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BASIC UM/UIM LAWTHAT EVERY PI LAWYER SHOULD KNOW

JANUARY 21, 2003

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

21 East State Street, Suite 300Columbus, OH 43215

Telephone: (614) 242-1000Facsimile: (614) 242-4180

Email: bob@rwklaw.com

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BASIC UM LAW TOPICS:

• WHICH AMENDMENT TO UM STATUTE APPLIES?

• UM/UIM COVERAGE BY OPERATION OF LAW

• DOES SCOTT-PONTZER APPLY?

• WHAT POLICIES ARE SUBJECT TO UM STATUTE?

• SUCCESSFUL UM CORRESPONDANCE

• BAD FAITH

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AMENDMENTS TO RC. 3937.18AMENDMENT DATE CHANGE

S.B. 20 10/20/94 UIM COV. NOT

EXCESS (SAVOIE)

H.B. 261 9/3/97 DEFINES “MO. VEH. LIAB. INS. POLICY”

S.B. 57 11/2/99 DEFINES “UMBRELLA POLICY”

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AMENDMENTS TO RC. 3937.18(CON’T)

AMENDMENT DATE CHANGE

S.B. 267 9/21/00 REMOVES TWO-YEAR COVERAGE GUARANTEE (WOLFE)

S.B. 97 10/31/01 SUPERCEDES PONTZER AND LINKO

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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.

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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

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WOLFE v. WOLFE• Query: Does Wolfe apply equally to commercial

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

(October 5, 2001), Montgomery App. Nos. 18803 and 18814; Carper v. Valley Forge Ins. Co. (March 20, 2002), U.S. Dist. Court (S.D. OH) No. C-1-01-281; Knox v. Travelers Ins. Co. (Nov. 21, 2001), Franklin C.P. No. 00CVC12-11264.

• Not to policies insuring more than 4 vehicles. See Zurcher v. National Surety Corp. (February 25, 2002), Stark App. No. 2001CA00197; McPherson v. Whitt (Nov. 7, 2002, Cuyahoga App. No. 81442; Cunningham v. Transcontinental Ins. Co. (Dec. 31, 2002), Hamilton App. No. C-020157.

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WOLFE v. WOLFE (CON’T)• But . . .,• S.B. 267 (effective 9/21/00) added R.C. 3937.18(E):

– Insurers are permitted to change 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 requirement of an additional mandatory

offering/express rejection (or reduction) of UM/UIM coverage

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TWO-YEAR UM/UIM COVERAGE GUARANTEE

• Potential implication of Wolfe:– 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)

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LINKO V. INDEMN. INS. CO. OF N.AM.

• Implication of Linko (released 12/27/00):– All standard ISO UM offers and rejections

are probably invalid– But . . .,

• S.B. 97 (effective 10/31/01) supercedes Linko, and abolishes the mandatory offering of UM coverage

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LINKO (CON’T)

• Query: Do the UM rejection requirements of Linko apply to policies issued after the enactment of H.B. 261 (effective 9/3/97), which included a statutory presumption that a rejection of UM coverage is valid?– Yes, according to Kemper v. Michigan Millers Mut.

Ins. Co. (Dec. 24, 2002), 97 Ohio St.3d __, 2002-Ohio-7101 (A signed rejection of UM/UIM coverage is ineffective under H.B. 261 when there is no other evidence, oral or documentary, of an offer of such coverage).

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UM COVERAGE BY OPERATION OF LAW vs. ON FACE OF THE POLICY

• Insureds are subject to all valid restrictions on UM/UIM coverage provided on the face of the policy.

• UM/UIM coverage provided by operation of law incorporates only those restrictions within the UM statute. See Burkhart v. CNA Ins. Co. (February 25, 2002), Stark App. No. 2001CA00265, 2002-Ohio-903, certified conflict and discretionary appeal allowed at (2002) 96 Ohio St.3d 1436, 1438. Contra: Heiney v. The Hartford (July 23, 2002), Franklin App. No. 01AP-1100, 2002-Ohio-3718, discretionary appeal allowed at 2002-Ohio-6866.

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SCOTT-PONTZER V. LIBERTY MUT. FIRE INS. CO.

“Insured” defined as:1) You.2) If you are an individual, any family member.

–Holding: “You” is ambiguous when the named insured is a corporation

– a corporation can act only by and through real persons—its employees; therefore, the corporation and its employees are insureds

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CORPORATION NAMED INSURED:WHO IS INSURED?

• Query: Who are the “family members” of “you?”

• See Ezawa v. Yasuda Fire & Marine Ins. Co.:– The “family members” of employees of the

corporation named insured are also insureds

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CORPORATION NAMED INSURED:WHO IS INSURED? (CON’T)

• Query: Are family members of employees insured under commercial policies that do not contain the “if you are an individual, any family member” language found in the Pontzer policy?– No, according to a growing number of Ohio

appellate courts, including Walton v. Continental Cas. Co. (July 25, 2002), Holmes App. No. 02CA002, 2002-Ohio-3831, discretionary appeal not allowed at 2002-Ohio-6347.

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CORPORATION NAMED INSURED:WHO IS INSURED? (CON’T)

• Query: Are independent contractors covered under an employer’s commercial policy?– Probably not.

• But see Vajda v. St. Paul Mercury Ins. Co. (January 16, 2003), Cuyahoga App. No. 80917, 2003-Ohio-160 (Who has the right to control the manner or means of doing the work determines whether a person is an employee or independent contractor).

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DOES PONTZER APPLY?OUTSIDE SCOPE OF EMPLOYMENT

• Employee insureds are subject to all valid restrictions on UM/UIM coverage provided on the face of commercial policies– Therefore, an employee who is injured outside of

his/here employment may be excluded from UM/UIM coverage, which limits coverage to occurrences within the course and scope of employment

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OUTSIDE SCOPE OF EMPLOYMENT(CON’T)

• But see Bagnoli v. Northbrook Prop. & Cas. Ins. Co. (1999), 86 Ohio St. 314,1999-Ohio-108:– An employee does not have to be within the

scope and course of employment or driving a company car in order to be an insured under UM/UIM coverage that is provided by operation of law

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POLITICAL SUBDIVISION NAMED INSURED:

WHO IS INSURED?Query: Are employees of political subdivisions

insured under their employers’ policies?– Yes, according to many Ohio Appellate Courts:

• A political subdivision can act only by and through real persons—its employees

• Political subdivisions are not statutorily prohibited from purchasing UM coverage, which covers employees acting outside of their employment

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POLITICAL SUBDIVISION (CON’T)• But see Personal Serv. Ins. Co. v. Bailey-Oney (Nov.

27, 2002), Marion App. No. 9-02-386, 2002-Ohio-6486 – Only political subdivisions determined by geographical

location (townships, municipalities, etc.) are akin to corporate entities, which act only through employees

– Political subdivisions comprised of real live persons (boards of county commissioners, boards of education, etc.) act through the board members, who are capable of operating vehicles and suffering injury

• Therefore, the definition of an insured under a board’s policy ( i.e. “you”) is not ambiguous

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POLITICAL SUBDIVISION (CON’T)

• Note: The issue of whether employees of political subdivisions are insured under their employers’ commercial policies may be addressed by the OH SC in Allen v. Johnson (July 3, 2002), Wayne App. Nos. 01CA0046 and 01CA0047, 2002-Ohio-3404, discretionary appeal allowed at 2002-Ohio-4814

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PARTNERSHIPS/SOLE PROPRIETORSHIPS:WHO IS INSURED?

Query: Are employees of partnerships or sole proprietorships insured under employers’ policies?– No, according to many Ohio appellate courts:

• “You” is not ambiguous–Unlike corporations, partnerships and sole

proprietorships act through the individual partners or proprietor, who are capable of operating vehicles and suffering injury

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PARTNERSHIPS/SOLE PROPRIETORSHIPS (CON’T)

• Note: The issue of whether employees of partnerships and/or sole proprietorships are insured under their employers’ commercial policies may be addressed by the OH SC in Geren v. Westfield Ins. Co. (March 8, 2002), Lucas App. No. L-01-1398, 2002-Ohio-1230, discretionary appeal allowed at 2002-Ohio-3624

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DOES PONTZER APPLY?

• Many commercial insurers argue that their policy language is distinguishable from the policy language in Pontzer

– Argument: No ambiguous “you”

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DOES PONTZER APPLY?“DRIVE OTHER CAR—BROADENED

COVERAGE” ENDORSEMENT• Query: Is “you” still ambiguous in commercial policies

containing a “Drive Other Car—Broadened Coverage” endorsement (schedule of specifically named insured persons, in addition to the corporate named insured)?

• Ohio appellate courts are split—discretionary appeals/certified conflicts allowed by OH SC in Burkhart v. CNA, Westfield v. Galatis, and Geren v. Westfield

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“DRIVE OTHER CAR—BROADENED COVERAGE” ENDORSEMENT (CON’T)

• But see Shropshire v. EMC/Hamilton Mut. Ins. Co. (Oct. 5, 2001), Montgomery App. Nos. 18803 and 18814, unreported:– Un/underinsured motorist coverage provided by

operation of law is for the benefit of any named insured and any other person, who, by reason of his or her relationship to the named insured, is also an insured for purposes of liability coverage.

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DOES PONTZER APPLY?“COVERED AUTO” EXCLUSION

• Query: Are employees injured outside their employment insured under commercial policies which limit coverage to “you while occupying a covered auto” (vehicles specifically identified by a “symbol” on the declarations of coverage page)?

• Ohio appellate courts are split—certified conflicts and/or discretionary appeals allowed by OH SC in Agudo De Uzhca, Admr. V. Derham and Estate of Houser v. Motorists Mut. Ins. Co. (June 4, 2002), Auglaize App. No. 2-02-02, 2002-Ohio-2845, discretionary appeal and certified conflict allowed at 2002-Ohio-5099

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“COVERED AUTO” EXCLUSION(CON’T)

• See, also, Sturgeon v. State Farm (Oct. 8, 2002), Franklin App. No. 02AP-228, 2002-Ohio-5411 (an employee need not be occupying a “covered auto” for UIM coverage provided by operation of law to apply); Roberts v. Wausau Business Ins. Co. (Sept. 10, 2002), Franklin App. No. 02AP-4, 2002-Ohio-4734 (UM coverage is designed to protect persons, not vehicles, and the validity of an exclusion of UM coverage depends on whether it conforms to R.C. 3937.18).

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DOES PONTZER APPLY?“OTHER OWNED AUTO” EXCLUSION

• Query: Does an “other owned auto” exclusion preclude UM coverage to an employee injured while operating his/her own personal vehicle?– No, according to Agudo De Uzhca, Admr. v.

Derham (“other owned auto” exclusions are permissible only when the auto is owned by the named insured). See, also, Carmona v. Blankenship (Sept. 24, 2002), Franklin App. No. 02AP-14, 2002-Ohio-5003 .

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“OTHER OWNED AUTO” EXCLUSION(CON’T)

• H.B. 261 (effective 9-3-97) enacted Section (J) of R.C. 3937.18, permitting the exclusion of UM coverage “while the insured is operating or occupying a motor vehicle owned by, furnished to, or available for the regular use of a named insured * * * if the motor vehicle is not specifically identified in the policy under which a claim is made * * *.” – The ambiguous “you” makes an employee an

“insured,” but not a “named insured,” who is subject to the “other owned auto” exclusion.

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DOES PONTZER APPLY?

• But . . .,– S.B. 97 (effective Oct. 31, 2001), supercedes

Pontzer, requiring that an employee must be within the scope and course of employment or driving a company auto in order to receive UM coverage under the employer’s commercial policies. • Policies issued or last renewed after Oct. 31,

2001, are not subject to Pontzer

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PONTZER DEFENSES: LATE NOTICE• Query: Is an employee excused from complying with

policy conditions requiring prompt notice of an accident prior to the Pontzer decision on 6/23/99?– See Ferrando v. Auto-Owners Mut. Ins. Co. (Dec. 27,

2002), __ Ohio St.3d __, 2002-Ohio-7217 (“Prompt-notice” conditions of an employer’s policy providing UM/UIM coverage on its face cannot serve to preclude coverage when the delay in giving notice of a UIM claim is “reasonable.” If the notice is unreasonable, the insurer must be “materially prejudiced” by the late notice in order to preclude coverage. An insured’s unreasonable delay in giving notice is presumed prejudicial to the insurer, absent evidence to the contrary).

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PONTZER DEFENSES: SUBROGATION

• Query: Is an employee excused from complying with policy conditions requiring the insurer’s consent to settle with the tortfeasor and/or protection of subrogation prior to the Pontzer decision?– See Ferrando v. Auto-Owners Mut. Ins. Co. (Dec. 27, 2002), __

Ohio St.3d __, 2002-Ohio-7217 (“Subrogation/consent to settle” conditions of an employer’s policy providing UM/UIM coverage on its face can serve to preclude coverage for an employee who gave notice of his UIM claim after releasing the tortfeasor only if the insurer is prejudiced by the failure to protect its subrogation rights. An insured’s breach of a subrogation/consent to settle provision is presumed prejudicial to the insurer, absent evidence to the contrary).

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PONTZER DEFENSES: FRONTING POLICIES• Query: Are “self-insurers” and/or policies with matching

liability coverage limits and deductible amounts (“fronting policies”) subject to the UM statute?– Yes, according to Dalton v. Wilson (August 8, 2002),

Franklin App. No. 01AP-1014, 2002-Ohio-4015, discretionary appeal not allowed at 2002-Ohio-6866; and Edstrom v. Universal Underwriters Ins. Co. (June 27, 2002), Franklin App. No. 01AP-1009, 2002-Ohio-3334, discretionary appeal not allowed at 2002-Ohio-5820; (an employer that neither obtains a certificate of self-insurance nor posts a financial responsibility bond is not a “self-insurer” and its insurer is subject to the UM statute)

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PONTZER DEFENSES: FRONTING POLICIES(CON’T)

• “Self-insurers” and/or policies with matching liability coverage limits and deductible amounts (“fronting policies”) are not subject to the UM statute, according to Rupple v. Moore (Sept. 11, 2002), Ashland App. No. 02-COA-003, 2002-Ohio-4873, discretionary appeal and certified conflict not allowed at 2003-Ohio-125 (the insurer of an employer that is “self-insured in a practical sense” is not subject to the UM statute)

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DOES OHIO LAW (PONTZER) APPLY?

• Ohayon v. Safeco Ins. Co. (2001), 91 Ohio St.3d 474– Apply law of state selected by applying Restatement

of the Law 2d, Conflict of Laws, Sections 187, 188• But. . ., in Ohayon, there was no dispute whether

claimant was an insured under the policy • Henderson v. Lincoln Nat. Spec. Ins. Co. (1994), 68

Ohio St.3d. 303– Ohio law applies to out-of-state policy covering

vehicles registered and principally garaged in Ohio

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DOES OHIO LAW (PONTZER) APPLY? (CON’T)

• Most Ohio appellate courts are holding that the following factors are determinative as to whether out-of-state commercial policies are subject to Ohio UM law (Pontzer):

1. An Ohio UM policy endorsement; or2. Coverage of vehicles registered and

principally garaged in Ohio

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DOES OHIO LAW (PONTZER) APPLY? (CON’T)

• See Agudo De Uzhca, Admr. V. Derham (April 5, 2002, Montgomery App. No. 19106, 2002-Ohio-1814:

– Holding: Henderson rule—not Ohayon rule—governs the UM law to be applied to out-of-state policies insuring vehicles registered and principally garaged in Ohio

• discretionary appeal to OH SC allowed at 2002-Ohio 4950

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CGL POLICIES• Query: Are CGL policies providing coverage for “parking

an auto” and/or for “transportation of mobile equipment by an auto” motor vehicle liability policies that are subject to the UM statute?– Yes (pre-H.B. 261 policies), according to Burkhart v. CNA,

certified conflict and discretionary appeal to OH SC allowed

– No, according to Gruelich v. Hartford (December 26, 2002), Cuyahoga App. No. 80987, 2002-Ohio-7229 (Coverage for “parking an auto” does not constitute an offer of automobile liability coverage).

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CGL POLICIES (CON’T)

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

• Query: Do CGL and umbrella policies issued after H.B. 261 provide UM coverage by operation of law?– No, according to all Ohio appellate courts that have

considered the issue to date.

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HOMEOWNERS POLICIES

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

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HOMEOWNERS POLICIES (CON’T)

• 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.”

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HOMEOWNERS POLICIES (CON’T)

• Hillyer v. State Farm Fire & Cas. Co. (Dec. 13, 2002), 97 Ohio St.3d 411:– a homeowners policy providing motor vehicle

liability coverage incidental to a “residence employee,” which is “remote from and insignificant to the type of overall coverage,” is insufficient to transform the policy into a motor vehicle policy for purposes of R.C. 3937.18(A).

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HOMEOWNERS-TYPE POLICIES• Hillyer expressly cites with approval the hoding in

Selander: “It is the type of coverage provided, not the label affixed to the policy by the insurer, which determines the type of policy”.

• However, Hillyer significantly limits Selander:Incidental motor vehicle liability coverage, which is “remote from and insignificant to the type of overall coverage,” is insufficient to transform the policy into a “motor vehicle policy.”

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PRIMARY/EXCESS UM COVERAGE

• Some personal auto carriers argue that they cannot disburse their UM limits until it is determined what is their pro-rata share of the total available (Pontzer) UM coverage.

• But see Wayne Mut. Ins. Co. v. Motorists Mut. Ins. Co. (March 27, 2001), Franklin App. No. 00AP-249 (policies providing UM coverage on their face provide primary coverage and policies providing UM coverage by operation of law provide excess coverage).

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PRIMARY/EXCESS UM COVERAGE(CON’T)

– See, also, Curran v. State Auto. Mut. Ins. Co. (1971), 25 Ohio St.2d 33, at syllabus: “Where an insurer provides uninsured motorist protection, as required by R.C. 3937.18, it may not avoid indemnification of its insured under that coverage by including in the insurance contract an ‘other insurance’ clause, which, if applied, would relieve the insurer from liability in circumstances where the insured has other similar insurance available to him from which he could be indemnified. Such an uninsured motorist coverage limitation is repugnant to the statute.”

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PRIMARY/EXCESS UM COVERAGE(CON’T)

• See, also, Section 3901-1-54(G)(3) of the Ohio Administrative Code (Unfair property/casualty claims settlement practices):– “Except as otherwise provided by policy provisions,

an insurer shall settle first party claims upon request by the insured with no consideration given to whether the responsibility for payment should be assumed by others.”

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PRIMARY/EXCESS UM COVERAGE(CON’T)

• An insurer’s reliance upon an “other insurance” clause contained within an auto policy in arguing that an insured’s first party UM/UIM claim cannot be paid until it is determined whether other “primary” UM/UIM coverages exist may be contrary to R.C. 3937.18 and OAC 3901-1-54(G)(3), and may subject the insurer to a bad faith claim.