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American Family Insurance v. Phillip

Court of Appeals of Ohio, Sixth District, Ottawa

November 22, 2017

American Family Insurance Appellee
James Phillips, et al. Appellants

         Trial Court No. 2015-CV-H-195

          Donald P. Wiley and Tonya J. Rogers, for appellee.

          David Rodman Cooper, for appellants Jim Phillips Excavating, Inc., Jim Phillips and Jake Phillips.

          Peter C. Munger and Marshall A. Kupresanin, for appellant Woodville Mutual Insurance Company.

          Andrew C. Stebbins, for appellant Erie Insurance Exchange.


          JENSEN, P.J.

         {¶ 1} Defendants-appellants, Woodville Mutual Insurance Company ("Woodville"), Erie Insurance Exchange ("Erie'), Jim Phillips ("Jim"), Jake Phillips ("Jake"), and Jim Phillips Excavating, Inc. (collectively, "the Phillips defendants"), appeal the December 30, 2016 judgment of the Ottawa County Court of Common Pleas granting summary judgment in favor of plaintiff-appellee, American Family Insurance Company ("American Family"), and denying summary judgment in favor of Woodville and Erie. For the reasons that follow, we affirm the trial court judgment.

         I. Background

         {¶ 2} Walter Apling hired Jake Phillips to demolish his barn for $3, 000. Jake presented Apling with two methods for accomplishing the demolition. The method Apling selected-the less expensive of the two options-required Jake to dig a pit about 25-30 feet deep, knock down the barn, gather debris from the barn into the pit, and burn the debris. Jake, who worked for his father's company, Jim Phillips Excavating, had performed this type of job approximately ten times.

         {¶ 3} Jake began the project on April 3, 2013. He hauled his father's excavator to the property that day and dug the pit. Jake returned around 7:00 the next morning and knocked down the barn. He put the roofing material in the pit and ignited it with a propane torch. Using the excavator, he began gathering debris from the barn to be dumped into the pit. At approximately 7:30 a.m., Jake noticed that the wind had picked up, so he decided to stop working. He allowed the fire to burn out, and about an hour later, when he saw no sign of fire, he left the Apling property.

         {¶ 4} On his way home, Jake stopped at NAPA Auto Parts to buy oil for the excavator. While at NAPA, he received a call from a friend who works for the Carroll Township fire department. He told Jake that a fire had been reported at the Apling property. Jake returned to find the barn demolition engulfed in flames. The fire spread to Apling's granary, and then to his home and garage. Experts opined that the fire was caused by Jake's failure to properly extinguish the fire before leaving the Apling property.

         {¶ 5} Losses to Apling's real and personal property, and for living expenses incurred for substitute housing, totaled $313, 553.55. Apling's insurer, Woodville, compensated him for his losses, and Erie issued payment to Apling's brother, Charles Apling, who resided with him and incurred separately-insured losses of his own. Woodland and Erie pursued claims for indemnification against Jake Phillips, Jake's father, Jim Phillips, and Jake's employer, Jim Phillips Excavating, Inc., in Ottawa County case No. 2013-CV-435H.

         {¶ 6} The Phillips defendants sought coverage under Jim's farm/ranch policy maintained with American Family. Jake is an "insured" under that policy. American Family retained counsel for the Phillips defendants and provided a defense in the indemnification action subject to a reservation of rights. It filed the present action for declaratory judgment on June 29, 2015, against the Phillips defendants, Woodville, Erie, and Hanover and Progressive Insurance Companies, which were believed to insure tractors owned by Jim Phillips Excavating, Inc. American Family sought a declaration that it owed no duty to defend or indemnify the Phillips defendants because (1) the Phillips defendants failed to notify American Family of the claim until November 11, 2014, thereby violating the policy's prompt-notice provision; and (2) coverage was precluded under the policy's business-pursuit exclusion.

         {¶ 7} A consent judgment was reached in Ottawa County case No. 2013-CV-435H, pursuant to which the Phillips defendants consented to a judgment in favor of Woodville and Erie in the amounts of $209, 488.66 and $40, 260.34, respectively. Woodville and Erie counterclaimed against American Family in the present case, seeking to require American Family to satisfy the consent judgment.

         {¶ 8} Following a period of discovery, American Family, Woodville, and Erie filed cross-motions for summary judgment. The bases for American Family's motion essentially mirrored the allegations in its complaint for declaratory judgment: the Phillips defendants breached the timely notice provision in the policy, and coverage was excluded because Jake was engaged in a business pursuit at the time of the loss.

         {¶ 9} In a judgment dated December 30, 2016, the trial court found that American Family was not prejudiced by the Phillips defendants' failure to provide prompt notice of the loss, but it granted summary judgment to American Family based on the business pursuit exclusion contained in the policy. The court denied Woodville and Erie's motions for summary judgment. Woodville, Erie, and the Phillips defendants appealed this judgment and assign the following errors for our review:

The Trial Court erred when it misapplied the American Family Business Activity Exclusion given the uncontested evidence which demonstrated the transaction concerned was not a business activity nor was it profit motivated.
The Trial Court erred when it denied Woodville Mutual Insurance Company Summary Judgment.
The Trial Court erred when it ignored and failed to even address the related request for Summary Judgment filed by Defendants Jim Phillips, Jake Phillips, and Phillips Excavating Company.

         II. Standard of Review

         {¶ 10} Appellate review of a summary judgment is de novo, Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996), employing the same standard as trial courts. Lorain Natl. Bank v. Saratoga Apts., 61 Ohio App.3d 127, 129, 572 N.E.2d 198 (9th Dist.1989). The motion may be granted only when it is demonstrated:

(1) that there is no genuine issue as to any material fact; (2) that the moving party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in his favor. Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64, 67, 375 N.E.2d 46 (1978), Civ.R. 56(C).

         {¶ 11} When seeking summary judgment, a party must specifically delineate the basis upon which the motion is brought, Mitseff v. Wheeler, 38 Ohio St.3d 112, 526 N.E.2d 798 (1988), syllabus, and identify those portions of the record that demonstrate the absence of a genuine issue of material fact. Dresher v. Burt, 75 Ohio St.3d 280, 293, 662 N.E.2d 264 (1996). When a properly supported motion for summary judgment is made, an adverse party may not rest on mere allegations or denials in the pleadings, but must respond with specific facts showing that there is a genuine issue of material fact. Civ.R. 56(E); Riley v. Montgomery, 11 Ohio St.3d 75, 79, 463 N.E.2d 1246 (1984). A "material" fact is one which would affect the outcome of the suit under the applicable substantive law. Russell v. Interim Personnel, Inc., 135 Ohio App.3d 301, 304, 733 N.E.2d 1186 (6th Dist. 1999); Needham v. Provident Bank, 110 Ohio App.3d 817, 826, 675 N.E.2d 514 (8th Dist.1996), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 201 (1986).

         III. Law and Argument

         {¶ 12} Woodville, Erie, and the Phillips defendants all appealed the trial court judgment. Woodville filed an initial brief and a reply brief setting forth arguments in support of its challenge to the trial court judgment; Erie and the Phillips defendants filed "joinders" adopting Woodville's position.

         {¶ 13} Appellants contend in their first assignment of error that the trial court misapplied the business-pursuit exclusion. They contend in their second assignment of error that the trial court erred in denying Woodville and Erie's motions for summary judgment. And in their third assignment of error, they contend that the trial court erred in failing to address the Phillips defendants' motion for summary judgment.

         A. The "Business Pursuit" Exclusion

         {¶ 14} In granting summary judgment in favor of American Family, the trial court concluded that the business-pursuit exclusion of the American Family farm/ranch policy precluded coverage. That exclusion provides:

Business. We will not pay for damages due to bodily injury or property damage arising out of business pursuits of any insured, except:
a. Activities normally considered non-business; or
b. The occasional or part-time business activities of any self-employed insured under 19 years of age.

         The policy defines "business" as "[a]ny profit motivated full or part time employment, trade, profession or occupation, and including the use of any part of the premises for such purposes."

         {¶ 15} The trial court concluded that Jake's business activity gave rise to the fire, thus coverage was excluded under the American Family policy. Appellants argue that the trial court's decision was wrong because (1) Jake did not perform the barn demolition on behalf of Phillips Excavating business; (2) the barn demolition was not "profit motivated" and was not a business activity of Phillips Excavating; and (3) Jake's conduct in leaving the property without properly extinguishing the fire was a "non-business" activity.

         {¶ 16} Insurance contracts are construed using the same rules as other written contracts. Universal Underwriters Ins. Co. v. Shuff, 67 Ohio St.2d 172, 173, 423 N.E.2d 417 (1981). Where the policy's language is clear and unambiguous, its interpretation is a matter of law and the court may not "resort to construction of that language." Hybud Equip. Corp. v. Sphere Drake Ins. Co., Ltd., 64 Ohio St.3d 657, 665, 597 N.E.2d 1096 (1992), citing Karabin v. State Auto. Mut. Ins. Co., 10 Ohio St.3d 163, 167, 462 N.E.2d 403 (1984). The words and phrases used in the policy must be given their natural and commonly accepted meaning. Id. Ambiguous provisions-particularly provisions purporting to exclude or limit coverage- must be construed strictly against the insurer and liberally in favor of the insured. Westfield Ins. Co. v. Hunter, 128 Ohio St.3d 540, 2011-Ohio-1818, 948 N.E.2d 931, ¶ 11. "However, the rule of strict construction does not permit a court to change the obvious intent of a provision just to impose coverage." Hybud Equip. at 665.

         B. Business Pursuit

         {¶ 17} American Family claims that for an activity to constitute a "business pursuit, " as the phrase is used in the exclusion, two elements must be established: (1) continuity and (2) profit motive. "Continuity" requires "'a customary engagement or a stated occupation.'" Lenart v. Doversberger, 8th Dist. Cuyahoga Nos. 65372, 65373, 1994 Ohio App. LEXIS 2063, *19 (May 12, 1994), quoting Asbury v. Indiana Union Mut. Ins. Co., 441 N.E.2d 232, 237 (Ind.App.1982). "Profit motive" requires that the activity be performed as "'a means of livelihood, gainful employment, means of earning a living, procuring subsistence or profit, commercial transactions or engagements.'" Id.

         {¶ 18} American Family contends that the barn demolition project satisfies both elements. As to "continuity, " it maintains that Jake earns a living by performing the type of work at issue here. While it notes that Phillips Excavating performs this type of work, that Phillips Excavating had completed projects for Apling in the past, and that Jake used his father's excavator for the project, it insists that for purposes of the business pursuit exclusion, it makes no difference whether Jake was acting on behalf of his father's company or whether he was simply acting in his individual capacity.

         {¶ 19} As to the "profit motive element, " American Family relies on Jake's deposition testimony. It urges that Jake admitted that he took the job with the intent to take money, and Jake's profit motivation is demonstrated by the fact that he and Apling negotiated as to the method and the price for performing the work. American Family insists that in determining whether ...

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