1

UNCOVERING UM/UIM COVERAGE PROVIDED BY OPERATION OF LAW

Robert W. Kerpsack, Esq.,ROBERT W. KERPSACK CO., L.P.A.

21 East State Street, Suite 300Columbus, OH 43215

Telephone: (614) 242-1000Facsimile: (614) 242-3948E-mail: bob@rwklaw.com

2

“UNCOVERING” TOPICS:• “UNCOVERING” UM/UIM COVERAGE PROVIDED

BY OPERATION OF LAW:• EMPLOYER CGL POLICIES: SELANDER/PONTZER• HOMEOWNERS’ POLICIES: DAVIDSON/LEMM

• DEVELOPING “UNCOVERING” CASE LAW

• DEFUSING DEFENSES

• WHICH AMENDMENT TO R.C. 3937.18 APPLIES?

3

EMPLOYERS’ CGL POLICIES

• Coverage for “autos” is excluded, except for a hired or “non-owned auto” used in the insured’s business– Covered:

• parking an “auto”;• transportation of “mobile equipment” by an

“auto;” and• permissive operation of registered “mobile

equipment” along a public highway.

4

EMPLOYERS’ CGL POLICIES

• Selander v. Erie Ins. Group (1999), 85 Ohio St. 3d 544:– “The fact that a policy provides liability coverage

for non-owned and hired motor vehicles is sufficient to satisfy the requirement of R.C. 3937.18 that a motor vehicle liability policy be delivered in this state with respect to any motor vehicle registered or principally garaged in this state.”

5

EMPLOYERS’ CGL POLICIES

• LEGAL ARGUMENT PER SELANDER:

– An insurance policy that provides liability coverage for motor vehicles, even in a limited scope, is a “motor vehicle liability insurance policy” that is subject to R.C. 3937.18.

6

EMPLOYERS’ CGL POLICIES

• UNDISPUTED:

– UM/UIM coverage was not offered and expressly rejected by insured; therefore, the policy provides UM/UIM coverage by operation of R.C. 3937.18.

7

EMPLOYERS’ CGL POLICIES

BUT . . .

• H.B. 261 (effective 9/3/97) provides that a “motor vehicle liability insurance policy” that is subject to R.C. 3937.18 is any policy that serves as proof of financial responsibility per R.C. 4509.01

8

EMPLOYERS’ CGL POLICIES• QUERY:

– Do CGL policies providing liability coverage for “hired or non-owned autos” still provide UM/UIM coverage by operation of law after H.B. 261?• Yes, according to Smith v. Cincinnati Ins. Co. (May

24, 2001), Lake C.P. No. 00CV000916, unreported. See also Pickett v. Strouble (July 9, 2001), Stark C.P. No. 2000 CV 02260, unreported.

• Contra: Roy v. Plageman (November 27, 2000), Hancock C.P. No. 00-154-T, unreported.

9

EMPLOYERS’ CGL POLICIES after H.B. 261 (effective 9/3/97)

• Legal Argument:

– Nowhere within the provisions of H.B. 261 (which defines a “motor vehicle liability insurance policy”) does it state that the purpose of the legislation is to supercede Selander.

10

EMPLOYERS’ CGL POLICIES

• Many lower courts have held that CGL policies providing only incidental auto coverage (i.e. “parking an auto” or for “cherry pickers”) is insufficient to subject the policies to R.C. 3937.18. – However, most of the policies considered could not be

used as proof of financial responsibility, in accordance with R.C. 4509.45, for the operation of “autos” covered under the policy.

11

EMPLOYERS’ POLICIES:WHO IS INSURED?

• Policies insuring corporate named insureds:– “Insured” defined as:

• 1) you (the named insured corporation); and• 2) if you are an individual, your relatives.”

– But, “you” is ambiguous when applied to a corporation; therefore, “your relatives” means the employees of the corporation. See Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St. 3d 660

12

EMPLOYERS’ POLICIES:WHO IS INSURED?

• Query #1:– What about policies that insure sole proprietorships?:

No Pontzer “you” ambiguity.

• Most employer policies insure:– “Your employees, but only for acts within the

scope of their employment by you.”

13

EMPLOYERS’ POLICIES:WHO IS INSURED?

• Query #1 (con’t.):– In policies providing UM coverage by operation of

law, the insured is, likewise, defined by operation of law.• See Shropshire v. Hamilton Mut. Ins. Co. (October

5, 2001), Montgomery App. Nos. 18803 and 18814, unreported (an employee of a partnership is an insured under a CGL policy providing UM coverage by operation of law).

14

EMPLOYERS’ POLICIES:WHO IS INSURED?

• QUERY #2:– Does an employee have to be within the scope

and course of employment in order to receive un/underinsured motorist coverage that is provided by by operation of law?• No, according to Bagnoli v. Northbrook Prop. &

Cas. Ins. Co. (1999), 86 Ohio St. 314 (• See, also Shropshire, supra.

15

EMPLOYERS’ POLICIES:WHO IS INSURED?

• QUERY #2 (con’t.):– For purposes of determining whether a policy

provides un/underinsured coverage by operation of law, a person is either an insured or he/she is not. It is irrelevant that coverage may be limited in scope. Scott-Pontzer, at 665.

– In Scott-Pontzer, the insured was also defined by operation of law.

16

EMPLOYERS’ POLICIES:WHO IS INSURED?

• QUERY #3:– Are resident relatives of employee’s

household covered under un/underinsured motorist coverage that is provided by employer’s policy by operation of law?

• Yes, according to Ezawa v. Yasuda Fire & Marine (1999), 86 Ohio St. 3d. 557

17

EMPLOYERS’ POLICIES:WHO IS INSURED?

• QUERY #4:– Are employees of political subdivisions covered

under UM coverage provided by their employers’ policies by operation of law? • Yes, according to and Johnston v. Johnston

(October 25, 2001), Lake C.P. No. 00CV001494, unreported; Henry v. Wausa Bus. Ins., U.S. District Court (S.D. Ohio, 2001), Case No. C-1-00-624, unreported; Morganstern v. Nationwide Mut. Ins. Co., U.S. District Court (S.D. Ohio, 2001), Case No. C2-00-1284, unreported.

18

EMPLOYERS’ POLICIES:WHO IS INSURED?

• QUERY #4 (con’t):– Contra: Allen v. Johnson (August 21, 2001),

Wayne C.P. No. 99-CV-0270, unreported (R.C. 3323.203 does not authorize a school district to purchase UM coverage for off-duty employees or their family members); and Mizen v. Utica National Ins. Group (April 17, 2001), Cuyahoga C.P. No. 408130, unreported (an employee of a political subdivision must be in the scope of his employment in order to qualify as an “employee”).

19

EMPLOYERS’ POLICIES:WHO IS INSURED?

• QUERY #5:– Do CGL policies that do not insure an ambiguous

“you” still provide UM coverage to employees by operation of law?

– Yes. In the Liberty Mutual excess/umbrella policy considered in Scott-Pontzer, there was no ambiguous “you” definition of the named insured corporation; nonetheless, the Supreme Court held that employees of a named insured corporation qualify as insureds under UM coverage provided by operation of law.

20

EMPLOYERS’ POLICIES:WHO IS INSURED?

• QUERY #5 (con’t.):– But . . ., an employee who is insured under a

commercial policy that provides UM coverage on its face is subject to all of the policy’s valid restrictions on such coverage, including whether .• See Jones v. Nationwide Ins. Co. (July 23,

2001), Cuyahoga App. No. 00CA00329, unreported

21

EMPLOYERS’ POLICIES:WHO IS INSURED?

• QUERY #5 (con’t.):– Contra: Johnston v. Johnston (October 25, 2001), Lake

C.P. No. 001494, unreported (pre-H.B. 261 “other-owned vehicle” exclusion is invalid); Headley v. Grange Guardian Ins. Co. (June 18, 2001), Mahoning C.P. No. 00 CV 1153, unreported (“other-owned vehicle” exclusion applies only to vehicles owned by the named insured); Shinkle v. Am. Manufacturers Mut. Ins. (May 21, 2001), Franklin C.P. 00CVH06-5009, unreported (UM coverage is provided for the use of a vehicle not listed on the declaration of coverage page, pursuant to an ambiguous policy definition of “covered autos”).

22

EMPLOYERS’ POLICIES:WHO IS INSURED?

• QUERY #5 (con’t.):

– Note: “Available for regular use/other-owned vehicle” exclusions are valid in policies in effect prior to the enactment of S.B. 267 (September 21, 2000).

23

HOMEOWNERS-TYPE POLICIES

• BODILY INJURY LIAB. COVERAGE FOR “MOTOR VEHICLES” IS EXCLUDED– Policies then undefine “Motor Vehicle:”

• Non-owned recreational vehicles used on an insured location are not excluded

• “Bodily injury” to “residence employee” while operating a motor vehicle in the scope of employment by an insured is not excluded

24

HOMEOWNERS-TYPE POLICIES

• LEGAL ARGUMENT:

– If an insurance policy provides liability coverage for motor vehicles, even in a limited scope, then it is a “motor vehicle liability insurance policy” that is subject to R.C. 3937.18. Selander.

25

HOMEOWNERS-TYPE POLICIES

• UNDISPUTED:

--UM/UIM coverage was not offered and expressly rejected by insured.

• Therefore, the policy providesUM/UIM coverage by operationof R.C. 3937.18

26

HOMEOWNERS-TYPE POLICIES

• Davidson v. Motorists Mut. Ins. Co. (2001), 91 Ohio St.3d 262 (released April 16, 2001):– Syllabus:

• “A homeowner’s insurance policy that provides limited liability coverage for vehicles that are not subject to motor vehicle registration and that are not intended to be used on a public highway is not a motor vehicle liability policy and is not subject to the requirement of former R.C. 3937.18 to offer uninsured and underinsured motorist coverage.” [Emphasis added.]

27

HOMEOWNERS-TYPE POLICIES

• Davidson, at 268: Selander clarified and distinguished:

– “Selander stands only for the proposition that UM/UIM coverage is to be offered where a liability policy of insurance expressly provides for coverage for motor vehicles without qualification as to design or necessity for motor vehicle registration.”

28

HOMEOWNERS-TYPE POLICIES(Selander)

• Query:– Did the Ohio Supreme Court sufficiently clarify its

Selander holding in Davidson so as to preclude CGL policies from having to comply with the uninsured motorist statute?• In certain limited circumstances, most CGL policies do

provide liability coverage for “autos” subject to motor vehicle registration and intended for use on public highways. Under such circumstances, CGL policies can be used as proof of financial responsibility for the operation of such “autos” covered under the policy.

29

HOMEOWNERS-TYPE POLICIES

• What about the argument that the Davidson policy provides liability coverage for injury to a “residence employee” while operating a motor vehicle in the scope of employment?– Davidson, at footnote 2:

• “Because this argument was not raised in either the trial court or the court of appeals, we decline to address it.”

30

HOMEOWNERS-TYPE POLICIES• BUT . . .

– Lemm v. The Hartford (October 4, 2001), Franklin App. No. 01AP-251, unreported; conflict certified by Ohio Supreme Court at 93 Ohio St.3d 1474 on the following issue:

• “When a homeowner’s insurance policy provides express liability for damages arising from a motor vehicle accident when the injured party is the homeowner’s residence employee and the injury occurred in the course of that employment, is the policy deemed an automobile liability or motor vehicle policy subject to the requirement of former R.C. 3937.18 to offer uninsured and underinsured coverage?”

31

“UNCOVERING” DEFENSES

• Failure to give timely notice of UM/UIM claim• Settled with tortfeasor: Failure to protect subro

and/or no longer “legally entitled to recover”• UM/UIM coverage is subject to the same self-

insured retention or deductible amount that is attributable to the liability coverage

• Ohio Law does not apply to an out-of-state policy

32

DEFUSING UM DEFENSES (UM coverage provided by operation of law)

• Scott-Pontzer, at 666: • Any policy restrictions intended to apply solely

to the liability coverage do not apply to UM/UIM coverage provided by operation of law.

– Citing Demetry v. Kim (1991), 72 Ohio App.3d 692, 698, 595 N.E.2d 997, 1001.

33

FAILURE TO GIVE TIMELY NOTICE OF UM/UIM CLAIM

• FATAL PER SOME APPELLATE COURTS:

– Luckenbill v. Midwestern Indem. Co. (June 1, 2001), Darke App. No. 1536, unreported.

• But. . ., discretionary appeal allowed and determination that a conflict exists by Ohio Supreme Court at 93 Ohio State 3d 1487

34

FAILURE TO GIVE TIMELY NOTICE OF UM/UIM CLAIM

• BUT . . .– TIG Ins. Co. v. OK Freightways, Inc. (December 21,

2000), Franklin App. No. 00AP-350, unreported:• Failure to provide “prompt notice,” standing alone, is

not evidence of actual prejudice.– R.C. 3937.18 is silent as to the issue of notice of

un/underinsured claims; therefore, no notice requirements are applicable to un/underinsured coverage that is provided by operation of law.

35

FAILURE TO GIVE TIMELY NOTICE OF UM/UIM CLAIM

• BUT . . .– Notice of claims against un/underinsured motorist

coverage provided by operation of law may not be required until the Ohio Supreme Court released its decisions giving rise to such claims: Selander (decided June 2, 1999); Scott-Pontzer (decided June 23, 1999); Ezawa (decided July 28, 1999).

– See Martin v. Liberty Mut. Ins. Co., U.S. District Court (N.D. Ohio, 2001), Case No. 5:00 CV 1864, unreported (insured not required to give notice of a claim until he is “legally entitled to recover,” which occurred after the Scott-Pontzer decision was released).

36

DOES OHIO LAW APPLY?• Insurers argue that the state where the insurance

policy was purchased should apply, citing the Ohio Supreme Court’s holding in Ohayon v. Safeco Ins. Co. (2001), 91 Ohio St.3d 474, 747 N.E.2d 206.– In Ohayon, however, there was no dispute whether the

claimant was an insured under the policy at issue.– Ohio law applies to determine an Ohio employee’s

eligibility for underinsured motorist coverage under Scott-Pontzer. See Caylor v. Pacific Employers Ins. Co. (August 3, 2001), Miami C.P. No. 99-400, unreported.

37

UM COVERAGE PROVIDED BY OPERATION OF LAW

• But. . .– S.B. 97 (effective October 31, 2001):

• Abolishes mandatory offering of UM/UIM coverage.• Supercedes the Ohio Supreme Court ‘s decisions

in Scott-Pontzer and Linko.• Abolishes UM/UIM coverage as a matter of law.• Establishes a 3-year limitation period for UIM

claims and a 1-year limitation period for UM claims arising from the insolvency of a liability insurer.

38

WHICH AMENDMENT TO R.C. 3937.18 APPLIES?

• Ross v. Farmers Ins. Group (1998), 82 Ohio St. 3d 281– Statute in effect on date of policy issuance or

renewal applies.

• Hillyer v. Great Am. Ins. Co. (1999), 85 Ohio St. 3d 410– Same rule applies to liability policies.

39

TWO-YEAR UM/UIM COVERAGE GUARANTEE

• Wolfe v. Wolfe (2000), 88 Ohio St.3d 246:

– R.C. 3937.31(A) provides a two year guarantee period during which a policy cannot be altered. The guarantee period is not limited to the first two years after inception of the policy.

– A new 2-year guarantee period commences every two years

40

WOLFE v. WOLFE

• Query:– Does Wolfe apply equally to commercial policies

and personal/consumber policies? • Yes, according to Shropshire v. Hamilton Mut. Ins.

Co. (October 5, 2001), Montgomery App. Nos. 18803 and 18814, unreported; Knox v. Travelers Ins. Co. (November 21, 2001), Franklin C.P. No. 00CVC12-11264, unreported; Morgenstern v. Cincinnati Ins. Co. (November 7, 2001), Delaware C.P. No. 01CVC07-333, unreported.

41

BUT . . .• S.B. 267 (EFFECTIVE 9/21/00) ADDED

R.C. 3937.18(E):– INSURERS ARE PERMITTED TO CHANGE THEIR

POLICIES DURING THE TWO-YEAR GUARANTEE PERIOD SO LONG AS THOSE CHANGES ARE IN ACCORDANCE WITH SUBSEQUENT STATUTORY CHANGES

• S.B. 267 ALSO CHANGES R.C. 3937.18(C):– ELIMINATES THE REQUIREMENT OF AN

ADDITIONAL MANDATORY OFFERING/EXPRESS REJECTION (OR REDUCTION) OF UM/UIM COVERAGE

42

TWO-YEAR UM/UIM COVERAGE GUARANTEE

• CHANGES TO POLICIES PURCHASED OR RENEWED PRIOR TO 9/21/00 (EFFECTIVE DATE OF S.B. 267) ARE PROBABLY INVALID FOR TWO YEARS (UP TO 9/20/02)

• IMPLICATION: SELANDER MAY BE STILL BE ALIVE PER WOLFE