Digested from case reports published in the North Eastern Reporter 2d,
West Publishing Co., St. Paul, MN

Ambiguity of carrier's UIM endorsement is subject of suit

Patrick Saunders purchased an auto liability insurance policy from Nationwide Mutual Fire Insurance Company. The policy provided for uninsured and underinsured motorist coverage with limits of $100,000 per person and $300,000 per occurrence.

In 1995, Saunders's son, Patrick Saunders II, was injured in an automobile accident caused by an underinsured motorist. After obtaining a judgment against the estate of the tortfeasor, Patrick II claimed underinsured motorist coverage under the Nationwide policy. In addition, his parents sought derivative claims.

Eventually, the Saunders sought a declaration that Patrick's claim and his parents' derivative claims constituted three separate claims subject to the policy's per-occurrence limit of $300,000. Nationwide argued the $100,000 single, per-person limit applied.

The trial court concluded that the "limits of payment" section of the policy was ambiguous. Construing the supposed ambiguity in favor of the insured, the court then determined there were three separate claims up to the $300,000 per-occurrence limit of coverage.

The court of appeals agreed. However, its decision conflicted with that of another county court of appeals, which had concluded that the identical language limited all claims to the single, per-person limit of the policy. Because of this conflict, the legal issue was certified to the Supreme Court of Ohio.

The relevant language provided UM/UIM insurance coverage subject to the following limitations:

(1) "The bodily injury limit shown for any one person is for all legal damages, including all derivative claims, claimed by anyone arising out of and due to bodily injury to one person as a result of one occurrence.

(2) "The per-person limit is the total amount available when one person sustains bodily injury, including death, as a result of one occurrence. No separate limits are available to anyone for derivative claims, statutory claims or any other claims made by anyone arising out of bodily injury, including death, to one person as a result of one occurrence.

(3) "Subject to this per-person limit, the total limit of our liability shown for each occurrence is the total amount available when two or more persons sustain bodily injury, including death, as a result of one occurrence. No separate limits are available to anyone for derivative claims, statutory claims or any other claims arising out of bodily injury, including death, to two or more persons as a result of one occurrence."

Nationwide argued that, when read in its entirety, the language of the "limits of payment" provision meant that when only one person sustained bodily injury, the per-person limit of coverage applied, regardless of how many persons have claims resulting from that bodily injury. The court agreed, holding that the language clearly and unambiguously limited all claims derived from one person's bodily injury to the single per-person limit of the policy. The court noted that the first paragraph was supported by the plain language of the second paragraph. "The per-person limit is the total among available when one person sustains bodily injury.... No separate limits are available to anyone for derivative claims...."

Reading the provision as a whole, the court was able to determine the intent of the parties was to limit all claims arising out of one person's bodily injury to the single, per-person limit of the policy. Thus, the policy's per-person limit of $100,000 was the amount of coverage available for the claims of Patrick Saunders and his parents.

The judgment of the court of appeals was reversed.

Saunders et al., Appellees v. Mortensen et al.; Nationwide Mutual Fire Insurance Company, Appellant-No. 2002-2138-Supreme Court of Ohio-January 21, 2004-801 North Eastern Reporter 2d 452.

ATV not subject to UIM coverage

On April 21, 2000, Christina Steele was injured while riding as a passenger on an all-terrain vehicle (ATV). The vehicle was designed primarily for off-road use and was being used off public roads when the accident occurred. At the time of the accident, Steele was a named insured on her parents' automobile insurance policy issued by Insura Property and Casualty Company. The Insura policy provided underinsured vehicle coverage.

Steele filed a lawsuit against the driver of the ATV, Deanna Townzen, and eventually settled with Townzen's insurer for her policy limits of $20,000. Steele then sought underinsured vehicle coverage under the Insura policy for the remainder of her damages.

Insura filed a declaratory judgment petition seeking a determination that it did not have an obligation to provide underinsured vehicle coverage to Steele because the language of the policy excluded coverage for "vehicles or equipment designed mainly for use off public roads while not upon public roads."

Steele argued such an exclusion was unenforceable under the Illinois Insurance Code. The trial court entered a judgment in Steele's favor and ordered Insura to honor her claim. Insura appealed.

The only question on appeal was whether the exclusion in the Insura policy was unenforceable because it conflicted with the relevant language in the Illinois Insurance Code.

Evaluating the plain language of the statute as well as the intent of the legislature, the court found the underinsured motorist statute was meant only to require insurance for underinsured vehicles designed for and used on public roads. Thus, the exclusion in the Insura policy was not in conflict with the statute.

In reaching this decision, the court reviewed the policy rationale for uninsured and underinsured motorist insurance coverage, specifically to place an injured party in the position she would have been in had the uninsured or underinsured motorist had sufficient coverage. The court noted that in light of the above interpretation, it made no sense to interpret the statute to mandate UM or UIM be provided to cover vehicles for which even basic liability insurance was not required. In addition, it attached significance to the fact the policy exclusion applied only to off-road use of an ATV. Because the policy provided coverage when an ATV was being used on public roads, the policy provided adequate protection from the type of harm the underinsured motorist statute was meant to address.

The judgment of the trial court was reversed.

Insura Property and Casualty Company v. Christina Steele--No. 5-02-0716-- Appellate Court of Illinois, Fifth District--November 6, 2003--800 North Eastern Reporter 2d 91.

Employer's UIM coverage available only for work-related accidents

In this case, the Supreme Court of Ohio evaluated and limited the holding of a previously decided Ohio Supreme Court case involving uninsured or underinsured motorist insurance. The case originated when Jason Galatis died as a passenger in a negligently operated vehicle. Galatis's estate presented claims under several insurance policies. All of the claims were settled or resolved, with the exception of a claim against Aetna Casualty and Surety Company. The Aetna policy was issued to Quagliata's Restaurants, Inc., Galatis's mother's employer, and was in effect at the time of the accident that caused Galatis's death. Galatis's estate made claims under the business auto and commercial general liability parts of the Aetna master insurance policy.

The trial court ruled that both parts of the Aetna policy provided underinsured motorist coverage to certain members of the Galatis family. However, it denied coverage because the estate failed to give prompt notice of the claims. The court of appeals affirmed the decision of the lower court. In reaching its decision, it relied upon a previously decided and somewhat controversial Ohio Supreme Court case, Scott-Pontzer v. Liberty Mutual Fire Insurance Company (1999), 85 Ohio St.3d 660, 710 North Eastern Reporter 2d 1116 ). Review of the case by the Ohio Supreme Court was based on certified conflict. The question before the court was whether uninsured and underinsured motorist insurance issued to a corporation may compensate an individual for a loss that was unrelated to the insured corporation.

In the Scott-Pontzer case, the court found that the word "you," which designated a class of "who is an insured" for uninsured motorist coverage, was ambiguous. It stated that naming a corporation as the insured was meaningless unless the coverage extended to some person or persons--including the corporation's employees. This reasoning resulted in broad-based disagreement with and criticism of the case, supporting the court's decision to revisit the subject. Upon reevaluation, the court limited the Scott-Pontzer decision to cases involving a loss occurring within the course and scope of employment. In reaching its decision, it stressed that contractual ambiguities are construed in favor of the policyholder, not the claimant. Most likely, neither an insurer nor a corporate policyholder ever conceived of contracting for coverage for off-duty employees' family members occupying noncovered autos. Thus, to extend coverage would be to ignore the intent of the parties to the contract.

Once the court limited the holding of the Scott-Pontzer case, it reevaluated the Galatis case. Because Jason Galatis's death was unrelated to his mother's employment with Quagliata's Restaurants, the court found the Aetna insurance policy did not provide coverage. The judgment of the court of appeals was affirmed.

Westfield Insurance Company v. Galatis et al, Appellants; Aetna Casualty & Surety Company, Appellee-No. 2002-0932-Supreme Court of Ohio-November 5, 2003-797 North Eastern Reporter 2d 1256.

Claim payment hinges on definition of roof's "collapse"

Magwerks, a company that sells manufactured camshafts, stored in a one-story, flat-roofed building, stock and equipment valued at $2 million. Monroe Guaranty (Monroe) issued to Magwerks a $1.25 million insurance policy covering the building and its personal property. In the winter of 1997, heavy rains and some snow accumulated on the roof of Magwerks's building, causing a section of the ceiling to crash to the floor. Magwerks contacted Monroe to report the damage but stated it would attempt to repair the problem itself. The company's employees covered the resulting hole with plywood, used metal drums to catch leaking water, ran hoses to divert water, and covered the company's equipment with tarps. Eventually, however, more roof panels collapsed, causing damage to Magwerks's property.

At this point, Magwerks filed a claim under its policy with Monroe. Monroe's adjuster conducted his own inspection, then contacted an engineering firm. The firm ultimately determined that a number of roof leaks had occurred over a long period of time, and that inadequate roof slope had caused drain water to pond on the roof covering. Based on these findings, the adjuster determined that there were policy provisions excluding coverage for Magwerks's claim. It was Monroe's position that the loss was excluded because of wear and tear to the roof, decay, deterioration and defective design. In addition, the damage did not satisfy the definition of a "collapse" (a covered event under the policy) because the structural integrity of the roof remained intact and was still functioning. Thus, Monroe determined that Magwerks's losses were excluded under the policy.

Magwerks filed a complaint for breach of contract and also charged Monroe with lack of good faith and fair dealing. The trial court determined that Monroe had breached its contract because the damage constituted a "collapse" under the policy. In the end, Magwerks was awarded $5.1 million, $4 million of which constituted damages for bad faith handling of the claim.

Monroe appealed, claiming that the trial court erroneously decided there was a "collapse" of the building. Because the term "collapse" was not defined in the policy, the court considered both traditional and modern views adopted by the insurance industry. Monroe argued in favor of a traditional view, limited to an event that occurs suddenly and results in complete disintegration. A more modern and broader view defined collapse as substantial impairment of the structural integrity of the building or any part of the building. The court adopted the broader definition but concluded that that the lower court did not have sufficient evidence to determine whether or not there was a collapse under this definition. The case was reversed and remanded.

Monroe Guaranty Insurance Company vs. Magwerks Corporation-No. 49A0208-CV-622-Court of Appeals of Indiana-September 24, 2003-796 North Eastern Reporter 2d 326. *