Ohioans would be shocked to learn that their "full coverage" auto policy is often useless when they need it most: after a serious accident to a family member or loved one.

Tragically, many Ohioans who exercise personal responsibility and purchase insurance have discovered that, after a tragedy, their "full coverage" policy was worthless and provided them with little coverage – or none at all.

Over the last eight years, these "full coverage" auto policies have been eroded in a variety of real world situations by fine print insurance exclusions buried in in comprehensible and hard to read insurance policies. This is no accident: the insurance industry is deliberating shrinking Ohioans' insurance protection with the blessing of the Ohio Legislature and the Ohio Supreme Court.

In case after case, courts are upholding these exclusions in common accident scenarios – even in situations where fully insured family members are driving insured vehicles.

The purpose of this project is to bring this issue to light, identify some major companies who are inserting these exclusions into their policies, and document how many of these exclusions they have chosen to include.

SOME EXCLUSIONS WIPE OUT ALL COVERAGE FOR AUTO ACCIDENT INJURIES

Some recurring accident scenarios illustrate how insurance companies are avoiding ALL responsibility for paying certain claims due to fine print exclusions.

EXCLUSION NO. 1: THE "FAMILY EXCLUSION"

SCENARIOS:

1. A family takes a well earned vacation in their insured vehicle. The occupants consist of: (1) husband, (2) wife, and (3) their minor children. They bought "full coverage" auto policy with $500,000 of liability coverage and the same amount in "Uninsured/Underinsured Motorists" (UM/UIM) coverage, and $5,000 in medical payments coverage. The husband takes the wheel and drives a leg of the trip. He loses control of the vehicle, and seriously injures every occupant in the car. The wife and children have combined medical bills of $200,000.

RESULT: Their auto policy has a "family exclusion." Under this exclusion, the wife and minor children have no coverage at all under the liability or UM/UIM portions of the policy for husband/Dad\'s driving negligence. They are entitled to receive only $5,000 per person in medical bills for a total of $15,000.

2. Same facts as Number 1, except that a minor friend of the children accompanies the family on the trip, and is similarly injured.

RESULT: The wife and children still have no coverage for the husband/Dad's driving negligence. The family friend is covered and is entitled to collect up to the $500,000 liability limits.

3. You and a friend are driving to a golf course or a shopping destination in your fully insured vehicle. In order to stay alert, you allow your passenger friend to drive a portion of the trip. Unbeknownst to you, the passenger's auto insurance has inadvertently lapsed. Your friend negligently wrecks your car and seriously injures you.

Assume that the same coverage is in place as before.


RESULT: Under the family exclusion, you have no coverage despite occupying your own insured vehicle with a "full coverage" policy. Despite the fact that your friend was uninsured, you cannot pursue a UM claim under your own policy, as most policies exclude your insured vehicle from UM/UIM coverage.

SUMMARY

This exclusion eliminates coverage for entire classes of victims simply because they are members of the insured's family or household. It is arbitrary and even bizarre in its application, particularly when the entire premium paying family is excluded, but a non-family friend riding in the vehicle is cloaked with coverage.

Consumers who purchase coverage simply have no idea or expectation that family members will not be covered in such a wide array of accident scenarios. In fact, just the opposite is true. Indeed, this exclusion directly contradicts the purpose of buying liability and uninsured/underinsured motorists coverage: to protect one's family.

HISTORY OF THE FAMILY EXCLUSION

Ohio traditionally recognized intra-family immunity (one family member could not sue another family member), but abolished this defense in Shearer v. Shearer (1982). To avoid this new exposure, insurance companies began inserting intra-family exclusions, also called household exclusions, into the liability sections of their policies. These exclusions were held valid by Ohio courts.

Insureds responded by making "uninsured motorists" claims, arguing that since the family member-tortfeasor was "uninsured" for purposes of the particular accident in question, the injured family member was entitled to UM coverage under his or her own policy.

In response, insurers began to insert "intra-family exclusions" into the UM sections of their policies. These exclusions were eventually disallowed by the Ohio Supreme Court in Alexander v. State Farm (1992). Alexander disallowed the exclusions because Ohio\'s uninsured motorists statute (R.C. 3937.18) MANDATED UM coverage for persons injured in a motor vehicle accident where the claims arose from causes of action recognized by Ohio law.

By the time Alexander was decided in 1992, inter-spousal and intra-family liability were both recognized by Ohio law, so insurers were stuck paying such UM claims.

As a result, the insurance industry turned to the legislature for relief from the impact of Alexander. The result was HB 261 (eff. 9/1997), which redefined uninsured motorist vehicles so as NOT to include "a motor vehicle owned by, furnished to, or available for the regular use of a named insured, a spouse, or a resident relative of the named insured." <

In other words, an insured's vehicle by definition could not be considered an "uninsured vehicle." The specific purpose of this provision was to overrule Alexander so that insurance companies could again exclude inter-spousal and intra-family claims from UM coverage if they chose to do so.

Subsequently, the legislature realized the harshness of the family exclusion. SB 267 (eff. 9/2000) deleted the intra-family exclusion, thereby returning UM law to where it had been pre-1997; that is, UM coverage was once again mandatory for inter-spousal and intra-family torts.

SENATE BILL 97 REVIVED THE INTER-FAMILY EXCLUSION…

The next legislative change cam in October 2001 with SB 97. It eliminated the mandatory offer of UM coverage. Once offered, however, the coverage must comply with the statutory requirements. SB 97 added the language "(I)Any policy of insurance that includes uninsured motorist coverage * * * MAY INCLUDE TERMS AND CONDITIONS THAT PRECLUDE COVERAGE FOR BODILY INJURY OR DEATH SUFFERED BY AN INSURED UNDER SPECIFIED CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO ANY OF THE FOLLOWING CIRCUMSTANCES. ."

Since the enactment of SB 97, courts have upheld the "family exclusion" in numerous cases involving family members seriously injured or killed while riding in insured vehicles. In one particular case, Calhoun v. Harner, a father driving the family vehicle turned left into the path of another motorist, killing his young daughter.

The court of appeals upheld the family exclusion, reasoning that, on the basis of SB 97, "insurance companies and their customers are free to contract in any manner they see fit."

There are numerous other cases throughout Ohio that have upheld the "family exclusion" in similar scenarios:<

* A minor grandchild wrecked her grandparents' insured car, injuring both grandparents. The grandparents brought an uninsured motorists' claim against their own insurance company. DISMISSED (Lowery v. Geico, Medina Co.)

* A minor driver driving her grandfather's vehicle allowed her boyfriend to drive the car. He crashes the car and kills her. DISMISSED (Milburn v. Allstate, Franklin Co.)

* On Christmas Day 2006, Henry Mo was driving in the family vehicle with his wife and two minor children. He wrecked the cart at an intersection, injuring his wife and both children. They brought UM claims against their insurance company for their injuries. DISMISSED (Mo. v. Progressive, Putnam Co.)

THERE IS NO "FREEDOM TO CONTRACT" WITH THESE EXCLUSIONS

It is a fiction to suggest that a consumer is free to "bargain" for policy terms, much less understand what to ask for if sold a "full coverage" auto policy. Policy holders don't "bargain" for policy terms and conditions that are written by the insurance industry in fine print language and delivered to insureds weeks after they purchase insurance coverage. In fact, many insurance agents are not even familiar with numerous exclusions in their own companies' policies, much less in a position to discuss these confusing and technical policy terms with insureds.

The reality is that the insurance industry pushes the sale of policies on price points and "saving insureds money." Just turn on your TV or radio for the barrage of ads and this point is obvious.

Paradoxically, SB 97 has breathed new life into the "family exclusion", despite the fact that just a few years prior, SB 267 was designed to eliminate the family exclusion. As such, it is now alive and well in Ohio. <

Nationwide, Grange, and Motorists have not included this exclusion in their standard line policies (CAVEAT: It is unknown whether these companies have chosen to include this exclusion in other related or affiliated companies' policies. For example, Nationwide and Grange have numerous subsidiary companies which write "high risk\ policies and they may have included the family exclusion in those policies).

The industry's response is that the exclusion exists in order to fight potential fraudulent claims and staged accidents. This is fallacious for many reasons. First, in all the cases we have outlined in this project, none involved fraud. Every one of these situations involved horribly tragic accidents – a parent making a simple driving mistake that kills a child, or an inexperienced granddaughter who wrecks the family vehicle – and nothing more.

Second, the insurance industry spends millions each year on "Special Investigative Units" (SIU's) which are specially trained to sniff out suspect or fraudulent claims. If the occasional fraudulent claim exists, it should be denied and fought on a case by case basis.

However, it is specious to suggest that an entire class of LEGITIMATE inter-family injury claims should be excluded because of the possibility that a handful might be suspect. Playing the family "fraud" card in this instance is similar o the shopworn adage of "destroying the village to save the people." This overkill should not be sanctioned when premium paying insureds are paying hundreds or thousands of dollars per year for auto coverage.

EXCLUSION NO. 2: THE IMMUNITY EXCLUSION

SCENARIO:

You are driving in your insured vehicle with your family. As you enter an intersection, you are clobbered by a police car, ambulance, or fire truck responding to an emergency call. Your family is seriously injured. However, these vehicles are immune from liability under Ohio law if they are responding to an emergency call and are not engaging in reckless or wanton driving at the time of the collision.

Because the government vehicle is immune from liability, you make a claim for your family\s injuries under the uninsured motorists portion of your "full coverage" auto policy.

Until 2007, it was unsettled as to whether motorists injured by emergency vehicles could pursue uninsured motorists claims against their own insurance companies. When the uninsured motorists\' statute was amended in 1997 by House Bill 267, it specifically allowed motorists to bring UM claims when injured by emergency vehicles cloaked with immunity.

In Snyder v. American Family Ins. Co., the Ohio Supreme Court ended any uncertainty in this area and ruled that insurance companies could legally deny UM claims against their own insureds injured by vehicles/parties that were immune from liability. In eliminating these claims, the Court noted that the insurance policy in question provided that UM benefits would not be paid "UNLESS THE INJURED INSURED WAS 'LEGALLY ENTITLED TO RECOVER' AGAINST ANOTHER MOTORIST." Since Columbus police officer Jennifer Snyder was not\"legally entitled to recover" from a fellow police officer (who ran her over over while in pursuit of a criminal), she could not bring a UM claim against her own insurance company.

IT DID NOT MATTER TO THE COURT THAT THE POLICY IN QUESTION ACTUALLY DEFINED AN "UNINSURED MOTORIST" AS A PERSON "HAVING IMMUNITY." Rather the "legally entitled to recover" language in the policy was interpreted by the Court as a "term and condition" permitted by Senate Bill 97 to deny recovery. The Court interpreted Senate Bill 97 as an open invitation to allow insurance companies to include any exclusion they see fit under the theory that the parties are "free to bargain" for these one sided contract terms.

All insurance companies listed in the attached chart define an "uninsured vehicle" as one that is immune from liability. That provision, if read alone, would seem to support the idea that insureds can bring a UM claim against the companies listed when injured by an emergency vehicle with legal immunity. However, every policy also includes \legally entitled to recover" language relied upon in Snyder to deny UM claims in such cases. Therefore, every company listed that has the "legally entitled to recover" language in their UM coverage now enjoys the benefit of the "immunity exclusion" created by the Snyder decision.

EXCLUSION NO. 3: THE "NON DUPLICATION" CLAUSE – GIVING WITH ONE HAND AND TAKING AWAY WITH THE OTHER

Ohio citizens purchasing "full coverage" policies pay separate premiums for different coverages. for example, insurers will charge a separate premium for liability, uninsured/underinsured motorist coverage, and medical payments.

However, in many cases, an insured\'s medical payments coverage has been rendered illusory by a fine print clause known as the "non-duplication" clause. In reality, it should properly be labeled "the subtraction clause," meaning "we will pay benefits under one portion of your policy, then turn around and subtract it from another section of your policy."

A simple example will illustrate how this clause allows Ohio insurance companies to recapture money paid for an injured insured's medical bills, while at the same time accepting premiums for this coverage.

EXAMPLE:

Jane is injured by an uninsured drunk driver. She fractures both legs and needs surgery. Her medical bills exceed $30,000. She had the foresight to purchase "medical payments" coverage of $25,000 and uninsured/underinsured motorists\' coverage of $50,000.

Jane tenders her medical bills to her insurance company for payment, and the company pays its limits of $25,000. At the conclusion of her treatment, she also makes a claim for benefits under her uninsured motorist coverage for the limits of her coverage – $50,000. Her insurance company agrees that her injury claim is worth $50,000 and offers it…but subtracts the $25,000 it paid previously for her medical bills, and sends her a check for $25,000.

Before SB 97, this practice was illegal. In Berrios v. State Farm, the Ohio Supreme Court invalidated insurance industry attempts to deduct medical payments money paid for an insured's medical bills from any amount eventually paid under the uninsured/underinsured portion of the injured person's policy. The reasoning was straightforward and simple: since insureds paid separate premiums for both coverages, they should be entitled to both coverages IN FULL without any subtractions. In essence, the Supreme Court sent the message that "you ought to get what you paid for." In our example above, Jane would have been entitled to the $25,000 in "med pay" and $50,000 for her uninsured motorist claim, for a total of $75,000

After SB 97, insurers began to include "non-duplication" clauses in insurance contracts, in an 'attempt to circumvent the Berrios decision. In a series of recent decisions, courts have upheld this clause and have allowed insurance companies to deduct medical payments previously paid from any settlement made under an uninsured/underinsured motorists' claim.

The insurance industry's reasoning for this clause is that by not allowing a deduction for medical bills previously paid, it creates an unfair windfall" or a "double recovery" to the insured. In the scenario we have outlined, it's hard to fathom how it is a "windfall" for Jane to recover the maximum amounts under her policy for a serious injury – especially when she paid separate premiums for this coverage. The subtraction clause is yet another example of an insurance "trap door" that is sprung on the consumer who pays separately for this coverage, only to find it eventually re-routed into the company's coffers after an accident.

When this after the fact subtraction is explained to clients, their standard reaction is "why am I paying for this coverage if it's going to be taken away from me after the fact based upon some fine print clause I never even knew about?" And they are right. Allowing insurers to shrink coverage after accepting premiums for that same coverage represents a windfall to insurance companies for a sleight of hand maneuver that is little more than a legally sanctioned consumer rip-off.

CONCLUSION

This project has focused on some of the exclusions which insurance companies have inserted into auto policies. We concentrated on some of the larger companies to illustrate recent industry trends. Time constraints did not permit an examination of all policies sold in Ohio, as there are over three hundred auto insurers in Ohio. Given the sheer numbers of insurers in Ohio, and the fact that consumers are not even provided with their policy language until after they sign up for coverage, it is not a leap of logic to conclude that an overwhelming majority of consumers simply rely on their agent over the phone or online company representatives to assure them that their "full coverage" policy will protect their family members in an accident.

Additionally, insurers have a choice as to which exclusions they wish to unilaterally include in their auto policies. None of these exclusions are REQUIRED by Ohio law. While Nationwide, Grange, and Motorists deserve a modicum of credit for choosing not to include the onerous "family exclusion" in their policies, the fact remains that the totality of all the listed exclusions serves to significantly water down or eliminate Ohioans' "full coverage" auto policies.

This project has hopefully shown that: (1) the "full coverage" auto policy has become a meaningless and even false misnomer when applied to real world accidents; and (2) legislative action is needed to level the playing field for Ohio consumers, who are clearly not getting what they pay for when buying a "full coverage" auto policy – despite paying hundreds or thousands of their hard earned money for it.

Source: Ohio Association for Justice, Justice On Your Side (JOYS) Committee, Brian R. Wilson, Chairperson<