Linko v. Indemnity Insurance Co. of North America

[This opinion has been published in Ohio Official Reports at 

90 Ohio St.3d 445

.]




    LINKO, EXR., v. INDEMNITY INSURANCE COMPANY OF NORTH AMERICA.
           [Cite as Linko v. Indemn. Ins. Co. of N. Am., 

2000-Ohio-92

.]
Insurance—Motor vehicles—Uninsured/underinsured motorist coverage—What
        constitutes an express and knowing rejection of uninsured/underinsured
        motorist coverage by a corporation on behalf of related corporations and
        other insureds.
          (No. 99-2293—Submitted June 7, 2000—Decided December 27, 2000.)
    ON ORDER CERTIFYING A QUESTION OF STATE LAW from the United States
      District Court for the Western District of New York, No. 98-CV-129S.
                                  __________________
        {¶ 1} The underlying action for a declaration of rights involves the issue of
what constitutes an express and knowing rejection of uninsured/underinsured
motorist (“UM/UIM”) coverage by a corporation on behalf of related corporations
and other insureds.
        {¶ 2} On November 13, 1996, G. Michael Linko was killed in a three-
fatality automobile accident that occurred in Chautauqua County, New York. The
alleged tortfeasor, Shawn LaDue, was insured by Nationwide Insurance, which
tendered its policy limit of $100,000 to be divided among the beneficiaries of the
three people killed in the accident. Petitioner, Patricia S. Linko, executor of G.
Michael Linko’s estate, brought the present action seeking a declaration that she is
entitled to underinsured motorist (“UIM”) coverage under a business automobile
policy issued by respondent Indemnity Insurance Company of North America
(“Indemnity”) that included the decedent as an insured.
        {¶ 3} There is no dispute that Linko was driving a company-owned or
leased car in the course of his employment with Saint-Gobain Industrial Ceramics,
Inc. (“SGIC”) at the time of the accident, or that Linko was an insured under the
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Indemnity policy. The general liability coverage under that Indemnity policy is
subject to limits of $3,000,000 per person/per occurrence. Petitioner seeks to obtain
UIM coverage under the Indemnity insurance policy, but Indemnity claims that
UIM coverage had been rejected on behalf of SGIC by a related corporate entity.
        {¶ 4} SGIC is part of an extended family of related companies. French
corporation Compagnie de Saint-Gobain (“CSG”) owned a United States holding
company, Saint-Gobain Corporation (“SGC”). SGC owned the Norton Company
(“Norton”).    Norton owned Saint-Gobain Advanced Materials Corporation
(“SGAMC”), among others entities, and SGAMC owned the decedent’s employer,
SGIC.
        {¶ 5} The policy at the heart of this case was issued to SGC, Norton, and
certain subsidiaries, all of which were named insureds. While all of the named
insureds were subsidiaries of SGC, they maintained separate corporate identities
and operations. SGIC was not a named insured, but Indemnity has never disputed
that SGIC and Linko qualified as additional insureds.
        {¶ 6} The policy was amended by “selection forms” used for the rejection
of UM/UIM coverage under the laws of particular states. The form used for
rejection of UM/UIM coverage under Ohio law lists the named insured simply as
“Norton Company.” The Norton Company is one of several named insureds listed
in the policy, but the Ohio selection form refers to none of the other named insureds.
The form was signed by Verne M. Hahn on behalf of the Norton Company. Hahn
was an employee of SGC.
        {¶ 7} Petitioner filed an action in the Summit County Court of Common
Pleas, claiming that the rejection form signed by Hahn did not properly reject
UM/UIM coverage for the decedent. The case was removed to the United States
District Court for the Northern District of Ohio on the basis of diversity of
jurisdiction. Venue was then transferred to the United States District Court for the
Western District of New York. On May 18, 1998, petitioner filed a motion for




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partial summary judgment in that court; respondent followed with its own motion
for summary judgment on July 6, 1998. Petitioner then filed an amended motion
to certify questions to this court, which the district court certified on December 21,
1999. This court determined that it would answer questions 1, 2, and 3, which were
set forth as follows:
       “1. Whether an insured under an automobile liability policy may challenge
the authority of a signatory to an uninsured/underinsured motorist coverage
rejection form when such signatory’s authority is not disputed by the named
insureds or insurer.
       “2. Whether the language of the uninsured/underinsured motorist coverage
 rejection forms accompanying the subject automobile liability policy satisf[ies]
 the offer requirements of R.C. 3837.18 [sic, 3937.18].
       “3. With regard to the scope and validity of the uninsured/underinsured
motorist coverage rejection forms:
       “a. Whether each of several separately-incorporated named insureds must
 be expressly listed in the rejection form in order to satisfy the requirement that
 the waiver be made knowingly, expressly and in writing by each named insured?
       “b. When, on its face, a rejection form was signed by the employee of only
 one of several separately-incorporated named insureds listed in the policy,
 whether the four corners of the insurance agreement control in determining
 whether the waiver was knowingly and expressly made by each of the named
 insureds, or does the parties’ intent, established by extrinsic evidence, control?
       “c. If extrinsic evidence of the parties’ intent is to be considered in
 assessing the scope and validity of a rejection form, whether actual authority for
 rejecting un/underinsured motorist coverage on behalf of a named insured under
 an automobile liability policy can be established by means other than a signed
 document granting such authority executed prior to the rejection of such
 coverage.




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        “d. Whether a parent corporation has implied authority to waive coverage
on behalf of its separately-incorporated subsidiary corporation when the subsidiary
corporation did not provide written authorization to waive un/underinsured
motor[ist] coverage benefits on its behalf prior to commencement of the policy
period?”
                               __________________
        Becker & Mishkind Co., L.P.A., Michael F. Becker and David A. Kulwicki,
for petitioner.
        Elk & Elk Co., L.P.A., and Todd Rosenberg, in support of petitioner for
amicus curiae, Ohio Academy of Trial Lawyers.
                               __________________
        PFEIFER, J.
        {¶ 8} Our responses to the questions of the federal court are as follows: (1)
Yes. An insured under an automobile liability policy may challenge the authority
of a signatory to a UM/UIM coverage rejection form when such signatory’s
authority is not disputed by the named insureds or insurer; (2) No. To satisfy the
offer requirement of R.C. 3937.18, the insurer must inform the insured of the
availability of UM/UIM coverage, set forth the premium for UM/UIM coverage,
include a brief description of the coverage, and expressly state the UM/UIM
coverage limits in its offer; (3)(a) Yes. Separately incorporated named insureds
must each be listed in a rejection form in order to satisfy the offer requirement of
R.C. 3937.18; (3)(b) The four corners of the insurance agreement control in
determining whether waiver was knowingly and expressly made by each of the
named insureds; (3)(c) The question is moot due to our response to (3)(b); and
(3)(d) No. Only with a subsidiary’s written authorization may a parent corporation
reject UM/UIM coverage on the subsidiary’s behalf.
        {¶ 9} The federal court’s questions and this court’s complete responses are
set forth below.




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                                       Question 1
        {¶ 10} “Whether an insured under an automobile liability policy may
challenge the authority of a signatory to an uninsured/underinsured motorist
coverage rejection form when such signatory’s authority is not disputed by the
named insureds or insurer.”
        {¶ 11} Our response is in the affirmative. As was the case with the plaintiff
in Gyori v. Johnston Coca-Cola Bottling Group, Inc. (1996), 

76 Ohio St.3d 565

,

669 N.E.2d 824

, the plaintiff here was not a named insured but seeks a declaration
of whether the employer expressly and knowingly rejected UM/UIM coverage for
its employees. The validity of the employer’s alleged rejection is at the heart of
both cases. The plaintiff in Gyori had standing to bring an action to resolve that
issue, as does the plaintiff in this case.
                                      Question 2
        {¶ 12} “Whether the language of the uninsured/underinsured motorist
coverage rejection forms accompanying the subject automobile liability policy
satisf[ies] the offer requirements of R.C. 3837.18 [sic, 3937.18].”
        {¶ 13} We find that the rejection form in this case fails to satisfy the offer
requirements of former R.C. 3937.18(C) as it existed during the policy period. See
145 Ohio Laws, Part I, 211. The pertinent portion of the Indemnity policy reads:
        “Ohio Revised Code Section 3937.18 requires us to offer you
 Uninsured/Underinsured Motorists Insurance coverage in an amount equal to the
 policy bodily injury liability limit(s) with respect to any motor vehicle registered
 or principally garaged in the State of Ohio, unless you reject such coverage.
        “Unless you have previously rejected this coverage, your policy has been
 issued to include Uninsured/Underinsured Motorists Insurance coverage at
 limit(s) equal to the policy bodily injury liability limit(s).”
        {¶ 14} In Gyori, this court held that “[t]here can be no rejection pursuant
to R.C. 3937.18(C) absent a written offer of uninsured motorist coverage from the




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insurance provider.” 

Id.,

76 Ohio St.3d 565

, 

669 N.E.2d 824

, paragraph one of the
syllabus. Gyori stands for the proposition that we cannot know whether an insured
has made an express, knowing rejection of UIM coverage unless there is a written
offer and written rejection. It only follows that a valid rejection requires a
meaningful offer, i.e., an offer that is an offer in substance and not just in name.
       {¶ 15} The above paragraph in the Indemnity contract that purports to be
an offer states the law, but does not contain the information necessary to make it a
meaningful offer. Since Gyori, Ohio’s appellate courts have developed a useful
body of law regarding what constitutes a valid offer of UM/UIM coverage. We
agree with the following required elements for written offers imposed by Ohio
appellate courts: a brief description of the coverage, the premium for that coverage,
and an express statement of the UM/UIM coverage limits. See Murray v. Woodard
(1997), 

120 Ohio App.3d 180

, 

697 N.E.2d 265

 (interpreting the offer requirement
of R.C. 3937.181); Gibson v. Westfield Natl. Ins. Co. (July 14, 1998), Monroe App.
No. 788, unreported, 

1998 WL 404201

; Weddle v. Hayes (Sept. 5, 1997), Belmont
App. No. 96-BA-44, unreported, 

1997 WL 567964

.
       {¶ 16} Indemnity’s alleged offer is complete only in its incompleteness. It
does not describe the coverage, does not list the premium costs of UM/UIM
coverage, and does not expressly state the coverage limits. We find that an offer
must include those three elements. The Indemnity rejection form, lacking in that
required information, thus could not be termed a written offer that would allow an
insured to make an express, knowing rejection of the coverage.
                                   Question 3(a)
       {¶ 17} “With      regard    to    the    scope    and     validity   of    the
uninsured/underinsured motorist coverage rejection forms:
       “a. Whether each of several separately-incorporated named insureds must
 be expressly listed in the rejection form in order to satisfy the requirement that
 the waiver be made knowingly, expressly, and in writing by each named insured.”




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                                 January Term, 2000




       {¶ 18} According to long-established Ohio law, UM/UIM coverage can be
removed from an insurance policy “only by the express rejection of that provision
by the insured.” Abate v. Pioneer Mut. Cas. Co. (1970), 

22 Ohio St.2d 161

, 

51 O.O.2d 229

, 

258 N.E.2d 429

, paragraph one of the syllabus. That fits with the
language of R.C. 3937.18(C), which gives the power to the “named insured” to
accept or reject UM/UIM coverage. Here, we find by necessary implication that
an incorporated entity that is a named insured must be specifically offered the
insurance itself before its authorized representative can refuse coverage.
       {¶ 19} While a parent corporation may have a close relationship with its
subsidiary, the two remain separate and distinct legal entities. North v. Higbee Co.
(1936), 

131 Ohio St. 507

, 

6 O.O. 166

, 

3 N.E.2d 391

. An offer to the parent does
not per se constitute an offer to the subsidiary. Without the name of the entity on
the selection form, no offer of UM/UIM coverage has been made to that entity.
                                    Question 3(b)
       {¶ 20} “When, on its face, a rejection form was signed by the employee of
only one of several separately-incorporated named insureds listed in the policy,
whether the four corners of the insurance agreement control in determining
whether the waiver was knowingly and expressly made by each of the named
insureds, or does the parties’ intent, established by extrinsic evidence, control?”
       {¶ 21} We conclude that the four corners of the insurance agreement
control in determining whether the waiver was knowingly and expressly made by
each of the named insureds. Again, we cite Gyori, which requires a written offer
and a written rejection of UM/UIM coverage. In Gyori this court made it clear
that the issue of whether coverage was offered and rejected should be apparent
from the contract itself. This court stated that the requirement of written offers
“will prevent needless litigation about whether the insurance company offered UM
coverage.” 

Id.,

76 Ohio St.3d at 568

, 

669 N.E.2d at 827

. By requiring an offer and
rejection to be in writing, this court impliedly held in Gyori that if the rejection is




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not within the contract, it is not valid. In doing so, this court greatly simplified the
issue of proof in these types of cases—the offer and rejection are either there or
they are not. Extrinsic evidence is not admissible to prove that a waiver was
knowingly and expressly made by each of the named insureds.
                                    Question 3(c)
        {¶ 22} Our response to Question 3(b) makes it unnecessary to answer
Question 3(c).
                                    Question 3(d)
        {¶ 23} “d. Whether a parent corporation has implied authority to waive
coverage on behalf of its separately-incorporated subsidiary corporation when the
subsidiary corporation did not provide written authorization to waive
un/underinsured motor[ist] coverage benefits on its behalf prior to commencement
of the policy?”
        {¶ 24} Gyori addresses how unwritten representations evade R.C.
3937.18’s mandate that rejections of UM/UIM coverage must be express and
knowing. Thus, we required in Gyori that both offers and rejections of UM/UIM
coverage be in writing. 

Id.

 at paragraphs one and two of the syllabus. We would
contradict Gyori were we to allow a corporate parent to claim a rejection of
UM/UIM coverage by its subsidiary through the subsidiary’s implied, unwritten
assent thereto. We thus require that a subsidiary’s authorization to a parent
corporation to waive UM/UIM coverage benefits on its behalf must be in writing
and must be incorporated into the contract.
                                                               Judgment accordingly.
        DOUGLAS, RESNICK and F.E. SWEENEY, JJ., concur.
        MOYER, C.J., COOK and LUNDBERG STRATTON, JJ., concur in part and
dissent in part.
                                __________________
        COOK, J., concurring in part and dissenting in part.




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                               January Term, 2000




       {¶ 25} I agree with the majority’s answer to the first certified question. The
parties do not dispute that Linko was an insured under the Indemnity insurance
policy. As an insured, Linko has standing to enforce any existing provisions
concerning UM/UIM coverage. See Schumacher v. Kreiner (2000), 

88 Ohio St.3d 358, 363

, 

725 N.E.2d 1138, 1143

 (Lundberg Stratton, J., dissenting). This includes
standing to challenge whether there has been a knowing rejection of UM/UIM
coverage. See Travelers Ins. Co. v. Quirk (Fla.1991), 

583 So.2d 1026, 1028

;
Atwood v. Internatl. Ins. Co. (Dec. 10, 1991), Franklin App. No. 91AP-521,
unreported, 

1991 WL 268346

. I respectfully dissent, however, from the majority’s
answers to the remaining questions because we should decline to answer them.
       {¶ 26} The second question asks whether the UM/UIM coverage rejection
form that Hahn signed satisfies the written offer requirement crafted in Gyori v.
Johnston Coca-Cola Bottling Group, Inc. (1996), 

76 Ohio St.3d 565

, 

669 N.E.2d 824

. The majority answers this question in the negative by expanding upon Gyori
and requiring the written offer to contain specific terms. But neither the rule
announced in Gyori nor the rule announced today has statutory support. See Gyori,

76 Ohio St.3d at 569

, 

669 N.E.2d at 827

 (Cook, J., dissenting).
       {¶ 27} Under former R.C. 3937.18, UM/UIM coverage exists by operation
of law unless the insured has rejected such coverage. We have required that the
insured expressly reject UM/UIM coverage in order for the rejection to be effective.
See Abate v. Pioneer Mut. Cas. Co. (1970), 

22 Ohio St.2d 161

, 

51 O.O.2d 229

, 

258 N.E.2d 429

, paragraph one of the syllabus. We have also allocated to insurance
companies the burden of proving that a customer knowingly rejected UM/UIM
coverage. Ady v. W. Am. Ins. Co. (1982), 

69 Ohio St.2d 593, 597

, 

23 O.O.3d 495, 498

, 

433 N.E.2d 547, 549

.       This court “need not judicially impose further
extrastatutory requirements upon insurers in order to effectuate the spirit of R.C.
3937.18.” Gyori, 

76 Ohio St.3d at 570

, 

669 N.E.2d at 828

 (Cook, J., dissenting).
If the insurance company can demonstrate that its customer had the knowledge




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necessary to make an informed rejection of UM/UIM coverage, the “failure to
formalize an offer in the face of specifications that plainly decline that coverage
should not dictate coverage by default.” 

Id.

       {¶ 28} Former R.C. 3937.18 does not require a written offer of UM/UIM
coverage and certainly does not require a written offer containing the specific terms
insisted upon by the majority today. The focus of the trial court’s inquiry should
be on whether UM/UIM coverage was properly rejected rather than whether
Indemnity included specific details in a written offer of coverage. Cf. Hansberry
v. Westfield Ins. Co. (June 27, 2000), Ross App. Nos. 99CA2504 and 99CA2505,
unreported, 

2000 WL 897991

 (insurer’s failure to include certain details about
UM/UIM coverage in a written offer “may prevent a finding of a valid rejection
[but] will not prevent a court from finding a valid offer in the first instance”). I
would therefore decline to answer the second certified question and instead allow
the district court to decide whether Hahn knowingly and expressly rejected
UM/UIM coverage.
       {¶ 29} This court should also decline to answer all of the inquiries included
in question three. Each relates to issues concerning “named insureds” on a policy
issued to a parent corporation. Though Linko and his employer were insureds under
the Indemnity policy, neither is alleged to be a named insured. I therefore believe
that answering these questions is inappropriate.
       MOYER, C.J., and LUNDBERG STRATTON, J., concur in the foregoing
opinion.
                              __________________




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