OHIO HOMEOWNERS INSURANCE POLICIES AND THEIR LACK OF STATUTORY CANCELLATION PROTECTIONS
Author: Trey McDermott, Senior Editor
Insurance plays an important societal role that our legal and economic systems are beholden to. Without it, a multitude of losses occurring across our nation would have next to no available avenue for recovery or, worse yet, would result in insurmountable judgment liens against individuals that could cripple them financially.[1] For many Americans, owning a home provides them with their largest economic asset. As such, homeowners wish to adequately insure their property so they can protect their most valuable interest. While many insurers offer homeowner’s insurance policies, a legislative hole may leave Ohio homeowners vulnerable to retaliatory actions by their insurer.
In Ohio, statutes protect insureds from policy cancellation without proper cause, when the insured obtains a policy for “commercial property insurance, commercial fire insurance, or commercial casualty insurance other than fidelity or surety bonds, medical malpractice insurance, [or] automobile insurance[,]” after the insured’s policy “has been in effect for more than ninety days.”[2] In layman’s terms, insurers cannot cancel the aforementioned policies without a justifiable reason. Justifiable reasons include:
(1) Nonpayment of premium;
(2) Discovery of fraud or material misrepresentation in the procurement of the insurance or with respect to any claims submitted thereunder;
(3) Discovery of a moral hazard or willful or reckless acts or omissions on the part of the named insured that increase any hazard insured against;
(4) The occurrence of a change in the individual risk which substantially increases any hazard insured against after insurance coverage has been issued or renewed, except to the extent the insurer reasonably should have foreseen the change or contemplated the risk in writing the contract;
(5) Loss of applicable reinsurance or a substantial decrease in applicable reinsurance, if the superintendent has determined that reasonable efforts have been made to prevent the loss of, or substantial decrease in, the applicable reinsurance, or to obtain replacement coverage;
(6) Failure of an insured to correct material violations of safety codes or to comply with reasonable written loss control recommendations;
(7) A determination by the superintendent of insurance that the continuation of the policy would create a condition that would be hazardous to the policyholders or the public. [3]
Additionally, insurers are required to send a “notice of cancellation” to their insured giving a synopsis of the policy, its “effective date of cancellation,” and grounds for its cancellation, as well as the date the notice was sent.[4]
Notably, homeowner’s policies are not included in the cited statute, although, homeowner’s policies are covered in the same sub-chapter of the Ohio Revised Code’s Title 39: Insurance[5] as the cited statute, and that sub-chapter encompasses all casualty and motor vehicle insurance.[6] For this reason, some insureds, and their counsel, believe that the cancellation ground requirements provided to other casualty policies should apply to homeowner’s policies as well.[7] However, a string of cases in the early to mid-2000s showed that Ohio judges disagreed with the disgruntled homeowner’s insureds.[8] However, new legislation and recent case law may show a shift in favor towards providing homeowner’s policies with § 3937.25 protections.[9]
On March 20, 2019, the Ohio legislature put into effect Ohio Rev. Code Ann. § 3937.47,[10] which states “[w]hen the reason for cancellation of a personal lines insurance policy is nonpayment of premium, the effective date of cancellation shall be not less than ten days from the date the notice was mailed.”[11] Homeowner’s insurance, as well as other real property insurance, falls under the statute’s definition of “personal lines insurance[.]”[12] Effectively, Ohio Rev. Code § 3937.47 infers that an insurer must provide an insured with written notice of cancellation, when the insurer is canceling a homeowner’s policy, because the policy cancelation date is dependent on the cancellation notice date.[13] Yet there does not appear to be a statute or anything in the Ohio Administrative Code that actually establishes any cancellation notice requirements for homeowner’s policies that are similar to the cancellation notice requirements found in Ohio Rev. Code § 3937.25.[14]
In Ransom v. Erie Insurance Company, a 2022 case out of Harrison County, Ohio, which made its way to the Court of Appeals of Ohio, Seventh Appellate District, further muddies the homeowner’s cancellation waters.[15] In Ransom, the Plaintiffs asserted several bad faith claims against the defendant insurer, which included a claim for “canceling [the insured’s] policy after [the insured] made a legitimate claim for coverage[,]” but the Plaintiffs lost on summary judgment due to the expiration of a contractual statute of limitations in their policy.[16] The appellate court discussed the applicability of the contractual statute of limitations and reversed the trial court’s decision, without ever touching on the substance of the bad faith cancellation argument.[17]
After the Ransom matter found itself back in the Harrison County Common Pleas Court, the dispute settled without going to trial.[18] While settlement is not evidence of liability, the Harrison County case, in addition to the peculiar nature of Ohio Rev. Code § 3937.47, suggests that whether homeowner’s policies are protected from cancellations without just cause is not a settled matter. The language of Ohio Rev. Code § 3937.47 creates an ambiguity and highlights a potential legislative oversight.[19]
The growing frequency of bad faith homeowner’s policy claims in Ohio could be alleviated by clarification of the notice requirements mentioned in Ohio Rev. Code § 3937.47[20] by enacting legislation that gives homeowner’s policies, and all personal lines policies, the same protections as other casualty insurance.[21] Furthermore, other jurisdictions have enacted legislation nearly identical to Ohio Rev. Code § 3937.25, which also grants protections to homeowner’s policies.[22] Until Ohio lawmakers fill this legislative void, the common law will continue to produce an unpredictable legal battlefield for insureds that pay for homeowner’s policies, as well as the insurers that supply the policies.
[1] See generally Barbara Billingsley, Special Issue: Insurance Law: Introduction, 50 Alberta L. Rev. 535, 535-537 (2013).
[2] Ohio Rev. Code Ann. §§ 3937.25(A-B).
[3] Ohio Rev. Code Ann. § 3937.25(B).
[4] Ohio Rev. Code Ann. § 3937.25(C).
[5] See generally Ohio L. & Admin. Legis. Serv. Comm’n, Ohio Revised Code https://codes.ohio.gov/ohio-revised-code.
[6] See generally Ohio Rev. Code Ann. § 3937; see Ohio Rev. Code Ann. § 3937.19(1); see Ohio Rev. Code Ann. § 3937.47.
[7] Puljic v. State Farm Fire & Cas. Co., 101 N.E.3d 50, 55 (2017); see also Blackwell v. Farmers Ins. Exch., 2005 Ohio App. LEXIS 3244, at 17-18 (2005).
[8] Id. These cases also dealt with the distinction between non-renewal and cancellation of an insurance policy, and, although the courts determined that the Plaintiffs’ policies fell under non-renewal in each case, the courts stated that Ohio Rev. Code Ann. § 3937.25 did not apply to homeowner’s policies.
[9] See generally Ransom v. Erie Ins. Co., 2022 Ohio App. LEXIS 3336 (2022).
[10] Ohio Rev. Code Ann. § 3937.47.
[11] Ohio Rev. Code Ann. § 3937.47(B).
[12] Ohio Rev. Code Ann. § 3937.47(A).
[13] Ohio Rev. Code Ann. § 3937.47.
[14] See generally Ohio Rev. Code Ann.; see generally Ohio Admin. Code Ann..
[15] See generally Ransom v. Erie Ins. Co., 2022 Ohio App. LEXIS 3336 (2022).
[16] Id. at 16-18.
[17] Id.
[18] See generally Harrison Cnty. Ohio Clerk of Courts, https://www.harrisoncountyohio.org/clerk-of-courts (follow “Click HERE for Common Pleas Court Record Search,” then follow prompts to search for court docket records and enter “Ransom, Wayne” in the “Name/Company” search field).
[19] Ohio Rev. Code Ann. § 3937.47.
[20] Id.
[21] Ohio Rev. Code Ann. § 3937.25.
[22] See S.C. Code Ann. § 38-75-730 (2023); see also S.C. Code Ann. § 38-75-790 (2023); see also S.C. Code Ann. § 38-75-1160 (2023); see also S.C. Code Ann. § 38-75-1180 (2023).