# PIE Mut. Ins. Co. v. Ohio Ins. Guar. Assn.

> Ohio Supreme Court · May 11, 1993 · 1993 Ohio 180

URL: https://www.frixlaw.com/law-library/cases/11147544

## Case

- **Court:** Ohio Supreme Court
- **Decided:** May 11, 1993
- **Citations:** 1993 Ohio 180
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Moyer, C.J.
- **Cited by:** 1 later opinions in the Frix Law Library

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## Opinion text

OPINIONS OF THE SUPREME COURT OF OHIO
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PIE Mutual Insurance Company, Appellant, v. Ohio Insurance
Guaranty Association, Appellee; Physicians Insurance Company of
Ohio, Appellant.
[Cite as PIE Mut. Ins. Co. v. Ohio Ins. Guar. Assn. (1993),
Ohio St.3d .]
Insurance -- R.C. Chapter 3955 -- Purpose of Ohio Insurance
Guaranty Association Act -- OIGA provides insurance
coverage, when -- Insurance carrier that has settled an
action with insured not entitled to seek payment from OIGA
for pro-rata share of settlement amount on basis of
common-law subrogation principles -- Former R.C.
3955.01(B)(2), construed.
1. The Ohio Insurance Guaranty Association Act, R.C. Chapter
3955, was designed to protect insureds and third-party
claimants from a potentially catastrophic loss due to
the insolvency of a member insurer. To this end, OIGA
assumes the place of the insolvent insurance carrier
for liability purposes only and provides insurance
coverage when no other insurance is available to
compensate valid claims.
2. An insurance carrier which has settled an action with the
insured or third-party claimant is not entitled to
seek payment from OIGA for a pro-rata share of the
settlement amount on the basis of common-law
subrogation principles. (Former R.C. 3955.01[B][2],
construed.)
(Nos. 91-2392 and 91-2399 -- Submitted January 20, 1993 --
Decided May 12, 1993.)
Appeals from the Court of Appeals for Franklin County,
Nos. 91AP-184 and 91AP-206.
This case arises from a settled medical malpractice action
filed by Marilyn H. Archer and James C. Archer against Anthony
Chila, D.O., and his employer, the Ohio University Osteopathic
Medical Center ("OUOMC") on April 27, 1988. Dr. Chila provided
care to Mrs. Archer from November 9, 1982 through January 29,
1987 for complaints concerning her right shoulder. It was
alleged that Dr. Chila failed to perform an x-ray examination
on Mrs. Archer's right shoulder on the initial office visit and
all subsequent office visits, resulting in a delay in diagnosis
of a malignant chondrosarcoma. This delay resulted in severe
and disabling injuries to Mrs. Archer that required extensive
surgery. The tumor of which Mrs. Archer complained ruptured
the humerus sometime between four and nine months prior to
discovery of the tumor in February 1987 by another physician.
If the tumor had been diagnosed in an earlier phase, there
would have been less extensive resection of the bone and less
residual disability.
Throughout the duration of Dr. Chila's treatment of Mrs.
Archer, he and OUOMC were insured successively by three
separate medical malpractice insurance companies. Defendant-
appellant Physicians Insurance Company of Ohio ("PICO")
provided coverage from November 9, 1982 to June 1, 1983;
Professional Mutual Insurance Company ("PMIC") provided
coverage from June 1, 1983 to May 23, 1986; and plaintiff-
appellant PIE Mutual Insurance Company ("PIE") provided
coverage from May 23, 1986 to January 29, 1987.
Defendant-appellee, the Ohio Insurance Guaranty
Association ("OIGA"), entered the underlying medical
malpractice litigation after PMIC was declared to be an
insolvent insurer.1 OIGA retained counsel and joined in the
defense of Dr. Chila and OUOMC with counsel retained by PICO
and PIE. All three counsel participated in every aspect of the
medical malpractice case, including extensive discovery, case
evaluation and trial strategy. Settlement negotiations were
thereafter commenced. On June 3, 1989, counsel for OIGA
notified counsel for PICO and PIE that OIGA would not
participate in settlement negotiations until the limits of the
PICO and PIE policies had been exhausted. Approximately two
weeks later, on June 19, 1989, the litigation with the Archers
was settled for approximately $690,000. PICO and PIE
contributed $300,000 each, while OUOMC contributed
approximately $90,000.
On June 18, 1990, PIE filed an action against OIGA, PICO
and OUOMC seeking a declaration of the respective rights and
responsibilities of the various parties with regard to the
settlement of the medical malpractice action. PIE claimed that
PICO and/or OIGA was legally obligated to reimburse PIE for the
$300,000 contribution PIE made to the settlement of the
Archers' claim. In response to PIE's complaint, PICO filed a
counterclaim against PIE and a cross-claim against OIGA. In
its cross-claim, PICO sought a declaration that OIGA was
responsible to contribute to the settlement.
On January 15, 1991, the court of common pleas granted
OIGA's previously filed motion to dismiss both PIE's complaint
and PICO's cross-claim pursuant to Civ.R. 12(B)(6). The court
of appeals consolidated the appeals of PIE and PICO and
affirmed the trial court's judgment.
The cause is now before this court pursuant to the
allowance of motions to certify the record.

Jacobson, Maynard, Tuschman & Kalur Co., L.P.A., Gayle E.
Arnold and Karen L. Clouse, for appellant PIE Mutual Insurance
Company.
Vorys, Sater, Seymour & Pease and F. James Foley, for
appellee.
Hammond & Willard and Gary W. Hammond, for appellant
Physicians Insurance Company of Ohio.

Moyer, C.J. This case presents for our consideration the
extent of OIGA's liability under R.C. Chapter 3955.2 The
central issue is whether OIGA is required to reimburse two
insurance carriers for a pro-rata share of amounts the insurers
paid to settle a medical malpractice action.
I
At the outset, it is important to recognize the General
Assembly's purpose behind the enactment of R.C. Chapter 3955,
the Ohio Insurance Guaranty Association Act (the "Act"). To
this effect, former R.C. 3955.03 specifically stated:
"The purposes of sections 3955.01 to 3955.20, inclusive,
of the Revised Code are to provide a mechanism for the payment
of covered claims under certain insurance policies, avoid
excessive delay in payment and financial loss to claimants or
policyholders because of the insolvency of an insurer, assist
in the detection and prevention of insurer insolvencies, and
provide an association to assess the cost of such protection
among insurers." (Emphasis added.)
The Act was designed to guard against potentially
catastrophic loss to persons who are entitled to rely on the
existence of an insurance policy and the solvency of the
company issuing the policy -- the insureds and persons who have
claims against insureds. OIGA, a nonprofit unincorporated
association, was therefore created to provide a means to
compensate insureds or third-party claimants when an insurance
company is unable to meet its obligations. Upon a
determination that an insolvent insurer exists, OIGA assumes
that insurer's obligations to insureds or third-party claimants
while being empowered with all of the insurer's rights in that
regard. Former R.C. 3955.08(A)(2) and (4). OIGA thereby
assumes the place of the insolvent insurance carrier for
liability purposes only and provides insurance coverage when no
other insurance is available to compensate valid claims.
Former R.C. 3955.08 and 3955.13. However, not all claims
covered under the insolvent insurer's policy are payable by
OIGA. As a creature of statute, OIGA is restricted by the
terms of the enabling legislation to pay only "covered
claim[s]" as defined in former R.C. 3955.01(B):
"'Covered claim' means an unpaid claim, including one for
unearned premiums, which arises out of and is within the
coverage of an insurance policy to which sections 3955.01 to
3955.20 of the Revised Code apply, when issued by an insurer
which becomes an insolvent insurer on or after the effective
date of this act, and the claimant or insured is a resident of
this state at the time of the insured event or the property
from which the claim arises is permanently located in this
state.
"'Covered claim' does not include any amount:
"(1) In excess of three hundred thousand dollars on any
claim;
"(2) Due any reinsurer, insurer, insurance pool, or
underwriting association through subrogation; provided, that
when such reinsurer, insurer, insurance pool, or underwriting
association has paid a claim and thereby becomes subrogated to
the amount of that claim, such subrogated claim may be asserted
only against the receiver of the insolvent insurer and in no
event against the insured of the insolvent insurer." (Emphasis
added.)
The trial court correctly analyzed the statutory scheme
set forth in R.C. Chapter 3955 in concluding that PIE and PICO
do not have "covered claims." R.C. 3955.01(B) sets forth two
requirements before OIGA can be called upon to pay claims of an
insolvent insurance carrier. First, the individual seeking
relief from OIGA must possess an unpaid claim. An unpaid claim
is one which arose from an insured event and has yet to be
satisfied either by the insolvent carrier or by OIGA. The
second requirement limits the class of individuals who may seek
relief from OIGA.3 Under a liability policy of insurance, only
the insolvent carrier's insured or one who has been injured by
that insured (i.e., a third-party claimant) may require OIGA to
pay a covered claim.
It is obvious that the only relevant claim under R.C.
3955.01(B) is the one held by the Archers as third-party
claimants regarding the medical malpractice insurance policies
issued by PIE and PICO -- and that claim has been converted
from an unpaid claim to a paid claim through settlement. R.C.
Chapter 3955 was designed to protect insureds and third-party
claimants, like the Archers, from the insolvency of an
insurer. The monies reserved in the OIGA fund are clearly not
for the protection of insurance companies. Since neither PIE
nor PICO is an insured or third-party claimant (i.e., victim of
tortfeasor) under an insurance policy, OIGA has no obligations
under R.C. 3955.01(B).
PIE and PICO are pursuing what is more properly
characterized a subrogation cause of action. In their
declaratory judgment action, the insurers sought a binding
judicial determination that they may seek reimbursement from
OIGA for any amount paid by them in excess of their respective
proportionate share of liability for the damages sustained by
the Archers. Essentially, appellants sought a determination of
their equitable subrogation rights against OIGA. "In a broad
sense, one person is subrogated to certain rights of another
person where he is substituted in the place of such other
person so that he succeeds to those rights of the other
person." State v. Jones (1980), 61 Ohio St.2d 99, 100-101, 15
O.O.3d 132, 133, 399 N.E.2d 1215, 1216-1217. To be entitled to
the right of subrogation, the person who pays money to satisfy
the obligation must be under some duty or necessity in order to
protect himself from loss; the right cannot extend to a mere
volunteer. "Subrogation is allowed only in favor of one who
has been obliged to pay the debt of another, and not in favor
of one who pays a debt in the performance of his own primary
obligation." Maryland Cas. Co. v. Gough (1946), 146 Ohio St.
305, 32 O.O. 365, 65 N.E.2d 858, paragraph three of the
syllabus.
As is readily apparent from the language of R.C.
3955.01(B)(2), the statutory provision specifically excludes
from the definition of "covered claim" amounts claimed by
insurance companies through common-law subrogation principles.
PICO, however, interprets R.C. 3955.01(B)(2) to mean that a
subrogation claim is not a "covered claim" if, and only if, the
subrogated party can assert that claim against the receiver of
the insolvent carrier. Since PICO cannot obtain reimbursement
from PMIC's receiver, PICO urges this court to hold that the
statutory bar does not apply. We disagree. There is no reason
to conclude that the Act intended a subrogated insurer which is
somehow precluded from filing a claim against a fellow
insurer's receiver to be given greater rights to the funds held
by OIGA than a subrogated insurer which is not so precluded.
Such an exception to OIGA's limited liability on "covered
claims" would be inconsistent with the expressed purpose of the
Act to protect only insureds and third-party claimants from
financial ruin due to the insolvency of an insurer. The only
recourse the appellants have is to assert their subrogated
claims against PMIC's receiver.
Accordingly, we hold that an insurance carrier which has
settled an action with the insured or third-party claimant is
not entitled to seek payment from OIGA for a pro-rata share of
the settlement amount on the basis of common-law subrogation
principles. The subrogated claims of PIE and PICO were
therefore properly dismissed by the trial court.
II
We next proceed to address the appellant insurers'
arguments that OIGA acted in bad faith during the performance
of its statutory duties. The appellants maintain that OIGA's
wrongful refusal to participate in settlement discussions and
then contribute to the negotiated settlement amount entitles
PIE and PICO to bring an action seeking reimbursement from OIGA
despite the language of R.C. 3955.01(B)(2). The insurers'
argument, which is apparently based upon equitable estoppel
grounds, is unpersuasive and we find no basis for such a
bad-faith claim.
OIGA premised its refusal to contribute to the settlement
of the Archers' claim on former R.C. 3955.13(A), which provided
as follows:
"Any person having a covered claim upon which recovery is
also presently possible under an insurance policy written by
another insurer shall be required first to exhaust his rights
under such other policy. Any amount payable on a covered claim
under sections 3955.01 to 3955.20, inclusive, of the Revised
Code shall be reduced by the amount of such recovery."
(Emphasis added.)
After reviewing the applicability of R.C. 3955.13(A) to
the facts of the case, the trial court agreed with OIGA's
earlier determination that the statutory provision prohibited
OIGA from funding any settlement. Since, at the time of
settlement, all other applicable sources of insurance had not
been exhausted, the trial court ruled that R.C. 3955.13(A)
barred OIGA from contributing to the Archer settlement. The
court of appeals held that even assuming, arguendo, that no
other insurance existed within the meaning of R.C. 3955.13(A),
PIE and PICO incurred no prejudice as a result of the trial
court's determination. The court of appeals found that PIE and
PICO either "contributed money to settle Archers' claim to
protect an interest and therefore seek recovery from OIGA based
upon subrogation rights, for which the statute precludes
recovery, or they voluntarily assumed payments they were not
legally obligated to make, for which equity provides no relief."
As previously discussed, OIGA's purpose is to prevent an
insurer's insolvency from causing devastating loss to insureds
or third-party claimants. The General Assembly's intent that
OIGA was created for a very limited purpose is expressed in the
language of R.C. Chapter 3955. In addition to the covered
claim restriction of R.C. 3955.01(B), and also in keeping with
its responsibility to guard against unnecessary depletion of
its funds, OIGA is obligated to refuse payment where another
applicable source of insurance coverage exists. Under the
terms of R.C. 3955.13(A), OIGA steps in as a source of
insurance coverage only when all other possible sources of
insurance recovery are exhausted.
Despite Ohio law to the contrary, PIE and PICO argue that
OIGA breached a duty of good faith to them by failing to pay
the Archers' covered claim. Appellants charge that other
insurance, within the meaning of R.C. 3955.13(A), did not
exist. They maintain that since no other insurance coverage
existed during the time in which PMIC provided coverage to Dr.
Chila and OUOMC, OIGA (as successor to PMIC) was not entitled
to rely on R.C. 3955.13(A). Appellants thereby urge this court
to find that Marilyn Archer's injuries were divisible, i.e.,
the injuries were capable of being traced to (and, therefore,
attributable to) a specific policy period. Since damages are
capable of being apportioned among the separate periods of
consecutive nonoverlapping medical malpractice insurance
coverages, the appellants believe they are entitled to recover
amounts OIGA should have contributed to the settlement.
The fallacy of appellants' argument that other insurance
coverage did not exist is that divisibility of Marilyn Archer's
injures has not been established due to the settlement of the
underlying medical malpractice action. There has been no
factual determination as to when Dr. Chila's misdiagnosis
proximately resulted in the injuries complained of.4 In Pang
v. Minch (1990), 53 Ohio St.3d 186, 559 N.E.2d 1313, we adopted
2 Restatement of the Law 2d, Torts (1965), Section 433B(2) in
paragraph six of the syllabus, which provides as follows:
"Where the tortious conduct of two or more actors has
combined to bring about harm to the plaintiff, and one or more
of the actorss seeks to limit his liability on the ground that
the harm is capable of apportionment among them, the burden of
proof as to the apportionment is upon each such actor."
Accordingly, had the defendants in the underlying
negligence action (PICO, OIGA and PIE) chosen to limit their
liability on the ground that the harm was capable of being
apportioned among them, the defendants would bear the burden of
establishing the divisibility of the harm. OIGA could be
liable (and then only up to $300,000) if it were established in
the underlying action that the negligent acts which led to the
Archers' damages were committed exclusively during the PMIC
coverage period. See R.C. 3955.01(B)(1). In the case at bar,
however, PIE and PICO abandoned their rights under Pang by not
litigating the apportionment of damages and instead settling
the Archers' action.
In summary, although appellants may frame their action in
other terms, they are actually seeking recovery through
subrogation principles. R.C. 3955.01(B)(2) explicitly and
unequivocally prohibits OIGA from making payments to insurers
on the basis of a subrogated law claim. Regardless how this
claim may arise, no recourse against OIGA's funds may be had.
Moreover, it can be argued that OIGA is statutorily immune
from lawsuits, such as those in the instant case, where a party
claims damages due to OIGA's failure to properly perform its
powers and duties as stated in R.C. 3955.08. Former R.C.
3955.18, which was enacted contemporaneously with the General
Assembly's creation of OIGA in R.C. Chapter 3955, reads as
follows:
"There shall be no liability on the part of and no cause
of action of any nature shall arise against any member insurer,
the Ohio insurance guaranty association or its agents or
employees, the board of directors, or the superintendent of
insurance or his representatives for any action taken by them
in the performance of their powers and duties under sections
3955.01 to 3955.20, inclusive, of the Revised Code." (Emphasis
added.)
R.C. 3955.18 would therefore bar an insured or third-party
claimant from holding OIGA liable for damages caused by OIGA's
failure to properly identify, settle or pay a covered claim.
While the insured or third-party claimant is entitled to
judicial relief necessary to force OIGA to perform its
statutory duties, no action seeking damages can be maintained
against the association. Accordingly, PIE and PICO (who, as
insurers, are not even entitled to the protections of R.C.
Chapter 3955) cannot likewise hold OIGA liable for bad-faith
refusal to settle a covered claim.
For the foregoing reasons, we hold that neither PIE nor
PICO can seek to recover from OIGA a pro-rata share of the
settlement amount. The judgment of the court of appeals is,
therefore, affirmed.
Judgment affirmed.
A.W. Sweeney, Douglas, Resnick and F.E. Sweeney, JJ.,
concur.
Wright and Pfeifer, JJ., dissent.

FOOTNOTES:
1 On October 9, 1987, PMIC was declared insolvent by the
state of Missouri. Accordingly, as is required by R.C. Chapter
3955, OIGA assumed PMIC's rights, duties, and obligations.
(R.C. 3955.08[A][2].)
2 We note that R.C. Chapter 3955 was amended effective
October 26, 1989 (143 Ohio Laws, Part II, 2253). The changes
appear to be minor and do not relate to this case.
3 Reading R.C. 3955.03 together with R.C. 3955.01(B), it
appears that the General Assembly intended for the Act to
protect policyholders only if they are also insureds.
4 For instance, it is the contention of PICO that, while
there may have been negligence (misdiagnosis) by Dr. Chila
during the first period of coverage afforded by PICO, the
malignancy had not appreciably advanced until coverage by PMIC
commenced. That is, the malignancy did not rupture the bone
necessitating the resection until after PICO ceased coverage.
It is equally unsurprising that PIE maintains that Dr.
Chila's failure to properly diagnose the malignant tumor during
PIE's short coverage period did not proximately cause the
injuries Marilyn Archer suffered. Had Dr. Chila diagnosed the
real cause of her discomfort on the very first office visit
during the PIE coverage period, PIE believes that Archer's
injuries would have been no worse.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11147544. Public record. Not legal advice.