The Three-Year UM/UIM Trap: Why Your Own Insurer Can Deny a Valid Claim

Published November 10, 2011 · Ohio Supreme Court

Here is a scenario that plays out in the Dayton area every month. A family is badly hurt by a driver who carries Ohio's minimum liability coverage. Their lawyer files suit against that driver well within the two-year deadline. The case grinds on: discovery, depositions, a trial date that gets continued. Three years after the crash, a judgment finally comes in for far more than the driver's policy will pay. The family turns to their own underinsured motorist coverage, the coverage they bought for exactly this situation.

And their own insurance company says no. Too late.

That is not a hypothetical. It is, in substance, what happened to the Barbee family, and on September 29, 2011, the Supreme Court of Ohio said the insurer was right. Barbee v. Nationwide Mut. Ins. Co., 130 Ohio St.3d 96, 2011-Ohio-4914, is the most important deadline decision for injured Ohioans this year, and every person with an open injury claim needs to understand it.

The facts

Four members of the Barbee family were injured in an October 12, 2002 crash in Madison, Wisconsin. One of the at-fault drivers was a member of the armed forces, which put the case against him in federal court; the other was an estate with a $75,000 policy. The Barbees' lawyer notified Nationwide within a year that underinsured motorist claims were possible. Suit against the at-fault drivers was filed more than two years after the crash. After trial, the government paid its 30 percent share and the estate's $75,000 was divided among the family, leaving each of them with an unpaid balance on their judgments.

On January 18, 2007, more than four years after the crash, the Barbees sued Nationwide for underinsured motorist benefits to cover the shortfall.

Nationwide pointed to its policy. Any lawsuit for uninsured or underinsured motorist coverage had to be filed "within three (3) years from the date of the accident." The Barbees pointed to two other provisions in the same policy: one said no payment would be made until all other liability insurance had been exhausted, and another said no suit could be filed until the insured had fully complied with the policy's terms. Read together, they argued, the policy told them they could not sue until the other coverage was exhausted, which did not happen until the federal case ended. At a minimum, they said, the provisions conflicted and the ambiguity should be resolved in their favor.

The trial court and the Ninth District agreed with the Barbees. The Supreme Court did not.

The holding

By a 5-2 vote, the court held the three-year provision unambiguous and enforceable. The exhaustion clause, it reasoned, governs when the insurer must pay, not when the insured may sue. Exhausting the at-fault driver's limits is a condition of receiving payment; it is not a condition of filing the lawsuit. The three provisions therefore do not conflict, there is no ambiguity, and the policy means what it says: file within three years of the crash, or lose the claim.

The court anchored the ruling in the statute. R.C. 3937.18(H) expressly allows an auto policy to require that any UM/UIM claim or suit be brought within three years "after the date of the accident." The court noted the General Assembly chose that language knowing that policies routinely require exhaustion first; if it had wanted the clock to run from exhaustion, it could have said so.

As for the practical objection that this forces injured people to sue their own insurer before they know whether they will need the coverage, the court's answer was that it is already common practice. Another victim of the same crash had sued her insurer within two years, and the trial court simply stayed that case until the underlying litigation finished. Filing early, the court said, imposes little burden on anyone.

The dissent

Justice Pfeifer, joined by Justice McGee Brown, dissented in unusually pointed terms. He opened by observing that "Insurance companies are extremely resourceful at collecting premiums and exceedingly reluctant to pay claims." He found the interplay of the three provisions ambiguous, noted that two lower courts had read them the same way the Barbees did, and would have applied the long-standing rule that ambiguity in a policy is construed against the insurer. The dissent did not carry the day, but it explains why the majority's rule is a trap for the unwary.

Why this is a trap

Consider the timeline an injured person actually faces:

• Day 1: the crash.
• Two years: the deadline to sue the at-fault driver. We covered that rule in our post on Ohio's two-year injury deadline.
• Three years: under most policies, the deadline to sue your own insurer for UM/UIM benefits.
• Sometime after three years: the point at which many lawsuits against at-fault drivers are actually resolved, which is often the first moment anyone knows for certain that the driver's coverage is inadequate.

Serious injury cases take time because the full extent of the injury takes time to understand. And the natural instinct, to wait and see what the first case produces before starting a second, is precisely the instinct that forfeits the coverage.

Barbee means the UM/UIM claim cannot wait. If there is any realistic chance that the at-fault driver's coverage will not be enough, the claim against your own insurer must be filed within three years of the crash, even while the first lawsuit is pending. The court can and will put the second case on hold. What it cannot do is revive it after the deadline.

This is the second time in three months the Supreme Court has enforced a contractual deadline against a policyholder. In August it was a one-year clause in a homeowner's policy, which we discussed in our post on Dominish v. Nationwide. The message is consistent: the policy's deadlines will be enforced as written, and the policyholder is expected to know them.

What underinsured motorist coverage is for

Our overview of uninsured and underinsured motorist claims and our earlier post on why every Ohio driver needs it cover the basics. In short, it is the coverage that pays when the person who hurt you has too little insurance, or none. In a serious injury case with a minimum-limits defendant, it is frequently the only meaningful source of recovery, and under Barbee it is now very easy to lose to a calendar error.

How we handle it

In our office, every car crash case begins with two deadlines on the calendar, not one: the statutory deadline for the claim against the at-fault driver and the policy deadline for the UM/UIM claim against the client's own carrier. We obtain the client's full policy at the outset, read the suit-limitation clause, and treat the three-year date as absolute. If the at-fault driver's coverage is unknown or inadequate, the UIM action is filed before that date whether or not the underlying case has resolved.

What this means for you

If you were seriously injured in a crash more than two years ago, the at-fault driver's case is still unresolved, and you carry UM/UIM coverage, check your policy today for its suit-limitation clause and compare it to the crash date. If the three-year mark is approaching, do not wait for the first case to finish. If you are early in a case, make sure whoever is handling it has calendared both deadlines.