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

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

RECENT AMENDMENTS TO RC. 3937.18 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”

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

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.

TWO-YEAR UM/UIM COVERAGE 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.”

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 issued 1/25/95 Endorsement added (S.B. 20) 8/23/95 DOL

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.”

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

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

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?

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

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!

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?

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

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

UM COVERAGE BY OPERATION OF LAW Homeowners, Renters, Farmowners Policies General Commercial Liability Policies Employers’ Auto/Commercial Policies

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.”

HOMEOWNERS-TYPE POLICIES IMPLICATION: Non-owned recreational vehicles used on an insured location are not excluded.

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.

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.

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.

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.

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.

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.”

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.

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).

APPLICATION OF AMENDMENTS TO R.C. 3937.18 Are the UM “flood gates” opened or closed?

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

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

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.

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.”

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

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

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

“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?

“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

“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.

“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

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!