Erie Ins. Group v. Nationwide Mut. Ins. Co.

Citations: 585 N.E.2d 464; 65 Ohio App. 3d 741; 1989 Ohio App. LEXIS 4834Docket: No. WD-89-9.

Court: Ohio Court of Appeals; December 28, 1989; Ohio; State Appellate Court

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An appeal and cross-appeal arise from a judgment by the Wood County Court of Common Pleas involving three insurance companies concerning liability coverage for defendants in a civil suit following an automobile accident. Ann Marie Leganik, while a student at Bowling Green University, rented a car but chose to have her roommate, Julie Fraser, return it after accepting a ride to Columbus. On May 9, 1986, Fraser was involved in an accident with Barbara Jones, who subsequently sued Fraser, Leganik, and the rental company, Dishop Ford-Nissan, Inc. Leganik was insured under her father's Nationwide Mutual Insurance Company policy, while Fraser was covered by her father's Erie Insurance Company policy. Dishop Ford-Nissan had liability coverage from Liberty Mutual Insurance Company due to its policy with Ford Motor Company.

On June 15, 1988, Erie filed for a declaratory judgment, claiming that either Nationwide or Liberty was the primary insurer responsible for Fraser, or that all three insurers shared pro rata responsibility. Nationwide contended that Liberty was the primary insurer, asserting that its own coverage for Leganik was secondary. Following multiple pleadings and counterclaims among the insurers, Liberty filed a motion for summary judgment, citing irregularities in the rental agreement that might negate coverage for Leganik and Fraser under its policy. A hearing on the declaratory judgment was held on December 12, 1988, where Liberty reiterated its defense against both Erie and Nationwide, and presented testimony indicating that Leganik and Fraser had never sought coverage from Liberty.

The claims adjuster for Liberty provided testimony regarding a rental car accident involving Dishop Ford-Nissan, Inc. Liberty contended that Erie and Nationwide lacked standing to claim against them, as neither insured had sought coverage from Liberty. The lower court, in a judgment dated January 30, 1989, ruled that Nationwide and Erie were obligated to cover their clients and could be liable for pro rata damages, while Liberty was not responsible for coverage in the personal injury case. The court's rationale focused on irregularities in the rental agreement. Nationwide appealed, challenging the court's ruling regarding pro rata responsibility for damages, claiming substantial errors in the declaratory judgments made by the trial court. Erie and Liberty also filed cross-appeals, with Erie asserting that the trial court's findings regarding Liberty's policy applicability were erroneous. Liberty raised an issue regarding the dismissal of complaints against it for failure to state a claim. Erie filed three assignments of error, disputing the trial court's findings on the applicability of its and Liberty’s insurance policies. Ultimately, the appellate court remanded the case because the appealed order was not final or appealable, missing necessary dismissals and rulings on counterclaims.

On September 27, 1989, an amended journal entry was filed that dismissed Liberty from a declaratory judgment action and dismissed Erie's complaint, stating there was no just cause for delay. The entry did not address Liberty’s defense regarding Erie and Nationwide's failure to state a claim since Leganik and Fraser never claimed coverage from Liberty, nor did it dismiss Nationwide's pending cross-claim against Liberty. The court indicated that the appeal could proceed as it involved the same parties and issues, and the decision would influence the resolution of the cross-claim. No amended briefs were submitted to reflect the changes, leading the court to interpret the existing assignments of error within the current procedural context. Liberty's and Erie’s assignments of error concerning the dismissal of the cross-claim were deemed not well taken as they did not relate to a final appealable order. The court will consider the remainder of these assignments regarding the dismissal of Erie’s complaint alongside Erie’s second assignment of error. 

To determine if the trial court erred in concluding Liberty had no coverage obligation, the court must first establish if a proper claim for coverage was made. Testimony indicated that neither Leganik nor Fraser requested coverage directly from Liberty, although Erie argued that Dishop Ford-Nissan, Inc. informed Liberty of the accident, which they claimed sufficed as a notice of claim. The rental agreement required the customer to report any accident to the licensee and provide all relevant documents, while the policy outlined that insureds must promptly notify Liberty of accidents and cooperate with investigations. The court noted the absence of testimony on the specific claim filing requirements with Liberty.

Physical examinations by selected physicians must be submitted at the insurer's expense as required. The insured must authorize the insurer to obtain medical reports and relevant medical information. To recover losses related to a covered vehicle, the insured must: allow property inspection before repair, take necessary steps to prevent further loss at the insurer's expense, submit proof of loss when requested, and promptly notify the police of any theft. 

In this case, a claim was filed with Liberty by Leganik and Fraser after Dishop Ford-Nissan, Inc. contacted Liberty following an accident reported by Leganik. Liberty received prompt notice and cooperation from both claimants, and there was no evidence of non-compliance with the rental agreement or Liberty's policy. Liberty bore the burden of proving any additional requirements that were unmet, which it failed to do.

The court examined irregularities in the completion of the rental agreement that could impact coverage claims. Leganik testified there was no discussion about insurance coverage upon renting the vehicle, and she assumed insurance was included. She did not read the rental agreement before signing and was not given the opportunity to do so. The agreement had a section for listing authorized drivers that was left blank, and the section for personal accident coverage had no initials indicating acceptance or declination. 

The lower court ruled that these irregularities barred coverage claims from Leganik and Fraser. The current court must determine whether this ruling constituted an abuse of discretion, defined as an unreasonable or arbitrary judicial decision.

The case of State v. Adams addresses issues arising from irregularities in a car rental agreement, establishing key legal precedents in Ohio. The rental contract, being a preprinted form, necessitates a liberal interpretation in favor of the customers, Leganik and Fraser, especially since Liberty, the insurance provider, had the chance to review and contribute to the form. Dishop Ford-Nissan, Inc. acted as Liberty's agent in completing the agreement, thus any discrepancies between the completed sections and the preprinted terms must be resolved in favor of the written entries. 

The Supreme Court of Ohio has determined that insurers bear the burden of proving that customers are aware of, understand, and have knowingly rejected any contractual terms, particularly in the context of preprinted forms. The court emphasized that such rejections must be clearly stated and easily comprehensible to laypersons. In this case, Leganik was not afforded the opportunity to review or understand the insurance provisions before signing, as she merely followed the directions of Dishop Ford-Nissan's employee. Consequently, the lower court erred in ruling that she was not entitled to insurance coverage from Liberty, as the burden of proof to show a conscious rejection of coverage by Leganik was not met. Additionally, Liberty's failure to adhere to the preprinted form's requirements regarding driver exclusions resulted in Fraser being covered under Liberty's insurance.

Liberty's preprinted policy form does not effectively exclude drivers other than Leganik from coverage, as the term "none" was not utilized. Consequently, the omnibus clause applies, which states that anyone permitted by the named insured to use a covered vehicle is also insured. The factual determination of whether permission was granted is supported by evidence that Fraser was authorized to use the vehicle for Leganik's benefit at the time of the accident. Fraser's use aligned with the permitted purpose, thus extending coverage under Liberty's policy.

Erie's second assignment of error is upheld, affirming that Liberty owes coverage to both Leganik and Fraser as the primary insurer. Other procedural matters regarding Erie and Nationwide's standing to file a complaint and cross-claim are also deemed valid. The issue of pro rata liability for Erie and Nationwide without Liberty's coverage is secondary, although the Supreme Court of Ohio suggests that appellate courts typically do not regard assignments of error as moot.

Erie and Nationwide's assignments of error are considered together to address whether the lower court erred in ruling their pro rata liability absent Liberty's coverage. Both insurers agree their policies provide "excess" coverage, but they dispute the interpretation of specific clauses in Erie's policy regarding whether they indicate pro rata or excess coverage. The clauses in question stipulate that the policy's coverage is excess over other insurance for non-owned vehicles and that Erie will pay its share when other insurance applies to the same accident. Nationwide contends these clauses are independent, with the first clause providing excess coverage when the insured drives a vehicle not owned by them but insured by Erie.

Nationwide interprets the second clause as a "pro rata" provision, indicating that Erie has primary responsibility for providing insurance, with Nationwide covering only excess. Erie contends that the clauses should be interpreted together, arguing that the "other insurance clause" functions as an "excess" insurance provision. Erie claims that its coverage becomes void if other insurance is applicable and only provides pro rata coverage when the other insurance is similar in nature. Therefore, the combined effect of the clauses is to establish excess coverage instead of creating two separate exclusionary provisions. The court agrees that the clauses must be read together, determining that Liberty holds primary coverage, while Erie and Nationwide share additional coverage on a pro rata basis. The court found Erie's third assignment of error to be valid, while Nationwide's first three assignments were not. The trial court's judgment is partially reversed and partially affirmed, with each party responsible for one third of the appeal costs. Nationwide's policy stipulates that for losses involving other vehicles, it will pay for losses not covered by other insurance.