COURT DECISIONS

Rough Notes, Nov 2005

Digested from case reports published in the North Eastern Reporter 2d, West Publishing Co., St. Paul, MN

Auto lessee claims coverage under lessor's policies

Ronald Armentrout was severely injured on October 1, 1997, when the car he was driving was hit head-on by a drunk driver, Marvin Bolden. Bolden was driving a car owned by Donna Fresch. Armentrout's car was leased by his wife, Elizabeth Armentrout and was owned by Toyota Motor Credit Corporation.

Tokio Marine and Fire Insurance Company, Ltd., was Toyota's insurer. Toyota had two policies with Tokio, a business automobile liability policy and a follow-form excess liability policy. Both policies had liability limits of $1 million. The Armentrouts claimed they were insureds under these policies and were thus entitled to underinsured motorist coverage. Tokio denied the claims. The Armentrouts then filed a lawsuit seeking a declaration that they were entitled to coverage. The trial court found in favor of Tokio and dismissed the suit. The Armentrouts appealed.

The issue on appeal was whether underinsured motorist coverage arose in the Tokio policies by operation of law. The case turned on whether the policies were subject to an Ohio law that mandates a two-year period during which the policy cannot be altered. This law became effective on September 3, 1997. If the Tokio policies were found to be "automobile liability insurance policies]" as defined by statute, the two-year guarantee period would apply, and the underinsured motorist law in effect at the time the policy period began would apply.

Under the statute, an "automobile liability insurance policy" had to insure as a named insured "any of the following: (1) Any one person; (2) A husband and wife resident in the same household; (3) Either a husband or a wife who reside in the same household if an endorsement on the policy excludes the other spouse from coverage under the policy and the spouse excluded signs the endorsement."

The Court of Appeals of Ohio, Eleventh District, Portage County, found the policies were not "automobile liability insurance policies]" as defined by statute. The Tokio policies at issue were reissued December 5, 1997, for a period of one year. Before reissue, the named insureds on the policies were Toyota Motor Credit Corporation and Toyota Motor Credit Receivables Corporation. After reissue, Toyota Lease Trust and Toyota Leasing, Inc., were added as named insureds. Under Ohio law, corporations are "persons." Thus, the policies named more than one person and these insureds were not husband and wife. Therefore, the policies were not "automobile insurance policies," and the two-year guarantee period did not apply.

Having found that the two-year guarantee period did not apply, the court said that the law in effect on the December 5, 1997, renewal date applied. This version of the law mandated an offer of underinsured motorist coverage for any "automobile liability or motor vehicle liability policy of insurance" serving as proof of financial responsibility. Under Ohio's financial responsibility laws at that time, the "owner" of the vehicle was required to maintain proof of financial responsibility. Elizabeth was the "owner" because she had the right to buy the car at the end of the lease. As a result, neither Tokio nor Toyota had a duty to provide UM/UIM coverage on the leased vehicle, and the policies issued by Tokio did not have to be construed as providing "automobile liability or motor vehicle liability policies] of insurance." Thus, Tokio was not required to offer Toyota underinsured motorist coverage, and underinsured motorist coverage did not arise by operation of law.

The decision of the lower court was affirmed.

Armentrout vs. Tokio Marine and Fire Insurance Company, Ltd.-No. 2003-P-0134-Court of Appeals of Ohio, Eleventh District, Portage County-December 23, 2004-824 North Eastern Reporter 2d 117.

Injured worker's employer rescinds tender of defense

Joseph Duffy and Ozark Steel Sales and Fabricators, general contractor and subcontractors at a construction site in Chicago, were sued by a construction worker, Ronald Stone, who was injured at the site. Both parties filed third-party complaints against the injured worker's employer, Barrco Industries, for contribution. At the time of the accident, Barrco was covered by two insurance policies: an employers liability / workers compensation policy issued by Legion Insurance Company, and a commercial general liability policy issued by Empire Fire and Marine Insurance Company. Barrco tendered its defense of both the Duffy and Ozark complaints to Legion. Barrco's attorney (hired by Legion) sent a letter to Empire, tendering Barrco's defense to Empire. Later, on July 20, 2000, Barrco wrote Empire, indicating that it did not want to tender its defense to Empire. Empire subsequently filed an action seeking the court's declaration that it owed Barrco no duty to defend or indemnify; this action was subsequently dismissed, without prejudice.

The parties settled the Stone lawsuit, including the Duffy and Ozark contribution actions, for $2,040,000. Legion paid Barrco's share, which was $640,000. Legion then filed suit against Empire, seeking damages incurred in its defense of Barrco. According to Legion, Empire had a duty to defend and indemnify Barrco in the Ozark third-party contribution action. Empire argued that Barrco's tender of its defense to Empire had been rescinded in the July 20, 2000, letter from Barrco to Empire. Empire also submitted technical arguments as to why its policy did not provide coverage even if the tender of defense was not rescinded. The lower court found in favor of Empire; Legion appealed.