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Uninsured/Underinsured Motorist Insurance in Corporate Policy Covers Employees Only While on the Job

2002-0932. Westfield Ins. Co. v. Galatis, 2003-Ohio-5849.
Summit App. No. 20784, 2002-Ohio-1502. Judgment affirmed.
Moyer, C.J., DeGenaro, Lundberg Stratton and O'Connor, JJ., concur.
Moyer, C.J., and Lundberg Stratton, J., concur separately.
Resnick, J., dissents.
Resnick and F.E. Sweeney, JJ., dissent.
Pfeifer, J., dissents.
Mary DeGenaro, J., of the Seventh Appellate District, sitting for Cook, J.
Opinion: http://www.supremecourt.ohio.gov/rod/documents/0/2003/2003-Ohio-5849.pdf

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(Nov. 5, 2003) The Ohio Supreme Court today adopted a three-part test to be applied when the justices consider overruling one of their own past decisions, then applied that test to largely overrule the court's prior holdings in two 1999 auto insurance cases, Scott-Pontzer v. Liberty Mutual Insurance Co. and Ezawa v. Yasuda Fire and Marine Insurance.*

*[In Scott-Pontzer, the court found that certain language in standard auto insurance policies issued to business entities was ambiguous regarding who was covered by uninsured/underinsured motorist provisions. Applying the contract law principle that ambiguous language must be construed most favorably to the non-drafting party, the court held that UM/UIM coverage in corporate insurance policies should be read to cover all company employees, and to apply whether or not employees' accident injuries were incurred in the course of their employment. In the Ezawa case, decided shortly thereafter, the court followed the reasoning of Scott-Pontzer to hold that UM/UIM coverage in corporate motor vehicle policies extended not only to company employees, but also to their resident family members who were injured in traffic accidents.]

In today's 4-3 decision, the court:

The decision was authored by Justice Maureen O'Connor and joined by Chief Justice Thomas Moyer, Justice Evelyn Lundberg Stratton and Judge Mary DeGenaro of the 7th District Court of Appeals, sitting for former Justice Deborah Cook. Chief Justice Moyer entered a concurring opinion that was joined by Justice Stratton. Justices Alice Robie Resnick, Francis E. Sweeney and Paul E. Pfeifer each entered separate dissenting opinions, with Justice Resnick also joining Justice Sweeney's dissent.

In the case, Summit County teenager Jason Galatis was a passenger killed in a 1994 traffic accident caused by an underinsured driver. Neither of Jason's parents was involved in the accident, and the accident was unrelated to the employment of either parent. In 2000, following the Supreme Court's holdings in the Scott-Pontzer and Ezawa cases, Mr. and Mrs. Galatis sought to recover underinsured damages for Jason's death by filing claims against the corporate auto insurance policies that their employers had in force with Westfield Insurance and Aetna Casualty and Surety Co. respectively at the time of the accident.

The trial court held that Jason was covered under the UIM provisions of both parents' employer's policies, but ruled the parents had invalidated that coverage by failing to file their claims in a timely fashion after the accident and by failing to preserve the insurers' subrogation rights. While that decision was under appeal, the Galatises settled their claim with Westfield. The 9th District Court of Appeals subsequently held that the Galatises were not entitled to UIM coverage under the Aetna policy of Mrs. Galatis' employer because a "broadened coverage" endorsement in that policy had identified seven named individuals (not including Mrs. Galatis) as insureds, thus eliminating "ambiguity" about who was covered by the policy's UM/UIM provisions. The 9th District certified its decision to the Supreme Court for review, citing a conflict between its ruling and rulings on the same legal issue by several other appellate districts.

Writing for the court in today's decision, Justice O'Connor cited this case and dozens of similar appeals which have reached the Supreme Court during the current term as examples of "chaos" in state UM/UIM jurisprudence resulting from the Scott-Pontzer and Ezawa decisions. While expressing concern about departing from the principle of stare decisis (the judicial doctrine that courts should stand by things decided by upholding their own past decisions), she wrote that courts are not barred from discarding faulty precedents if there is "special justification" for such action.

Finding that the Supreme Court had not previously adopted a formal standard by which to judge whether one of its past decisions should be abandoned, Justice O'Connor and the majority cited standards applied by 12 other state Supreme Courts, and incorporated into the syllabus of their opinion a three-pronged test to guide the court in reviewing its own past decisions for possible abandonment.

"In Ohio, a prior decision of the supreme court may be overruled where (1) the decision was wrongly decided at that time, or changes in circumstances no longer justify continued adherence to the decision, (2) the decision defies practical workability, and (3) abandoning the precedent would not create an undue hardship for those who have relied upon it," wrote Justice O'Connor.

Applying those criteria to Scott-Pontzer in the context of the Galatis appeal, the majority held that the Scott-Pontzer and Ezawa decisions met all three standards for abandonment as precedents, and affirmed the 9th District's denial of UIM coverage for Jason Galatis under the Aetna policy issued to his mother's employer.

Justice O'Connor cited several grounds on which the Scott-Pontzer case was "wrongly decided," including what she characterized as its confusion between the interest of a claimant under a corporate policy and the interest of the business entity which is the insured party named in the contract of insurance. "Contract law requires that … ambiguities are construed in favor of the insured. A claimant, however, is not necessarily an insured," wrote O'Connor. "The purpose of a commercial auto policy is to protect the policyholder … Providing uninsured motorist coverage to employees who are not at work or, for that matter, to every employee's family members, is detrimental to the policyholder's interests."

Because insurance policies are contracts between an insurer and a policyholder, wrote Justice O'Connor, the job of a court interpreting terms of a policy is "to give effect to the intent of the parties to the agreement." … "Scott-Pontzer ignored the intent of the parties … (I)t is doubtful that either an insurer or a corporate policyholder ever conceived of contracting for coverage for off-duty employees … let alone the family members of employees. The Scott-Pontzer court construed the contract in favor of neither party to the contract, preferring instead to favor an unintended third party."

With regard to the "practical workability" of continuing to follow Scott-Pontzer, Justice O'Connor said that state courts at all levels have been "deluged by cases arising from Scott-Pontzer and its progeny," and noted that the Supreme Court currently has 23 cases awaiting its decision in this case and more than 90 related matters pending. Those pending cases involve multiple conflicts between rulings of the state's appellate districts on interpretations of UM/UIM coverage issues inn cases similar to Scott-Pontzer, she said.

"The multitude of post Scott-Pontzer issues before this court, the widespread criticism of the decision from other jurisdictions, and the numerous conflicts emanating from the lower courts, indicate that the decision muddied the waters of insurance coverage litigation, converted simple liability suits into complex multiparty litigation, and created massive and widespread confusion, the antithesis of what a decision of this court should do," wrote Justice O'Connor.

Finally, the decision noted that neither policyholders nor insurance companies ever relied upon Scott-Pontzer and Ezawa when they contract for coverage or make underwriting decisions.

"Limiting Scott-Pontzer will restore order to our legal system by returning to the fundamental principles of insurance contract interpretation," Justice O'Connor concluded. Quoting from a 1991 Ohio Supreme Court opinion overturning a faulty precedent, she added that "'It does no violence to the legal doctrine of stare decisis to right that which is clearly wrong. It serves no valid public purpose to allow incorrect opinions to remain in the body of our law.'"

In a concurring opinion joined by Justice Stratton, Chief Justice Moyer said the court found itself "at a crossroads" in deciding the current wave of UM/UIM cases. He said its choices were to continue mechanically applying stare decisis but then creating a patchwork of exceptions and limitations that minimize the impact of Scott-Pontzer, or "in a single pronouncement, right that which is clearly wrong." Opting for the latter course of action in this case, the Chief Justice reaffirmed his commitment to stare decisis as a guiding principle. He urged that "(N)o one should assume that our decision heralds a new era in which prior cases of this court will be routinely or arbitrarily overruled," and said the three-part test adopted by the majority sets "a cogent, clear standard by which to test claims that our precedents should not be followed."

Justice Resnick's dissent focused on the court's announced acceptance of Westfield v. Galatis only for review of the "broadened coverage endorsement" issue on which several appellate districts had issued conflicting decisions. "In its brief filed here, (Aetna) uses seven pages…to respond to (Galatis') arguments relating to… the broadened coverage endorsement … then expounds for 28 pages on why Scott-Pontzer should be overruled, wrote Justice Resnick. "This case is about broadened coverage endorsements and nothing more. As a certified-conflict case that should be confined to a narrow issue, it is certainly not about whether Scott-Pontzer should have continuing validity. Because the majority's reach exceeds the limits inherent in this appeal, I dissent."

In a separate dissent joined by Justice Resnick, Justice Sweeney took exception to the majority's failure to abide by stare decisis and noted that Aetna had not challenged the viability of Scott-Pontzer in either its trial or appellate arguments. He said Aetna had only raised such arguments "after the case was certified and after it appeared that the composition of this court would change." Justice Sweeney also questioned the wisdom and propriety of the majority's action in prescribing the three-part test for overturning precedents "in syllabus law," despite what he termed "the long-held view that any discussion of stare decisis is dicta … (which) is defined as 'expressions in courts' opinions which go beyond facts before court and therefore are … not binding in subsequent cases as legal precedent.'"

Justice Pfeifer's dissent noted that the Westfield v. Galatis majority arrived at the same basic conclusion as the Scott-Pontzer majority (that a company's employees are the "you" entitled to UM/UIM coverage in a corporate motor vehicle policy), while "pillorying" the earlier decision. Disputing the majority's claims to favor "judicial restraint," Pfeifer wrote that today's decision "overrules a four-year-old case," and "creates some new limitations of coverage …. Although insurers did not include these limitations in their policies, the majority reasons that they meant to."

W. Craig Bashein, 216.771.3239, for James Galatis et al.

Henry A. Hentemann and Richard M. Garner, 216.348.1700, for Westfield/Aetna Insurance Co.