In Barbee v. Nationwide Mutual Insurance Company, Slip Opinion No. 2011-Ohio-4914, the Supreme Court of Ohio ruled this week that language in an auto insurance policy requiring the policyholder to file suit against the insurer for underinsured motorist (“UIM”) coverage within three years after an accident is enforceable, even in cases where the insufficiency of the at-fault drivers’ insurance is not determined within the three-year limitation period.

By way of background, in October 2002, four members of the Barbee family were injured in a traffic accident. The Barbees filed claims under the medical payments coverage in their own Nationwide auto insurance policy, and Nationwide paid those claims. Within a year after the accident, the Barbees’ attorney notified Nationwide that they were pursuing recovery from the at-fault drivers for damages sustained in the accident, and may file a UIM claim in the future if they were unable to recover the full amount of their damages from the at-fault drivers.

The Barbees ultimately filed a lawsuit against the negligent drivers who caused the accident. At the conclusion of the litigation, more than three years after the date of the 2002 accident, the Barbees learned that the tortfeasor’s liability coverage was not sufficient to satisfy the Barbees’ court-awarded damages. The Barbees then presented their UIM claim to Nationwide. The insurer denied the claim as untimely and the Barbees filed a declaratory judgment action in the Lorain County Court of Common Pleas.

The trial court disagreed with Nationwide’s declination of coverage and held that the language of Nationwide’s policy was ambiguous because there was a conflict between the three-year limitation provision and a separate “exhaustion” provision stating that no payments would be made under the underinsured motorist coverage in the policy “until the limits of all other liability insurance and bonds that apply have been exhausted by payments.” The trial court also held that the three- year limitation period in the Barbees’ policy did not begin to run until they had exhausted the liability coverage available from the at-fault drivers, which, in this case, did not occur until four years after the subject accident. The trial court’s decision was affirmed by Ohio’s 9th District Court of Appeals.

Upon review, the Ohio Supreme Court found that the 9th District erred when it found a conflict between the policy language requiring an insured to file suit for underinsured motorist coverage within three years of an accident, and language withholding payment of underinsured motorist claims until all other sources of recovery have been exhausted. The Court reasoned that because the exhaustion clause does not affect when the insured may commence suit against his insurer for determination of UIM benefits, no conflict exists among the exhaustion, compliance, and limitation provisions of the Barbees’ policy with Nationwide so that an ambiguity is created.

The Barbee decision is useful for two reasons. First, it upholds the enforcement of the Carrier inserted contractual period of Limitations in a personal lines policy. Second, the decision instructs claimants to preserve their UIM claims against insurers by filing suit for UIM benefits before the claim ripens if the underlying determination of coverage cannot be adjudicated prior to the expiration of the three-year UIM limitations period. Trial courts are then instructed to stay these cases until the claims against the tortfeasors are resolved. The Supreme Court concluded that “there is little extra burden on the court’s docket in preserving the insured’s claim” for UIM coverage in this manner.

For more information about this decision, or to discuss any insurance coverage issues, feel free to contact any of Reminger’s Insurance Coverage/Bad Faith Group attorneys.

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