In an insurance dispute involving companies based in Ohio and Indiana that operated a manufacturing facility that caused pollution in Michigan, the Supreme Court of Ohio ruled today that Ohio law will be used to resolve the issue.

A divided Supreme Court affirmed an Eighth District Court of Appeals ruling that found it was appropriate to apply Ohio law to determine if an insurance company had to turn over documents to attorneys for an Ohio-based manufacturer. The insurance company had argued that Indiana or Michigan law should have applied, and the laws of those states did not require the documents to be disclosed.

Writing for the Court majority, Justice Jennifer Brunner explained the Supreme Court had to decide which general rule to apply in cases dealing with parties and issues in multiple states. Justice Brunner wrote that the manufacturer’s claim that the insurer was acting in “bad faith” is a tort lawsuit. Tort lawsuits use the law from the state where the “most significant relationship” between the parties exists, which in this case was Ohio.

Justices Michael P. Donnelly, Melody Stewart, and Joseph T. Deters joined Justice Brunner’s opinion. Justice Patrick F. Fischer concurred in judgment only.

In a dissenting opinion, Chief Justice Sharon L. Kennedy wrote that the case centers on an insurance contract dispute. In that type of dispute, generally the law of the state that was the principal location of the insured risk should be applied, and in this case, that state is not Ohio, she concluded.

Justice R. Patrick DeWine joined the chief justice’s dissent.

Merged Companies Search Old Policies for Pollution Coverage
The dispute arises from the payment of costs to clean up toxic pollution at two Superfund sites in Bronson, Michigan.

Westlake, Ohio-based Scott Fetzer Company acquired a manufacturing facility in Bronson in 1968 when it merged with the previous operator of the facility. That company was Kingston Products Corporation based in Indiana. As part of the merger, Scott Fetzer acquired all of Kingston’s assets and liabilities, and Scott Fetzer operated the Bronson plant from 1968 to 1994.

In 1986, the U.S. EPA identified Scott Fetzer as one of the potential responsible parties for removing environmental contamination at the plant area in Bronson. After years of negotiation with the EPA, Scott Fetzer agreed to finance and perform the necessary remediation. Another company that operated a manufacturing facility on the same site, ITT, also claimed Scott Fetzer’s plant contaminated its facility. ITT won a judgment against Scott Fetzer, requiring Scott Fetzer to reimburse ITT for the costs ITT spent cleaning up pollution in Bronson.

To defray the costs, Scott Fetzer turned to liability insurance policies issued to it and Kingston in the 1960s. It identified several policies, including four issued to Kingston from a defunct insurance company that was acquired by Travelers Casualty and Surety Company. The policies were reportedly issued between 1964 and 1968.

Scott Fetzer notified Travelers and the other companies of its claims for reimbursement of the cleanup expenses. None of the insurers agreed to provide coverage.

Companies Debate Access to Evidence in Court Case
In 2019, Scott Fetzer filed a lawsuit against the insurance companies in Cuyahoga County Common Pleas Court. The manufacturer alleged the insurance companies were breaching their contracts by not covering the cleanup expenses. Scott Fetzer also made a separate claim against each insurance company arguing they had all acted in bad faith when handling the claims.

Scott Fetzer sought a declaratory judgment, asking the trial court to rule that the insurers were required to provide coverage. The manufacturer also wanted monetary damages from the insurance companies for both breaching the contracts and acting in bad faith.

Travelers responded to the lawsuit by disputing the existence of the policies, which were allegedly issued by an insurance company Travelers acquired. Travelers claimed it had no obligation to cover Scott Fetzer’s expenses.

Travelers asked the trial court to split the case and treat the bad faith claim separately from the breach of contract case and the request for a declaratory judgment. Travelers asked the trial court to suspend any action in the bad faith case until the trial court first decided whether Scott Fetzer was entitled to coverage from Travelers.

Trial Court Refusal to Delay Case Prompts Dispute Over Which State Law to Apply
Travelers specifically asked the trial court to stay the discovery proceedings, where parties are obligated to exchange information until the court decided whether a Travelers policy was in effect. The trial court refused to issue the stay.

Several months later, Scott Fetzer told the trial court that Travelers was not providing documents it requested related to the manufacturer’s claims or internal documents explaining how Travelers makes coverage decisions for these types of claims.

Travelers argued the information was protected by attorney-client privilege and it did not need to provide the documents. Scott Fetzer argued that under Ohio law, attorney-client privilege does not shield documents in a bad-faith lawsuit. Travelers countered that Ohio law does not apply, and either Indiana or Michigan law should govern the dispute. The discovery rules of those states would not require Travelers to produce the documents, the insurer maintained.

The trial court sided with Scott Fetzer, and Travelers appealed the decision. The trial court agreed to allow Travelers to retain the disputed documents until the appeal was resolved. The Eighth District affirmed the trial court’s decision.

Travelers appealed to the Supreme Court, which agreed to hear the case.

Supreme Court Analyzed Procedural Laws
Travelers argued that under the Supreme Court’s 1983 Hoskins v. Aetna Life Ins. Co. decision, an insurer has a duty to act in good faith and that duty is based on the relationship between the insurance company and the insured. The claim of bad faith is a tort claim, but it is “inseparable from an insurance contract because the contract created the claim.”

Because Scott Fetzer’s claim that Travelers is acting in bad faith is based on the two businesses being in a contractual relationship, the dispute should be treated as a contract case, Travelers maintained. If so, then the law of Michigan and Indiana should apply, and it does not need to provide the documents Scott Fetzer requested, the insurer stated.

Scott Fetzer also pointed to the Hoskins decision and noted that the Court found bad faith is a tort claim. The company argued that the bad faith claim is independent from the contractual relationship.

The Court majority agreed the issue should be treated as a tort claim. Justice Brunner explained that when there is a “choice of law” dispute regarding a tort claim, the Court looks to the “most significant relationship” to determine which state law to apply. In this case, Ohio law was the most appropriate, the Court concluded.

Company’s Claim Is Contract Issue, Dissent Stated
In her dissent, Chief Justice Kennedy noted that a bad faith claim against an insurance company can only exist if there is a contractual relationship between the insurer and the insured. She wrote that before a court determines whether an insurance company acted in bad faith, the court must first determine whether the insurance company violated any terms of the contract. And because an insurer bad faith claim is “inextricably tied to the rights and obligations created by the insurance contract,” the choice-of-law rules governing insurance contracts should control which state’s law applies to this dispute, the dissent explained.

“Most important here is that this controversy bears little connection to Ohio,” the dissent stated.

The company Travelers acquired issued an insurance policy in Indiana to an Indiana-based company that Scott Fetzer later acquired. And the policies cover a site in Michigan. The only connection to Ohio is that Scott Fetzer is based in Ohio, the dissent noted. Chief Justice Kennedy wrote that she would remand the case to the court of appeals to determine whether Michigan or Indiana law most appropriately applies to the dispute.

2022-0595. Scott Fetzer Co. v. Am. Home Assur. Co., Slip Opinion No. 2023-Ohio-3921.

View oral argument video of this case.

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