UN/UNDERINSURED MOTORISTS COVERAGE UPDATE

1. 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

2. 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

3. RECENT AMENDMENTS TO RC. 3937.18

4. 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

5. 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.

6. TWO-YEAR UM/UIMCOVERAGE 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.”

7. 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

8. 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.”

9. 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

10. 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

11. 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?

12. 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

13. 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!

14. 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?

15. 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

16. 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

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

18. 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.”

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

20. 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.

21. 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.

22. 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.

23. 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.

24. 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.

25. 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.”

26. 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.

27. 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).

28. APPLICATION OF AMENDMENTS TOR.C. 3937.18 • Are the UM “flood gates” opened or closed?

29. 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

30. 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

31. 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.

32. 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.”

33. 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

34. 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

35. 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

36. “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?

37. “AVAILABLE FOR PAYMENT” • Insurers’ position (after S.B. 20): $300K - $100K = $200K of UIM for allclaims • 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

38. “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.

39. “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

40. 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!