Fulmer v. Insura Prop. & Cas. Co.

Decision Date16 January 2002
Docket NumberNo. 00-1788.,00-1788.
PartiesFULMER, APPELLANT, v. INSURA PROPERTY & CASUALTY COMPANY, D.B.A. THE SHELBY INSURANCE GROUP, APPELLEE.
CourtOhio Supreme Court

Lackey, Nusbaum, Harris, Reny & Torzewski, L.P.A., and Jay Harris, for appellant.

John S. Wasung and Susan Healy Zitterman, for appellee.

McCarthy, Palmer, Volkema & Thomas and Michael S. Miller; Law Firm of Frank Todaro and Robert J. Wagoner, urging reversal for amicus curiae Ohio Academy of Trial Lawyers.

Gallagher, Gams, Pryor, Tallan & Littrell, L.L.P., and James R. Gallagher, urging affirmance for amicus curiae Ohio Association of Civil Trial Attorneys.

DOUGLAS, J.

Plaintiff-appellant, Catherine Fulmer, was injured when her automobile was struck by an automobile driven by Albert Kulics. Kulics's negligence caused the collision. At the time of the accident, Kulics, the tortfeasor, was insured under a policy of automobile insurance with liability coverage limits of $50,000 per person. Fulmer was insured under a policy of automobile insurance issued by defendant-appellee, Insura Property & Casualty Insurance Company, that provided underinsured motorist coverage with a limit of $100,000 per person.

As is generally true of insurance contracts that provide underinsured motorist coverage, Fulmer's contract with Insura contained an exhaustion clause and a subrogation clause. These clauses set forth prerequisites that Fulmer was required to meet before she could settle with the tortfeasor if Fulmer intended to pursue an underinsured motorist claim against Insura. Specifically, the exhaustion clause prohibited Fulmer from settling with a tortfeasor for less than the tortfeasor's coverage limits unless, of course, Insura consented.1 The subrogation clause required Fulmer to protect Insura's subrogation rights against the tortfeasor, i.e., it precluded Fulmer from executing a release of the tortfeasor without Insura's consent.2 According to the policy, Fulmer would forfeit her claim to underinsured motorist benefits if she failed to satisfy these provisions.

After negotiations with Fulmer's attorney, the tortfeasor's insurer offered $37,500 to settle Fulmer's claim against the tortfeasor. Although Fulmer believed that her damages exceeded the tortfeasor's policy limit of $50,000, she decided, for various reasons, to accept the offer and forgo the additional $12,500 available under the tortfeasor's insurance policy. As is generally required in settlement agreements, Fulmer's acceptance of the settlement offer required her to execute a release of all claims against the tortfeasor.

Because Fulmer intended to pursue underinsured motorist benefits from Insura for her damages in excess of the tortfeasor's $50,000 liability limit, she advised Insura of the settlement offer and requested Insura's consent. In the alternative, Fulmer requested that Insura pay her $37,500, the amount of the settlement offer, so that Insura could preserve its subrogation rights against the tortfeasor.

Insura refused to consent to the settlement, asserting that the amount offered did not exhaust the tortfeasor's insurance limit. Insura also refused to pay Fulmer $37,500 to retain its subrogation rights against the tortfeasor because, it contended, Fulmer's damages were less than the tortfeasor's policy limit.

Thereafter, Fulmer, without Insura's consent, settled the matter with the tortfeasor's insurer for $37,500. Fulmer informed Insura of the settlement and requested arbitration to determine whether she was entitled to underinsured motorist benefits, i.e., to determine whether she could prove that her damages exceeded the tortfeasor's available insurance limit of $50,000.

Insura rejected Fulmer's demand for arbitration, asserting that Fulmer had violated the exhaustion and subrogation clauses of her policy and thereby forfeited her rights to underinsured motorist benefits. Fulmer consequently filed a complaint against Insura, seeking a declaratory judgment that she was entitled to underinsured motorist benefits.

Insura moved for summary judgment and Fulmer filed a response in opposition. To support their respective positions with regard to the exhaustion issue, both parties relied on conflicting courts of appeals' interpretations of this court's holding in Bogan v. Progressive Cas. Ins. Co. (1988), 36 Ohio St.3d 22, 521 N.E.2d 447. Insura relied on the Third District Court of Appeals' interpretation of Bogan set forth in Stahl v. State Farm Mut. Auto. Ins. Co. (1992), 82 Ohio App.3d 599, 612 N.E.2d 1260, to support its position that an insured satisfies an exhaustion clause only if she is able to show that the difference between the tortfeasor's policy limit and the settlement amount was approximately equal to the amount saved in litigation expenses. Applying that interpretation to this case, Insura argued that Fulmer could not show that the $12,500 difference represented the amount she saved by avoiding a trial against the tortfeasor and, thus, Fulmer violated the exhaustion clause of her insurance policy.

In contrast, Fulmer relied on the Twelfth District Court of Appeals' interpretation of Bogan in Combs v. Nationwide Mut. Ins. Co. (1997), 119 Ohio App.3d 137, 694 N.E.2d 555, to support her contention that an insured satisfies the exhaustion clause of her underinsured motorist contract when she accepts any amount in settlement from the tortfeasor but is then limited to recovering only those damages in excess of the tortfeasor's available policy limits. Therefore, Fulmer argued, she satisfied the exhaustion clause and is entitled to underinsured motorist benefits to the extent that her damages exceed the $50,000 limit of the tortfeasor's insurance policy.

Insura's motion for summary judgment included the additional argument that Fulmer was precluded from recovering underinsured motorist benefits because she violated the subrogation clause of her insurance contract. In this respect, Insura argued that its decision to withhold consent to the settlement was reasonable and, therefore, pursuant to Bogan, Fulmer's subsequent release of the tortfeasor violated the subrogation provision of her insurance contract.

In response, Fulmer asserted that the court's holding in McDonald v. Republic-Franklin Ins. Co. (1989), 45 Ohio St.3d 27, 543 N.E.2d 456, controlled the subrogation issue. In McDonald, we held that an insured's release of a tortfeasor will not preclude recovery of underinsurance benefits if, prior to the release, she gave her underinsurance carrier notice of the tentative settlement and the underinsurer had a reasonable opportunity to protect its subrogation rights by paying the amount of the offer. Id. at paragraph two of the syllabus. Because Fulmer's actions met these requirements, she argued, she satisfied her obligation to protect Insura's subrogation rights. Fulmer did not introduce evidence to show that by settling with the tortfeasor she saved litigation expenses of approximately $12,500.

The trial court reluctantly granted Insura's motion for summary judgment on the exhaustion issue, noting that it found the Combs decision to be well reasoned but that it was obligated to follow the earlier pronouncement of the Third District Court of Appeals in Stahl. Fulmer appealed the trial court's order to the Seneca County Court of Appeals.

The court of appeals affirmed the trial court's judgment on the exhaustion issue and further held that summary judgment in favor of Insura was proper on the additional grounds that Fulmer had violated the terms of the subrogation clause. With regard to the subrogation issue, the court of appeals found that the facts of this case more closely resembled the facts of Bogan than McDonald and, therefore, the court of appeals applied the ruling in Bogan.

The cause is now before this court upon the allowance of a discretionary appeal.

This case presents two issues for our determination. One is whether an injured insured satisfies an exhaustion requirement in her underinsured motorist contract when she accepts any amount from the tortfeasor and then pursues underinsurance benefits for only those damages in excess of the tortfeasor's available policy limits. The second issue is whether an insurer is permitted to deny underinsured motorist benefits to its insured based on a violation of a subrogation clause when, after notifying the insurer of the settlement offer and providing the insurer the opportunity to protect its subrogation rights by paying the amount of the settlement offer, its insured settled with and released the tortfeasor. Although these issues have been previously determined by this court in Bogan and McDonald, supra, we are called upon today to clarify the court's decision in Bogan and to determine whether our holding in McDonald is applicable to this matter.

The facts in Bogan are virtually identical to the facts of the case now before us. In Bogan, Michael Bogan was injured in an automobile accident, and the tortfeasor's liability insurer offered to settle the Bogans' claim against the tortfeasor for $21,000, $4,000 less than the tortfeasor's policy limit. The Bogans notified their own insurer, Progressive Casualty Insurance Company, of the settlement offer and of their intention to seek underinsured motorist benefits through their policy with Progressive. Progressive responded by letter indicating that (1) in Progressive's view, $21,000 adequately compensated all of the Bogans' damages, (2) the Bogans must exhaust the limits of the tortfeasor's policy before making an underinsured motorist claim, and (3) acceptance of the settlement offer and a general release of the tortfeasor by the Bogans would destroy Progressive's subrogation rights, thereby rendering the underinsured motorist provision unenforceable.

Despite Progressive's refusal to consent, the Bogans accepted the settlement offer and executed a general release of the tortfeasor. Thereafter,...

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