Ohio Uninsured Motorist Litigation Tied to Money for Charities

An Ohio insurance company in late 2010 successfully challenged a class action lawsuit involving uninsured motorist/underinsured motorist (UM/UIM) coverage in a case that played prominently in a campaign to change the way jury awards in class actions are distributed.

The complaint in Beck v. Westfield Insurance Co. stems from a three-year period in the mid-1990s in which Ohio’s UM/UIM laws were changed due to a state Supreme Court decision in a landmark case, Martin v. Midwestern Insurance Co.

Previous to September 1994, automobile insurance companies in Ohio could charge a separate premium for UM/UIM for each vehicle owned by an insured. The Court in Martin v. Midwestern put a stop to that practice, finding that coverage followed the insured, not the vehicle. That decision held until 1997, when the state legislature passed a new law allowing the charging of additional premiums for UM/UIM coverage on secondary vehicles.

In 1994, Jeffrey Beck had an auto policy with Westfield that included an “other-owned vehicle” exclusion, said Josh Gayl, an attorney with Fox Rothschild LLP, who assisted in representing Westfield. Under that exclusion, a policyholder with multiple vehicles who was only paying one premium for UM/UIM coverage wouldn’t get “UM/UIM coverage if you were injured or your family member was injured while driving in that secondary vehicle,” Gayl said.

While the Court in Martin v. Midwestern determined that insureds did not have to pay multiple premiums for UM/UIM coverage for multiple vehicles, it did not prevent “the insurance company from charging a premium for what opposing counsel has termed ‘guest coverage,'” Gayl said. For instance, he said, if you were driving your secondary car and your golfing buddy was riding with you, that friend would not be covered in case of an accident unless you had paid a premium on that second vehicle.

“It would have been a bad decision on the insurance company’s part to remove the premium entirely for a secondary for that very reason,” Gayl said. It would have removed the guest coverage, which likely would have resulted in “a flood of lawsuits coming in for Westfield and for other insurance companies.”

But Westfield and other insurance companies were sued anyway. Those suits claimed the insurers wrongly continued to charge customers for the UM/UIM coverage on secondary vehicles by classifying it as guest coverage.

“During that three years they weren’t allowed to charge the extra premium for these cars and tell insurance customers they were paying the extra premium for the UM coverage because they already had it. Many insurance companies did what they were supposed to and they stopped it,” said Patrick Perotti, an attorney with Ohio-based Dworken & Bernstein Co. LPA.

Perotti, who represented Beck, said some insurers continued to charge the extra premium on secondary vehicles without telling the insureds it was for guest coverage, not UM/UIM coverage. That’s where the fraud comes in; the fraud being that the insurance company said it was charging a premium for one type of coverage when it was really charging for a different type of coverage, he said.

While Beck v. Westfield ended with a dismissal, Perotti has won some $52 million in judgments in cases against other Ohio auto insurers over similar issues. The difference in Beck v. Westfield, he said, is that he picked the wrong defendant. It turned out that Beck had cancelled his policy with Westfield early in 1995 without having gotten a renewal that had the changes resulting from the Martin v. Midwestern decision, a fact Perotti said only came out during discovery. Perotti said he has appealed but, more importantly, he will file a new lawsuit against Westfield with a new plaintiff representing the class.

Statute of Limitations

Dismissal in Beck v. Westfield is based on the fact that the Court’s 1994 ruling did not apply to Beck’s policy. But Gayl said even if it had, that really wouldn’t have made a difference for a number of reasons.

Chief among them, Gayl said, is the statute of limitations. “The Ohio statute of limitation for claims based on fraud is four years,” he said. “If the action that was fraudulent took place in 1994, the cause of action for fraud would need to be filed in 1998. … The Ohio Legislature overturned this Martin v. Midwestern decision in 1997. … Best case scenario for a plaintiff was if the person had a policy that was effective in 1997 he or she could have brought a claim as late as 2001. … Here, the claim was brought in 2009.”

So, even if Beck’s policy had contained changes the court decision required, the statute of limitation for a fraud claim in this case had long passed by 2009 when Beck’s lawsuit was filed, Gayl said.

While Perotti has been successful in the past in bringing suit against insurance companies over similar issues, Gayl said the outcome in this “case is a big, big deal not only for Westfield, but for other insurance companies that are facing the same kind of class action for plaintiff’s counsel. … This is the first time a court has said, wait a minute, there’s a statute of limitations here. You can’t wait 15 years and then tell Joe Smith ‘hey, if you were represented by this insurance company you might have a claim.’ So it sort of puts an end to this kind of class action as untimely.”

Cy Pres

Gayl said another issue at play with Beck v. Westfield is Perotti’s interest in changing the nature of settlements in class action cases.

In most states, if an insurance company offers $50 million in a settlement, but only $10 million of that is claimed by class members — because, for instance, all the claimants can’t be found — the remaining $40 million would go back to the company being sued, Gayl said.

Plaintiff’s counsel is trying to change that system using the legal doctrine of cy pres, Gayl said. Under the cy pres doctrine, in the settlements of estates and trusts, etc. any amount remaining after beneficiaries have been paid is given to charity. Similarly, if cy pres is applied to settlements in class action lawsuits, any money remaining in the settlement after claimants have been paid would go to charities. While charities would benefit from such a system, so would plaintiff attorneys, Gayl said. Currently, plaintiff attorneys are only paid on a percentage of the total amount of a settlement passed on to class members. If only $10 million of a $50 million settlement is paid out, the attorney would get a percentage of $10 million. If, however, the remaining $40 million was given to charities, the plaintiff attorney would be paid a percentage of that $40 million, as well.

The issue of using the cy pres doctrine in settlements was widely debated before the November election, Gayl said. “Plaintiff’s counsel made [Beck v. Westfield] as an example in support of cy pres legislation,” he said.

While stalled in the past legislative session, Perotti said the legislation had bipartisan support. “The sponsors of that law are both Republicans and Democrats. And the sponsors have indicated that they are going to reintroduce it,” he said.

Perotti said House Bill 427 and Senate Bill 157 were more about truth in settlements — paying out what you said you would pay out — rather than money for charities. He said Westfield opposed the legislation “because it had this case pending and it doesn’t want to pay all the money it owes.” The legislation also was opposed by the Chamber of Commerce, he said, because corporations believe that if they stall long enough not all claimants will be found and the amount they have to pay in a settlement will be reduced.

Perotti’s firm, Dworken & Bernstein, has distributed to charities more than $20 million over the past four years, according to a company announcement. The money came from settlements in cases tried by the firm.

Gayl said he believes cy pres legislation, if reintroduced, won’t have much of a chance because following the November election Republicans control the Ohio legislature. Ohio Republicans generally support the insurers’ and manufacturers’ positions on the issue, he said.