Ohio Court Rules Against Insurers in Ferrando Case

Ohio’s Supreme Court has ruled in the case of Ferrando v. Auto Owners that uninsured or underinsured motorist coverage (UM/UIM) may be claimed even in cases where there has been a length delay in notifying the insurer, and a settlement has been concluded without the insurer’s consent that extinguishes its subrogation rights, unless actual prejudice can be established.

The case involved an accident resulting in injuries to Mr. Ferrando, an employee of the city of Ashtabula. Three and-a-half years after concluding a settlement he and his wife sought additional coverage under the city’s UM/UIM policy. The trial court allowed the lawsuit to proceed, but an Appellate Court ruled in favor of the insurers, who claimed that the delay and the failure to get their approval, and the settlement foreclosing future recovery from the tortfeasor, were material breaches of policy provisions.

The Supreme Court considered amicus briefs from various insurance organizations, including the Alliance of American Insurers (AAI), but in a 4 to 3 decision, found that coverage should still be extended despite the delay and failure unless the insurer could show that it had been prejudiced. “States that follow the majority view, on the other hand, now have abandoned this traditional approach [a strict interpretation of the policy] in favor of a modern trend that finds that a breach is material, so as to preclude coverage, only when the insurer is prejudiced by the breach,” said the opinion.

The court sent the case back to the trial court to determine the issue of material prejudice, indicating that the delay and failure to notify would create a presumption of prejudice, which the insured would have to overcome. It noted, however that when an insurer has collected full premiums for coverage, “to refuse compensation to an accident victim or insured on the ground of late notice, where it is not shown timely notice would have put the company in a more favorable position, is unduly severe and inequitable.”