Ruby v. Midwestern Indem. Co.

• Decision Date: 29 December 1988
• Docket Number: No. 87-2018,87-2018
• Parties: RUBY et al., Appellants, v. MIDWESTERN INDEMNITY COMPANY, Appellee.
• Court: Ohio Supreme Court

Page 159

40 Ohio St.3d 159

532 N.E.2d 730

RUBY et al., Appellants, v. MIDWESTERN INDEMNITY COMPANY, Appellee.

No. 87-2018.

Supreme Court of Ohio.

Submitted Sept. 28, 1988.

Decided Dec. 29, 1988.

Syllabus by the Court

A provision in an insurance policy requiring "prompt" notice to the insurer requires notice within a reasonable time in light of all the surrounding facts and circumstances.

The parties have stipulated to the following facts. On July 5, 1984, appellant Lydia G. Ruby was a passenger in a motor vehicle being driven by her father, Raul M. Resendez. While crossing a set of railroad tracks, their vehicle was struck by a train owned and operated by the Baltimore and Ohio Railroad ("B & O"). As a result of the collision, Raul was killed and Lydia suffered personal injuries. Appellants, Tony and Lydia Ruby, retained counsel in July 1984 to represent them with regard to the accident, while Lydia was hospitalized.

At all times relevant herein, Raul Resendez was an insured of the Westfield Insurance Company ("Westfield") under an automobile liability policy which provided "bodily injury" coverage in the sum of $50,000 per person and $100,000 per accident. The Rubys were insured by appellee, Midwestern Indemnity Company ("Midwestern"), under an automobile liability policy which provided "under- motorist" coverage in the sum of $100,000 per person and $100,000 per accident. Both policies were issued by Frost-Stange Agency, Inc. ("Frost-Stange"), an agent of Midwestern.

The surviving spouse of Raul Resendez was appointed to administer his estate, and notice of such appointment and a deadline for the filing of claims were published in August 1984. Appellants filed no claim against the estate. On June 6, 1985, eleven months after the accident and nearly seven months after the time for filing claims against the estate had expired, appellants notified Frost-Stange of their claim under the Resendez policy with Westfield and suggested an underinsured motorist claim under their own policy with Midwestern.

On September 13, 1985, the wrongful death claim of Raul Resendez against B & O was settled for $128,000, most of which was distributed to the surviving spouse and only $500 of which went to Lydia Ruby. Lydia also received a one-ninth interest in certain real estate transferred to the heirs at law of Raul Resendez.

The Rubys' own claims against B & O were settled on or about September 13, 1985, for the sum of $148,000 by execution of a covenant not to sue and indemnity agreement. They then requested Midwestern to authorize a settlement with Westfield and to pay the balance of damages under their underinsured motorist coverage. Ultimately the Rubys received $50,000 from Westfield and executed a release of the Resendez estate, but received no underinsured motorist payments from Midwestern.

On November 27, 1985, appellants filed the instant complaint for declaratory judgment, seeking a declaration of the rights and duties of the parties as to the underinsured motorist provisions of their policy with Midwestern. The trial court held that appellants were not entitled to an underinsured motorist recovery from Midwestern for two reasons: first, because the $100,000 policy limit was fully offset by the amounts received by appellants from Westfield and B & O; and second, because appellants' actions had deprived Midwestern of its right of subrogation. The court of appeals affirmed on the first ground, and consequently did not rule on the subrogation issue.

The cause is now before this court upon the allowance of a motion to certify the record.

Sheldon S. Wittenberg, Toledo, for appellants.

Middleton, Roebke & Rayle and Max E. Rayle, Bowling Green, for appellee.

WRIGHT, Justice.

The issue presented in this case is whether the Rubys are entitled to recover under the underinsured motorist provisions of their Family Car Policy with Midwestern. The court of appeals held that they were not so entitled, finding that under the policy Midwestern's liability limit was completely offset by payments received by the Rubys. While the court did not rule on Midwestern's rights of subrogation, the parties have presented the issue for our review and it is within our discretion to sua sponte consider their respective claims. In this regard, we express no opinion as to whether the policy allows the extent of setoff determined below. However, because we find that the Rubys have so interfered with the subrogation rights of Midwestern that the underinsurance liability of Midwestern should be completely discharged, we affirm.

The General Assembly has specifically granted to uninsured and underinsured motorist carriers the right of subrogation. ¹ To that end, the Ruby policy contained several common provisions designed to protect the subrogation rights of Midwestern. Page 2 of the policy provides: "In the event of an accident, notify us [Midwestern] promptly." (Emphasis added.) Part V of the policy details Midwestern's right to subrogation as follows:

"In the event of any payment under this policy, we are entitled to all the rights of recovery that the person or organization to whom payment was made has against another. That person or organization must sign and deliver to us any legal papers relating to that recovery, do whatever else is necessary to help us exercise those rights and do nothing after loss to prejudice our rights.

"When a person has been paid damages by us under this policy and also recovers from another, the amount recovered from the other shall be held by that person in trust for us and reimbursed to us to the extent of our payment." (Emphasis added.)

Appellants in the present case have failed to meet the crucial precondition of protecting appellee's subrogation rights. The policy required the Rubys to notify Midwestern "promptly" in the event of an accident. A provision in an insurance policy requiring "prompt" notice to the insurer requires notice within a reasonable time in light of all the surrounding facts and circumstances. See, e.g., Heller v. Standard Acc. Ins. Co. (1928), 118 Ohio St. 237, 242, 160 N.E. 707, 709; Patrick v. Auto-Owners Ins. Co. (1982), 5 Ohio App.3d 118, 119, 5 OBR 235, 236, 449 N.E.2d 790, 791. Unreasonable delay in the giving of notice may be presumed prejudicial to the insurer absent evidence to the contrary. Patrick, supra, at 119, 5 OBR at 236, 449 N.E.2d at 791.

The parties agree that Midwestern was not notified until June 6, 1985, eleven months after the accident. We need not decide whether an eleven-month delay is so unreasonable that prejudice should be presumed, as there is ample evidence that Midwestern was in fact prejudiced by the delay. First, it deprived Midwestern of any meaningful opportunity to investigate the accident and determine the relative fault of the parties involved; and second, because the deadline for filing claims against the Resendez estate had passed, Midwestern lost any ability to assert a claim against the estate. Thus we find that appellants' failure to provide timely notice was prejudicial to appellee and its right to subrogation.

In addition to the delay in notice, the Rubys have taken direct action which interfered with Midwestern's subrogation rights. Midwestern was deprived of the opportunity to assert a claim against the Resendez estate not only by the untimeliness of notice but also by the Rubys' failure to assert a claim against the estate on their own behalf, their acceptance of a disproportionate share of the proceeds of the estate's wrongful death action against B & O, and their consent to and participation in the final distribution of the estate assets. The inventory and appraisal of the Resendez estate showed a gross estate of $47,400, a substantial portion of which could have been employed to compensate the Rubys. Their failure to assert a claim or otherwise seek adequate compensation from the estate consequently barred any application of estate assets to reimburse Midwestern for all or part of the Rubys' underinsured motorist claim.

Finally, appellants settled their claims against B & O on September 13, 1985, and received $50,000 from Westfield under the Resendez policy on January 16, 1986. These actions were accompanied by releases of the railroad and the Resendez estate. It is well-settled in Ohio that by executing a release which precludes an insurer from exercising its subrogation rights an insured materially breaches his insurance contract and discharges his insurer from its obligation to provide coverage. Bogan v. Progressive Cas. Ins. Co. (1988), 36 Ohio St.3d 22, 31, 521 N.E.2d 447, 456; Smith v. Travelers Ins. Co. (1976), 50 Ohio App.2d 349, 4...