BASIC UM/UIM LAW
THAT EVERY PI LAWYER SHOULD KNOW
JANUARY 21, 2003
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) 242-4180
Email: bob@rwklaw.com
1
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
2
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
S.B. 57
11/2/99
DEFINES “MO.
VEH. LIAB. INS.
POLICY”
DEFINES
“UMBRELLA
POLICY”
3
AMENDMENTS TO RC. 3937.18
(CON’T)
AMENDMENT
DATE
S.B. 267
9/21/00
S.B. 97
10/31/01
CHANGE
REMOVES TWOYEAR COVERAGE
GUARANTEE
(WOLFE)
SUPERCEDES
PONTZER AND
LINKO
4
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.
5
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
6
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.
7
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
8
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)
9
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
10
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-Ohio7101 (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).
11
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.
12
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
13
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
14
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.
15
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).
16
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
17
OUTSIDE SCOPE OF EMPLOYMENT
(CON’T)
• But see Bagnoli v. Northbrook Prop. & Cas.
Ins. Co. (1999), 86 Ohio St. 314,1999-Ohio108:
– 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
18
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
19
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
20
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
21
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
22
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-Ohio1230, discretionary appeal allowed at 2002Ohio-3624
23
DOES PONTZER APPLY?
• Many commercial insurers argue that their
policy language is distinguishable from the
policy language in Pontzer
– Argument: No ambiguous “you”
24
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
25
“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.
26
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
27
“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-Ohio4734 (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).
28
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 .
29
“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.
30
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
31
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 (“Promptnotice” 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).
32
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).
33
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-Ohio3334, discretionary appeal not allowed at 2002-Ohio5820; (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)
34
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)
35
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
36
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; or
2. Coverage of vehicles registered and
principally garaged in Ohio
37
DOES OHIO LAW (PONTZER) APPLY?
(CON’T)
•
See Agudo De Uzhca, Admr. V. Derham (April
5, 2002, Montgomery App. No. 19106, 2002Ohio-1814:
– Holding: Henderson rule—not Ohayon rule—
governs the UM law to be applied to out-ofstate policies insuring vehicles registered and
principally garaged in Ohio
•
discretionary appeal to OH SC allowed at
2002-Ohio 4950
38
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).
39
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.
40
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.”
41
HOMEOWNERS POLICIES (CON’T)
• Davidson, at 268:
distinguished:
Selander clarified and
– “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.”
42
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).
43
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.”
44
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).
45
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.”
46
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.”
47
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.
48