Allstate Ins. Co. v. Smeltzer

[Cite as Allstate Ins. Co. v. Smeltzer, 2011-Ohio-2632.]

STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF SUMMIT )

ALLSTATE INSURANCE CO. C.A. No. 25136

Appellant

v. APPEAL FROM JUDGMENT
ENTERED IN THE
ROBERT SMELTZER, et al. COURT OF COMMON PLEAS
COUNTY OF SUMMIT, OHIO
Appellees CASE No. CV 2007-06-4107

DECISION AND JOURNAL ENTRY

Dated: June 1, 2011

BELFANCE, Presiding Judge.

{¶1} Appellant, Allstate Insurance Company, appeals the order of the Summit County

Court of Common Pleas that granted summary judgment to Appellees, Robert and Mary

Smeltzer. Because the trial court did not properly determine a threshold question in the course of

deciding that the Smeltzers are entitled to judgment as a matter of law, this Court reverses and

remands the case for consideration of the Smeltzers’ counterclaim.

{¶2} Mary Smeltzer was injured in an automobile accident on February 20, 2002, while

a passenger in a car operated by her husband, Robert Smeltzer. The Smeltzers were insured by

Allstate. Three lawsuits followed. In the first, a jury determined that Mr. Smeltzer and two

other drivers were each one-third at fault for the accident and entered judgment against each,

jointly and severally. Cargo Transporters, which employed one of the tortfeasors, satisfied the

judgment. In the second lawsuit, Cargo Transporters sought contribution from Mr. Smeltzer

who, in turn, sought coverage from Allstate for the contribution claim.
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{¶3} In the third lawsuit, which is at issue in this appeal, Allstate sought a declaratory

judgment that it did not have an obligation to provide indemnification and defense for the

contribution claim under the Smeltzers’ liability coverage. The Smeltzers counterclaimed,

requesting a declaration that Allstate had “the contractual obligation to indemnify Mr. Smeltzer

for the damages to his wife pursuant to the terms of the underinsured/uninsured motorist benefits

of their policy.”

{¶4} Allstate and the Smeltzers filed cross motions for summary judgment. Allstate

argued, in part, that Mr. Smeltzer was excluded from liability coverage under a household

member exclusion that provided that “Allstate will not pay for any damages an insured person is

legally obligated to pay because of * * * bodily injury to any person related to an insured person

by blood, marriage or adoption and residing in that person’s household.” It also argued that Mrs.

Smeltzer was not entitled to UM coverage. Specifically, Allstate argued that the automobile that

Mr. Smeltzer was driving at the time of the accident was not an “uninsured auto” because it was

“a motor vehicle * * * insured for bodily injury liability under the Automobile Liability

Insurance of [the Smeltzers’] policy.”

{¶5} In their motion for summary judgment, the Smeltzers’ argued that the uninsured

motorist coverage applied not on the theory that Mr. Smeltzer was entitled to indemnification

under the uninsured motorist coverage for what he paid to Cargo Transporters, but under the

theory that Mrs. Smeltzer had not been made whole:

“On March 7, 2008, Judge Mary Spicer, the Judge for the contribution [a]ction,
entered a Judgment Order holding that Robert Smeltzer was liable for $36,921.25
to Cargo Transporters. As a result, the Smeltzers have been forced to take out a
loan on their home to satisfy this judgment, incurring not only the principle
amount, but also the accrual of interest and bank fees. Prior to this satisfaction,
Robert Smeltzer was forced to go through the public humiliation of wage-
garnishment hearing as well. Because Mary has borne out these expenses with
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her husband, in no way has she been made whole as to the judgment she obtained
for her injuries.”

The Smeltzers extended this argument to Mr. Smeltzer under a theory of subrogation, arguing

that “[b]ecause Cargo Transporters, and ultimately Robert Smeltzer, paid Mary’s damages as

determined by the original lawsuit, they are now subrogated to any benefits Mary might receive

through her UM/UIM policy.”

{¶6} The trial court granted summary judgment to Allstate on its claim regarding the

applicability of the liability insurance provisions of the insurance policy. With respect to the

Smeltzers’ counterclaim regarding uninsured motorist coverage, the trial court granted summary

judgment to the Smeltzers and declared that “Defendant Mary Smeltzer is entitled to uninsured

motorist coverage under the insurance policy and Plaintiff Allstate Insurance Company is

obligated to provide said coverage.” The trial court based its decision on its conclusion that the

exclusion from uninsured motorist coverage upon which Allstate relied was invalid.

{¶7} On appeal, Allstate has argued that the trial court erred by determining that Mrs.

Smeltzer was entitled to uninsured motorist coverage for Cargo Transporters’ contribution claim

because the trial court applied the wrong law to its analysis of the uninsured motorist coverage

exclusion. We do not reach the merits of this argument, however, because the trial court failed to

address the crucial threshold issue in this case: whether, under any of the theories argued by the

Smeltzers, the judgment in the contribution case falls within the scope of the uninsured motorist

coverage in the first place.1

1
We note that the Smeltzers did not amend their counterclaim to request a declaratory
judgment under any additional theory beyond Mr. Smeltzer’s claim of indemnification.
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{¶8} This Court reviews an award of summary judgment de novo. Grafton v. Ohio

Edison Co. (1996), 77 Ohio St.3d 102, 105. According to Civ.R. 56(C), summary judgment is

appropriate when “there is no genuine issue as to any material fact and that the moving party is

entitled to judgment as a matter of law.”

{¶9} Exclusions to insurance coverage are only relevant to the extent that coverage

exists in the first place. For that reason, the threshold question in an uninsured motorist case is

whether the terms of the coverage apply on their face to the claim at issue. This is a significant

question in this case because it is not clear that uninsured motorist coverage applies to the

Smeltzers’ counterclaim as there are several key terms that are not defined in the policy.

{¶10} It is clear that the Smeltzers want Allstate to pay them for the judgment that Mr.

Smeltzer paid to Cargo Transporters in the contribution case. Their theory of how they are

entitled to uninsured motorist coverage is less clear. The Smeltzers did not seek a declaration

that there is uninsured motorist coverage for Mrs. Smeltzer’s physical injuries. In fact, the

parties agree that Mrs. Smeltzer’s judgment against the tortfeasors was satisfied in full by Cargo

Transporters. In their counterclaim for declaratory judgment, the Smeltzers requested a

declaration that Mr. Smeltzer was entitled to indemnification from Allstate for the payment to

Cargo Transporters. In their later filings, however, they argued that Mrs. Smeltzer bore this

financial loss and that Mr. Smeltzer was subrogated to her right of recovery under the uninisured

motorist coverage.

{¶11} In this respect, we note that indemnification and subrogation are “distinctly

different concepts[.]” See, generally, Essad v. Cincinnati Cas. Co./The Cincinnati Ins. Cos, 7th

Dist. No. 00 CA 207, 2002-Ohio-1947, at ¶11. “Indemnification occurs when one who is

primarily liable is required to reimburse another who has discharged a liability for which that
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other is only secondarily liable.” Krasny-Kaplan Corp. v. Flo-Tork, Inc. (1993), 66 Ohio St.3d

75, 78. By implication, then, Mr. Smeltzer’s request for declaratory judgment urged the trial

court to find that it was Allstate that was primarily liable for payment of the contribution claim

and that Mr. Smeltzer was only secondarily so. See id.

{¶12} While indemnification involves reimbursement of the party who paid a liability

by virtue of their contractual relationship, see id., subrogation allows one party to stand in the

place of another to succeed to that person’s legal rights. See State, Dept. of Taxation v. Jones

(1980), 61 Ohio St.2d 99, 101. Conventional subrogation arises out of a contractual relationship

between the parties in question. Midland Title Sec., Inc. v. Carlson, 171 Ohio App.3d 678, 2007-

Ohio-1980, at ¶17. Equitable subrogation, however, does not arise by contract, but by virtue of

the relationship between the parties. American Ins. Co. v. Ohio Bur. of Workers Comp. (1991),

62 Ohio App.3d 921, 924. It is “‘essentially a theory of unjust enrichment’ * * * [that] shifts a

loss from one merely secondarily liable on a debt to one more primarily liable on the debt who in

equity should have paid it in the first instance.” Id., quoting Ridge Tool Co. v. Silva (1986), 33

Ohio App.3d 260, 261. Because the focus of Mr. Smeltzer’s arguments regarding subrogation is

his wife, with whom he does not have a contractual right of subrogation, it appears that these

arguments are based on equitable subrogation. “In order to be entitled to equitable subrogation,

‘the equity must be strong and the case clear.’” Washington Mut. Bank, FA v. Aultman, 172

Ohio App.3d 584, 2007-Ohio-3706, at ¶24, quoting Jones, 61 Ohio St.2d at 102.

{¶13} We reiterate that the Smeltzers’ counterclaim as pleaded requested a declaration

that Mr. Smeltzer was entitled to payment under the uninsured motorists portion of their policy

on a theory of indemnification alone. In any event, the threshold legal issue in this case is

whether the uninsured motorist coverage is implicated. If the uninsured motorist coverage is not
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implicated in the first place, any discussion of the exclusions from coverage that may arise

thereunder is unnecessary and premature.

{¶14} The trial court, however, did not consider the applicability of uninsured motorist

coverage in the first instance. According to the policy of insurance that is in the record before

this Court, uninsured motorists coverage applies to “damages which an insured person * * * is

legally entitled to recover from the owner or operator of an uninsured auto * * * because of

bodily injury sustained by an insured person[.]” The November 2, 2001, endorsement contains

the same language. Neither the general definition section of the policy nor the definition section

specific to uninsured motorist coverage defines “damages.”

{¶15} This Court has refused to consider a matter for the first time on appeal when the

trial court did not “consider alternate grounds in support of a motion for summary judgment[]” or

“failed to consider the evidence within the proper legal context.” Guappone v. Enviro-Cote, Inc.,

9th Dist. No. 24718, 2009-Ohio-5540, at ¶12, citing B.F. Goodrich Co. v. Commercial Union

Ins., 9th Dist. No. 20936, 2002-Ohio-5033. Because the trial court has yet to address the

threshold issue in determining whether the Smeltzers were entitled to judgment as a matter of

law, this appeal fits squarely within that framework. Accordingly, this Court declines to address

the merits of Allstate’s argument regarding the applicability of S.B. 97 as these arguments

related to the exclusions to coverage. Nonetheless, we conclude that the trial court erred by

determining that the Smeltzers were entitled to judgment on their counterclaim for declaratory

judgment as a matter of law because it did so without determining the threshold issue of whether

the counterclaim falls within the scope of the uninsured motorists coverage at issue. Although a

similar analysis could be employed with respect to Allstate’s complaint for declaratory judgment

under the liability portions of the policy, we note that the Smeltzers have not appealed the trial
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court’s order to the extent that it granted Allstate’s motion for summary judgment. In fact, the

Smeltzers characterized uninsured motorist coverage as the “one material issue in the case[.]”

As such, liability coverage is beyond the scope of this opinion.

{¶16} Allstate’s assignment of error is sustained. The order of the trial court that

granted summary judgment to the Smeltzers on their counterclaim is reversed. This Court

remands the matter to the trial court for further proceedings consistent with this opinion.

Specifically, the matter is remanded for proceedings necessary to determine whether the

contribution sought by Cargo Transporters from Mr. Smeltzer falls within the scope of uninsured

motorists coverage.

Judgment reversed
and cause remanded.

There were reasonable grounds for this appeal.

We order that a special mandate issue out of this Court, directing the Court of Common

Pleas, County of Summit, State of Ohio, to carry this judgment into execution. A certified copy

of this journal entry shall constitute the mandate, pursuant to App.R. 27.

Immediately upon the filing hereof, this document shall constitute the journal entry of

judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the

period for review shall begin to run. App.R. 22(E). The Clerk of the Court of Appeals is

instructed to mail a notice of entry of this judgment to the parties and to make a notation of the

mailing in the docket, pursuant to App.R. 30.
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Costs taxed to Appelles.

EVE V. BELFANCE
FOR THE COURT

CARR, J.
CONCURS

WHITMORE, J.
CONCURS, IN PART, AND DISSENTS, IN PART, SAYING:

{¶17} Although I concur in the majority’s opinion to the extent that it reverses the trial

court’s judgment in favor of the Smeltzers, I dissent from the rest of the opinion.

{¶18} Mrs. Smeltzer was injured in a car that fell under the definition of what “an

uninsured auto is not” in the Smeltzers’ uninsured motorist coverage. Because this analysis is

dispositive of the case, I would not engage in the majority’s analysis. I conclude that the

endorsement provided by Allstate placed the Smeltzers on notice that the policy language had

changed, and I would reverse the trial court’s decision on that basis.

{¶19} In Advent v. Allstate Ins. Co., 118 Ohio St.3d 248, 2008-Ohio-2333, the Ohio

Supreme Court considered whether amendments to R.C. 3937.18 contained in S.B. 97 could be

incorporated into an insurance contract at a renewal period during the two-year guarantee period

as permitted by S.B. 267. The Advents carried a policy of automobile insurance dating from

March 12, 1989. The policy contained liability coverage limits of $300,000 per person and

$500,000 per occurrence, but UM coverage limits of $50,000 per person and $100,000 per

occurrence. Apart from the amendments contained in S.B. 97, therefore, UM coverage up to the

general policy limits of $300,000/$500,000 would have arisen as a matter of law by application

of R.C. 3937.18(A). Advent at ¶9-10.
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{¶20} Mrs. Advent died as the result of an automobile accident on September 28, 2002.

The relevant two-year guarantee period began on March 12, 2001, six months after the effective

date of S.B. 267 and seven months before the effective date of S.B. 97. The contract renewed at

six-month intervals and, on March 12, 2002, just over six months before the accident, Allstate

included an “Important Notice” of policy changes with the Advents’ renewal. The notice

informed the Advents that “[t]he coverage limits you have chosen for Uninsured Motorists

Insurance for Bodily Injury are less than your limits for Bodily Injury under Automobile

Liability Insurance[,]” and “the Advents were advised to contact their agent or Allstate if they

wished to increase their UM limits.” Advent at ¶16. Mr. Advent ultimately made a claim against

Allstate under their own insurance policy for $200,000 “on the theory that by operation of law,

the amount of UM coverage was equivalent to his policy’s liability limits of $300,000, subject to

an offset of the $100,000 recovered from the tortfeasor’s policy.” Id. at ¶4. In other words, Mr.

Advent’s position was that Allstate could not incorporate the S.B. 97 amendments into their

insurance policy at the March 2002 policy renewal and that, under S.B. 267, UM coverage still

arose in the general policy limits as a matter of law.

{¶21} The Supreme Court held that “insurers may incorporate any changes permitted or

required by the Revised Code at the beginning of any policy-renewal period on or after October

31, 2001 (the effective date of S.B. 97) within the policy’s two-year guarantee period that began

on or after September 21, 2000 (the effective date of S.B. 267).” Id. at ¶11. Applying this

conclusion to Mr. Advent’s claim, the Court concluded that Allstate could incorporate changes

permitted by S.B. 97 into the Advents’ policy at the March 2002 policy renewal. The Court also

concluded that the notices that accompanied the renewal “contained sufficient information to put

the Advents on notice that the provisions regarding UM coverage in the policy had changed, that
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the UM coverage was as stated on the policy declarations page, and that action on their part was

necessary to modify the stated UM limits.” Id. at ¶18. Accordingly, the Court determined that

R.C. 3937.18 did not require higher UM coverage limits to be implied as a matter of law.

{¶22} In this case, a two-year guarantee period on the Smeltzers’ policy with Allstate

began on November 2, 2000, less than two months after the effective date of S.B. 267, which

provided that changes in the law permitted by R.C. 3937.18 could be incorporated into an

insurance policy at any renewal during a two-year guarantee period. A six-month renewal of the

Smeltzers’ policy occurred on May 2, 2001, and the amendments contained in S.B. 97 became

effective on October 31, 2001. Another six-month renewal occurred on November 2, 2001, just

over three months before the accident at issue. As provided by R.C. 3937.31(E), pursuant to

S.B. 267, any change permitted by S.B. 97 could be incorporated into the Smeltzers’ policy with

Allstate at the November 2, 2001 renewal or any subsequent renewal within the two-year

guarantee period. See Advent at ¶11.

{¶23} Allstate’s November 2, 2001 renewal policy endorsement provided that “An

Uninsured Auto Is Not *** a motor vehicle which is insured for bodily injury liability under the

Automobile Liability Insurance of this policy.” Because R.C. 3937.18, as amended by S.B. 97,

provided that UM coverage could be subject to “terms and conditions that preclude coverage ***

included but not limited to” those specifically stated in the statute, this was a permitted limitation

to the UM coverage provided therein. According to R.C. 3937.18 and Advent, therefore, Allstate

could incorporate this exclusion into the Smeltzers’ contract of insurance at any six-month

renewal, including those within the two-year guarantee period recognized by Wolfe v. Wolfe

(2000), 88 Ohio St.3d 246.
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{¶24} The November 2, 2001, policy endorsement that Allstate sent to the Smeltzers

informed them that “[t]he following endorsement changes your policy” and instructed them to

“read this document carefully and keep it with your policy.” Underneath this statement, in bold

and capital letters, is the heading “Amendment of Policy Provisions – Ohio.” Along with other

changes to the policy, the definition of what “an uninsured auto is not” was clearly set forth on

page two of the endorsement. Adequate notice of the policy change, therefore, was given by

virtue of the notice itself. Applying this conclusion to the Smeltzers’ claim, it is clear that the

exclusion eliminates whatever coverage they might arguably have had under the UM portion of

the policy.

{¶25} For this reason, I conclude that application of the exclusion to the Smeltzers’

claim is dispositive of this case, and I would reverse the trial court’s judgment on that basis.

APPEARANCES:

DAVID L. LESTER, Attorney at Law, for Appellant.

HENRY W. CHAMBERLAIN, Attorney at Law, for Appellees.

PAUL W. FLOWERS, Attorney at Law, for Appellees.