Derr v. Westfield Companies

Sweeney, J. The issue certified by the court of appeals below is “[wjhether an insurer on a single-limit underinsured motorist policy may set off against that single limit of liability the total amount paid by a tortfeasor’s insurance, when the claims of each of the claimants taken individually do not reach that limit as reduced by the amount paid to each claimant by the tortfeasor.” For the reasons that follow, we hold that the courts below improperly applied the setoff the insurer was entitled to take and, therefore, we reverse and remand the decision rendered below. While the instant cause seeks a determination of the proper method by which an insurer may set off amounts the insured receives from other sources with regard to a particular claim, our determination in the case sub judice hinges upon the important fact that this action involves wrongful death claims for which Ohio statutory law has accorded special treatment. As this court held in the syllabus of Wood v. Shepard (1988), 38 Ohio St.3d 86, 526 N.E.2d 1089: “Each person entitled to recover damages pursuant to R.C. 2125.02 for wrongful death, and who is an insured under an underinsured motorist provision in an insurance policy, has a separate claim and such separate claims may not be made subject to the single person limit of liability in the [540] underinsured motorist provision. (R.C. 2125.02 and 3937.18[A][2], construed and applied.)” As correctly noted by Judge William R. Baird in his dissenting opinion in the court of appeals below, one of the primary thrusts of the law enunciated in Wood, supra, is that the claims of each next-of-kin in a wrongful death situation are separate and distinct. In addition, this court has had the opportunity to discuss an insurer’s right to set off amounts that an insured receives from the tortfeasor when the insured makes a claim for underinsured motorist coverage. In James v. Michigan Mut. Ins. Co. (1985), 18 Ohio St.3d 386, 18 OBR 440, 481 N.E.2d 272, we held in the second paragraph of the syllabus: “An insurer may apply payments made by or on behalf of an underinsured motorist as a setoff directly against the limits of its underinsured motorist coverage, so long as such setoff (1) is clearly set forth in the terms of the underinsured motorist coverage and (2) does not lead to a result wherein the insured receives a total amount of compensation that is less than the amount of compensation that he would have received if he had been injured by an uninsured motorist.” In the instant case, the trial court relied on James in reducing Westfield’s liability to Derr and his two children by setting off the $100,000 received from the tortfeasor’s insurer in settlement of the wrongful death claims from the $400,000 limit of the policy. Nevertheless, the instant cause presents a different fact pattern from the situation found in James. Here, we are faced with multiple claimants and a single limit policy wherein the per person limit of liability is the same as the per accident limit. James, however, involved a single claimant asserting an underinsured motorist claim against a split-limit policy which imposed a smaller “per person” limit than the larger “per accident” amount that the insurer promised to pay for all claims arising out of a particular accident. Here, the single limit policy provides in relevant part: “COVERAGE J — Underinsured Motorists “The limit of liability shown in the Declarations for Coverage J is our maximum limit of liability for all damages resulting from any one auto accident. This is the most we will pay regardless of the number of: “a. Insureds; “b. claims made; “c. vehicles or premiums shown in the Declarations; or “d. vehicles involved in the accident. [541] “However, the limit of liability shall be reduced by all sums paid because of the bodily injury by or on behalf of persons or organizations who may be legally responsible. * * * ” As mentioned before, three separate claims have been lodged requesting damages for the wrongful death of Diana Derr. In addition, there is no dispute that the three claimants are “insureds” under the foregoing underinsured motorist provision. How then, the question arises, may Westfield effectuate its setoff rights, given the foregoing policy language and the law enunciated in both Wood, supra, and James, supra? While James does not address the issue of how to apply a setoff where there are multiple claimants against a single limit policy, the James opinion does provide us with the starting point for calculating the setoff, i.e., that the setoff should be deducted from the per person limit of an underinsured policy.1 Since we are dealing with a single limit policy, the per person limit is the same as the per accident limit, which in this case is $400,000. Given the fact that there are three wrongful death claimants or “insureds,” we believe that each “insured” under the policy may seek up to $400,000 for damages. However, because the single limit policy has the same per person/per accident dollar limitation, Westfield will never have to pay more than the $400,000 limit for any one accident. In our view, the trial court below ignored the aspect of the separateness of wrongful death claims as explained in Wood, supra, and it perfunctorily applied James, supra, by subtracting the amount received from the tortfeasors’ insurer ($100,000) from the total liability cap under the single claim policy ($400,000). In so doing, the court declared that Westfield is liable to pay only $300,000 under the policy. While the court of appeals majority endorsed this approach, we believe that the law and the policy language dictate a different method of calculating Westfield’s setoff rights. The approach we endorse herein is similar to that implemented by the Cuyahoga County Court of Appeals in Zelko v. Parsons (1985), 29 Ohio App.3d 302, 29 OBR 400, 505 N.E.2d 271. In Zelko, the appellate court held that the insurer must consider all claims separately and may not simply apply a collective setoff against the total limit of underinsured motorist coverage. In addition, the setoff language used in the instant policy is not clear and unambiguous as to the manner in which the setoff is to be effectuated, [542] especially with respect to the situation where multiple insureds present claims for underinsured motorist coverage. As this court has often stated, “[[language in a contract of insurance reasonably susceptible of more than one meaning will be construed liberally in favor of the insured and strictly against the insurer.” Faruque v. Provident Life & Acc. Ins. Co. (1987), 31 Ohio St.3d 34, 31 OBR 83, 508 N.E.2d 949, syllabus. Thus, given the ambiguous setoff language in the subject policy, we will construe the language liberally in favor of the insureds and strictly against the insurer. Based solely on the stipulation of the parties that the probate court divided the net recovery of the tortfeasors’ insurance equally among the three wrongful death claimants, we will assume for the sake of calculating West-field’s setoff that the damage sustained by each claimant is equal. Given that the arbitrators determined that the wrongful death claimants sustained $800,-000 in damages, the calculation of the setoff should be as follows (amounts are in thousands of dollars): Claim Paid Unsatisfied Claim Policy Limit Setoff Adjusted Limit Edgar : $266.6 - $ 33.3 = $233.3 $400 $ 33.3 = $366.6 Michael : $266.6 - $ 33.3 = $233.3 $400 $ 33.3 = $366.6 Julie : $266.6 - $ 33.3 = $233.3 $400 $ 33.3 = $366.6 Total : $800 - $100 = $700 $100 Since each adjusted limit is still greater than each claimant’s unsatisfied claim, the claims are limited only by the overall limit per accident, $400,000. Each claimant therefore takes his or her proportional share (under our assumption, an equal share) of the $400,000 limit, i.e., $133,333.3. Under the foregoing calculation, Westfield will pay no more than the $400,000 single policy limit, and the setoff is effectuated by deducting it from the policy limit as applied to each claim. While it is true that each individual insured in this case receives more in compensation than he or she would have received under the uninsured motorist provision of the subject policy, as opposed to the underinsured motorist provision at issue, that does not run afoul of our prior holding in James, supra, or public policy. As aptly explained by Judge Blanche Krupansky in Zelko, supra: “The language in James is interesting from the viewpoint the Supreme Court states the insured should receive no less than he would have received if he had been injured by an uninsured motorist. The Supreme Court chose the phrase ‘less than’ instead of the phrase ‘more than’ in limiting compensation to the insured in James, supra, thereby leaving the door open when multiple insureds are involved.” Id. at 304, 29 OBR at 403, 505 N.E.2d at 274. [543] In calculating the setoff as outlined above, the insured receives no less than what was bargained for in the contract of insurance and the insurer Westfield has the potential benefit of effectuating a setoff for amounts the insureds received from other sources, but pays no more than what it agreed to pay under the insurance contract. In our view, this approach is most consonant with the policy goals delineated in both Wood, supra, and James, supra. One other aspect of our decision today should be addressed, as cogently analyzed by Judge Baird in his dissenting opinion below: “Finally, the point should be made that the concept of separate treatment of individual claims does not necessarily result in the insurance company always paying its maximum policy limits. We have no way of knowing in this case how the $800,000 total damages is to be allocated among the three claimants. If it is to be allocated equally, it is true that the insurance company ends up paying a total of $400,000. On the other hand, if one claim is to be allocated $750,000 and other two $25,000 each, the insurance company would pay only $366,333 [sic, $366,666]. This is so because the $750,000 claimant would collect only the policy limit applicable to his claim ($400,000 minus the $33,333 setoff applicable to that claim) and the other two claimants could collect nothing because they had already collected more than their damages.” Based on all the foregoing, we reverse the judgment of the court of appeals and remand the cause to the trial court for further proceedings in accordance with this opinion. Judgment reversed and cause remanded. Douglas, H. Brown and Resnick, JJ., concur. Moyer, C.J., Holmes and Wright, JJ., dissent. Footnotes [1] As noted in the dissent below, it can be safely assumed that the insurer would not argue for effectuating the setoff against the overall policy limit if the Derrs had a split-limit policy such as $100,000/$400,000. In that situation, the insurer would argue for dividing the $100,000 setoff among the claimants and the insurer would very likely offer less than the $300,000 that it concedes is owed to the claimants.