Walls v. Amerisure Mut. Ins. Co.

Decision Date18 September 2003
Docket NumberNo. 01-4320.,01-4320.
Citation343 F.3d 881
PartiesDoris WALLS, et al., Plaintiffs-Appellants, v. AMERISURE MUTUAL INSURANCE COMPANY, Defendant-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

Claudia R. Eklund (argued and briefed), Lowe, Eklund, Wakefield & Mulvihill Co., Cleveland, OH, for Plaintiffs-Appellants.

Christopher Mark Bechhold (briefed), Thompson Hine, Cincinnati, OH, Laurie J. Nicholson (argued and briefed), Thompson Hine, Cincinnati, OH, for Defendant-Appellee.

Before DAUGHTREY and MOORE, Circuit Judges; CALDWELL, District Judge.*

OPINION

MOORE, Circuit Judge.

The plaintiffs, Reda Walls and her mother Doris Walls, appeal the district court's grant of summary judgment to the defendant Amerisure Mutual Insurance Company ("Amerisure") and the district court's denial of their motion for summary judgment. The plaintiffs allege that the injuries Reda received in an automobile accident were covered by an insurance policy held by the Ford Motor Company, which employed Reda's father, Jessie Walls.

The district court premised its grant of summary judgment to the defendant (and its denial of summary judgment to the plaintiffs) on the fact that the plaintiffs did not comply with notice and subrogation provisions in the insurance policy. It is clear that the plaintiffs did in fact breach at least some of these provisions. After the district court decided this case, however, the Ohio Supreme Court decided Ferrando v. Auto-Owners Mutual Insurance Co., 98 Ohio St.3d 186, 781 N.E.2d 927 (2002). Under Ferrando, the mere fact that the plaintiffs may have breached the notice and subrogation clauses is not dispositive of their legal claim. Instead, the key question is whether the plaintiffs' breach of these provisions was prejudicial to Amerisure — an issue that the district court did not address in its summary-judgment decision. Because the district court did not address this issue and because the plaintiffs should have a clearly delineated opportunity to show that their breaches were not prejudicial, we REVERSE the district court's judgment and REMAND this case for the district court to conduct a prejudice inquiry under Ferrando.

I. BACKGROUND

According to the complaint, on March 28, 1986, Reda Walls was riding in an automobile when it was struck by a car negligently operated by Lawrence Lavrich. Reda, who was seventeen years old at the time, sustained significant permanent injuries. At the time of the accident, Reda's father, Jessie Walls, was an employee of the Ford Motor Company. The Ford Motor Company had an insurance policy ("the policy") with the Michigan Mutual Insurance Company (now in business as Amerisure Mutual Insurance Company), that provided automobile liability insurance. This policy was issued for the period of December 15, 1983 to December 15, 1986, and was in effect at the time of the accident.

On June 1, 1988, the plaintiffs settled their claims against Lavrich, who was an underinsured motorist, and released him and his insurance carrier from all liability in exchange for a payment of $50,000. It was not until February 21, 2001 that the plaintiffs notified Amerisure of the accident. Apart from the settlement that the plaintiffs received from Lavrich and his insurer, the plaintiffs also received $50,000 from the State Farm Insurance Company, which insured the vehicle in which Reda was riding at the time of the accident.

The Amerisure insurance policy provided both general commercial liability insurance and automobile insurance. The automobile insurance component of the policy consists of a section entitled "Comprehensive Automobile Liability Insurance," J.A. at 47-57, and a supplementary section, entitled "Personal Auto Policy," J.A. at 58-67. The Personal Auto Policy contains a subsection that provides uninsured motorists ("UM") coverage. The Personal Auto Policy did not, however, include underinsured motorists ("UIM") coverage, which was apparently never offered. Although the policy has general liability limits in the amount of $1,000,000, an endorsement purports to limit the UM coverage to $100,000 per person and $300,000 per accident.

There are several notice and subrogation provisions in this insurance policy. First, the Comprehensive Automobile Liability Insurance part of the policy contains apparently policy-wide consent-to-settle and subrogation provisions:

In the event of any payment under this Policy, the Company shall be subrogated, subject to the rights of others, including the INSURED, to the INSURED's rights to recover from others to the extent of the Company's payments and will act in concert with all other interests concerned in the exercise of the INSURED's rights of recovery against any person or organization. The INSURED shall execute and deliver such assignments and similar instruments and papers as are necessary to secure such rights and shall cooperate with the Company.

The INSURED may release others from liability and also waive the Company's right of subrogation against third parties but only if such releases or waivers are prior to loss and are by contract.

J.A. at 55 (emphasis added).

Second, the Personal Auto Policy has notice and subrogation provisions:

We must be notified promptly of how, when and where the accident or loss happened....

A person seeking any coverage must:

1. Cooperate with us in the investigation, settlement or defense of any claim or suit.

2. Promptly send us copies of any notices or legal papers received in connection with the accident or loss.

* * *

If we make a payment under this policy and the person to or for whom payment was made has a right to recover damages from another we shall be subrogated to that right. That person shall do:

1. Whatever is necessary to enable us to exercise our rights; and

2. Nothing after loss to prejudice them.

J.A. at 65-66.

Finally, the uninsured motorists coverage part of the Personal Auto Policy itself contains a consent-to-settle "exclusion":

We do not provide Uninsured Motorists Coverage for bodily injury sustained by any person:

* * *

2. If that person or the legal representative settles the bodily injury claim without our consent.

J.A. at 63.

In addition to these provisions, the Comprehensive Automobile Liability Insurance part of the policy also contains the following provision:

B. Notice of Occurrence, Claim, or Legal Proceeding

Whenever the Corporate Insurance Manager, Ford Motor Company, Dearborn, Michigan, becomes aware of and in his reasonable judgment concludes that an OCCURRENCE covered hereunder is likely to involve this Policy, notice of the OCCURRENCE shall be given to the Company or its agent as soon as practicable; however, failure to give notice of any OCCURRENCE shall not prejudice such claims.

J.A. at 55.

II. ANALYSIS
A. Jurisdiction

The district court had jurisdiction over this diversity case pursuant to 28 U.S.C. § 1332, because the plaintiffs are citizens of Ohio and the defendant is a Michigan corporation that has its principal place of business in Michigan. See Lee-Lipstreu v. Chubb Group of Ins. Cos., 329 F.3d 898, 899-900 (6th Cir.2003). Pursuant to 28 U.S.C. § 1291, we have jurisdiction over the district court's final judgment.

B. Standard of Review

This court reviews de novo a grant of summary judgment. Bukowski v. City of Akron, 326 F.3d 702, 707 (6th Cir.2003). Although the denial of a motion for summary judgment is usually an interlocutory order that is not immediately appealable, where "an appeal from a denial of summary judgment is presented in tandem with a grant of summary judgment, this court has jurisdiction to review the propriety of the district court's denial of summary judgment." Hamad v. Woodcrest Condo. Ass'n, 328 F.3d 224, 235 (6th Cir.2003) (quotation omitted). We review de novo a denial of summary judgment on purely legal grounds. Id. at 235-36. Summary judgment can only be granted when, taking all justifiable inferences in the nonmoving party's favor, there is still no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c).

C. The Notice and Subrogation Issues

The issue in this case on appeal is whether the plaintiffs have breached the notice and subrogation provisions in the Amerisure policy, and whether such breaches vitiate their claim for coverage. We conclude that at least some of the provisions related to notice and subrogation do apply to the plaintiffs' claim, and that the plaintiffs have indisputably breached them. However, it is now clear that a mere breach of these provisions does not necessarily vitiate coverage. Instead, the question is whether the breach prejudiced the insurer. Because the district court did not examine that issue and because the plaintiffs have shown that they could possibly demonstrate a lack of prejudice, we remand this case to the district court for further proceedings on this issue.

1. The Effect of Notice and Subrogation Provisions in Policies Where UM/UIM Coverage is Implied by Law

It is important to stress that the plaintiffs are not seeking to recover under the written policy. They concede that the policy only insures damages caused by the operator of an uninsured motor vehicle and that Lavrich was insured to some extent — in fact, the plaintiffs recovered $50,000 from Lavrich's insurer. Instead, the plaintiffs apparently are arguing that the insurer's failure to offer under insured motorists coverage created under insured motorists coverage in the amount of the policy limits pursuant to Gyori v. Johnston Coca-Cola Bottling Group, Inc., 76 Ohio St.3d 565, 669 N.E.2d 824 (1996), and Linko v. Indemnity Insurance Co. of North America, 90 Ohio St.3d 445, 739 N.E.2d 338 (2000).

Because they are not seeking to recover under the written policy, the plaintiffs claim that the notice and subrogation clauses in the written policy do not apply to their claims for implied UIM...

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