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

• ASSERTED DEFENSES TO UM/UIMCOVERAGE BY OPERATION OF LAW

• RECENT OH SUPREME COURT DECISION IN DAVIDSON v. MOTORISTS

• INTERPLAY BETWEEN CASE LAW AND AMENDMENTS TO THE UM STATUTE

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UM/UIM COVERAGEBY OPERATION OF LAW

• Employers’ Policies:

– Commercial General Liability (CGL) Polices

– Employers’ Business Auto Policies

– Employers’ Excess/Umbrella Liab. Policies

• Homeowners, Renters, Farmowners Policies

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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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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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• 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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EMPLOYERS’ POLICIES:VALID OFFERS/REJECTIONS

OF 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

• DOES LINKO SURVIVE H.B. 261’S PRESUMPTION THAT A REJECTION OF UM COVERAGE IS VALID? (EFFECTIVE 9/3/97)

– A rejection that is presumed valid is not necessarily a legally adequate rejection• Presumption of validity is rebuttable

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EMPLOYERS’ POLICIES:UM COVERAGE 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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EMPLOYERS’ POLICIES: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)

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S.B. 97 (INTRODUCED MAY 1, 2001)

• Legislatively supercedes Linko:• Employees covered under UM/UIM policies

of employers only when in scope and course of employment

• Eliminates mandatory express offering/rejection of UM/UIM coverage

• Two-year limitation period for filing UM/UIM claims

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HOMEOWNERS-TYPE POLICIES

• Bodily Injury Liability Coverage for “Motor Vehicles” is excluded

• Policies then undefine “Motor Vehicle:”– Non-owned recreational vehicles used on an

insured location are not excluded.

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• Some homeowners policies also provide liability coverage for:

– “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 provides UM/UIM coverage by operation of 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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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 PER UM STATUTE

OKAY DURING 2-YR GUARANTEE PRD– NO NEED TO RE-OFFER UM/UIM

COVERAGE AT RENEWAL OF POLICY– INTRA-FAMILY EXCLUSION

ELIMINATED

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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

UNCOVERING UM/UIM COVERAGE BY OPERATION OF LAW

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