Insurers See 'Explosion' of Corporate Liability Suits

November 6, 2002 ( - Lawyers are blaming a 1999 Ohio Supreme Court decision opening the possibility of employees collecting liability claims from their employer's insurance carrier for a rash of lawsuits that have cost the insurance industry an estimated $1 billion.

Specifically, the lawyers point to an Ohio Supreme Court 1999 decision in Scott-Pontzer v. Liberty Mutual Insurance Co . , No. 98-442 (1999) that gave plaintiffs’ lawyers the loophole they needed to tap an employer’s commercial carrier to compensate for underinsured or uninsured motorists, a National Law Journal story said.

The Ohio Supreme Court rejected the insurers’ argument that “you” referred only to the corporate entity named on the declarations page of the policy. “It would be nonsensical to limit protection solely to the corporate entity since a corporation, itself, cannot occupy an automobile,” the court stated. Further, the court found no language in the policy that limited coverage to employees only when acting in the scope of employment.

“It’s been an explosion (of lawsuits)” since then, said Jonathan Phillip, the lead trial attorney for three insurers recently hit with a $5.6 million compensatory damage verdict by a Cuyahoga County, Ohio verdict in a case involving two co-workers at an Ohio company killed in an auto accident. 

Lawyers said the Scott-Pontzer decision opened the way for the claims against the commercial carrier even though the victims weren’t on the job and in a private car.

A $1 Billion Cost

Dan Sonders, a senior executive of business development for The Westfield Group, the second largest commercial insurer in Ohio, told the Law Journal that his company has just about exhausted the $50 million fund it set up to pay out Scott-Pontzer claims. He estimates that the decision has cost the Ohio insurance industry about $1 billion.

Outside of Ohio, other courts have rejected the Scott-Pontzer theory. The US 1st Circuit Court of Appeals noted in Seaco Insurance Co. v. Davis-Irish, No. 02-1143 (Aug. 20, 2002), that the Ohio court was sharply divided when it consciously abandoned a well-established tenet “that contracts be interpreted consistent with the parties’ intent.”

Despite that division, Flowers maintains that Scott-Pontzer could apply to many other states, including California, where he is also licensed to practice.

A recent $15.6 million Verdict

The Law Journal said the verdict, in Meden v. Leiendecker, No. CV-01-443684, awarded the estates of David Austin and Janet Meden a total of $15.6 million — $10 million in punitive damages and $5.6 million in compensatory damages.

The $5.6 million was against three insurers of Austin and Meden’s employer OSI Sealants Inc.

  • Commerce and Industry Insurance Co.
  • American International Specialty Lines Insurance Co.
  • Illinois National Insurance Co.

The three are owned by the national conglomerate American Insurance Group.