Title: Schumacher v. Kreiner

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Schumacher v. Kreiner, 88 Ohio St.3d 358, 2000-Ohio-344.] 
 
 
 
 
 
SCHUMACHER ET AL., APPELLANTS, v. KREINER; MOTORISTS MUTUAL INSURANCE 
COMPANY, APPELLEE. 
[Cite as Schumacher v. Kreiner (2000), 88 Ohio St.3d 358.] 
Insurance 
— 
Motor 
vehicles 
— 
Insurance 
policy 
provides 
uninsured/underinsured motorist coverage by operation of law, when — 
R.C. 3937.18, applied. 
(No. 99-245 — Submitted November 16, 1999 — Decided April 12, 2000.) 
APPEAL from the Court of Appeals for Hamilton County, No. C-980188. 
 
Appellant Mark J. Schumacher owned and operated a truck and leased it to 
Relay Express, Inc.  Appellee, Motorists Mutual Insurance Company 
(“Motorists”), issued a liability policy covering Schumacher’s truck to Relay 
Express.  On November 17, 1994, Schumacher was driving his truck as an 
independent contractor for Relay Express when he was struck by a vehicle driven 
by Karen Kreiner. 
 
The insurance policy that Relay Express had purchased from Motorists did 
not mention uninsured/underinsured motorist (“UM”) coverage.  Motorists refused 
to pay for damages suffered by Schumacher, claiming that its insurance policy was 
solely a liability policy.  Schumacher sued Motorists in the Court of Common 
Pleas of Hamilton County, arguing that the policy covering his truck contained UM 
 
 
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insurance by operation of law because UM coverage had been neither offered to 
nor rejected by Relay Express.  See R.C. 3937.18. 
 
The trial court granted summary judgment in favor of Motorists.  The court 
of appeals affirmed, stating that Schumacher had not contracted directly with 
Motorists and therefore did not have standing to bring suit against Motorists. 
 
The cause is now before this court upon the allowance of a discretionary 
appeal. 
__________________ 
 
Kevin L. Murphy & Associates, PSC, and R. Christian Macke, pro hac vice; 
Keating, Muething & Klekamp, Mary Ellen Malas and James R. Matthews, for 
appellants. 
 
McIntosh, McIntosh & Knabe and Bruce D. Knabe, for appellee. 
__________________ 
 
PFEIFER, J.  The principal issue in this case is whether the insurance policy 
covering Schumacher’s truck contained UM coverage by operation of law pursuant 
to R.C. 3937.18.  For the reasons that follow, we conclude that Motorists provided 
automobile insurance to Relay Express without offering UM coverage, that Relay 
Express did not expressly reject UM coverage, and, therefore, that the policy 
covering Schumacher’s truck contained UM coverage by operation of law.  
Accordingly, we conclude that summary judgment was improperly granted. 
 
 
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R.C. 3937.18(A) provides that “[n]o automobile liability or motor vehicle 
liability policy of insurance insuring against loss resulting from liability imposed 
by law for bodily injury or death suffered by any person arising out of the 
ownership, maintenance, or use of a motor vehicle shall be delivered or issued for 
delivery in this state with respect to any motor vehicle registered or principally 
garaged in this state unless both of the following coverages are offered to persons 
insured under the policy for loss due to bodily injury or death suffered by such 
insureds:  (1) Uninsured motorist coverage, which shall be in an amount of 
coverage equivalent to the automobile liability or motor vehicle liability coverage 
* * *.  (2) Underinsured motorist coverage, which shall be in an amount of 
coverage equivalent to the automobile liability or motor vehicle liability coverage 
* * *.” 
 
R.C. 3937.18(C) provides that “[a] named insured or applicant may reject or 
accept both coverages as offered under division (A) of this section * * *.  A named 
insured’s or applicant’s rejection of both coverages as offered under division (A) 
of this section, or a named insured’s or applicant’s selection of such coverages in 
accordance with the schedule of limits approved by the superintendent, shall be in 
writing and shall be signed by the named insured or applicant.  A named insured’s 
or applicant’s written, signed rejection of both coverages as offered under division 
(A) of this section, or a named insured’s or applicant’s written, signed selection of 
 
 
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such coverages in accordance with the schedule of limits approved by the 
superintendent, shall be effective on the day signed, shall create a presumption of 
an offer of coverages consistent with division (A) of this section, and shall be 
binding on all other named insureds, insureds, or applicants.” 
 
R.C. 3937.18 requires insurers to offer UM coverage in the same amount as 
any liability coverage provided.  When UM coverage is not part of a policy, such 
coverage is created by operation of law unless the insurer expressly offers it in 
writing and the insured expressly rejects it in writing before the time that the 
coverage begins.  R.C. 3937.18; Gyori v. Johnston Coca-Cola Bottling Group, Inc. 
(1996), 76 Ohio St.3d 565, 669 N.E.2d 824.  The insurer bears the burden to show 
timely express written offer and rejection, and it makes no difference whether the 
parties contemplated such coverage.  Id. 
 
There is no evidence in the record of a timely express written offer and 
rejection of UM coverage. 
 
Schumacher was injured in an accident while driving a vehicle covered by a 
liability insurance policy issued by Motorists.  To contend, as Motorists did at oral 
argument, that virtually anyone else driving his vehicle would have standing, but 
that Schumacher, the owner of the vehicle the insurance was specifically intended 
to cover and an injured party, does not have standing makes a mockery of Section 
 
 
5
16, Article I of the Ohio Constitution and the obvious legislative intent of R.C. 
3937.18. 
 
Accordingly, the judgment of the court of appeals is reversed, and the cause 
is remanded for proceedings consistent with this opinion. 
Judgment reversed 
and cause remanded. 
 
DOUGLAS, RESNICK and F.E. SWEENEY, JJ., concur. 
 
MOYER, C.J., COOK and LUNDBERG STRATTON, JJ., dissent. 
__________________ 
 
COOK, J., dissenting. I agree with Justice Stratton that Schumacher lacked 
standing, since he was not a party to the contract, an insured under the policy, or an 
intended third-party beneficiary.  I further dissent from the majority’s opinion 
because a plaintiff must be an insured under the applicable liability policy in order 
to be eligible for imposition of UM coverage by operation of law.  Accordingly, 
the majority’s holding that UM coverage may be extended in favor of a non-
insured expands R.C. 3937.18 without support and revises the contract entered into 
between Motorists and Relay Express. 
 
It is a well-established principle that UM coverage was designed to protect 
insureds. The text of R.C. 3937.18(A) enunciates this concept: “No automobile 
liability or motor vehicle liability policy * * * shall be delivered or issued for 
 
 
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delivery in this state * * * unless both of the following coverages are offered to 
persons insured under the policy * * *: (1) Uninsured motorist coverage, which * * 
* shall provide protection for bodily injury * * * for the protection of insureds 
thereunder * * * [and] (2) Underinsured motorist coverage, which * * * shall 
provide protection for insureds thereunder * * *.”  (Emphasis added.) 
 
Based upon this principle, this court has stated that the object of UM 
coverage is to “ ‘afford the insured additional protection in the event of an 
accident.’ ”  (Citation omitted.)  Motorists Mut. Ins. Co. v. Tomanski (1971), 27 
Ohio St.2d 222, 224, 56 O.O.2d 133, 134, 271 N.E.2d 924, 925.  We have further 
interpreted UM coverage as extending only to insureds, specifying that the 
claimant must be an insured in order to recover. Martin v. Midwestern Group Ins. 
Co. (1994), 70 Ohio St.3d 478, 480, 639 N.E.2d 438, 440. 
 
Where UM coverage is not offered pursuant to the requirements of R.C. 
3937.18 or not properly rejected, it is well settled that such coverage will be 
imposed by operation of law.  See, e.g., Abate v. Pioneer Mut. Cas. Co. (1970), 22 
Ohio St.2d 161, 51 O.O.2d 229, 258 N.E.2d 429.  When imposed by operation of 
law, such coverage extends only to the insureds under the liability policy, as they 
are the individuals who would have benefited from coverage had it been offered.  
Because  coverage by operation of law is rooted in the requirements of R.C. 
3937.18, it follows that it exists for the benefit of the individuals R.C. 3937.18 was 
 
 
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designed to protect. 
 
Prior to today, this court apparently agreed with that concept, as it had 
routinely extended coverage by operation of law only to insureds under the policy 
at issue. See, e.g., Gyori v. Johnston Coca-Cola Bottling Group, Inc. (1996), 76 
Ohio St.3d 565, 669 N.E.2d 824; Scott-Pontzer v. Liberty Mut.  Fire Ins. Co. 
(1998), 85 Ohio St.3d 660, 710 N.E.2d 1116.  Although the majority now departs 
from this fundamental principle, case law from this and other jurisdictions 
continues to support it.  See, e.g., 9 Couch on Insurance (3 Ed.1997) 122-90 to 
122-91,  Section 122:46 (setting forth the effect of failure to offer coverage and 
implying that it is limited to insureds); Westfield Ins. Co.  v. Nationwide Mut. Ins. 
Co. (1993), 99 Ohio App.3d 114, 650 N.E.2d 112 (determining whether an 
individual claiming coverage by operation of law was an insured);  Abate v. 
Pioneer Mut. Cas. Co., supra, at 163, 51 O.O.2d at 230, 258 N.E.2d at 431 (“We 
therefore conclude that unless the insured expressly rejects such protection, the 
uninsured motorist coverage is provided for him by operation by law.”  [Emphasis 
added.]). 
 
So basic is this concept that this court recently recognized it in Scott-Pontzer 
v. Liberty Mut. Fire Ins. Co., supra, as the first issue to be addressed in the 
imposition-of-coverage analysis. There, Justice Douglas wrote on behalf of the 
 
 
8
court:  “If we find [the plaintiff] was not an insured under the policies, then our 
inquiry is at an end.” Id. at 662, 710 N.E.2d at 1118. 
 
Today’s decision, however, bypasses that important threshold question 
entirely.  In holding that coverage should be imposed in favor of Schumacher by 
operation of law, the majority neither questions nor resolves whether he was an 
insured under the Relay Express policy.  In fact, the majority avoids any analysis 
of the contract terms whatsoever, concluding only that to hold otherwise would be 
to make a mockery of the purposes of R.C. 3937.18 and the Ohio Constitution. 
 
Had the majority asked the appropriate question and analyzed whether 
Schumacher was an insured under the policy, it would have found that he 
unquestionably was not.  Schumacher was neither the named insured in the policy 
nor was he included as an insured under the policy terms. Because he was the 
“owner” of the covered vehicle he occupied, he was specifically excluded from the 
category of “Who Is An Insured” under Section II(A)(1)(b)(2) of the Business 
Auto Coverage Form. 
 
Nor was Schumacher an insured by means of the Uninsured Motorists 
Coverage Endorsement to the policy.  That endorsement states in Paragraph B.3. 
that any occupant of a covered auto is an insured for UM purposes.  But 
Schumacher’s vehicle was not listed on the Declarations Page as a covered auto for 
UM insurance purposes.  Therefore, he was not occupying a covered auto when 
 
 
9
injured and cannot be considered an insured under the endorsement. 
 
Equally untenable is Schumacher’s attempt to categorize himself as an 
insured after UM coverage is imposed by operation of law.  Schumacher argues 
that once UM coverage is imposed, he would have been occupying a “covered 
auto.” Therefore, he concludes, he would qualify as an insured and would 
consequently be entitled to coverage by operation of law.  But that circular 
argument overlooks the fact that R.C. 3937.18, by its very terms, protects those 
individuals who are insured under the basic liability policy.  Those are the only 
individuals to whom coverage may be extended and Schumacher did not fit into 
that category. 
 
Because Schumacher was not an insured under the policy terms, UM 
coverage may not be extended to him by operation of law. Nevertheless, the 
majority concludes that he was entitled to recovery on precisely that basis. In so 
deciding, the majority extends UM coverage in favor of a non-insured and rejects 
the clear language of the contract in favor of its own notions of equity. 
 
MOYER, C.J., and LUNDBERG STRATTON, J., concur in the foregoing 
dissenting opinion. 
__________________ 
 
LUNDBERG STRATTON, J., dissenting.  I respectfully dissent because I 
believe that Schumacher has no standing to file suit against Motorists.  The 
 
 
10
majority states that “[t]he principal issue in this case is whether the insurance 
policy covering Schumacher’s truck contained UM coverage by operation of law 
pursuant to R.C. 3937.18.”  Implicit in the majority’s framing of the issue is that 
Schumacher has standing to challenge the insurance coverage involved herein.  
Such a conclusion puts the cart before the horse.  In order for an Ohio court to 
consider the merits of a legal claim, the person seeking relief must establish 
standing to sue.  Ohio Contractors Assn. v. Bicking (1994), 71 Ohio St.3d 318, 
320, 643 N.E.2d 1088, 1089.  I believe that Schumacher, as an independent 
contractor, lacked standing to challenge the Motorists insurance coverage at issue 
in this case. 
 
Only an intended third-party beneficiary of a contract may bring a contract 
action in Ohio.  Thornton v. Windsor House, Inc. (1991), 57 Ohio St.3d 158, 161, 
566 N.E.2d 1220, 1223.  I believe that language in the lease between Relay and 
Schumacher indicates that the Motorists insurance policy was for the benefit of 
Relay, its insured, not Schumacher, an independent contractor.  See Scott-Pontzer 
v. Liberty Mut. Fire Ins. Co. (1999), 85 Ohio St.3d 660, 669, 710 N.E.2d 1116, 
1122 (Lundberg Stratton, J., dissenting.) (Corporations provide insurance on 
company vehicles for the purpose of insuring the company against liability arising 
from use of the corporate vehicles.). 
 
The “Standard Equipment Lease” in this case reads as follows: 
 
 
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“5. RELATIONSHIP: It is understood and agreed by the parties hereto that 
lessor is not an employee of LESSEE: and furthermore, that the employees or 
agents of one party are not the employees or agents of the other party. * * * 
 
“6. INSURANCE/INDEMNIFICATION: LESSEE [Relay] shall be 
responsible to the general public for damages occurring during the period of this 
lease and shall insure against such damages as required by law. * * * “  (Emphasis 
added.) 
 
I believe that this language in paragraph 6 evidences an unambiguous intent 
that Relay was acquiring insurance for the purpose of protecting itself against 
liability arising from potential negligent conduct by Schumacher in conducting 
Relay’s business as Relay’s independent contractor.  The language in paragraph 5, 
which evidences a clear intent that Schumacher was an independent contractor, not 
a Relay employee, bolsters this conclusion.  Thus, I would find that there is no 
evidence that the Motorists insurance policy intended that Schumacher be a third-
party beneficiary.  Rather, the Motorists insurance policy was for the benefit of 
Relay, its insured. 
 
“[A]n insurance policy is a contract and * * * the relationship between the 
insured and the insurer is purely contractual in nature.”  Scott-Pontzer, supra, at 
663, 710 N.E.2d at 1119.  Consequently, if a person is a party to the contract for 
insurance or satisfies the definition of the term “insured,” as set out in the policy, 
 
 
12
he or she would have standing to sue the insurer.  But, where a person is not a 
party to the contract and is not an intended third-party beneficiary to a contract, he 
or she has no standing to bring an action on that contract.  Thornton, supra, at 161, 
566 N.E.2d at 1223.  Accordingly, where an individual is not a party to the contract 
for the insurance policy, a third-party beneficiary of the policy, or an insured, that 
person does not have standing to claim any rights under the contract.  Justice v. 
Nationwide Ins. Co. (May 27, 1999), Franklin App. No. 98AP-1083, unreported, 
1999 WL 333242. 
 
It is undisputed that the contract of insurance from Motorists providing 
coverage to Schumacher’s vehicle was executed between Relay and Motorists.  
Thus, Schumacher was not a party to the contract of insurance provided to Relay 
by Motorists. 
 
The Motorists policy at issue in this case states: 
 
“1. WHO IS AN INSURED 
 
“The following are ‘insureds’: 
 
“ * * * 
 
“(b) Anyone else while using with your permission a covered ‘auto’ you 
own, hire or borrow except: 
 
“(1) The owner or anyone else from whom you hire or borrow a covered 
‘auto.’ * * *”  (Emphasis added.) 
 
 
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I would find that this language unambiguously excepts Schumacher from the 
definition of an insured under the Motorists insurance policy because Schumacher 
was the owner of the truck. 
 
Thus, I would hold that Schumacher was not a party to the contract for the 
Motorists insurance policy, that Schumacher was not an “insured,” as defined in 
the Motorists insurance policy, and that Schumacher was not the intended 
beneficiary of the Motorists insurance policy.  Accordingly, I would hold that 
Schumacher, as an independent contractor, had no standing to challenge the 
insurance contract procured by Relay from Motorists. 
 
In addition, the majority opinion omits an important fact.  Schumacher had a 
policy of insurance covering his vehicle at the time of the accident through the 
Progressive Insurance Company.  With regard to that policy, the trial court stated: 
“[Schumacher] apparently has never attempted to collect under the UM/UIM 
provisions of this policy.  It is presumed that the statute of limitations for making a 
claim expired on or about November 17, 1996.”  Thus, contrary to what might be 
inferred by the omission of this fact in the majority opinion, Schumacher had his 
own policy of insurance that potentially provided coverage for his truck at the time 
of the accident but failed to seek recovery for some reason.  Apparently due to his 
failure to seek UM coverage under his own policy, he filed this lawsuit in an 
attempt to force recovery under the Motorists insurance policy. 
 
 
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But, because I believe that Schumacher, as an independent contractor, was 
not an insured under the Motorists insurance policy, he had no standing to 
challenge the policy coverage in court.  Therefore, I respectfully dissent. 
 
MOYER, C.J., concurs in the foregoing dissenting opinion.