of Appeals for Cuyahoga County, No. 54974.
Bethlehem Steel Corporation ("Bethlehem") and McKee-Otto, a joint venture, entered into a contract on July 2, 1979 for the design and construction of a battery of new coke ovens at Bethlehem's Sparrows Point Plant. The construction of these ovens was completed by April 19, 1982.
Subsequent to the completion, problems arose with the coke ovens. As a result Bethlehem brought a complaint ("Bethlehem complaint") against McKee-Otto, as a principal obligor under the contract. The McKee-Otto joint venture was composed of Davy McKee Corporation and Dr. C. Otto Company, a German corporation, each fifty-percent partners. Davy McKee Corporation, Davy, Inc., Davy International, Inc., Davy Corporation Limited, and Dr. C. Otto Company also were sued derivatively as a result of their affiliation with McKee-Otto. Bethlehem in its complaint contended that because of alleged defects by McKee-Otto, it suffered damages and incurred expenses as a result of integration of defective coke ovens into its steel plant.
General Accident Insurance Company of America ("General Accident"), appellant, had issued "Architects and Engineers Professional Liability Insurance" to McKee-Otto, Davy McKee Corporation, Davy, Inc., and Davy International ("the insureds") for the period April 1, 1982 to April 1, 1983. The liability limit on this policy was twenty-five million dollars.
The Bethlehem complaint contained allegations falling within the coverage of the General Accident insurance policy. A demand was made on behalf of the insureds for appellant to assume the defense of the Bethlehem complaint. Appellant assumed the defense.
Insurance Company of North America ("INA"), appellee, had issued a comprehensive general liability policy to McKee-Otto, Davy McKee, Davy, Inc., and Davy International for the period April 1, 1982 to April 1, 1983 for one million dollars. In the INA policy, appellee was to pay all sums "which the Insured shall become legally obligated to pay as damages because of [A.] bodily injury or [B.] property damage to which this insurance applies caused by an occurrence." Appellee also agreed to defend any suit brought against the insured seeking "damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent."
National Union Fire Insurance Company of Pittsburgh ("National Union") provided the same insurance coverage as INA with limits of ten million dollars in excess of the INA policy.
Upon filing of the Bethlehem complaint, a demand also was made upon appellee for defense and indemnity. Appellee refused to defend or contribute to the defense of the insureds and denied any liability for indemnity under the Bethlehem complaint.
The Bethlehem complaint further alleged that the negligent design of the coke ovens by Dr. C. Otto Company ("Dr. C. Otto"), caused it damages at the Sparrows plant. Dr. C. Otto was insured by Gerling-Konzern Allgemeine Versicherungs ("Gerling") for the period from January 1, 1983 to January 1, 1984. The policy provided coverage for "legal liability arising from the character, legal relationship, and activities * * * [of Dr. C. Otto's] planning and construction as well as the design of * * * coke oven plants." Gerling refused to defend Dr. C. Otto on the Bethlehem complaint.
Dr. C. Otto also was insured by Nordstern Allgemeine Versicherungs ("Nordstern") for property damage for the period October 27, 1982 to October 27, 1983. Nordstern coverage was for "legal liability arising from * * * [the] [p]lanning and construction of coke plants." Nordstern also refused to defend or indemnify Dr. C. Otto regarding the Bethlehem complaint.
A negotiated settlement was agreed to between Bethlehem and the insureds. Appellee agreed to tender one million dollars for use by appellant in settling the case on behalf of the insureds. Appellee, however, reserved the right to contest in an appropriate forum its obligation to defend and indemnify under the allegations of the Bethlehem complaint. On March 1, 1985, the claim of Bethlehem was settled for $18,500,000. One million dollars of the settlement amount was contributed by appellee.
The insureds assigned over to appellant their claims, demands, rights and causes of action against appellee and National Union.
On March 19, 1985, appellant, the insureds and Dr. C. Otto brought a declaratory judgment action against appellee, National Union, Gerling, and Nordstern. Appellant seeks a declaration that appellee had a duty to defend the insureds against the Bethlehem complaint. Appellant also seeks reimbursement for costs, charges and expenses incurred in the defense of the Bethlehem complaint and those incurred in the prosecution of the declaratory judgment action. The insureds and Dr. C. Otto seek reimbursement from appellee, Gerling Nordstern for all expenses incurred as a result of cooperating in their own defense of the Bethlehem complaint. Appellant, the insureds and Dr. C. Otto also seek reimbursement for indemnification paid by appellant.
Appellee answered the declaratory judgment action and asserted a counterclaim alleging that it owed no duty to defend or indemnify its insureds regarding the Bethlehem complaint and was entitled to the one million dollars contributed to the settlement of the Bethlehem complaint as well as interest, attorney fees, and other incidental damages. In sum, appellee prayed for $1,500,000 from appellant, the insureds and Dr. C. Otto.
Appellant and the insureds moved for partial summary judgment on their claim that appellee had a duty to defend the insureds. Appellee filed a cross-motion also seeking partial summary judgment on the duty-to-defend claim. The trial court in its judgment declared that appellee owed no duty to defend as the allegations in the Bethlehem complaint were outside the scope of its insurance policy. It also added that there was "no just reason for delay."
Appellant and the insureds appealed this adverse decision. Appellee countered that the appeal should be dismissed because the trial court's order did not constitute a final appealable order. The court of appeals dismissed the appeal without comment.
Appellant and the insureds appealed to this court, alleging that the court of appeals incorrectly found that the trial court's order was not final and appealable.
The cause is now before this court pursuant to the allowance of a motion to certify the record.
Arter Hadden, Hugh M. Stanley, Jr., and Anthony J. Damelio, Jr., for appellants.
Gallagher, Sharp, Fulton Norman, Michael Gallagher and Mark B. Smith, for appellee.
We must once again consider what is a final appealable order pursuant to R.C. 2505.02 and Civ. R. 54(B).
It is well-established that an order must be final before it can be reviewed by an appellate court. If an order is not final, then an appellate court has no jurisdiction. "Courts of appeals shall have such jurisdiction as may be provided by law to review and affirm, modify, or reverse judgments or final orders of the courts of record inferior to the court of appeals within the district and shall have such appellate jurisdiction as may be provided by law to review and affirm, modify, or reverse final orders or actions of administrative officers or agencies." Section 3(B)( 2), Article IV of the Ohio Constitution. See, also, R.C. 2505.03.
R.C. 2505.02 provides in part:
"An order that affects a substantial right in an action which in effect determines the action and prevents a judgment, an order that affects a substantial right made in a special proceeding or upon a summary application in an action after judgment, or an order that vacates or sets aside a judgment or grants a new trial is a final order that may be reviewed, affirmed, modified or reversed, with or without retrial."
Determining what is a final order is difficult in litigation involving multiple parties and/or multiple claims. Historically, an appeal could not be taken until all claims and parties in an action had been disposed of. Permitting only one appeal from any one action was adequate at a time when most litigation involved only two parties and one claim. However, as joinder of parties and claims became more prevalent, it came to be accepted that to "deny an immediate appeal from the disposition of an identifiable and separable portion of a highly complex action might result in an injustice. * * *" 10 Wright Miller, Federal Practice and Procedure (1983) 20, Section 2653. Hence, Civ. R. 54(B) was created "to make a reasonable accommodation of the policy against piecemeal appeals with the possible injustice sometimes created by the delay of appeals — a possibility rendered more likely by procedural rules allowing liberalized joinder of parties and claims." Alexander v. Buckeye Pipe Line Co. (1977), 49 Ohio St.2d 158, 160, 3 O.O. 3d 174, 175, 359 N.E.2d 702, 703.
Civ. R. 54(B) is based on its federal counterpart, Fed.R.Civ.P. 54(b), see Staff Notes to Civ. R. 54(B), and provides:
"When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim or third-party claim, or when multiple parties are involved, the court may enter final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay. * * *"
Thus, a party may appeal a judgment in some instances even though other claims and/or parties still remain in the action. However, when a court enters final judgment as to fewer than all of the claims or parties, it must expressly state that there is no just reason to delay an appeal on that judgment. Without such express determination, an order adjudicating fewer than all the claims or parties "* * * shall not terminate the action as to any of the claims or parties, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims and the rights and liabilities of all the parties." (Emphasis added.) Civ. R. 54(B). See, also, Logue v. Wilson (1975), 45 Ohio App.2d 132, 134-135, 74 O.O. 2d 140, 142, 341 N.E.2d 641, 643.
Civ. R. 54(B), however, is merely a procedural device. It cannot affect the finality of an order. "* * * Civ. R. 54(B) cannot abridge, enlarge, or modify any substantive right. * * * It permits both the separation of claims for purposes of appeal and the early appeal of such claims, within the discretion of the trial court, but it does not affect either the substantive right to appeal or the merits of the claims. * * *" Alexander, supra, at 159, 3 O.O. 3d at 175, 359 N.E.2d at 703. Thus, it has been stated that "* * * Civ. R. 54(B) does not alter the requirement that an order must be final before it is appealable. * * *" Douthitt v. Garrison (1981), 3 Ohio App.3d 254, 255, 3 OBR 286, 287, 444 N.E.2d 1068, 1069-1070.
Conversely, the absence of Civ. R. 54(B) language will not render an otherwise final order not final. Thus, when all claims and parties are adjudicated in an action, Civ. R. 54(B) language is not required to make the judgment final. See Commercial Natl. Bank v. Deppen (1981), 65 Ohio St.2d 65, 19 O.O. 3d 260, 418 N.E.2d 399. Furthermore, even though all the claims or parties are not expressly adjudicated by the trial court, if the effect of the judgment as to some of the claims is to render moot the remaining claims or parties, then compliance with Civ. R. 54(B) is not required to make the judgment final and appealable. Wise v. Gursky (1981), 66 Ohio St.2d 241, 20 O.O. 3d 233, 421 N.E.2d 150; see, also, Harleysville Mut. Ins. Co. v. Santora (1982), 3 Ohio App.3d 257, 3 OBR 289, 444 N.E.2d 1076.
An appellate court, when determining whether a judgment is final, must engage in a two-step analysis. First, it must determine if the order is final within the requirements of R.C. 2505.02. If the court finds that the order complies with R.C. 2505.02 and is in fact final, then the court must take a second step to decide if Civ. R. 54(B) language is required.
Since this is an action for declaratory judgment we are not concerned with the first part of R.C. 2505.02 which states that a final order is one "that affects a substantial right in an action which in effect determines the action and prevents a judgment * * *." Instead, we will address the issue of whether a declaratory judgment action is a special proceeding and whether determination of the claim of duty to defend affects a substantial right.
We first will consider if the trial court's granting partial summary judgment, in favor of appellee as to its duty to defend, is a final order. A final order is one that "* * * affects a substantial right made in a special proceeding * * *." R.C. 2505.02.
"A substantial right involves the idea of a legal right, one which is protected by law. * * *" Armstrong v. Herancourt Brewing Co. (1895), 53 Ohio St. 467, 480, 42 N.E. 425, 427. The duty to defend is of great importance to both the insured and the insurer. If an insurer mistakenly refuses to defend its insured, the adverse consequences can be great. "When an indemnitor wrongfully refuses to defend an action against an indemnitee, the indemnitor is liable for the costs, including attorney fees and expenses, incurred by the indemnitee in defending the initial action and in vindicating its right to indemnity in a third-party action brought against the indemnitor." Allen v. Standard Oil Co. (1982), 2 Ohio St.3d 122, 2 OBR 671, 443 N.E.2d 497, paragraph two of the syllabus. On the other hand, if the insurer is required to defend an insured, "* * * [the insurer] may try an expensive negligence case which a court may later hold is not within the terms of the policy. * * *" Amer, The Declaratory Judgments Act of Ohio (1942), 14 Cleve. B. Assn. J. 19, 32.
The duty to defend is equally important to the insured. If the insurance company refuses to defend, then the insured often must choose to settle the suit as quickly as possible in order to avoid costly litigation, bring a declaratory judgment action against the insurer seeking a declaration that there is a duty to defend, or defend the suit without help from the insurer.
Thus, the duty to defend involves a substantial right to both the insured and the insurer.
We next must determine whether a declaratory judgment action is a "special proceeding" within the context of R.C. 2505.02.
Declaratory judgment actions are a special remedy not available at common law or at equity. Because declaratory judgments were unknown at common law, jurisdiction to hear this type of relief is dependent on statutory authorization. Ohio Farmers Ins. Co. v. Heisel (1944), 143 Ohio St. 519, 521, 28 O.O. 460, 461, 56 N.E.2d 151, 153. "It has been observed that an action for a declaratory judgment is sui generis in the sense that it is neither one strictly in equity nor one strictly at law; it may possess attributes of both. * * *" Sessions v. Skelton (1955), 163 Ohio St. 409, 415, 56 O.O. 370, 372, 127 N.E.2d 378, 382. This court has stated that declaratory judgment actions "* * * in part fill the gap between law and equity * * *." Schaefer v. First Natl. Bank (1938), 134 Ohio St. 511, 518, 13 O.O. 129, 132, 18 N.E.2d 263, 267.
Statutory provision for declaratory judgments is found in R.C. Title 27, "Courts — General Provisions — Special Remedies." (Emphasis added.) R.C. Chapter 2721, "Declaratory Judgments," provides a complete statutory scheme for obtaining declaratory relief. Several other chapters in R.C. Title 27 have been designated special proceedings or special statutory proceedings. See Gerl Constr. Co. v. Medina Cty. Bd. of Commrs. (1985), 24 Ohio App.3d 59, 24 OBR 113, 493 N.E.2d 270; Staff Notes to Civ. R. 1(C). Furthermore, declaratory judgments also have been called special statutory proceedings unknown to chancery. Pioneer Mut. Cas. Co. v. Pennsylvania Greyhound Lines (1941), 68 Ohio App. 139, 150, 22 O.O. 282, 287, 37 N.E.2d 412, 419. A declaratory judgment action is a special proceeding pursuant to R.C. 2505.02 and, therefore, an order entered therein which affects a substantial right is a final appealable order.
Thus we hold that the trial court's order in the case before us was final because it affected a substantial right made in a special proceeding.
Upon finding that this is a final order under R.C. 2505.02, we next must determine if Civ. R. 54(B) applies, and if so, if its requirements were met.
Civ. R. 54(B) applies in multiple-claim or multiple-party actions where fewer than all the claims or fewer than all the parties are adjudicated. If a court enters final judgment as to some but not all of the claims and/or parties, the judgment is a final appealable order only upon the express determination that there is no just reason for delay.
The case before us involves multiple claims and multiple parties. Although the trial court disposed of appellants' claim based on duty to defend and, in doing so, effectively resolved appellants' claim of duty to indemnify, appellee's counterclaim still remains. Additionally, it appears from the record that claims by Dr. C. Otto against Gerling and Nordstern remain pending. The trial court, however, complied with Civ. R. 54(B) by making the determination that there was no just reason for delay. Therefore Civ. R. 54(B) requirements were met.
Accordingly, we hold that the trial court's judgment was a final appealable order and we reverse the judgment of the court of appeals and remand the cause to the court of appeals for further proceedings.
Judgment reversed and cause remanded.
MOYER, C.J., SWEENEY, HOLMES, DOUGLAS, WRIGHT and H. BROWN, JJ., concur.