Court: Court of Appeals for the Sixth Circuit; October 16, 2003; Federal Appellate Court
Defendant Nationwide Agribusiness Insurance Company appeals a district court judgment favoring Plaintiff Debra L. Morgenstern, who sought a declaratory judgment for underinsured motorist (UIM) coverage under Nationwide’s policy, referencing Ohio Supreme Court cases Scott-Pontzer and Ezawa. Nationwide contends that these cases are not applicable as the insurance policy was issued to a school district rather than a corporation and argues that an 'other-owned auto' exclusion in the policy bars Plaintiff's recovery.
The facts establish that on July 2, 1999, Plaintiff's son, Steven Morgenstern, was fatally injured in a motorcycle accident caused by James Norman, whose liability insurance was insufficient to cover the damages, rendering him 'underinsured.' It is uncontroverted that Steven owned the motorcycle and was residing with Plaintiff, who worked for Big Walnut Local School District, the named insured on Nationwide’s policy. This policy included UIM coverage of $1,000,000 and defined 'insured' persons, which included the named insured, family members, and others in covered vehicles.
The relevant exclusion states that the insurance does not cover bodily injury to the named insured or family members while occupying vehicles they own that are not considered covered ‘autos’ for UIM purposes. The court ultimately decided to reverse the district court's decision.
On October 10, 2000, the Plaintiff, acting as the Administrator of Steven Morgenstern's Estate, initiated a lawsuit in the Delaware County Court of Common Pleas, Ohio, seeking a declaratory judgment for uninsured motorist (UIM) coverage under a Nationwide policy. Nationwide subsequently removed the case to the United States District Court for the Southern District of Ohio and filed an answer. Both parties moved for summary judgment, prompting the district court to request further briefs regarding the enforceability of the 'other-owned auto' exclusion in the Nationwide policy. On September 18, 2001, the district court granted the Plaintiff's motion for summary judgment and denied Nationwide's, resulting in a judgment for the Plaintiff. Nationwide appealed this decision.
The district court had subject matter jurisdiction under 28 U.S.C. § 1332, as the Plaintiff is an Ohio citizen and Nationwide is an Iowa citizen, with the amount in controversy exceeding $75,000. The appeal falls under 28 U.S.C. § 1291. The standard of review for a summary judgment grant is de novo, meaning the appellate court examines the matter without deference to the lower court, ensuring that no genuine material fact disputes exist and that the moving party is entitled to judgment as a matter of law. The court must interpret evidence favorably towards the non-moving party, requiring more than a mere scintilla of evidence for the Plaintiff's claims. Additionally, the appellate court reviews the district court's interpretation of insurance contracts de novo.
In legal analysis, a federal court in diversity cases must apply the substantive law of the forum state, following the highest court's decisions or anticipating how it would rule if the issue remains undecided. Intermediate appellate court decisions may guide this anticipation unless convincingly contradicted by other evidence.
Nationwide presents two main arguments on appeal regarding coverage under its policy. First, it argues that Steven Morgenstern was not an "insured" due to the inapplicability of the Scott-Pontzer doctrine to motor vehicle insurance policies for school districts. Second, Nationwide asserts that even if Morgenstern were considered an "insured," he is excluded from coverage under the policy's "other-owned auto" exclusion. The Ohio Supreme Court has not yet addressed these specific issues, requiring an anticipation of how it may rule.
In evaluating the legal background, the Scott-Pontzer case established that employees are covered under their employer's automobile insurance for underinsured motorist (UIM) claims unless explicitly excluded, even if driving a personal vehicle outside of work duties. The court emphasized that Ohio law aims to protect individuals rather than vehicles, determining that corporate entities could not be considered insured parties in a meaningful way. Consequently, ambiguities in policy language are construed against the insurer. The court also rejected the insurer's claim that coverage could be denied based on the employee not being in the course of employment during the incident, as the policy did not contain such limitations. Following Scott-Pontzer, the Ohio Supreme Court extended coverage to family members of insured employees in the Ezawa case.
The Ohio Supreme Court is likely to determine that Steven Morgenstern qualifies as an 'Insured' under the Nationwide policy. The policy language in question mirrors that of the Scott-Pontzer case, where ambiguities regarding the term 'you' arise similarly, particularly because the named insured is a school district, which, like a corporation, cannot physically occupy a vehicle or experience bodily injury. Consequently, naming the school district as the insured is ineffective unless coverage extends to its employees. The policy does not impose any scope of employment limitations, reinforcing the applicability of Scott-Pontzer to the current situation.
Nationwide argues that the facts differ because the policy is issued to a school district rather than a corporation, claiming that the rationale from Scott-Pontzer doesn’t apply. This argument is two-fold, both aspects of which are rejected. First, Nationwide contends that including employees acting outside their employment scope contradicts Ohio law, citing Ohio Revised Code § 2744.01(B), which defines a political subdivision's 'employee' as one acting within the scope of employment. However, the court disagrees, noting that the statute is not pertinent to the policy interpretation in question. The statute primarily addresses tort liability, indicating that a political subdivision is generally not liable for actions outside an employee's scope of employment, thereby supporting the conclusion that coverage should extend appropriately.
The definition of an 'employee' regarding a political subdivision's vicarious liability for tortious conduct should not be applied to an insurance contract providing uninsured/underinsured motorist (UM/UIM) coverage. In Chapter 2744, the term 'employee' refers to the alleged tortfeasor, while in this context, it pertains to the injured party seeking compensation. Ohio Revised Code § 2744.01 limits the definition of 'employee' to the chapter itself. Ohio appellate courts consistently reject the argument that this definition extends to insurance contracts, as seen in several cases including Stubbins, Wilson, Westfield, Roberts, and Mizen. Additionally, the Ohio Supreme Court ruled that a township employee is entitled to UM/UIM coverage based on the Scott-Pontzer case, indicating that there would be no distinction between a corporation and a school district under Ohio Revised Code § 2744.01(B).
Regarding a school district’s ability to obtain UIM coverage under Ohio law, it is strictly limited to what is conferred by statute. Nationwide contends that no statute explicitly allows a school district to secure UIM coverage for employees using personal vehicles outside their employment scope, rendering the relevant contractual provision void. Three statutes were identified concerning a school district's insurance coverage, with two not granting express authority. The third, Ohio Revised Code § 3313.201, mandates that school districts procure insurance for their officers, employees, and pupils, and allows for supplementary coverage, including UIM insurance. The district court interpreted this provision as permitting such insurance, a view supported by various Ohio appellate courts, rejecting Nationwide's interpretation.
Nationwide's interpretation of § 3313.201 suggests that a school district must obtain insurance specifically for its vehicles and personnel, excluding non-school district vehicles. The second sentence of the statute allows for the purchase of uninsured motorist (UM) coverage, but may only extend to the policies mentioned earlier, not to general automobile insurance. Therefore, the statute likely does not authorize school districts to provide underinsured motorist (UIM) coverage for employees using their personal vehicles outside of work duties. However, the absence of explicit statutory authority does not negate the plaintiff's claim against Nationwide. Big Walnut's potential lack of authority would serve as a defense for Nationwide, but it would not invalidate the contract terms. Legal precedents indicate that a school district is not required to perform on a contract it was unauthorized to enter into, but this does not prevent a third party beneficiary from enforcing the contract. The argument that a school district's unauthorized actions absolve Nationwide of its obligations has been consistently rejected by Ohio's appellate courts.
The court acknowledges that a recent decision in the circuit, Nationwide Agribusiness Ins. Co. v. Roshong, denied UIM coverage to an employee based on the conclusion that a school district could not purchase UM/UIM coverage for employees acting outside their duties, rendering the relevant insurance provisions void. However, several Ohio appellate courts have rejected the Roshong ruling. The court, operating in diversity, seeks to apply Ohio law and predict how the Ohio Supreme Court would rule on the matter, relying on intermediate appellate decisions unless compelling contrary evidence exists. Although Roshong’s reasoning is noted, it has not been persuasive in Ohio courts, leading the court to reject it in this case. The court concludes that Steven Morgenstern is considered an 'insured' under the Nationwide policy. Nevertheless, he is excluded from UIM coverage due to the policy's 'other-owned auto' exclusion, as he was a family member of the named insured (Big Walnut), was occupying his own motorcycle at the time of the accident, and his motorcycle was not classified as a 'covered auto' under the policy. Consequently, while he qualifies as an 'insured,' the exclusion effectively denies him coverage for the bodily injury sustained while operating his own vehicle.
The plaintiff argues that the 'other-owned auto' exclusion in the Nationwide policy is ambiguous and should not be enforced. This claim is rejected, as ambiguity only arises when multiple reasonable interpretations exist regarding policy language. The court finds that the plaintiff has not presented an alternative interpretation that would allow Steven Morgenstern to collect UIM coverage. Instead, she claims Nationwide is incorrectly attempting to designate her as a 'named insured.' The court clarifies that while the Scott-Pontzer case did recognize employees as 'insureds' under certain conditions, Steven Morgenstern does not qualify as a 'you' under the policy, as he is a family member driving his own vehicle, which is not classified as a 'covered auto.' Consequently, the clear terms of the Nationwide policy exclude him from coverage, a view supported by Ohio appellate courts.
The plaintiff further contends that the Ohio Supreme Court has implicitly deemed the 'other-owned auto' exclusion unenforceable, citing prior cases where coverage was upheld for employees despite such exclusions. However, the court is unconvinced by this argument. It notes a 1994 ruling where the Ohio Supreme Court found these exclusions unenforceable under Ohio Revised Code § 3937.18, which required coverage for all vehicles and resident family members. Nevertheless, the Ohio legislature amended § 3937.18 in 1997, reinstating the enforceability of such exclusions, thereby superseding the earlier ruling.
Automobile insurance policies issued before September 3, 1997, are prohibited from including 'other-owned auto' exclusions, as established in the case of Martin. Policies issued after this date, such as the Nationwide policy from February 1, 1999, are not subject to this ban and can include such exclusions under Ohio Revised Code § 3937.18(J)(1). The statutory framework at the time the insurance contract was made governs the rights and obligations of the parties involved in underinsured motorist claims. Previous cases, including Scott-Pontzer and its subsequent interpretations, do not imply disapproval of the 'other-owned auto' exclusion since most involved incidents occurred before the relevant amendments.
The case of Ezawa, although unclear in its dates, involved an injured party who was a family member of an employee occupying a vehicle he did not own, thus the exclusion was not applicable. The plaintiff's cited cases, such as Roberts, are distinguishable because they involved policies issued before the amendment took effect, making them subject to the exclusion's invalidation. Other referenced cases, like Headley and Carmona, also presented different circumstances that did not involve the applicability of the 'other-owned auto' exclusion in the context of the Nationwide policy. Therefore, it is concluded that while Steven Morgenstern was an 'insured' under the Nationwide policy, he is excluded from coverage due to the policy's 'other-owned auto' exclusion.
The district court's order granting summary judgment in favor of the Plaintiff is reversed, and the case is remanded with instructions to grant summary judgment in favor of Nationwide. The policy period is established as January 1, 1999, through January 1, 2000, with the Plaintiff, as the legal representative of Steven Morgenstern's estate, being a citizen of Ohio. Under 28 U.S.C. § 1332(c)(2), a legal representative of a decedent is deemed a citizen of the same state as the decedent.
The case is clarified as not being a "direct action" under 28 U.S.C. § 1332(c)(1) since the Plaintiff is suing Nationwide for Underinsured Motorist (UIM) coverage based on contractual theories, rather than on liability issues against the tortfeasor. The Ohio Supreme Court is currently reviewing the implications of the Scott-Pontzer decision on related issues.
Historically, under Ohio law (R.C. 3937.18), insurers were required to offer UM/UIM coverage, which would be implied if not explicitly offered. However, this requirement changed in 2001, allowing insurers the option to offer such coverage. Additional state laws require political subdivisions to provide liability insurance for their employees when operating vehicles in the course of their duties.
There are varying interpretations in Ohio appellate courts regarding "other-owned auto" exclusions, particularly concerning whether employees qualify as "named insureds" under the insurance contract. Some courts have ruled against applying these exclusions when employees are not deemed "named insureds," leading to ambiguity favoring the insured. However, the exclusions in question differ from those examined in previous cases, further complicating the legal landscape regarding coverage for employees using personal vehicles.
Plaintiff is not classified as a "named insured" in the current case. The focus is on a specific "other-owned auto" exclusion within the Nationwide policy, which, upon reasonable interpretation, excludes Steven Morgenstern from Underinsured Motorist (UIM) coverage. The Ohio Supreme Court has granted leave to appeal in related cases, De Uzhca and Geren. However, the interpretation of the "other-owned auto" exclusion suggests a strong likelihood that the Ohio Supreme Court will affirm the decision in De Uzhca. Relevant case precedents include Bagnoli v. Northbrook Property. Cas. Ins. Co., Headley v. Ohio Gov't Risk Mgmt. Plan, and Estate of Dillard v. Liberty Mut. Ins. Co., each involving accidents from the mid-1990s and subsequent reversals by the Ohio Supreme Court.
