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UN/UNDERINSURED MOTORISTS COVERAGE UPDATE

Robert W. Kerpsack, Esq.,

ROBERT W. KERPSACK CO., L.P.A.

21 East State Street, Suite 300

Columbus, OH 43215

Telephone: (614) 242-1000

Facsimile: (614) 242-3948

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UM/UIM UPDATE: TOPICS

• RECENT AMENDMENTS TO R.C. 3937.18

• CREATING UM/UIM COVERAGE

BY OPERATION OF LAW

• APPLICATION OF AMENDMENTS TO

R.C. 3937.18

• CIRCUMVENTING UM LEGISLATION

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RECENT AMENDMENTS TO RC. 3937.18

AMENDMENT DATE CHANGE

S.B. 20 10/20/94 UIM COV.

NOT EXCESS

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

S.B. 57 9/24/99 DEFINES “UMBRELLA POLICY”

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RECENT AMENDMENTS TO RC. 3937.18

• S.B. 267 (EFFECTIVE 9/21/00): – INSURED WD BENEFICIARY MUST

SUSTAIN BODILY INJURY– POLICY CHANGES RE: STATUTE

AMEND OKAY DURING 2-YR GUAR PD– NO NEED TO RE-OFFER UM/UIM

COVERAGE AT RENEWAL OF POLICY– “OTHER-OWNED AUTO” EXCLUSION

VOID

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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/UIMCOVERAGE GUARANTEE

• R.C. 3937.31:

– Automobile insurance policies shall be issued “for a policy period of not less than two years or guaranteed renewable for successive policy periods totaling not less than two years.”

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APPLYING POLICY ENDORSEMENTS THAT

CONFORM TO R.C. 3937.31(A)

• Townsend v. State Farm Mut. Auto. Ins. Co. (Aug. 14, 1998), Sandusky App. No. S-97-059, unreported

• 1/25/94 Policy first issued1/25/95 Endorsement added (S.B. 20)8/23/95 DOL

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Townsend v. State Farm

• HELD: Insurer could not enforce a policy endorsement (reducing UM/UIM coverage consistent with S.B. 20) that is implemented during the two-year coverage guarantee period required by R.C. 3937.31

• HELD: “The language of the policy establishes that the renewals constitute one continuing contract for insurance during the two-year guarantee period.”

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APPLYING POLICY ENDORSEMENTS THAT

CONFORM TO R.C. 3937.31(A)

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

• 12/12/83 Policy first issued• 12/12/93 Policy renewed• 10/20/94 S.B. 20 Effective• 12/12/94 Policy renewed• 4/2/95 DOL

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Wolfe v. Wolfe

• OH Supreme Court Held:

– 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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Implication of Wolfe v. Wolfe #1

• Every two years, there is a “window” of opportunity (only) for the insurer to add a policy endorsement

• Are endorsements added outside the two-year “window” void?

– Do we now need to obtain a complete policy history in order to determine which policy endorsements, if any, are valid?

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Implication of Wolfe v. Wolfe #2

• It must be determined when the policy was originally issued in order to determine where you are in the two-year guarantee period

– Obtaining applications for insurance policies may become standard practice

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Implication of Wolfe v. Wolfe #3• Wolfe dicta:

– “Were we to adopt the appellee’s (insurer’s) argument (that each renewed policy is a “new” policy), insurance companies would have the unenviable task of complying with R.C. 3937.18(A) every time a renewal constituted a new policy of insurance.”

• Implication: Insurers need to obtain a new rejection of UM coverage every 2 years!

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Implication of Wolfe v. Wolfe #4

• When a court declares insurance policy language to be ambiguous, is the insurer precluded from curing the ambiguity until the arrival of the two-year anniversary of the last policy renewal?

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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

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BUT . . .

• 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

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UM COVERAGE BY OPERATION OF LAW

• Homeowners, Renters, Farmowners Policies

• General Commercial Liability Policies

• Employers’ Auto/Commercial Policies

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HOMEOWNERS-TYPE POLICIES

• Coverage for “Motor Vehicles” Excluded

• Policies then Undefine the Term “Motor Vehicle:”

“A ‘motor vehicle’ means . . . a motorized land vehicle owned by an insured and

designed for recreational use off public roads, while off an insured location.”

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HOMEOWNERS-TYPE POLICIES

IMPLICATION:

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

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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.

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HOMEOWNERS-TYPE 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.

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HOMEOWNERS-TYPE POLICIES

• CASE LAW:

– Davidson v. Motorists Mut. Ins. Co. (Dec. 8, 1999), Franklin App. No. 99AP-163, unreported

• Accepted 4/19/00 by Ohio Supreme Court on discretionary appeal and a certified conflict with Overton v. Western Reserve Group (Dec. 8, 1999), Wayne App. No. 99CA0007, unreported.

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HOMEOWNERS-TYPE POLICIES

• Davidson policy provides bodily injury liability coverage for a “residence employee” operating a motor vehicle in the scope of employment by an insured.

– Overton policy does not provide such coverage.

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GENERAL COMMERCIAL LIABILITY POLICIES

Selander v. Erie Ins. Group (1999), 85 Ohio St. 3d 54:

Business liability policies do not cover a particular vehicle, but do cover an insured’s vicarious liability for the use of unspecified, non-owned (hired) vehicles; therefore, they are “motor vehicle liability insurance policies” subject to R.C. 3937.18.

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EMPLOYERS’ AUTO/COMMERCIAL

INSURANCE POLICIES

• Policies insuring corporate named insureds define the “insured” to include “1) you (the named insured corporation); and 2) if you are an individual, your relatives.”

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EMPLOYERS’ AUTO/COMMERCIAL

INSURANCE POLICIES

• The word “you” is ambiguous when applied to a corporation.

• “You” can be construed to mean employees of the corporation because it is nonsensical to provide UM/UIM insurance to a corporation.

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EMPLOYERS’ AUTO/COMMERCIAL

INSURANCE POLICIES

• Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St. 3d 660; Bagnoli v. Northbrook Prop. & Cas. Ins. Co. (1999), 86 Ohio St. 314 (employee need not be in the scope and course of employment or operating a company auto).

• Ezawa v. Yasuda Fire & Marine (1999), 86 Ohio St. 3d. 557 (resident relatives of employee’s household are covered under employer’s UM policy).

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APPLICATION OF AMENDMENTS TO

R.C. 3937.18

• Are the UM “flood gates” opened or closed?

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UM COVERAGE BY OPERATION OF LAW

• Myers v. Safeco Ins. Co. (Feb. 18, 2000), Licking App. No. 99CA00083, unreported

– Held: Plaintiff entitled to UIM coverage under homeowners policy even after releasing the tortfeasor without the consent of the insurer

– UIM coverage provided by operation of R.C. 3937.18, which contains no subrogation clause

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UM COVERAGE BY OPERATION OF LAW

• Myers v. Safeco Ins. Co.:

– Accepted 7/19/00 by Ohio Supreme Court on discretionary appeal and certified conflict

– Briefing stayed pending decision in Davidson

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UM COVERAGE BY OPERATION OF LAW

• R.C. 3937.18 (A)(2) provides only for a reduction of UIM coverage by the amounts of bodily injury liability insurance coverage available to persons “liable” to the insured.

• R.C. 3937.18(A)(2) does not include any subrogation clauses, anti-stacking clauses, or “other insurance” clauses.

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DID S.B. 20 OVERRULE SEXTON?• Can an insured present a UM claim against their own

policy for the death of a non-resident relative?

• Moore v. State Auto. Mut. Ins. Co. (2000), 88 Ohio St. 3d 27:

– “R.C. 3937.18(A)(1), as amended by Am. Sub. S.B. 20, does not permit an insurer to limit uninsured motorist coverage in such a way that an insured must suffer bodily injury, sickness, or disease in order to recover damages from the insurer.”

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OHIO LEGISLATURE AT WORK

• S.B. 267 (EFFECTIVE 9/21/00):– LEGISLATIVELY “OVERRULES” MOORE

• POLICIES WRITTEN AFTER 9/21/00:– INSURED MUST SUSTAIN BODILY

INJURY

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AUTO INSURERS AT WORK

• RUMOR:

– Effective 5/15/00, some State Farm automobile insurance policies will provide bodily injury liability coverage of only $12.5K/25K for permissive users of its insured vehicles, regardless of the amount of BI coverage on the named insureds

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LIMITING WD CLAIMS TO “PER PERSON” LIMITS

• CURRENTLY BEFORE OH SUP CT:

– Clark v. Scarpelli, S. Ct. No. 00-374.

– Issue: Whether an automobile insurer may limit recovery in a wrongful death claim to the per person limits of UM coverage?

– ORAL ARGUMENT: 11/29/00

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“AVAILABLE FOR PAYMENT”

• Decedent survived by wife and 2 children

• Tortfeasor has liab. coverage of $100K

• Decedent has UIM coverage of $300K

• QUERY:– How much UIM coverage is available to each

next-of-kin?

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“AVAILABLE FOR PAYMENT”• Insurers’ position (after S.B. 20):

$300K - $100K = $200K of UIM for all claims

• Derr v. Westfield Cos. (1992), 63 Ohio St.3d 537:–If one next-of-kin receives only $33K from the tortfeasor, then entitled to UIM of $266K

–Set off the $33K received from the tortfeasor, not the $100K of liab. cov. available to all claimants

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“AVAILABLE FOR PAYMENT”

• Derr v. Westfield Cos. and Motorists Mut. Ins. Co. v. Andrews (1992), 65 Ohio St.3d 362– Were Derr/Andrews “legislatively overruled”

by S.B. 20?

– Issue is currently pending before the OH Supreme Court—maybe.

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“AVAILABLE FOR PAYMENT”

• AUGUST 2, 2000:

– Littrell v. Wigglesworth (March 13, 2000), Butler App. Nos. CA99-05-092, CA99-08-141, unreported

• Accepted 8/2/00 by OH Supreme Court on discretionary appeal and certified conflict

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IS S.B. 20 CONSTITUTIONAL?

• ALL OHIO SUPREME COURT CASES WITH THIS ISSUE HAVE EITHER BEEN RESOLVED ON OTHER GROUNDS OR ORDERED STAYED PENDING A DECISION IN LITTRELL

• S.B. 20 IS PROBABLY HERE TO STAY!