UNCOVERING UM/UIM COVERAGE BY OPERATION OF LAW

1. 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: bob@rwklaw.com

2. “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

3. 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.

4. EMPLOYERS’ CGL POLICIES • 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.”

5. EMPLOYERS’ CGL POLICIES • 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.

6. EMPLOYERS’ CGL POLICIES • UNDISPUTED: • UM/UIM coverage was notoffered and expressly rejected by insured; therefore, the policy provides UM/UIM coverage by operation of R.C. 3937.18.

7. EMPLOYERS’ CGL POLICIES 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

8. 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.

9. 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

10. EMPLOYERS’ POLICIES:WHO IS INSURED? • 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.”

11. EMPLOYERS’ POLICIES:WHO IS INSURED? • 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

12. EMPLOYERS’ POLICIES:WHO IS INSURED? • 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

13. 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: • Any insured under an auto insurance policy has standing to challenge the validity of the UM rejection

14. 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

15. LINKO HOLDINGS (CON’T) • A valid offer of UM coverage must contain the name of each named insured under the policy; • A valid rejection of UM coverage must contain the signature of each named insured under the policy; and

16. LINKO HOLDINGS (CON’T) 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.

17. 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!

18. 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

19. 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 isnot 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.Selander.

21. HOMEOWNERS-TYPE POLICIES • UNDISPUTED: --UM/UIM coverage was notoffered and expressly rejected by insured. • Therefore, the policy provides UM/UIM coverage by operation of R.C. 3937.18

22. HOMEOWNERS-TYPE POLICIES • 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.]

23. HOMEOWNERS-TYPE POLICIES • 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.”

24. HOMEOWNERS-TYPE POLICIES • 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.”

25. HOMEOWNERS-TYPE POLICIES • 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.”

26. “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

27. 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.

28. 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.

29. 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.

30. “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.

31. 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.

32. 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.”

33. 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

34. 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

35. 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

36. 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