BASIC UM/UIM LAW THAT EVERY PI LAWYER SHOULD KNOW JANUARY 21, 2003

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BASIC UM/UIM LAWTHAT EVERY PI LAWYER SHOULD
KNOWJANUARY 21, 2003

• Robert W. Kerpsack, Esq.
• ROBERT W. KERPSACK CO., L.P.A.
• 21 East State Street, Suite 300
• Columbus, OH 43215
• Telephone [phone]
• Facsimile [phone]
• Email bob_at_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. 3937.18
AMENDMENT 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(CONT)
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 (CONT)

• 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 (CONT)

• 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
  personsits employees therefore, the
  corporation and its employees are insureds

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CORPORATION NAMED INSUREDWHO 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 INSUREDWHO IS INSURED? (CONT)

• 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 INSUREDWHO IS INSURED? (CONT)

• Query Are independent contractors covered
  under an employers 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(CONT)

• 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 personsits 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 (CONT)

• 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
  boards policy ( i.e. you) is not ambiguous

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POLITICAL SUBDIVISION (CONT)

• 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 PROPRIETORSHIPSWHO 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 (CONT)

• 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 CARBROADENED
COVERAGE ENDORSEMENT

• Query Is you still ambiguous in commercial
  policies containing a Drive Other CarBroadened
  Coverage endorsement (schedule of specifically
  named insured persons, in addition to the
  corporate named insured)?
• Ohio appellate courts are splitdiscretionary
  appeals/certified conflicts allowed by OH SC in
  Burkhart v. CNA, Westfield v. Galatis, and Geren
  v. Westfield

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DRIVE OTHER CARBROADENED COVERAGE ENDORSEMENT
(CONT)

• 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 splitcertified
  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(CONT)

• 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(CONT)

• 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 employers 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 employers
  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 insureds
  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 insurers
  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
  employers 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 insureds 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(CONT)

• 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? (CONT)

• 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)
• An Ohio UM policy endorsement or
• Coverage of vehicles registered and principally
  garaged in Ohio

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DOES OHIO LAW (PONTZER) APPLY? (CONT)

• See Agudo De Uzhca, Admr. V. Derham (April 5,
  2002, Montgomery App. No. 19106, 2002-Ohio-1814
• Holding Henderson rulenot Ohayon rulegoverns
  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 (CONT)

• 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 homeowners 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 (CONT)

• 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 (CONT)

• 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(CONT)

• 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(CONT)

• 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(CONT)

• An insurers reliance upon an other insurance
  clause contained within an auto policy in arguing
  that an insureds 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.