Ohio Insurance Director Asks State Supreme Court to Uphold Homeowners Standard

April 23, 2002

Ohio Insurance Director Lee Covington weighed in on a case before the Ohio Supreme Court, asking it to uphold the state insurance department’s longstanding policy that homeowners policies do not cover automobile accidents.

Covington has filed a second amicus brief with the Ohio Supreme Court requesting the court defer to the administrative expertise of the Ohio Department of Insurance, the agency to which the General Assembly has delegated the responsibility of regulating the insurance industry in Ohio, and let stand a department decision approving a specific homeowner’s insurance policy form and corresponding rate filings.

Covington filed the two amicus briefs in the case of Lemm v. The Hartford, claiming that it is the department’s responsibility under Ohio law to review insurance policies and rates and to determine if coverage described in the Lemm’s homeowners policy should be interpreted to provide uninsured/underinsured motorists (UM/UIM) coverage.

“We are concerned about the economic impact to an insurance company, and, in turn, its consumers, when a company is obligated to pay expenses it never envisioned when rating the policy,” Covington said. “Another court decision that again broadens the scope of UM/UIM coverage will create an unstable insurance market.”

The case involves an auto accident between a motorist, Mr. Palmer, and the Lemms. Palmer was found to be at fault and the Lemms were paid claims equaling Palmer’s policy limit of $100,000. The Lemms then sought an additional UM/UIM recovery under their homeowners policy by arguing that a “residence employee” provision made it a motor vehicle policy – thus subject to since-modified state law (Ohio Revised Code 3937.18) requiring that UM/UIM coverage be offered to Ohio auto insurance consumers. The Lemms are not “residence employees” – they are the homeowners.

The 10th District Court of Appeals upheld a decision by a Franklin County trial court that determined the “residence employee” coverage was sufficient to require a UM/UIM offer. The Ohio Supreme Court has certified a conflict between Lemm v. The Hartford and Davis v. Shelby Insurance, an 8th District Appeals Court decision that held “residence employee” coverage was not sufficient to require a UM/UIM offering.

The Department of Insurance reviewed the Lemm’s homeowners policy form and rate in March 1991 and determined that insurance coverage provided under the terms described in that form does not require the offering of UM/UIM coverage under former Ohio Revised Code 3937.18.

“The department has clearly decided this policy was not a motor vehicle policy and was not subject to the mandatory UM/UIM offer,” Covington said. “If the court finds coverage where it does not exist under the policy, it will destabilize the market and this is not good for consumers. We have seen this happen in other states and consumers always end up paying more for insurance coverage. It is just not fair to change the rules in the middle of the game, and if that is done, consumers will end up paying for it.”

In the brief, Covington emphasized the impact an adverse decision could have on the homeowners insurance market. A court decision to impose UM/UIM coverage as a matter of law would affect a large number of Ohio policyholders, as the policy wording in the Lemm’s policy is widely used in Ohio. Broadening the scope of UM/UIM coverage will cause instability in the market, likely causing premiums to rise for all Ohio homeowner insurance.

“Both consumers and insurance companies benefit from rates that match the intended coverage,” Covington added. “Consumers benefit from rates that are actuarially sound because these requirements prevent overcharges for costs not contemplated in the policy. These same requirements allow insurers to collect sufficient funds to cover their costs, resulting in widespread availability of coverage in Ohio.”

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