Walls v. Amerisure Mut Ins Co

• Court: Court of Appeals for the Sixth Circuit
• Decided: September 18, 2003
• Docket: 01-4320
• Status: Published

Opinion

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 Walls et al. v. Amerisure Mutual Ins. Co. No. 01-4320 ELECTRONIC CITATION: 2003 FED App. 0333P (6th Cir.) File Name: 03a0333p.06 _________________ COUNSEL UNITED STATES COURT OF APPEALS ARGUED: Claudia R. Eklund, LOWE, EKLUND, FOR THE SIXTH CIRCUIT WAKEFIELD & MULVIHILL CO., Cleveland, Ohio, for _________________ Appellants. Laurie J. Nicholson, THOMPSON HINE, Cincinnati, Ohio, for Appellee. ON BRIEF: Claudia R. DORIS WALLS et al., X Eklund, LOWE, EKLUND, WAKEFIELD & MULVIHILL Plaintiffs-Appellants, - CO., Cleveland, Ohio, for Appellants. Laurie J. Nicholson, - Christopher Mark Bechhold, THOMPSON HINE, Cincinnati, - No. 01-4320 Ohio, for Appellee. v. - > _________________ , AMERISURE MUTUAL - OPINION INSURANCE COMPANY , - _________________ Defendant-Appellee. - - KAREN NELSON MOORE, Circuit Judge. The plaintiffs, N Reda Walls and her mother Doris Walls, appeal the district Appeal from the United States District Court court’s grant of summary judgment to the defendant for the Northern District of Ohio at Cleveland. Amerisure Mutual Insurance Company (“Amerisure”) and the No. 01-00722—Solomon Oliver, Jr., District Judge. district court’s denial of their motion for summary judgment. The plaintiffs allege that the injuries Reda received in an Argued: July 29, 2003 automobile accident were covered by an insurance policy held by the Ford Motor Company, which employed Reda’s father, Decided and Filed: September 18, 2003 Jessie Walls.

Before: DAUGHTREY and MOORE, Circuit Judges; The district court premised its grant of summary judgment CALDWELL, District Judge.* to the defendant (and its denial of summary judgment to the plaintiffs) on the fact that the plaintiffs did not comply with notice and subrogation provisions in the insurance policy. It is clear that the plaintiffs did in fact breach at least some of these provisions. After the district court decided this case, however, the Ohio Supreme Court decided Ferrando v. Auto- Owners Mutual Insurance Co., 781 N.E.2d 927 (Ohio 2002). Under Ferrando, the mere fact that the plaintiffs may have breached the notice and subrogation clauses is not dispositive * The Honorable Karen Caldwell, United States District Judge for the of their legal claim. Instead, the key question is whether the Eastern District of Kentucky, sitting by designation.

1 No. 01-4320 Walls et al. v. Amerisure Mutual Ins. Co. 3 4 Walls et al. v. Amerisure Mutual Ins. Co. No. 01-4320

plaintiffs’ breach of these provisions was prejudicial to entitled “Personal Auto Policy,” J.A. at 58-67. The Personal Amerisure — an issue that the district court did not address in Auto Policy contains a subsection that provides uninsured its summary-judgment decision. Because the district court motorists (“UM”) coverage. The Personal Auto Policy did did not address this issue and because the plaintiffs should not, however, include underinsured motorists (“UIM”) have a clearly delineated opportunity to show that their coverage, which was apparently never offered. Although the breaches were not prejudicial, we REVERSE the district policy has general liability limits in the amount of court’s judgment and REMAND this case for the district $1,000,000, an endorsement purports to limit the UM court to conduct a prejudice inquiry under Ferrando. coverage to $100,000 per person and $300,000 per accident. I. BACKGROUND There are several notice and subrogation provisions in this insurance policy. First, the Comprehensive Automobile According to the complaint, on March 28, 1986, Reda Liability Insurance part of the policy contains apparently Walls was riding in an automobile when it was struck by a car policy-wide consent-to-settle and subrogation provisions: negligently operated by Lawrence Lavrich. Reda, who was seventeen years old at the time, sustained significant In the event of any payment under this Policy, the permanent injuries. At the time of the accident, Reda’s father, Company shall be subrogated, subject to the rights of Jessie Walls, was an employee of the Ford Motor Company. others, including the INSURED, to the INSURED’s The Ford Motor Company had an insurance policy (“the rights to recover from others to the extent of the policy”) with the Michigan Mutual Insurance Company (now Company’s payments and will act in concert with all in business as Amerisure Mutual Insurance Company), that other interests concerned in the exercise of the provided automobile liability insurance. This policy was INSURED’s rights of recovery against any person or issued for the period of December 15, 1983 to December 15, organization. The INSURED shall execute and deliver 1986, and was in effect at the time of the accident. such assignments and similar instruments and papers as are necessary to secure such rights and shall cooperate On June 1, 1988, the plaintiffs settled their claims against with the Company. Lavrich, who was an underinsured motorist, and released him The INSURED may release others from liability and and his insurance carrier from all liability in exchange for a also waive the Company’s right of subrogation against payment of $50,000. It was not until February 21, 2001 that third parties but only if such releases or waivers are prior the plaintiffs notified Amerisure of the accident. Apart from to loss and are by contract. the settlement that the plaintiffs received from Lavrich and his insurer, the plaintiffs also received $50,000 from the State J.A. at 55 (emphasis added). Farm Insurance Company, which insured the vehicle in which Reda was riding at the time of the accident. Second, the Personal Auto Policy has notice and subrogation provisions: The Amerisure insurance policy provided both general commercial liability insurance and automobile insurance. We must be notified promptly of how, when and where The automobile insurance component of the policy consists the accident or loss happened . . . . of a section entitled “Comprehensive Automobile Liability Insurance,” J.A. at 47-57, and a supplementary section, No. 01-4320 Walls et al. v. Amerisure Mutual Ins. Co. 5 6 Walls et al. v. Amerisure Mutual Ins. Co. No. 01-4320

A person seeking any coverage must: to the Company or its agent as soon as practicable; 1. Cooperate with us in the investigation, however, failure to give notice of any OCCURRENCE settlement or defense of any claim or suit. shall not prejudice such claims. 2. Promptly send us copies of any notices or legal papers received in connection with the accident J.A. at 55. or loss. *** II. ANALYSIS If we make a payment under this policy and the person to or for whom payment was made has a right to recover A. Jurisdiction damages from another we shall be subrogated to that right. That person shall do: The district court had jurisdiction over this diversity case 1. Whatever is necessary to enable us to exercise pursuant to 28 U.S.C. § 1332, because the plaintiffs are our rights; and citizens of Ohio and the defendant is a Michigan corporation 2. Nothing after loss to prejudice them. that has its principal place of business in Michigan. See Lee- Lipstreu v. Chubb Group of Ins. Cos., 329 F.3d 898, 899-900 J.A. at 65-66. (6th Cir. 2003). Pursuant to 28 U.S.C. § 1291, we have jurisdiction over the district court’s final judgment. Finally, the uninsured motorists coverage part of the Personal Auto Policy itself contains a consent-to-settle B. Standard of Review “exclusion”: This court reviews de novo a grant of summary judgment. Bukowski v. City of Akron, 326 F.3d 702, 707 (6th Cir. 2003). We do not provide Uninsured Motorists Coverage for Although the denial of a motion for summary judgment is bodily injury sustained by any person: usually an interlocutory order that is not immediately *** appealable, where “an appeal from a denial of summary 2. If that person or the legal representative settles the judgment is presented in tandem with a grant of summary bodily injury claim without our consent. judgment, this court has jurisdiction to review the propriety of the district court’s denial of summary judgment.” Hamad J.A. at 63. v. Woodcrest Condo. Ass’n, 328 F.3d 224, 235 (6th Cir. 2003) (quotation omitted). We review de novo a denial of summary In addition to these provisions, the Comprehensive judgment on purely legal grounds. Id. at 235-36. Summary Automobile Liability Insurance part of the policy also judgment can only be granted when, taking all justifiable contains the following provision: inferences in the nonmoving party’s favor, there is still no genuine issue of material fact and the moving party is entitled B. Notice of Occurrence, Claim, or Legal Proceeding to a judgment as a matter of law. Fed. R. Civ. P. 56(c). Whenever the Corporate Insurance Manager, Ford Motor Company, Dearborn, Michigan, becomes aware of and in his reasonable judgment concludes that an OCCURRENCE covered hereunder is likely to involve this Policy, notice of the OCCURRENCE shall be given No. 01-4320 Walls et al. v. Amerisure Mutual Ins. Co. 7 8 Walls et al. v. Amerisure Mutual Ins. Co. No. 01-4320

C. The Notice and Subrogation Issues “if an insurance policy specifies general conditions precedent that must be satisfied before an insured is entitled to any The issue in this case on appeal is whether the plaintiffs coverage, then an insured’s failure to comply with those have breached the notice and subrogation provisions in the conditions precedent precludes recovery under UM/UIM Amerisure policy, and whether such breaches vitiate their coverage that arises by operation of law.” Id. at 549. We claim for coverage. We conclude that at least some of the then held that the notice and subrogation provisions in Lepley provisions related to notice and subrogation do apply to the were such general conditions precedent, and that they plaintiffs’ claim, and that the plaintiffs have indisputably therefore did “carry over” onto implied UM/UIM coverage. breached them. However, it is now clear that a mere breach Id. (holding that “the notice and subrogation clauses are valid of these provisions does not necessarily vitiate coverage. and enforceable preconditions to an insure[r]’s duty to Instead, the question is whether the breach prejudiced the provide underinsured motorist coverage even where UM/UIM insurer. Because the district court did not examine that issue coverage arises as a matter of law”) (quotation and brackets and because the plaintiffs have shown that they could omitted); see also Clark v. Chubb Group of Ins. Cos., 337 possibly demonstrate a lack of prejudice, we remand this case F.3d 687, 696 (6th Cir. 2003) (explaining this point). to the district court for further proceedings on this issue. The insurance policy in this case does have at least two 1. The Effect of Notice and Subrogation Provisions in policy-wide conditions that act as general conditions Policies Where UM/UIM Coverage is Implied by precedent that must be satisfied before any recovery under the Law policy is permitted. These are the policy-wide consent-to- settle provision and the policy-wide subrogation provision. It is important to stress that the plaintiffs are not seeking to J.A. at 55. These provisions, under Lepley, apply to any recover under the written policy. They concede that the claim for implied UM/UIM benefits.1 policy only insures damages caused by the operator of an uninsured motor vehicle and that Lavrich was insured to some extent — in fact, the plaintiffs recovered $50,000 from 1 As explained infra, the policy has several other notice and Lavrich’s insurer. Instead, the plaintiffs apparently are subrogation provisions. T he Perso nal Auto P olicy contains notice and arguing that the insurer’s failure to offer underinsured subrogation provisions, and the uninsured moto rists coverage part of the motorists coverage created underinsured motorists coverage Personal Auto P olicy itself has a separate co nsent-to-settle provision. It in the amount of the policy limits pursuant to Gyori v. is unclear to us wh ether the se pro visions also apply to the plaintiffs’ claim for implied UM /UIM benefits. It is frankly difficult to tell whether these Johnston Coca-Cola Bottling Group, Inc., 669 N.E.2d 824 provisions are policy-wide, and, relatedly, whether provisions that are not (Ohio 1996), and Linko v. Indemnity Insurance Co. of North policy-wide “carry over” onto implied UM/U IM cove rage. Cf. Lepley v. America, 739 N.E.2d 338 (Ohio 2000). Hartford Acc. & Indem. Co., 334 F.3d 544 , 549 (6th Cir. 2003) (suggesting that only those conditions that are “general conditions Because they are not seeking to recover under the written precedent that must be satisfied before an insured is entitled to any policy, the plaintiffs claim that the notice and subrogation coverage” apply to claims of implied coverage) (emphasis added). Mo reover, it is unclear whether any provisions requiring prompt notice clauses in the written policy do not apply to their claims for are operative in light of language in the policy stating that “failure to give implied UIM benefits. This court, however, has already notice of any OCCURREN CE shall not prejudice such claims.” J.A. at rejected this assertion. In Lepley v. Hartford Accident & 55. Because we find that the policy-wide consent-to-settle and Indemnity Co., 334 F.3d 544 (6th Cir. 2003), we stated that subrogation provisions do have effect, however, we do not addre ss these issues, instead leaving them for the district court to consider, if need be, No. 01-4320 Walls et al. v. Amerisure Mutual Ins. Co. 9 10 Walls et al. v. Amerisure Mutual Ins. Co. No. 01-4320

2. The Question of Breach Pontzer was decided). See Scott-Pontzer v. Liberty Mut. Fire Ins. Co., 710 N.E.2d 1116, 1120 (Ohio 1999). We, however, The question now becomes what legal effect the consent-to- rejected this precise argument in both Clark and Lepley and settle and subrogation clauses have. The Ohio Supreme will not consider it again. See Lepley, 334 F.3d at 551 Court, in a recent decision issued after the parties filed their (stating that while the plaintiff’s claim was only viable appellate briefs, has made clear the law that governs breaches because of the Scott-Pontzer decision, the plaintiff still “could of these types of subrogation clauses. See Ferrando v. Auto- have litigated the matter,” as “[a]waiting a favorable Ohio Owners Mut. Ins. Co., 781 N.E.2d 927 (Ohio 2002). As we Supreme Court decision is not a reasonable excuse for have recently explained, Ferrando held that “breaches of delaying notice and failing to preserve subrogation rights”); notice and subrogation provisions serve to vitiate the see also Clark, 337 F.3d at 693. We therefore hold that the coverage provided by an insurance policy only if they are plaintiffs have breached the consent-to-settle and subrogation prejudicial to the insurer,” but that “breaches are presumed to provisions in the policy. be prejudicial unless proven to be harmless by the insureds.” Clark, 337 F.3d at 692.2 3. The Question of Prejudice (and of Remand) We hold that the plaintiffs here have breached the policy- Having addressed the issue of breach, we now turn to the wide consent-to-settle and subrogation provisions. The issue of prejudice. Under Ferrando, once it has been shown provisions clearly require that insureds not release others that plaintiffs have breached a notice or subrogation from liability or waive Amerisure’s subrogation rights provision, the plaintiffs must submit evidence to overcome without Amerisure’s permission. By releasing Lavrich and the presumption of prejudice that attaches to such a breach. his insurer, the plaintiffs breached these provisions. The Clark, 337 F.3d at 693. The parties seem to agree that the plaintiffs’ only defense is their claim that the unforeseeable plaintiffs have not, as of yet, overcome that presumption. The nature of the Ohio Supreme Court’s Scott-Pontzer decision parties disagree, however, as to what should happen as a (which provided the basis for considering Reda Walls to be an consequence. The defendant argues that we should dismiss insured) meant that they had no idea that a claim against the plaintiffs’ claim. The plaintiffs argue that we should Amerisure was viable until 1999 (which was when Scott- remand this case to the district court to allow them an opportunity to show a lack of prejudice. Ultimately, we agree with the plaintiffs and remand this case. on remand. We have considered the appropriateness of a remand under these circumstances twice before, both in Clark and in Lepley. 2 As we explained in Clark, Ferrando marked a significant change in In Lepley, when faced with the plaintiffs’ breach of notice and how Ohio law treated breaches of subrogation provisions (which include subrogation provisions, we dismissed the plaintiffs’ claims. consent-to-settle provisions, see Ferrando v. Auto-Owners Mut. Ins. Co., By way of contrast, in Clark, we remanded the case to the 781 N.E.2d 927, 947 (Ohio 2002)). Before Ferrando, a breach o f a subrogation provision automatically vitiated coverage. Ferrando, district court. Lepley and Clark, however, are “in no way however, conformed to Ohio precedent in its treatment of notice inconsistent.” Clark, 337 F.3d at 694 n.3. In Lepley, the provisions, as it was clear even before Ferrando that a breach of a notice district court had previously “analyzed the prejudice issue and provision did not necessarily preclude coverage. Instead, the breach of had stated in its opinion that Lepley offered ‘no evidence to the provision had to be prejud icial. See C lark v. Chu bb G roup of Ins. [rebut the presumption of prejudice].’” Clark, 337 F.3d at Cos., 337 F.3d 687 , 692 n.2 (6th Cir. 2003). No. 01-4320 Walls et al. v. Amerisure Mutual Ins. Co. 11 12 Walls et al. v. Amerisure Mutual Ins. Co. No. 01-4320

694 n.3 (quoting Lepley, 334 F.3d at 552). In Clark, an investigation of the accident, consented to the settlement however, “the district court did not examine the issue of Walls reached with Lavrich and his insurer, and paid benefits prejudice, believing that it was unnecessary.” Id. This is the on the UIM claim. The fact that State Farm, another pivotal distinction on which the result in Clark turned; in UM/UIM carrier, accepted the settlement with Lavrich after Clark, a remand was necessary to allow the district court to an investigation suggests that State Farm viewed a recovery do the initial fact-finding on the prejudice issue, thereby also from Lavrich above the $50,000 settlement figure to be “insur[ing] that the plaintiffs have, at some point in the unlikely, if not impossible. This, in turn, suggests that litigation, an opportunity to show” a lack of prejudice. Id. Amerisure perhaps lost nothing of value when the plaintiffs settled with Lavrich and his insurer and destroyed As was the case in Clark, the district court below did not Amerisure’s subrogation rights. Cf. Ferrando, 781 N.E.2d at evaluate the prejudice issue in its summary-judgment 949 (noting that whether “the prejudicial effect [of a consent- decision; it instead viewed any breach as automatically to-settle provision’s breach] on the insurer [is] minimal” will vitiating coverage. As a result, the district court made no “depend[] on the value of the subrogation rights sought to be findings regarding prejudice that we review here.3 Moreover, protected”). We also note that the record already contains a we note that the plaintiffs at oral argument pointed to specific certified copy of Lavrich’s conviction for failing to stop at a pieces of evidence that could well establish that their breaches red light as well as evidence that Reda Walls was merely a of the consent-to-settle and subrogation provisions were not passenger in the impacted car. This evidence tends to suggest prejudicial to Amerisure. The plaintiffs stated that State Farm strongly that it was Lavrich (who was an underinsured driver) (which insured the car in which Reda Walls was riding) did who was responsible for the accident and that Reda Walls was free of any contributory fault.

3 While the facts listed above do not establish a lack of In addition to asking this court for a remand , the plaintiffs also moved to reopen their case in the district court. The plaintiffs argued that, prejudice, it does appear that the plaintiffs may, on remand, in light of Ferrando and the fact that the district court had made no be able to adduce evidence to support such a conclusion. As findings regarding prejudice, the case should be reopened. In denying the the prejudice inquiry is a factual one that we feel ill equipped plaintiffs’ motio n to reo pen, the district court ac know ledge d that it did not to resolve, we (consistent with Ohio practice) choose to examine the prejudice issue in its summary-judgment decision. The remand this case and leave it to the district court to handle in district court explained that the plaintiffs had not shown evidenc e of a the first instance. See Clark, 337 F.3d at 693-94 (noting the lack of prejudice either before summary judgment was granted in the district court or in any later affidavits attached to the motion to reopen. “many [Ohio intermediate] courts [that] have remanded Scott- W e nonetheless b elieve a remand to be ap propriate here. A s we Pontzer cases to the trial court for further proceedings”). explain infra, there is evidence (both within and outside of the current record) suggesting that the plaintiffs’ breaches were not prejudicial. The III. CONCLUSION fact that the plaintiffs did not refer to this evidence in their motio n to reopen may justify the district court’s denial of that motion, but we are not For the foregoing reasons, we REVERSE the district reviewing the district court’s denial of that motion; we are reviewing the grant of summary judgment to the defend ants. Given the fact that the court’s judgment and REMAND this case for further district court did no t make any de termination on the issue of prejudice proceedings consistent with this opinion. befo re granting summary judgment against the plaintiffs and given the possibility that the plaintiffs could in fact show a lack of prejudice, we continue to believe that a remand is appropriate here even in light of the district court’s subsequent decision to deny the motion to reopen.