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 • ASSERTED DEFENSES TO UM/UIM COVERAGE BY OPERATION OF LAW • RECENT OH SUPREME COURT DECISION IN DAVIDSON v. MOTORISTS • INTERPLAY BETWEEN CASE LAW AND AMENDMENTS TO THE UM STATUTE

3. 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

4. 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.

5. 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.”

6. 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.

7. 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.

8. 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

9. EMPLOYERS’ POLICIES:WHO IS INSURED? • Many employer policies also insure: • “Your employees, but only for acts within the scope of their employment by you.”

10. 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

11. 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

12. EMPLOYERS’ POLICIES: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

13. 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

14. 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

15. 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.

16. 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!

17. 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

18. 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

19. 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.

20. “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)

21. 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

22. 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.

23. HOMEOWNERS-TYPE POLICIES • 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 isnot excluded.

24. 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.

25. 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.

26. 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.]

27. 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.”

28. 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.”

29. RECENT AMENDMENTS TO RC. 3937.18

30. 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

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