Background
3371 Reading, LLC owned a building in Cincinnati undergoing renovation. The structure burned down during the renovation process, and 3371 Reading filed an insurance claim with Ohio Casualty Insurance Company. Ohio Casualty denied coverage, citing a Protective Devices Endorsement that required a “Fenced Jobsite”—defined as a fence at least six feet tall that “completely surrounds the jobsite, with no openings unless gated.”
The property had an unusual trapezoid shape. Three sides were bordered by neighboring properties (Urban League land, a real estate development, and Reading Road), leaving no space on 3371 Reading’s side of the property line to install a fence. Critically, the fourth side shared a wall with a neighboring building. This made it physically impossible to construct a fence that completely surrounded all four sides of the property. 3371 Reading sued for breach of contract, bad faith, fraudulent inducement, and violations of Ohio’s Deceptive Trade Practices Act. The district court granted summary judgment for the insurers on all claims.
The Court’s Holding
The Sixth Circuit reversed the breach-of-contract ruling in a 2-1 decision. The majority held that 3371 Reading was entitled to coverage because the fencing requirement was impossible to perform and therefore unenforceable. Under Ohio law, when an insurance policy contains a precondition to coverage that is impossible to satisfy, that provision becomes void and the policy cannot be rendered illusory. The court emphasized that the insurers’ post-hoc argument that a three-sided fence would suffice could not override the plain language requiring a fence that “completely surrounds” the jobsite. Since all parties conceded the shared wall made a four-sided fence impossible, 3371 Reading could never have complied with the stated requirement, making the fencing provision unenforceable.
The Court affirmed dismissal of the bad-faith claim, holding that bad faith requires more than breach of an unclear or ambiguous contractual term. Although the insurers breached the contract, their interpretation of the difficult-to-parse policy was plausible, precluding a bad-faith finding under Ohio law. The Court also affirmed dismissal of the fraudulent-inducement claim, finding that allegations about future policy performance sound in contract law, not tort, and that lack of due diligence constitutes negligence, not fraud. Finally, the Court affirmed dismissal of the ODTPA claim, holding that the statute addresses unfair competition and false advertising, not consumer fraud—the proper remedy for which is the Ohio Consumer Sales Practices Act.
Key Takeaways
- When an insurance policy contains a precondition to coverage that is physically impossible to satisfy, that provision is unenforceable and cannot render the entire policy illusory.
- Insurance policy interpretation requires giving effect to the plain and ordinary meaning of contract language as a layman would understand it, and ambiguous provisions must be construed in favor of the insured.
- Insurers cannot use post-hoc interpretations or arguments (such as accepting a three-sided fence after the policy required complete enclosure) to save an unenforceable provision.
- Bad faith in insurance denial requires more than breach of contract or misinterpretation of an unclear term; the policy must unambiguously require the insisted-upon performance.
- Fraudulent inducement claims in insurance contracts must allege misrepresentation of something other than the contract’s future performance; predictions about coverage sound in contract, not tort.
- The ODTPA regulates unfair competition and false advertising, not consumer fraud; consumer fraud claims must be brought under the Ohio Consumer Sales Practices Act.
Why It Matters
This decision reinforces that Ohio courts will not enforce insurance policy conditions that are impossible to satisfy, even if clearly stated. Insurers cannot place insureds in an impossible position and then deny coverage for non-compliance. The ruling protects policyholders from illusory coverage by requiring preconditions to be actually achievable. For insurers and policyholders alike, the decision underscores the importance of drafting clear, feasible policy conditions and the risks of including requirements that physical circumstances make impossible to meet.
The dissent’s view that a three-sided fence should suffice was rejected, affirming that plain policy language cannot be rewritten after the fact. This holds significance for construction and renovation projects where protective device endorsements are common, ensuring that insureds are not bound by impossible requirements and that ambiguities are resolved in their favor under Ohio law.