Bogan v. Progressive Cas. Ins. Co.

Decision Date30 March 1988
Docket NumberNo. 86-1696,86-1696
Citation521 N.E.2d 447,36 Ohio St.3d 22
PartiesBOGAN et al., Appellees and Cross-Appellants, v. PROGRESSIVE CASUALTY INSURANCE CO., Appellant and Cross-Appellee.
CourtOhio Supreme Court

Syllabus by the Court

1. The issue of whether a provider of underinsured motorist coverage has unreasonably refused to grant advance consent for its insured to settle with the tortfeasor's insurance carrier and, relatedly, whether the policy requirement of advance consent is enforceable as a bar to underinsured motorist coverage, is to be determined from the effects of the settlement, inclusive of the effects upon the rights of both the insured and the insurer.

2. An injured insured satisfies the "exhaustion" requirement in the underinsured motorist provision of his insurance policy when he receives from the underinsured tortfeasor's insurance carrier a commitment to pay an amount in settlement with the injured party retaining the right to proceed against his underinsured motorist insurance carrier only for those amounts in excess of the tortfeasor's policy limits.

3. A provider of underinsured motorist coverage may be found to have unreasonably withheld its consent to a settlement by its injured insured when the refusal to give consent was based upon the "exhaustion" clause in the policy as we have determined herein to have been fully satisfied. Under such circumstances, the failure to consent to the settlement would violate public policy and the intent of the General Assembly as expressed in R.C. 3937.18(A)(2).

4. Based upon the established common law and further strengthened by the specific statutory provision, R.C. 3937.18, a subrogation clause is reasonably includable in contracts providing underinsured motorist insurance. Such a clause is therefore both a valid and enforceable precondition to the duty to provide underinsured motorist coverage.

5. An insurer providing underinsured motorist coverage is not required to give its consent to a proposed settlement, the terms of which would destroy its right of subrogation provided within the underinsured motorist insurance policy.

This case arises from an automobile collision. An auto owned by Ellyn Bogan, and operated by her husband, Michael D. Bogan, collided with an auto owned by Eugene T. Daniels and operated by his wife, Wanda M. Daniels. It appears to be undisputed that the collision resulted from Daniels' negligence. The Danielses were insured by Nationwide Mutual Insurance Company ("Nationwide") for liability coverage of twenty-five thousand dollars. The Bogans, appellees herein, were insured by appellant, Progressive Casualty Insurance Company ("Progressive"), under an underinsured motorist provision with a limit of one hundred thousand dollars.

The Bogans' counsel made demand upon Nationwide for fifty thousand dollars, the amount of damages. Subsequently, Nationwide informed counsel that its policy limits were only twenty-five thousand dollars. On June 20, 1984, counsel informed Progressive that it would seek coverage pursuant to Progressive's underinsured motorist coverage. By letter dated June 29, 1984, counsel for the Bogans informed Progressive that Nationwide had offered to compromise the claim for twenty-one thousand dollars in exchange for a full and complete release of the Danielses from any liability, and that "Mr. Bogan intends to settle * * * for the sum of $21,000.00." The letter requested that Progressive consent to the settlement or, alternatively, tender its own check for twenty-one thousand dollars in order to protect its subrogation rights under the policy. The Bogans' request that Progressive give its consent to the settlement derives from a provision in Progressive's policy which states as follows:

"Exclusions. This policy does not apply under Part IV:

" * * *

"(b) to bodily injury to an insured with respect to which such insured, his legal representative or any person entitled to payment under this coverage shall, without written consent of the company, make[s] any settlement with any person or organization who may be legally liable therefor[.]" (Emphasis added.)

It was counsel's position that the Bogans' claim had "a minimum value of $30,000.00, which if accurate, would render Mr. Daniels under-insured," and thus within Progressive's underinsured motorist coverage.

Progressive responded by letter dated July 23, 1984. In her letter, the claims adjuster advised that upon review of the medical report and other documents, "I conclude that Mr. Bogan's claim does not have a value in excess of Nationwide's limits of liability * * *." It was her opinion that the proffered twenty-one thousand dollars ought to be "reasonable and adequate" to satisfy the Bogans' injuries.

The adjuster then asserted Progressive's position with respect "to the policy issued to Ellyn Bogan," this being a response to the legal analysis of the Bogans' counsel contained in the letter of June 29, 1984. The initial position was that pursuant to the underinsured motorist endorsement, the Bogans must "exhaust" Nationwide's full policy limits as a precondition to Progressive's consideration of the claim. That endorsement, Form 1349 (10-73), states, in pertinent part:

"3. The company shall not be obligated to make any payment because of bodily injury to which this insurance applies and which arises out of the ownership, maintenance or use of an underinsured motor vehicle until after the limits of liability under all bodily injury liability bonds or insurance policies available at the time of the accident have been exhausted by payment of judgments or settlements." (Emphasis added.)

The letter continued by explaining Progressive's position should Nationwide "offer their policy limits in settlement." The adjuster stated that the applicable provision would be Part IV of the uninsured (which included underinsured) motorist coverage which states:

"Trust Agreement. In the event of payment to any person under this part:

"(a) the company shall be entitled to the extent of such payment to the proceeds of any settlement or judgment that may result from the exercise of any rights of recovery of such person against any person or organization legally responsible for the bodily injury because of which such payment is made;

"(b) such person shall hold in trust for the benefit of the company all rights of recovery which he shall have against such other person or organization because of the damages which are the subject of a claim made under this Part;

"(c) such person shall do whatever is proper to secure and shall do nothing after loss to prejudice such rights;

"(d) if requested in writing by the company, such person shall take, through any representative designated by the company, such action as may be necessary or appropriate to recover such payment as damages from such other person or organization, such action to be taken in the name of such person; in the event of a recovery, the company shall be reimbursed out of such recovery for expenses, costs and attorneys' fees incurred by it in connection therewith;

"(e) such person shall execute and deliver to the company such instruments and papers as may be appropriate to secure the rights and obligations of such person and the company established by this provision."

It was the adjuster's view that if the Bogans granted such a release as would destroy Progressive's subrogation rights set forth in the above Trust Agreement, then the underinsured motorist provision would not be enforceable. The letter concluded with an admonition that the adjuster should be contacted "[i]f and when Nationwide * * * does commit themselves to pay their full policy limits * * *."

Thereafter, on July 25, 1984, the Bogans accepted Nationwide's offer and, in exchange, executed a "Release Of All Claims" by which they promised to "release, acquit and forever discharge [the Danielses] * * * of and from any and all past, present and future actions, causes of action, claims, demands, damages, costs, * * * [etc.]," resulting from the collision. The Bogans then filed suit, alleging that Progressive was responsible to pay those damages in excess of Nationwide's policy limits of twenty-five thousand dollars.

The trial court, upon the facts as stipulated, found for Progressive. It based its finding upon the policy provision requiring exhaustion of the underinsured's policy limits as a precondition for a matured claim under Progressive's underinsured motorist coverage. Also, the court asserted that the Bogans' grant of a full release to the Danielses acted to destroy Progressive's right of subrogation and therefore violated the preconditions for coverage set forth in the policy's Trust Agreement.

The court of appeals reversed and remanded. In its opinion, the court pointed out that Progressive's letter of response to the Bogans was unreasonable and improper since the Bogans were not seeking from Progressive any amounts below Nationwide's policy limits, thus satisfying the policy's exhaustion requirement. Further, the court asserted that Progressive's subrogation rights were neither "real" nor "existing" because it appeared that the Danielses had no assets with which to pay a judgment in excess of Nationwide's policy limits. As a consequence, the court concluded that Progressive unjustifiably withheld its consent to the settlement.

The cause is now before this court pursuant to the allowance of a motion and cross-motion to certify the record.

Jacobson, Maynard, Tuschman & Kalur, Richard W. Stuhr and Karen L. Clouse, Columbus, for appellees and cross-appellants.

Thomas D. Hunter and Andrew W. Cecil, Columbus, for appellant and cross-appellee.

HOLMES, Justice.

Upon a review of the policy terms before us, particularly those relied upon by the parties and which are set forth in their letters of correspondence, it becomes apparent that the issues in this case cannot be resolved without determining the effectiveness of those...

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