COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 70726 CAROL OAKAR, ET AL., : : Plaintiffs-Appellants : : JOURNAL ENTRY vs. : and : OPINION FARMERS INSURANCE OF COLUMBUS, : INC., : : Defendant-Appellee : DATE OF ANNOUNCEMENT OF DECISION : APRIL 17, 1997 CHARACTER OF PROCEEDING : Civil appeal from : Common Pleas Court : Case No. 269213 JUDGMENT : REVERSED AND JUDGMENT : ENTERED FOR PLAINTIFFS. DATE OF JOURNALIZATION : _______________________ APPEARANCES: For plaintiffs-appellants: Howard A. Schulman SCHULMAN, SCHULMAN & MEROS 1370 Ontario Street 1700 Standard Building Cleveland, Ohio 44113-1727 For defendant-appellee: D. John Travis Gary L. Nicholson GALLAGHER, SHARP, FULTON & NORMAN Bulkley Building, 7th Floor 1501 Euclid Avenue Cleveland, Ohio 44115 -2- NAHRA, P.J.: Appellants, Carol and Bernard Oakar, appeal the denial of their motion for summary judgment and the grant of summary judgment in favor of Farmers Insurance Group ("Farmers"), appellee, in their action for payment of an insurance claim. On January 20, 1990, Carol Oakar, was severely injured in an accident in which three cars were involved. Oakar, while driving eastbound on I-480, hit Robert Strong's vehicle. Strong's vehicle was traveling at a slow rate of speed in the lefthand lane of the interstate. As a result of hitting Strong, Oakar's car came to rest backwards in the lefthand lane of the interstate. As she left her vehicle, she was struck by an oncoming car driven by Thomas Juhasz. Subsequently, five other cars were involved in various incidents on that portion of the interstate. Oakar's injuries were extensive and clearly in excess of any insurance available including her own underinsurance coverage. She was hospitalized for forty days, suffering head injuries which resulted in a coma as well as injuries to her left leg which resulted in the amputation of it above the knee. Shortly after the accident, Oakar's attorney contacted Farmers to inform it of what had occurred. Farmers promptly provided a medical payment of $5,000 as well as paying a property damage claim under Oakar's policy. In February, 1990, Strong made a claim against Oakar as a result of the accident. In October, 1990, Oakar informed Farmers that she had made a claim against Juhasz and asked Farmers to waive -3- its subrogation rights and authorize her to settle for the $100,000 maximum payment under Juhasz's policy. In November, 1990, Farmers gave its consent to the settlement between Oakar and Juhasz and waived its right to subrogation. In April, 1991 Farmers paid Strong $7,500 in settlement of his claims against Oakar. Oakar subsequently made a claim against Strong. Strong settled Oakars' claim by paying the limit of his policy, $12,500. Oakar never informed Farmers of this settlement. At the time the settlements relevant to this action were made, the law in Ohio precluded Oakar from recovering under the provision in her policy providing for uninsured or underinsured motorists insurance. However, in October, 1993, the Ohio Supreme Court decided the case of Savoie v. Grange Mut. Ins. Co. (1993), 67 Ohio St.3d 500, 620 N.E.2d 809. In the third paragraph of the syllabus, the Supreme Court held: An underinsurance claim must be paid when the individual covered by an uninsured/underinsured policy suffers damages that exceed those monies available to be paid by the tortfeasor's liability carriers. (Hill v. Allstate Ins. Co. (1990), 50 Ohio St.3d 243, 553 N.E.2d 658, overruled.) Following Savoie, Oakar and her husband made claims under the uninsured/underinsured provision of her policy. Farmers denied the claims and Oakar and her husband brought an action for the amount of their claim. The Common Pleas court granted Farmers' renewed motion for summary judgment and denied Oakar's motion for summary judgment without comment. The Oakars appeal the court's decisions, listing the following as assignments of error: -4- A. THE TRIAL COURT ERRED IN GRANTING DEFENDANT'S RENEWAL OF MOTION FOR SUMMARY JUDGMENT. B. THE TRIAL COURT ERRED IN DENYING PLAINTIFFS' RENEWED MOTION FOR SUMMARY JUDGMENT. As these assignments of error both address the propriety of summary judgment, we will address them together. Farmers argues that the court properly granted it summary judgment as Oakar is not entitled to coverage under the insurance policy because she failed to notify it of both her claim and suit against Strong and because she failed to obtain Farmers written consent to the Strong settlement. Farmers maintains that as a result of the release of Strong, Oakar destroyed its subrogation rights against Strong without its consent. Farmers also argues that it had vested contractual rights, which cannot be destroyed by the retroactive application of Savoie. Finally, Farmers argues that it had a vested right of setoff within its policy, and pursuant to that right, the policy excludes any recovery on the part of Oakar. Oakar argues that she did not violate any terms of her policy with Farmers, that she is clearly entitled to recover under her policy as a result of the Ohio Supreme Court's holding in Savoie, supra, and that Farmers had no contractually vested rights. Additionally, Oakar argues that if she did violate any terms of her policy, any breach on her part was inconsequential and thus she should not suffer a forfeiture of her recovery due to a minor breach of contract. -5- We note first that Farmers claim that Savoie should not be read retroactively and its ancillary arguments is without merit. Case law is to be applied retroactively unless the issuing court expressly limits its holding to prospective application. See, Peerless Electric Co. v. Bower (1955), 164 Ohio St. 209, 129 N.E.2d 467. Farmers next argument in support of its contention that Oakar should be excluded from coverage is that its policy states: PART II-UNINSURED MOTORIST *** Exclusions This policy does not apply to bodily injury sustained by a person: *** 2. If that person or the legal representative of that person makes a settlement without our written consent. (Emphasis sic.) In addition to this exclusion, the policy provides explicitly for the protection of Farmers subrogation rights: PART V-CONDITIONS *** 5. Our Rights to Recover Payment In the event of any payment under this policy, we are entitled, except where prohibited by law, to all the rights of recovery of the person to whom payment was made against another. That person must sign and deliver to us any legal papers relating to that recovery, do whatever else is necessary to help us exercise those rights and do nothing after loss to prejudice our rights. When a person has been paid damages by us under this policy and also recovers from another, the amount recovered from the other shall be held by that person in trust for us and reimbursed to us to the extent of our payment. (Emphasis sic.) -6- The purpose of the consent requirement in the uninsured motorist provision of the policy is to ensure that the insurer has an opportunity to enforce its rights of subrogation later spelled out in the policy. This consent is necessary because of the effect of a release of a tortfeasor from further liability. As one court noted: As to the effect of the release, a subrogation clause is both a valid and enforceable precondition to the duty to provide underinsured motorist coverage. Generally, the rights of the insurer are no greater than those of the insured and a release effectively destroys the insurer's right to subrogation and, therefore, discharges the insurer from providing underinsured motorist coverage. Once notice of a possible settlement is given, however, "[a]n insurer must aid its insured in the preservation of its subrogation rights. The insurer's failure to respond, within a reasonable time, to notification by its insured of a settlement offer will operate to void a subrogation clause in the insurer's underinsured motorist provision." Cincinnati Ins. Co. v. Jarvis (1994), 98 Ohio App.3d 155, 163-64, 648 N.E.2d 30, 36 (quoting McDonald v. Republic-Franklin Ins. Co. (1989), 45 Ohio St.3d 27, 543 N.E.2d 456, paragraphs one and three of the syllabus) (citations omitted.) It is clear that an insurer has a duty to protect its subrogation rights once made aware of any settlement offer. See, Jarvis, supra. Generally, the duty arises where the insured informs the insurer of an intent to settle with a tortfeasor. Id. However, in this case, Farmers negotiated a settlement with Strong in defense of Oakar. Because Farmers was aware of the possibility of litigation between Oakar and Strong, it was under a duty to act to preserve its rights to subrogation during its defense of Oakar. -7- We cannot say that Farmers has done so in this case because it has not demonstrated that it has any right to subrogation in light of its settlement with Strong. An insurance policy is a contract between the insurer and the insured and is interpreted in accord with the tenets of the law of contracts. In contract actions there are equitable defenses, which a court may use to give effect to the provisions of a contract. As one court noted regarding equitable defenses within the context of contract law: A court of chancery will aid the parties in the assertion of their rights and the enforcement of their obligations, and in maintaining the contractual relationship if it is possible to do so rather than to dissolve it. In equity trivial mistakes, grievances and even breaches of contract rights will be ignored in an effort to protect and maintain the larger and more valuable rights and obligations. Equity abhors forfeitures. Berg v. Devore (1953), 74 Ohio L. Abs. 447, 448, 141 N.E.2d 481. In accord with these principles, it is well settled that a breach of a portion of a contract "does not discharge the obligations of the parties to the contract, unless the performance of those terms is essential to the purpose of the agreement." Software Clearing House, Inc. v. Intrak, Inc. (1990), 66 Ohio App.3d 163, 170, 583 N.E.2d 1056, 1060 (citations omitted). In other words, for a breach of contract to discharge a party from its obligations, that breach must be substantial; conversely, an insubstantial breach will not discharge contractual duties. To determine whether a breach of contract is material, a court is to look to the following factors: -8- [T]he extent to which the injured party will be deprived of the expected benefit, the extent to which the injured party can be adequately compensated for the lost benefit, the extent to which the breaching party will suffer a forfeiture, the likelihood that the breaching party will cure its breach under the circumstances, and the extent to which the breaching party has acted with good faith and dealt fairly with the injured party. Id. at 170, 171, 583 N.E.2d at 1060. (citing Kersh v. Montgomery Development Ctr. (1987), 35 Ohio App.3d 61, 519 N.E.2d 665, quoting Restatement of the Law 2d, Contracts (1981) 237, Section 241.) Oakar has raised an equitable argument by stating her failure to obtain Farmers consent prior to settling her claim against Strong is a minor breach of the contract because Farmers, having paid Strong on his claim against Oakar, foreclosed its rights to recover against him. In applying the factors to be considered in determining whether a breach of contract is substantial to the facts in this case, we find that the failure to inform Farmers of the settlement with Strong is insubstantial and does not operate to relieve Farmers of its obligation to provide the applicable insurance coverage under Savoie, supra. We note first, that both the Oakars and Farmers acted in good faith in their belief at the time that there was no viable claim for underinsured motorist coverage under the policy after Oakar settled with Juhasz. Because both parties understood the law to preclude a claim, the fact that Oakar did not inform Farmers of the settlement had no effect on Farmers rights, because there would be no further payment under the policy and hence there would be no -9- funds subject to subrogation. Because of this, Farmers was not injured by the breach of the terms of the policy when Oakar settled with Strong. However, the law changed under Savoie and allowed Oakar to make a claim. Oakar should not be caused to suffer a forfeiture of that claim for a breach of contract which had no effect at the time it was made. Had the parties been aware that Oakar had a viable underinsurance claim, then under the terms of the policy, "the amount recovered from the other shall be held by that person in trust for us and reimbursed to us to the extent of our payment." The amount received by Oakar from Strong, $12,500, is the amount Farmers may have lost because of Oakar's failure to obtain its consent to the settlement. Thus, rather than forfeit Oakar's claim, which forfeiture is to be abhorred, see, e.g., Wheatstone Ceramics Corp. v. Turner (1986), 32 Ohio App.3d 21, 513 N.E.2d 348, 350, summary judgment should have been granted to Oakar in the amount of $87,500 (the amount of the coverage less the $12,500 received by Oakar from Strong). Reversed and judgment entered for plaintiffs. -10- This cause is reversed and judgment entered for plaintiffs in the amount of $87,500 and costs for proceedings consistent with this opinion. It is ordered that a special mandate be sent to said court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. KARPINSKI, J., CONCURS. PATTON, J., CONCURS IN JUDGMENT ONLY. JOSEPH J. NAHRA PRESIDING JUDGE N.B. This entry is an announcement of the court's decision. See App.R. 22(B), 22(D) and 26(A); Loc.App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App.R. 22(E) unless a motion for reconsideration with supporting brief, per App.R. 26(A), is filed within ten (10) days of the announcement of the court's decision. The time period for review by the Supreme Court of Ohio shall begin to run upon the journalization of this court's announcement of decision by the .