Marshall, Dennehey, Warner, Coleman & Goggin

On November 5, 2003, the Ohio Supreme Court significantly restricted its controversial decision in Scott-Pontzer v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St.3d 660, and overruled a second decision, Ezawa v. Yasuda Fire & Marine Ins. Co. of Am., 86 Ohio St.3d 557, 1999-Ohio-124, which had expanded upon the Scott-Pontzer ruling. In Westfield Ins. Co. v. Galatis, 100 Ohio St.3d 216, 2003-Ohio-5849, the Court addressed Ohio’s law regarding whether uninsured and underinsured motorist insurance issued to a corporation may compensate an individual for a loss that was unrelated to the insured corporation. The Court held in a four-three decision that it did not.

In Scott-Pontzer, the decedent, who at the time was employed by Superior Dairy, Inc., was killed in an automobile accident while driving a car owned by his wife. When the accident occurred, Superior Dairy was insured through a commercial automobile liability insurance policy issued by Liberty Mutual Fire Insurance Company that provided underinsured motorists coverage and an “umbrella/excess” insurance policy with Liberty Mutual Insurance Company.

The decedent’s wife, as the surviving spouse and in her capacity as the executor of his estate, filed an action against both Liberty Fire and Liberty Mutual. In her complaint, the plaintiff claimed that because her husband had been an employee of Superior Dairy when he was killed, she was entitled to the underinsured motorists benefits under Superior Dairy’s policy with Liberty Fire, and that she also was entitled to any benefits accruing under the company’s “umbrella/excess” policy with Liberty Mutual.

In Liberty Fire’s policy, the declarations page listed Superior Dairy as the named insured. The business auto coverage form included in the policy stated that “[t]hroughout this policy the words you and your refer to the [n]amed [i]nsured shown in the declarations.” The policy also defined an insured for purposes of underinsured motorist coverage as:

You.
If you are an individual, any family member.
Anyone else occupying a covered auto or a temporary substitute for a covered auto. The covered auto must be out of service because of its breakdown, repair, servicing, loss or destruction.
Anyone for damages he or she is entitled to recover because of bodily injury sustained by another insured.

Liberty Fire argued that the policy language unambiguously demonstrated that the parties intended to list Superior Dairy as the only named insured, and that the company’s employees were not entitled to coverage. The Supreme Court, however, found that the language defining who was an insured was “subject to various interpretations” and could be understood to include company employees. Specifically, the Court determined that because “a corporation can act only by and through real live persons” and “cannot occupy an automobile, suffer bodily injury or death, or operate a motor vehicle,” it would be reasonable to conclude that “you,” while obviously referring to Superior Dairy, also included the company’s employees. As a result, because any ambiguity in an insurance policy must be construed liberally in favor of the insured, the Supreme Court extended underinsured motorist coverage to the decedent.

With respect to Liberty Mutual, the Supreme Court found that the company had failed to offer uninsured/underinsured motorist coverage under its “umbrella/excess” policy as required by Ohio Revised Code 3937.18. As a result, the Court concluded that the policy included underinsured motorists coverage by operation of law, and that the decedent, as an employee of Superior Dairy, was an insured under the “umbrella/excess” policy.

Having concluded that the decedent was an insured under both policies, the Court then had to determine whether the decedent’s wife was entitled to underinsured motorist benefits. In particular, the Court was required to determine whether the fact that the decedent was not acting within the scope of his employment when he was killed precluded coverage.

Liberty Fire’s policy did not contain any language requiring that employees must be acting within the scope of their employment in order to receive underinsured motorist benefits. Accordingly, the Supreme Court found that the decedent’s wife was entitled to receive the benefits of that policy.

However, Liberty Mutual’s umbrella/excess insurance policy did restrict coverage to those employees acting within the scope of their employment. Despite this restriction, the Supreme Court ultimately held that because Liberty Mutual originally had failed to offer underinsured motorist coverage, any language in the policy was intended to apply solely to excess liability coverage and was not intended for underinsured motorist coverage. Therefore, the decedent’s wife was entitled to recover underinsured motorist benefits under that policy as well.

In Ezawa, the Court broadened Scott-Pontzer in holding that uninsured motorist coverage extends to a resident relative of an employee of a corporate policyholder.

The Galatis Court adopted a three-part standard to be applied in Ohio to overrule a prior Supreme Court decision.

In applying the standard, the majority opinion recognized that the Scott-Pontzer reasoning has been questioned in a number of Ohio opinions (“a mystery,” “preposterous,” “distortion of the law”), and that it stands in stark contrast with other decisions of the vast majority of states that have considered similar issues. The Court reasoned that Scott-Pontzer erroneously construed the insurance contract in favor of neither party to the contract, i.e. the insurer and corporate policyholder, who undoubtedly never conceived of contracting for coverage for off-duty employees occupying non-covered autos, let alone employee family members. Instead, Scott-Pontzer interpreted it in favor of an unintended third party. In other words, the Scott-Pontzer Court failed to explain why it departed from precedent that the intent of the parties to the contract is controlling. The Galatis Court also observed that the Scott-Pontzer decision muddied the waters of insurance coverage litigation, converted simple liability suits into complex multiparty litigation, and created massive and widespread confusion.

The Galatis Court held that Ohio law regarding uninsured and underinsured motorist insurance issued to a corporation may not compensate an individual for a loss that was unrelated to the insured corporation. The court held that “[a]bsent specific language to the contrary, a policy of insurance that names a corporation as an insured for uninsured or underinsured motorist coverage covers a loss sustained by an employee of the corporation only if the loss occurs within the scope of employment.” The rationale underlying this holding stems from the general intent of a motor vehicle insurance policy issued to a corporation, which is “to insure the corporation as a legal entity against liability arising from the use of motor vehicles.” An insurance policy extending to “an employee’s activities outside the scope of employment are not of any direct consequence to the employer as a legal entity. An employer does not risk legal or financial liability from an employee’s operation of a non-business-owned motor vehicle outside the scope of employment. Consequently, uninsured motorist coverage for an employee outside the scope of employment is extraneous to the general intent of a commercial auto policy.”

Moreover, the Galatis Court overruled Ezawa and held that if an insurance policy “designates a corporation as a named insured, the designation of ‘family members’ of the named insured as ‘other insureds’ does not extend insurance coverage to a family member of an employee of the corporation, unless the employee is also a named insured.”

The Galatis decision had an immediate impact on hundreds of pending insurance claims filed since Scott-Pontzer. The decision is being applied to all pending claims under the general rule that a decision of a court of supreme jurisdiction overruling a former decision is retrospective in its operation. The effect is not that the former was bad law, but that it never was the law.

*Chris is an associate in the firm's Akron, OH office. He can be reached at (330) 255-0042 or creece@mdwcg.com.