UNCOVERING UM/UIM COVERAGE BY OPERATION OF LAW

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UNCOVERING UM/UIM COVERAGE BY OPERATION OF LAW

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

E-mail: [email protected]

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

OPERATION OF LAW:– EMPLOYERS’ POLICIES: SELANDER/PONTZER– HOMEOWNERS’ POLICIES: DAVIDSON– VALID UM OFFER/REJECTION: LINKO

• DEVELOPING “UNCOVERING” CASE LAW

• ASSERTED DEFENSES TO UM/UIM

COVERAGE BY OPERATION OF LAW

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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.

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• 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.”

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• 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.

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• 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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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

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EMPLOYERS’ CGL POLICIES• QUERY:

– Do CGL policies that provide 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.

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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

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• BUT . . ., what about policies that insure sole proprietorships?: No Pontzer “you” ambiguity.

– Many employer policies also insure:

• “Your employees, but only for acts within the scope of their employment by you.”

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• QUERY #1:– 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

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• QUERY #2:– 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

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VALID OFFERS/REJECTIONSOF UM/UIM COVERAGE

• Linko v. Indemn. Ins. Co. of N. Am. (2000), 90 Ohio St.3d 445(released Dec.27, 2000)

– Holdings:1) Any insured under an auto insurance

policy has standing to challenge the validity of the UM rejection

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LINKO HOLDINGS (CON’T)

2) A valid offer of UM coverage must contain:

a) A written description of the

coverage;

b) A written disclosure of the

premium for the coverage; and

c) A written statement of the

coverage limits

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3) A valid offer of UM coverage must

contain the name of each named insured under the policy;

4) A valid rejection of UM coverage must contain the signature of each named insured under the policy; and

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5) A valid rejection of UM coverage by a parent corporation on behalf of its subsidiary companies must contain each subsidiaries’ written authorization for rejection.

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IMPLICATION OF LINKO #1

• ALL STANDARD ISO UM OFFER/REJECTION FORMS ARE PROBABLY INVALIDATED!

– ALL REJECTIONS/SELECTIONS OF LESSER UM/UIM COVERAGE IN OHIO ARE INVALID!

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IMPLICATION OF LINKO #2• QUERY: DOES LINKO SURVIVE H.B. 261’S

PRESUMPTION THAT A REJECTION OF UM COVERAGE IS VALID? (EFFECTIVE 9/3/97)

– No, per Hindall v. Winterthur (March 30, 2001), U.S. District Ct. (N.D. Ohio) No. 3:00CV7429

– Presumption of validity is rebuttable:• Rejection must still comply with R.C. 3937.18

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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

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• 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.

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• UNDISPUTED:

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

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

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• 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.]

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• 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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• 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.”

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• BUT . . .– Davis v. Shelby Ins. Co. (June 14, 2001),

Cuyahoga App. No. 7861, unreported; notice of discretionary appeal filed with OH Sup. Ct. on June 20, 2001:• “We acknowledge that the Davidson court did not

specifically address whether a residence employee exclusion in a homeowners policy could be construed so as to provide UM/UIM coverage. We see no reason, however, not to extend the reasoning of Davidson to the policy at issue in this case.”

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“UNCOVERING” DEFENSES

• Failure to give timely notice of UM/UIM claim

• Settled with tortfeasor: Failure to protect subro

• Tortfeasor SOL expired: Not legally entitled to recover damages from an uninsured motorist

• UM/UIM coverage is subject to the same self-insured retention or deductible amount that is attributable to the liability coverage

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FAILURE TO GIVE TIMELY NOTICE OF UM/UIM CLAIM

• FATAL PER SOME APPELLATE COURTS:– Montgomery v. State Auto. Mut. Ins. Co. (Dec. 18,

2000), Pike App. No. 99CA-639, unreported. (not appealed)

– Wilson v. Wilson (April 27, 2001), Montgomery App. No. CA18572, unreported. (not appealed)

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

– Lee-Lipstreu v. Chubb Group of Ins. (June 21, 2001), U.S. District Ct. (N.D. Ohio) No. 1:00CV3238, unreported.

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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.– Aetna Cas. & Surety Co. v. Goodyear Tire &

Rubber Co., OH Sup. Ct. case no. 00-1984, discretionary appeal allowed, fully briefed, awaiting scheduling of oral argument.

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DEFUSING UM DEFENSES

• 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.

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“FRONTING” POLICIES

• Policies with matching liability coverage and deductible amounts– Employers’ “rent” insurer’s license to

comply with financial responsibility laws

• Query: Are fronting policies subject to R.C. 3937.18?– No, according to Lafferty v. Reliance Ins.

Co., 109 F.Supp.2d 837 (S.D.Ohio, July 17, 2000). . . But, pre-Linko decision.

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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

• R.C. 3937.31(A)

– 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)• 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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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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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

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UNCOVERING UM/UIM COVERAGE BY OPERATION OF LAW