Ferrando v. Auto-Owners Mut. Ins. Co.
| Decision Date | 27 December 2002 |
| Docket Number | No. 2001-1843.,2001-1843. |
| Citation | 98 Ohio St.3d 186,2002 Ohio 7217,781 N.E.2d 927 |
| Parties | FERRANDO et al., Appellants, v. AUTO-OWNERS MUTUAL INSURANCE COMPANY et al; Personal Service Insurance Company, Appellee. |
| Court | Ohio Supreme Court |
Nurenberg, Plevin, Heller & McCarthy Co., L.P.A., and Kathleen J. St. John, Cleveland, for appellants.
Baker & Hackenberg and I. James Hackenberg, Painesville, for appellee.
Elk & Elk Co., L.P.A., and Todd 0. Rosenberg, Mayfield Heights, urging reversal for amicus curiae Ohio Academy of Trial Lawyers.
Bricker & Eckler, L.L.P., Kurtis A. Tunnell, Anne Marie Sferra and Robert Katz, Columbus, urging affirmance for amici curiae the American Insurance Association, the National Association of Independent Insurers, Alliance of American Insurers, the Ohio Chapter of the National Federation of Independent Business, the Ohio Manufacturer's Association, the Ohio Farm Bureau Federation, the Ohio Chemistry Technology Council, and the Ohio Council of Retail Merchants.
Keener, Doucher, Curley & Patterson, W. Charles Curley and Jenifer J. Murphy,
urging affirmance for amicus curiae Ohio Association of Civil Trial Attorneys.
{¶ 1} This appeal requires us to consider whether a provider of underinsured or uninsured motorist ("UIM") coverage may be released from its obligation to provide coverage due to the failure of a claimant to notify the insurer of a potential claim prior to settlement with and full release of the tortfeasor who caused the injury giving rise to the potential claim. The motor vehicle insurance policy at issue requires that the insurer be given prompt notice of a UIM claim and requires the consent of the insurer prior to settlement. For the reasons that follow, we determine that the insurer is released from the obligation to provide UIM coverage when the insurer is prejudiced by the lack of reasonable notice or by the insured's failure to obtain consent to settle prior to the insured's settlement with and release of the tortfeasor. We reverse the judgment of the court of appeals and remand this cause to the trial court for further proceedings.
{¶ 2} The facts of this case are basically undisputed. On February 28, 1994, plaintiff-appellant Isler J. Ferrando, an employee of the city of Ashtabula, was driving a city-owned vehicle in the course of his employment on a public road when he observed a truck lose part of its load onto the roadway. Ferrando stopped his vehicle and got out. While Ferrando was clearing the roadway, the driver of the truck backed up and struck and injured him.
{¶ 3} Ferrando and his wife, plaintiffappellant Maria Ferrando, sued the tortfeasor and notified their own insurance carrier, defendant Auto-Owners Mutual Insurance Company ("Auto-Owners"), of their potential UIM claim. The parties agree that the tortfeasor had liability insurance with a limit of $12,500. On April 1, 1997, Auto-Owners gave permission to the Ferrandos to settle with the tortfeasor for his policy limit of $12,500 and to release him from all claims. They did so on May 20, 1997.
{¶ 4} The Ferrandos then pursued a UIM claim against Auto-Owners under the same case number of the suit they had filed against the tortfeasor, claiming that their damages were in excess of $12,500. During the pursuit of this claim, it came to light that the city of Ashtabula carried UIM coverage on the vehicle Ferrando was driving at the time he was injured. This UIM coverage was part of a motor vehicle insurance policy Ashtabula had with defendant-appellee Personal Service Insurance Company ("Personal Service"). When it was discovered that Personal Service was a provider of UIM coverage under the city's policy, Auto-Owners sought to implead Personal Service as a third party defendant. The parties agree that that action was dismissed without prejudice by a stipulation of all involved parties on January 13, 1998.
{¶ 5} On January 12, 1999, the Ferrandos filed a complaint for declaratory judgment in the Court of Common Pleas of Ashtabula County, naming Auto-Owners and Personal Service as defendants. The Ferrandos sought a declaration that they were insureds entitled to UIM payments under each policy.
{¶ 6} All parties moved for summary judgment. Personal Service argued that the Ferrandos had failed to comply with several provisions in the UIM policy it had issued to Ashtabula and so should be unable to collect under that policy. Specifically, Personal Service asserted that it was not notified of the accident until approximately three and a half years after its occurrence when Auto-Owners attempted to implead it in the first suit filed by the Ferrandos and that it had no knowledge of any accident or any possible claim prior to that time. Personal Service argued that this delay in notice violated the policy's requirement of "prompt notice" of any accident, claim, suit, or loss.
{¶ 7} Furthermore, Personal Service argued that the Ferrandos, by settling with and releasing the tortfeasor from liability without notifying Personal Service and without giving it an opportunity to consent to the settlement, had failed to protect the insurer's subrogation rights, thereby materially breaching the policy requirements that the insured obtain the consent of the insurer before settling any claim and that the insured not impair the subrogation rights of the insurer.
{¶ 8} In its motion for summary judgment urging the trial court to declare that Personal Service was the primary provider of UIM coverage, Auto-Owners argued that notice of the accident to Personal Service was timely under the circumstances because the Ferrandos notified Personal Service as soon as they discovered that UIM coverage existed under the city's policy. Auto-Owners asserted that such a policy carried by a city normally would not be expected to include UIM coverage on city vehicles, so that the Ferrandos could not be faulted for failing to discover the coverage earlier.
{¶ 9} In their motion for summary judgment, the Ferrandos agreed with Auto-Owners that notice to Personal Service was reasonably given under the facts of this case and argued that, because Auto-Owners had consented to a settlement with and release of the tortfeasor, Personal Service would also have consented and so was not prejudiced by the notice's timing.
{¶ 10} The trial court granted summary judgment to the Ferrandos, declaring that they were entitled to UIM coverage under both their policy with Auto-Owners and the city's policy with Personal Service and that the Ferrandos' claims for UIM damages would be paid by the two insurers on a pro rata basis. In deciding that UIM coverage was available under the city's policy with Personal Service, the trial court, citing no cases in support of its ruling on this question, reasoned as follows:
{¶ 11}
{¶ 12} Personal Service appealed the trial court's judgment to the Court of Appeals for Ashtabula County. Auto-Owners did not appeal.
{¶ 13} The court of appeals reversed the judgment of the trial court and entered judgment for Personal Service, finding that UIM coverage was not available to the Ferrandos under the city's policy with Personal Service for two separate reasons. First, the court of appeals determined that the Ferrandos materially breached the consent-to-settle provision of that policy when they failed to notify Personal Service and give it an opportunity to consent prior to their settlement with and release of the tortfeasor, thereby destroying Personal Service's subrogation rights. The court of appeals held that compliance with the consent-to-settle provision was a condition to UIM coverage and that it was irrelevant that the insurer might not have been prejudiced by the settlement and release.
{¶ 14} Second, the court of appeals found that the failure to notify Personal Service of the accident or claim until three and a half years after the accident was unreasonable and that the Ferrandos did not rebut the presumption of prejudice to the insurer that arose from the delay in notice.
{¶ 15} The cause is now before this court pursuant to the allowance of a discretionary appeal.
{¶ 16} The insurance policy the city had with Personal Service at the time of this accident provided: "In the event of `accident', claim, `suit' or `loss', you must give us or our authorized representative prompt notice of the `accident' or `loss'. Include:
{¶ 17} "(1) How, when and where the `accident' or `loss' occurred;
{¶ 18} "(2) The `insured's' name and address; and
{¶ 19} "(3) To the extent possible, the names and addresses of any injured persons and witnesses."
{¶ 20} In...
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