Selander v. Erie Insurance Group

[This opinion has been published in Ohio Official Reports at 

85 Ohio St.3d 541

.]




     SELANDER ET AL., APPELLEES, v. ERIE INSURANCE GROUP ET AL.; ERIE
                         INSURANCE EXCHANGE, APPELLANT.
               [Cite as Selander v. Erie Ins. Group, 

1999-Ohio-287

.]
Insurance—Underinsured motorist claim—Motor vehicles—Provisions of R.C.
        3937.18 apply to policy of primary insurance that provides coverage for
        claims of liability arising out of the use of hired or non-owned automobiles,
        but is not issued for delivery with respect to some particular motor vehicle.
(Nos. 98-289 and 98-494—Submitted January 13, 1999—Decided June 2, 1999.)
   APPEAL from and CERTIFIED by the Court of Appeals for Darke County, No.
                                        97CA1432.
                                  __________________
        {¶ 1} On November 14, 1992, Eugene Selander was killed, and his brother
Glenn R. Selander seriously injured, when their pickup truck was involved in an
accident with another car. It was determined that the accident was caused by the
negligence of the driver of the other car, David L. Clark. Betty L. Selander,
Eugene’s widow and the administrator of his estate, as well as Glenn Selander and
his wife, each settled all claims against Clark’s liability insurer for $103,500.
        {¶ 2} At the time of the collision, Glenn and Eugene Selander were
electricians involved in a partnership known as Twin Electric and were working in
the course and scope of their business activities. The 1980 Ford pickup truck they
occupied was listed as a covered automobile in a Pioneer Commercial Auto Policy
issued to Twin Electric by Erie Insurance Company.                   The policy included
uninsured/underinsured motorist coverage in the amount of $300,000 per accident.
As a result, Betty received a $200,000 settlement, and Glenn and his wife received
a $100,000 settlement. Glenn Selander and his wife were also covered under a
separate auto insurance policy issued by Erie Insurance Company that included
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uninsured/underinsured coverage. Under this policy, Glenn and his wife received
$100,000.
       {¶ 3} Thereafter, appellees filed a claim for underinsured motorist benefits
under a Fivestar General Business Liability Policy issued by appellant Erie
Insurance Exchange (“Erie”) to Twin Electric. The policy contained protection
limits of $1 million per occurrence and $2 million policy aggregate. Erie refused
to pay, asserting that the Fivestar policy did not provide automobile liability
coverage or uninsured/underinsured motorist coverage.
       {¶ 4} Appellees filed a declaratory action seeking underinsured motorist
benefits under the Fivestar policy. The trial court granted summary judgment in
the appellees’ favor, holding that they were entitled to underinsured motorist
coverage under the Fivestar policy. The court of appeals affirmed, holding that the
Fivestar policy constituted an automobile or motor vehicle liability policy subject
to R.C. 3937.18. Finding its judgment in conflict with the Tenth District Court of
Appeals’ decision in Mauler v. Westfield Ins. Co. (Sept. 28, 1989), Franklin App.
Nos. 88AP-914 and 88AP-915, unreported, 

1989 WL 112342

, the court of appeals
entered an order certifying a conflict.
       {¶ 5} The cause is now before this court upon our allowance of a
discretionary appeal and upon our determination that a conflict exists.
                               __________________
       Dynes & Garbig Co., L.P.A., and Craig A. Dynes, for appellees Betty L.
Selander and Twin Electric.
       Goubeaux & Goubeaux and Eric H. Brand, for appellees Glenn R. Selander
and Twin Electric.
       Nemeth, Caborn & Butauski, John C. Nemeth and David A. Caborn, for
appellant.
       Buckingham, Doolittle & Burroughs, L.L.P., and Christopher C. Esker,
urging reversal for amicus curiae, Ohio Insurance Institute.
                               January Term, 1999




                              __________________
       FRANCIS E. SWEENEY, SR., J.
       {¶ 6} The court of appeals certified the following issue for our
determination: “Do the provisions of R.C. 3937.18 apply to a policy of primary
insurance which provides coverage for claims of liability arising out of the use of
hired or non-owned automobiles, but is not issued for delivery with respect to some
particular motor vehicle?” For the reasons that follow, we answer “Yes” to the
foregoing issue.
       {¶ 7} R.C. 3937.18(A) provides in part, “No automobile liability or motor
vehicle liability policy of insurance insuring against loss resulting from liability
imposed by law for bodily injury or death suffered by any person arising out of the
ownership, maintenance, or use of a motor vehicle shall be delivered or issued for
delivery in this state with respect to any motor vehicle registered or principally
garaged in this state,” unless both uninsured and underinsured motorist coverage
are provided.
       {¶ 8} The Fivestar policy cover reads “Fivestar General Liability Policy
(excluding automobile).” A portion of the policy also provides liability coverage
for accidents involving “hired” or “non-owned” automobiles.           The relevant
language, found in the “Extension of Coverage” section of the policy, states:
       “X Non-Owned Automobile and Hired Automobile Liability Insurance
       “Hired Automobile Liability
       “We will pay all sums which anyone we protect becomes legally obligated
to pay as damages because of personal injury or property damage arising out of the
maintenance or use of hired automobiles by you or your employees in the course
of your business.
       “Non-Owned Automobile Liability




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       “We will pay all sums which anyone we protect becomes legally obligated
to pay as damages because of personal injury or property damage arising out of the
use of any non-owned automobile in your business by any person other than you.
       “***
       “ ‘Hired automobile’ means any automobile you lease, hire or borrow. This
does not include any automobile you lease, hire, or borrow from any of your
employees or members of their households, or from any partner or executive officer
of yours.
       “ ‘Non-owned automobile’ means any automobile you do not own, lease,
hire or borrow which is used in connection with your business. However, if you
are a partnership, a non-owned automobile does include any automobile owned by
or registered in the name of a partner, but only while such automobile is being used
in your business.”
       {¶ 9} This portion of the policy was marked by an “X,” indicating that by
the policy’s own terms it was an “XTRA PROTECTION FEATURE.” According
to the policy, “[w]herever an ‘X’ appears in the margin of this policy, you receive
XTRA PROTECTION, either as additional coverage or as a coverage that is not in
most commercial general liability policies.”
       {¶ 10} Erie makes several arguments.          First, Erie contends that R.C.
3937.18(A) cannot apply to the Fivestar policy because the policy was not “issued
for delivery in this state with respect to any motor vehicle registered or principally
garaged in this state.” Rather, Erie argues that the policy provided coverage only
for claims of vicarious liability arising out of the use of unspecified “hired” or “non-
owned” automobiles. Erie relies on Mauler v. Westfield Ins. Co. (Sept. 28, 1989),
Franklin App. Nos. 88AP-914 and 88AP-915, unreported, 

1989 WL 112342

, where
the Tenth District Court of Appeals held that a policy that insured an employer’s
“non-ownership vehicle and hired auto liability insurance coverage” did not
provide uninsured/underinsured coverage because the policy was not issued for
                                 January Term, 1999




delivery with respect to any motor vehicle registered or principally garaged in Ohio
under R.C. 3937.18. The court held that “the policy must be issued with respect to
some particular motor vehicle.”
        {¶ 11} However, the court below, quoting Speelman v. Motorists Mut. Ins.
Co. (Dec. 22, 1995), Montgomery App. No. 15362, unreported, 

1995 WL 765979

,
held that an insurance company’s “ ‘attempt to distinguish non-owned or hired
vehicles from owned or specifically described vehicles “runs counter to well-
established Ohio law.” ’ ” Speelman was the owner of a sole proprietorship who
had purchased business insurance containing “business auto coverage” from
Motorists Mutual Insurance Company. Testimony revealed that the purpose of the
policy was “ ‘to protect the insured against its vicarious liability or liability imputed
to it because of negligent use of a hired or nonowned automobile.’ ” The court
concluded that “R.C. 3937.18 does not distinguish between commercial and
consumer automobile or motor vehicle liability policies” and that the Motorists
Mutual policy extended liability coverage to Speelman. Therefore, Motorists was
obligated to offer uninsured and underinsured coverage under R.C. 3937.18. We
agree with the rationale set forth in Speelman. Erie admits that the Fivestar policy
provides automobile liability coverage, albeit in the limited circumstance of
providing coverage for claims of vicarious liability arising out of the use of a hired
vehicle or non-owned vehicle. Where motor vehicle liability coverage is provided,
even in limited form, uninsured/underinsured coverage must be provided. See, e.g.,
Goettenmoeller v. Meridian Mut. Ins. Co. (June 25, 1996), Franklin App. No.
95APE11-1553, unreported, 

1996 WL 362089

; House v. State Auto. Mut. Ins. Co.
(1988), 

44 Ohio App.3d 12

, 

540 N.E.2d 738

.                     Under R.C. 3937.18,
uninsured/underinsured coverage arises even though a liability policy refers only
to “hired” or “non-owned” automobiles and fails to identify specific vehicles.
Speelman. In this case, the contract expressly provided liability coverage for “non-
owned” vehicles.      Under the specific language of the policy, “if you are a




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                             SUPREME COURT OF OHIO




partnership a non-owned automobile does include any automobile owned by or
registered in the name of a partner, but only while such automobile is being used in
your business.” There is no question that the 1980 Ford pickup truck occupied by
the Selanders was an automobile owned by a partner and was being used in the
partnership’s business. The fact that a policy provides liability coverage for non-
owned and hired motor vehicles is sufficient to satisfy the requirement of R.C.
3937.18 that a motor vehicle liability policy be delivered in this state with respect
to any motor vehicle registered or principally garaged in this state. Thus, we find
R.C. 3937.18 applicable to the Fivestar policy in this case.
       {¶ 12} Next, Erie argues that R.C. 3937.18 has no application to the Fivestar
policy because the policy would not have been approved for issuance or delivery
under Ohio’s financial responsibility law, R.C. Chapter 4509. Erie points out that
Eugene Selander would not have been entitled to liability coverage at the time of
the accident had he caused the accident. This is because the policy provided “non-
owned” liability protection only when an insured becomes legally obligated to pay
damages “arising out of the use of any non-owned automobile in your business by
any person other than you.” (Emphasis added.) The policy defined “You” in part
as the “named insured[s]” under the policy, identified as Twin Electric, Glenn
Selander, and Gene Selander.
       {¶ 13} However, Speelman held that the fact that an insurance policy did
not comply with Ohio’s financial responsibility law, R.C. Chapter 4509, was not
indicative of its status as an “automobile liability” or “motor vehicle liability”
policy. The Speelman court based its rationale on the Arizona Supreme Court
decision in St. Paul Fire & Marine Ins. Co. v. Gilmore (1991), 

168 Ariz. 159

, 

812 P.2d 977

. In that case, Sharon Gilmore’s car was hit by another driver, while
Sharon was driving her own vehicle in the course of her employment. She sought
underinsured motorist coverage under her employer’s comprehensive general
liability policy, which included language covering non-owned automobiles. The
                                      January Term, 1999




policy did not offer underinsured motorist coverage.                     The court held that a
comprehensive liability insurance policy that includes automobile liability
coverage is an “automobile liability” or “motor vehicle liability” policy.
Construing a statute similar to Ohio’s, the Arizona court found the insurer was
obligated to offer underinsured motorist coverage.                     The court reached this
conclusion despite the policy’s failure to meet the requirements of Arizona’s
financial responsibility law. The Gilmore court explained: “[T]he type of policy
is determined by the type of coverage provided, not by the label affixed by the
insurer.    Otherwise, it would be a simple matter for insurers to evade the
requirements of Arizona law by changing the title of the policy. * * * Therefore,
the fact that [the] policy is labeled as a comprehensive general liability policy does
not mean it is not also an automobile liability policy under the [Uninsured Motorist
Act].” 

Id. at 165

, 

812 P.2d at 983

.
         {¶ 14} Furthermore, in Demetry v. Kim (1991), 

72 Ohio App.3d 692

, 

595 N.E.2d 997

, the Tenth District Court of Appeals rejected the argument that to
qualify for “implied underinsured coverage[,] appellant’s decedent must first fit
within the liability coverage afforded by the policy.” The court held that “there is
nothing, absent clear language evidencing an intent to do so, to prevent
uninsured/underinsured coverage from being broader than liability coverage.” 

Id. at 698

, 

595 N.E.2d at 1001

. Therefore, the fact that the Fivestar policy would not
comply with the mandates of R.C. Chapter 4509 does not conclusively demonstrate
that the policy was never intended to provide uninsured/underinsured motorist
coverage.1


1. Pursuant to Am.Sub.H.B. No. 261, enacted effective September 3, 1997, R.C. 3937.18(L) now
defines “automobile liability or motor vehicle liability policy of insurance” as either “(1) Any policy
of insurance that serves as proof of financial responsibility, as proof of financial responsibility is
defined by division (K) of section 4509.01 of the Revised Code, for owners or operators of the motor
vehicles specifically identified in the policy of insurance; (2) Any umbrella liability policy of
insurance.” However, this version of R.C. 3937.18 was not in effect at the time of the Selanders’
accident and thus is inapplicable.




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                            SUPREME COURT OF OHIO




       {¶ 15} Erie claims that the policy’s title of “Fivestar General Liability
Policy (excluding automobile)” indicates that it was never intended to provide
automobile coverage. However, as recognized in Gilmore, “the type of policy is
determined by the type of coverage provided, not by the label affixed by the
insurer.” 

Gilmore at 165

, 

812 P.2d at 983

. Regardless, Erie itself admits that
automobile liability coverage was intended in limited circumstances, which is
sufficient to give rise to uninsured/underinsured coverage.
       {¶ 16} Finally, Erie asserts that the Fivestar policy was never intended to
provide uninsured/underinsured motorist coverage as demonstrated by the fact that
the Selanders obtained uninsured/underinsured motorist coverage through Erie’s
Pioneer Commercial Automobile policy.          However, contrary to appellant’s
argument, the fact that the Selanders had obtained uninsured/underinsured coverage
through a separate policy in no way indicates that they did not intend to obtain
additional coverage under the Fivestar policy. See Speelman.
       {¶ 17} Under the policy’s language, the pickup truck occupied by the
Selanders at the time of the collision qualified as a “non-owned” vehicle. Given
the determination that the Fivestar policy qualifies as an “automobile liability or
motor vehicle policy” under R.C. 3937.18, the policy was required to offer
uninsured/underinsured coverage. Abate v. Pioneer Mut. Cas. Co. (1970), 

22 Ohio St.2d 161

, 

51 O.O.2d 229

, 

258 N.E.2d 429

. Since it did not, coverage arose by
operation of law in the amount equal to the liability coverage of the policy, and
appellees are entitled to compensation under the Fivestar policy.
       {¶ 18} Accordingly, the judgment of the court of appeals is affirmed.
                                                               Judgment affirmed.
       DOUGLAS, RESNICK and PFEIFER, JJ., concur.
       MOYER, C.J., and COOK, J., dissent.
       LUNDBERG STRATTON, J., dissents.
                              __________________
                                January Term, 1999




       COOK, J., dissenting.
       {¶ 19} I respectfully dissent. I subscribe to the analysis of the issue as found
in the case that presents the conflict, Mauler v. Westfield Ins. Co. (Sept. 28, 1989),
Franklin App. Nos. 88AP-914 and 88AP-915, unreported, 

1989 WL 112342

.
       MOYER, C.J., concurs in the foregoing dissenting opinion.
                               __________________
       LUNDBERG STRATTON, J., dissenting.
       {¶ 20} Once again, the majority of this court expands the scope of
uninsured/underinsured (“UM/UIM”) motorist coverage as mandated by R.C.
3937.18 and further erodes the contractual nature of the relationship between an
insurer and insured. The majority now finds a business liability policy the basis for
UM/UIM coverage for company vehicles despite the fact that the policy expressly
excludes this type of automobile coverage.
       {¶ 21} Twin Electric, a business belonging to two brothers who work as
electricians, purchased the Fivestar General Business Liability Policy to provide
liability coverage for its business operations. Twin Electric also had a Pioneer
Commercial Automobile Policy to provide liability coverage, including UM/UIM
coverage, for company vehicles.         Although the Fivestar policy specifically
excluded liability coverage for company vehicles, a portion of the policy did cover
“hired” or “non-owned” vehicles that may be used during the operation of the
business. With respect to the “hired” or “non-owned” vehicles, the Fivestar policy
agreed to pay “all sums which anyone we protect becomes legally obligated to pay
as damages because of personal injury or property damage arising out of” the use
of these vehicles, i.e., vicarious liability. When vicarious liability is at issue, the
insured is not seeking compensation for damages. Instead, the insured is legally
liable for damages for injuries to another. Because the very premise of vicarious
liability involves injury to one other than those protected by the insurance policy at
issue, UM/UIM coverage does not apply in this situation and makes no sense.




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                             SUPREME COURT OF OHIO




       {¶ 22} The basic premise of UM/UIM coverage is “ ‘to protect persons from
losses that, because of the tortfeasor’s lack of liability coverage, would otherwise
go uncompensated.’ ” Schaefer v. Allstate Ins. Co. (1996), 

76 Ohio St.3d 553, 555

,

668 N.E.2d 913, 915

, quoting Martin v. Midwestern Group Ins. Co. (1994), 

70 Ohio St.3d 478, 480

, 

639 N.E.2d 438, 440

. The majority concedes that Twin Electric
had an automobile liability policy with matching UM/UIM coverage of $300,000
per accident. Glenn Selander also had personal automobile insurance coverage.
These plaintiffs received compensation from at least three sources: the tortfeasor’s
policy, the Twin Electric automobile liability policy, and Glenn Selander’s personal
policy. It cannot be argued that the purpose of R.C. 3937.18 was not met and these
plaintiffs were uncompensated for their losses.
       {¶ 23} As a result of today’s opinion, any commercial liability policy that
also provides limited liability coverage for vehicles under certain circumstances
will provide an extra source of UM/UIM coverage, regardless of any applicable
policy exclusions. The majority has opened a Pandora’s box. This opinion will
overwhelmingly reach every existing company policy.
       {¶ 24} Therefore, I would adhere to the sound reasoning and common sense
of the court in Mauler v. Westfield Ins. Co. (Sept. 28, 1989), Franklin App. Nos.
88AP-914 and 88AP-915, unreported, 

1989 WL 112342

. Because I would answer
“No” to the certified question before us, I respectfully dissent.
                               __________________