Court Upholds Three-Year Limit to Sue Insurer for Underinsured Motorist Coverage in Auto Policy

In Case Where Insufficiency of Other Drivers' Insurance Not Determined Within Three Years

Barbee v. Nationwide Mut. Ins. Co., Slip Opinion No. 2011-Ohio-4914.
Lorain App. Nos. 09 CA 009594 and 09 CA 009596, 2010-Ohio-2016. Judgment reversed and cause remanded.
O'Connor, C.J., and Lundberg Stratton, O'Donnell, Lanzinger, and Cupp, JJ., concur.
Pfeifer and McGee Brown, JJ., dissent.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2011/2011-Ohio-4914.pdf

View oral argument video of this case.

(Sept. 29, 2011) The Supreme Court of Ohio ruled today that language in an auto insurance policy requiring the policyholder to file suit against the insurer for underinsured motorist coverage within three years after an accident is unambiguous and therefore enforceable, including in cases where the insufficiency of the at-fault drivers’ insurance is not determined within the three-year limitation period.

The Court’s 5-2 decision, which reversed a ruling by the 9th District Court of Appeals, was authored by Justice Robert R. Cupp.

The case involved four members of the Barbee family of Lorain County, who were injured in a traffic accident in October 2002 while traveling in Wisconsin. The accident was part of a multi-vehicle “chain reaction” crash that was triggered by the collision of two other vehicles. The driver of one of the vehicles that started the crash, who was killed, was covered by an auto insurance policy that provided up to $75,000 in coverage for personal injury to others. The other driver in the initial collision, who survived, was an armed-forces member covered by the federal government’s self-insurance plan.

The Barbees filed claims under the medical payments coverage in their own Nationwide auto insurance policy, and Nationwide paid those claims. Within a year after the accident, the Barbees’ attorney notified Nationwide that they were pursuing recovery from the at-fault drivers for additional unreimbursed medical bills and other damages, and might file claims in the future under the underinsured motorist coverage in their Nationwide policy if they were unable to recover the full amount of their damages from the at-fault drivers.

The Barbees sued both of the at-fault drivers in federal court in Wisconsin. The defendants’ insurance providers disputed the percentage of fault that was attributable to their respective insureds, and the case proceeded to trial. At the conclusion of that litigation, more than three years after the date of the 2002 accident, the federal court set the amount of damages payable to each of the Barbees and held that the estate of the deceased driver was responsible for 70 percent of those damages and the federally insured driver was liable for 30 percent. The federal government paid the Barbees 30 percent of the total damages awarded by the court. However, the policy limit of $75,000 in liability coverage available from the deceased driver’s policy, which was apportioned among the victims, was not sufficient to cover the remaining 70 percent of their court-awarded damages.

In January 2007, the Barbees filed suit against Nationwide in the Lorain County Court of Common Pleas, seeking to recover the unpaid portions of their respective court judgments from the underinsured motorist coverage in the Nationwide policy. Nationwide filed a motion for summary judgment dismissing the Barbees’ claims, arguing that its policy included a specific limitation clause stating that any suit against the company seeking underinsured motorist coverage must be filed within three years after the date of a covered accident. Because the Barbees had not filed suit until more than four years after their accident, the company said, they had missed the deadline for asserting their underinsured motorist claims.

The trial court denied the summary judgment motion. It held that the language of Nationwide’s policy was ambiguous because there was a conflict between the three-year limitation provision and a separate “exhaustion” provision stating that no payments would be made under the underinsured motorist coverage in the policy “until the limits of all other liability insurance and bonds that apply have been exhausted by payments.” Following a line of prior court decisions holding that ambiguities in an insurance policy must be read in favor of the policyholder and against the insurer, the trial court held that the three-year limitation period in the Barbees’ policy did not begin to run until they had exhausted the liability coverage available from the at-fault drivers, which did not occur until the federal litigation was concluded and they received payments from the defendants’ insurers.

Nationwide appealed. The 9th District Court of Appeals affirmed the ruling of the trial court, holding that the Barbees did not have a claim for underinsured motorist coverage until the federal court case was concluded, and therefore the three-year limitation period did not begin to run until then. Nationwide sought and was granted Supreme Court review of the 9th District’s decision.

In today’s majority opinion, Justice Cupp wrote that the 9th District erred when it found a conflict between the policy language requiring an insured to file suit for underinsured motorist coverage within three years of an accident, and language withholding payment of underinsured motorist claims until all other sources of recovery have been exhausted.

He wrote: “In the case at bar, Nationwide’s exhaustion provision states, ‘No payment will be made until the limits of all other liability insurance and bonds that apply have been exhausted by payments.’ The plain meaning is that the exhaustion of a tortfeasor’s limits of liability is a condition that must be satisfied before an insured has a right to receive payment of underinsured-motorist benefits from his own insurer. It does not, however, impose exhaustion of the tortfeasor’s insurance as a condition that must be satisfied before an insured can file suit against his insurer to establish his claim under the policy for underinsured-motorist benefits.”

“Because the exhaustion clause does not affect when the insured may commence suit against his insurer for determination of underinsured-motorist benefits, no conflict exists among the exhaustion, compliance, and limitation provisions of the Barbees’ policy with Nationwide so that an ambiguity is created.”

Justice Cupp pointed out the actions of Faith Donley as an example that an insured is able to file suit prior to the exhaustion of the tortfeasor’s policy limits in order to protect the insured’s right to underinsured motorist coverage. Within the three-year period, Donley, another Nationwide insured who was involved in the same accident, filed suit against the company in Ohio for underinsured motorist coverage prior to the resolution of the federal court case. In so doing, he noted, Donley preserved her underinsured motorist claim in the event the damage award exceeded the tortfeasor’s policy limits.
“(T)he Barbees argue that unless this court holds that the failure to make exhaustion of a tortfeasor’s liability limits a condition that must occur before an insured’s claim accrues, there will be a flood of unnecessary cases onto the dockets of the courts.” wrote Justice Cupp. “Donley ... filed an underinsured-motorist claim against her insurer in Ohio before the federal suits were concluded. The Ohio trial court stayed the case pending the resolution of the federal suits. In many cases counsel will likely be able to learn about a party’s coverage through discovery. Counsel’s knowledge of the extent of injuries and damages sustained by the claimant will further determine whether an action for underinsured-motorist coverage must be asserted to preserve the policyholder’s underinsured-motorist-coverage rights. And because the trial court can stay proceeding on the underinsured-motorist claim until the claims against the tortfeasor are resolved, there is little extra burden on the court’s docket in preserving the insured’s claim for underinsured-motorist coverage in this manner.”

Justice Cupp’s opinion was joined by Chief Justice Maureen O’Connor and Justices Evelyn Lundberg Stratton, Terrence O’Donnell and Judith Ann Lanzinger. Justices Paul E. Pfeifer and Yvette McGee Brown dissented.

Justice Pfeifer entered a dissenting opinion in which he disputed the majority’s conclusion that there was no ambiguity in the interplay of the limitations, compliance, and exhaustion provisions of the Nationwide policy at issue.

He wrote: “Nationwide and this court see no ambiguity, to them the issue is crystal clear: the Barbees should have filed suit for uninsured motorist coverage even though they did not know whether they would be underinsured. Nationwide and this court point to another person injured in the same accident, who filed for underinsured motorist coverage before knowing whether she was entitled to it. This seems an odd way to determine that a policy is unambiguous: to point to someone who acted differently. That actually seems like proof of how ambiguous the policy is. One party did one thing, another party did something else. Two lower courts read the policy language and decided that the policy is ambiguous. The seven justices on this court read the policy language and, although the court is divided, decide that is not ambiguous. Such circumstances − different people, all schooled in the law and the language of insurance policies, reading the same policy language and reaching different conclusions − amply illustrate the very definition of ambiguity.”

“Unfortunately, this case has ramifications far beyond this case. Ultimately, Nationwide and this court have determined, as a matter of public policy, that it is better for insureds to file suit for underinsured motorist’s coverage in all circumstances, than for insureds to file only when they know that they are underinsured. Nationwide and this court have concluded that the trial courts can simply stay the suit for underinsured motorist coverage until after damages are assessed and it can be determined whether underinsured motorist coverage is applicable. ... What a waste of time for the courts of Ohio. What a waste of money for insurance companies. What a shame that this court couldn’t resolve this case sensibly without forcing attorneys to engage in an otherwise unnecessary practice.”

Contacts
Joyce V. Kimbler, 330.253.8877, for Nationwide Mutual Insurance Company.

Henry W. Chamberlain, 216.575.9000, for Matthew Barbee and other Barbee family member