PIE Mut. Ins. Co. v. Ohio Ins. Guar. Assn.

• Decision Date: 12 May 1993
• Docket Number: Nos. 91-2392,91-2399,s. 91-2392
• Citation: 611 N.E.2d 313,66 Ohio St.3d 209
• Parties: PIE MUTUAL INSURANCE COMPANY, Appellant, v. OHIO INSURANCE GUARANTY ASSOCIATION, Appellee; Physicians Insurance Company of Ohio, Appellant.
• Court: Ohio Supreme Court

Page 209

66 Ohio St.3d 209

611 N.E.2d 313

PIE MUTUAL INSURANCE COMPANY, Appellant, v. OHIO INSURANCE GUARANTY ASSOCIATION, Appellee; Physicians Insurance Company of Ohio, Appellant.

Nos. 91-2392, 91-2399.

Supreme Court of Ohio.

Submitted Jan. 20, 1993.

Decided May 12, 1993.

SYLLABUS BY THE COURT

1. The Ohio Insurance Guaranty Association Act, R.C. Chapter 3955, was designed to protect insureds and third-party claimants from a potentially catastrophic loss due to the insolvency of a member insurer. To this end, OIGA assumes the place of the insolvent insurance carrier for liability purposes only and provides insurance coverage when no other insurance is available to compensate valid claims.

2. An insurance carrier which has settled an action with the insured or third-party claimant is not entitled to seek payment from OIGA for a pro-rata share of the settlement amount on the basis of common-law subrogation principles. (Former R.C. 3955.01[B], construed.)

This case arises from a settled medical malpractice action filed by Marilyn H. Archer and James C. Archer against Anthony Chila, D.O., and his employer, the Ohio University Osteopathic Medical Center ("OUOMC") on April 27, 1988. Dr. Chila provided care to Mrs. Archer from November 9, 1982 through January 29, 1987 for complaints concerning her right shoulder. It was alleged that Dr. Chila failed to perform an x-ray examination on Mrs. Archer's right shoulder on the initial office visit and all subsequent office visits, resulting in a delay in diagnosis of a malignant chondrosarcoma. This delay resulted in severe and disabling injuries to Mrs. Archer that required extensive surgery. The tumor of which Mrs. Archer complained ruptured the humerus sometime between four and nine months prior to discovery of the tumor in February 1987 by another physician. If the tumor had been diagnosed in an earlier phase, there would have been less extensive resection of the bone and less residual disability.

Throughout the duration of Dr. Chila's treatment of Mrs. Archer, he and OUOMC were insured successively by three separate medical malpractice insurance companies. Defendant-appellant Physicians Insurance Company of Ohio ("PICO") provided coverage from November 9, 1982 to June 1, 1983; Professional Mutual Insurance Company ("PMIC") provided coverage from June 1, 1983 to May 23, 1986; and plaintiff-appellant PIE Mutual Insurance Company ("PIE") provided coverage from May 23, 1986 to January 29, 1987.

Defendant-appellee, the Ohio Insurance Guaranty Association ("OIGA"), entered the underlying medical malpractice litigation after PMIC was declared to be an insolvent insurer. ¹ OIGA retained counsel and joined in the defense of Dr. Chila and OUOMC with counsel retained by PICO and PIE. All three counsel participated in every aspect of the medical malpractice case, including extensive discovery, case evaluation and trial strategy. Settlement negotiations were thereafter commenced. On June 3, 1989, counsel for OIGA notified counsel for PICO and PIE that OIGA would not participate in settlement negotiations until the limits of the PICO and PIE policies had been exhausted. Approximately two weeks later, on June 19, 1989, the litigation with the Archers was settled for approximately $690,000. PICO and PIE contributed $300,000 each, while OUOMC contributed approximately $90,000.

On June 18, 1990, PIE filed an action against OIGA, PICO and OUOMC seeking a declaration of the respective rights and responsibilities of the various parties with regard to the settlement of the medical malpractice action. PIE claimed that PICO and/or OIGA was legally obligated to reimburse PIE for the $300,000 contribution PIE made to the settlement of the Archers' claim. In response to PIE's complaint, PICO filed a counterclaim against PIE and a cross-claim against OIGA. In its cross-claim, PICO sought a declaration that OIGA was responsible to contribute to the settlement.

On January 15, 1991, the court of common pleas granted OIGA's previously filed motion to dismiss both PIE's complaint and PICO's cross-claim pursuant to Civ.R. 12(B)(6). The court of appeals consolidated the appeals of PIE and PICO and affirmed the trial court's judgment.

The cause is now before this court pursuant to the allowance of motions to certify the record.

Jacobson, Maynard, Tuschman & Kalur Co., L.P.A., Gayle E. Arnold and Karen L. Clouse, Columbus, for appellant PIE Mut. Ins. Co.

Vorys, Sater, Seymour & Pease and F. James Foley, Columbus, for appellee.

Hammond & Willard and Gary W. Hammond, Columbus, for appellant Physicians Ins. Co. of Ohio.

MOYER, Chief Justice.

This case presents for our consideration the extent of OIGA's liability under R.C. Chapter 3955. ² The central issue is whether OIGA is required to reimburse two insurance carriers for a pro-rata share of amounts the insurers paid to settle a medical malpractice action.

I

At the outset, it is important to recognize the General Assembly's purpose behind the enactment of R.C. Chapter 3955, the Ohio Insurance Guaranty Association Act (the "Act"). To this effect, former R.C. 3955.03 specifically stated:

"The purposes of sections 3955.01 to 3955.20, inclusive, of the Revised Code are to provide a mechanism for the payment of covered claims under certain insurance policies, avoid excessive delay in payment and financial loss to claimants or policyholders because of the insolvency of an insurer, assist in the detection and prevention of insurer insolvencies, and provide an association to assess the cost of such protection among insurers." (Emphasis added.)

The Act was designed to guard against potentially catastrophic loss to persons who are entitled to rely on the existence of an insurance policy and the solvency of the company issuing the policy--the insureds and persons who have claims against insureds. OIGA, a nonprofit unincorporated association, was therefore created to provide a means to compensate insureds or third-party claimants when an insurance company is unable to meet its obligations. Upon a determination that an insolvent insurer exists, OIGA assumes that insurer's obligations to insureds or third-party claimants while being empowered with all of the insurer's rights in that regard. Former R.C. 3955.08(A)(2) and (4). OIGA thereby assumes the place of the insolvent insurance carrier for liability purposes only and provides insurance coverage when no other insurance is available to compensate valid claims. Former R.C. 3955.08 and 3955.13. However, not all claims covered under the insolvent insurer's policy are payable by OIGA. As a creature of statute, OIGA is restricted by the terms of the enabling legislation to pay only "covered claim[s]" as defined in former R.C. 3955.01(B):

" 'Covered claim' means an unpaid claim, including one for unearned premiums, which arises out of and is within the coverage of an insurance policy to which sections 3955.01 to 3955.20 of the Revised Code apply, when issued by an insurer which becomes an insolvent insurer on or after the effective date of this act, and the claimant or insured is a resident of this state at the time of the insured event or the property from which the claim arises is permanently located in this state.

" 'Covered claim' does not include any amount:

"(1) In excess of three hundred thousand dollars on any claim;

"(2) Due any reinsurer, insurer, insurance pool, or underwriting association through subrogation; provided, that when such reinsurer, insurer, insurance pool, or underwriting association has paid a claim and thereby becomes subrogated to the amount of that claim, such subrogated claim may be asserted only against the receiver of the insolvent insurer and in no event against the insured of the insolvent insurer." (Emphasis added.)

The trial court correctly analyzed the statutory scheme set forth in R.C. Chapter 3955 in concluding that PIE and PICO do not have "covered claims." R.C. 3955.01(B) sets forth two requirements before OIGA can be called upon to pay claims of an insolvent insurance carrier. First, the individual seeking relief from OIGA must possess an unpaid claim. An unpaid claim is one which arose from an insured event and has yet to be satisfied either by the insolvent carrier or by OIGA. The second requirement limits the class of individuals who may seek relief from OIGA. ³ Under a liability policy of insurance, only the insolvent carrier's insured or one who has been injured by that insured (i.e., a third-party claimant) may require OIGA to pay a covered claim.

It is obvious that the only relevant claim under R.C. 3955.01(B) is the one held by the Archers as third-party claimants regarding the medical malpractice insurance policies issued by PIE and PICO--and that claim has been converted from an unpaid claim to a paid claim through settlement. R.C. Chapter 3955 was designed to protect insureds and third-party claimants, like the Archers, from the insolvency of an insurer. The monies reserved in the OIGA fund are clearly not for the protection of insurance companies. Since neither PIE nor PICO is an insured or third-party claimant (i.e., victim of tortfeasor) under an insurance policy, OIGA has no obligations under R.C. 3955.01(B).

PIE and PICO are pursuing what is more properly characterized a subrogation cause of action. In their declaratory judgment action, the insurers sought a binding judicial determination that they may seek reimbursement from OIGA for any amount paid by them in excess of their respective proportionate share of liability for the damages sustained by the Archers. Essentially, appellants sought a determination of their equitable subrogation rights against OIGA. "In a broad sense, one person is subrogated to certain rights of another person where he is substituted in the place of such other person so that he succeeds to those rights of the other person." State v. Jones (1980), 61 Ohio St.2d 99, 100-101, 15 O.O.3d 132, 133, 399 N.E.2d...