October 14, 2005

The Ohio Supreme Court ruled that a state statute did not prohibit insurers from limiting uninsured motorists (UM) coverage to accidents occurring in the United States and Canada in Fazio; MacNealy v. Hamilton Mut. Ins. Co., No. 2004-1559, 2005 WL 2397518 (Ohio Oct. 12, 2005).

While walking on a beach in Mexico, Paula MacNealy was struck by a dune buggy. She filed a claim with her auto insurer, State Farm, for uninsured motorist benefits. State Farm denied the claim, stating that the policy's coverage territory for UM included only the U.S, its territories, and Canada.

The appeals court held that “the geographic limitation in the State Farm policy did not apply to the uninsured-motorist coverage available under the policy, and even assuming that the limitation did apply, it was unenforceable because it violated former R.C. 3937.18 [in effect when the policy was issued] and the policy underlying it.”

The statute required insurers to offer UM coverage to all auto liability insurance buyers in Ohio. But, it did not require the coverage to contain a minimum coverage area. The statute also did not prohibit insurers from limiting the coverage territory.

The Supreme Court stated, “Strong public-policy considerations can be asserted against requiring uninsured motorists coverage for accidents occurring in all foreign countries, in many of which the risk that insureds would be struck by uninsured vehicles is either unknown or so high as to make coverage impractical.” The court predicted that such a requirement would result in dramatic increases in premiums with insureds who do not travel being required to subsidize those who do.

Thus, the court held that the former statute did not place prohibitions on insurers against limiting the UM coverage territory. The court also held that State Farm's policy limited MacNealy's UM coverage to the U.S. and Canada.