410_C167
GEOGRAPHIC
LIMITATION CLAUSE CHALLENGED
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Automobile
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Coverage Territory
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Uninsured Motorist
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In May 2001, Paula MacNealy was walking on a beach in Mexico when she was struck and
injured by a dune buggy. MacNealy filed a claim for
uninsured motorist coverage under her State Farm Mutual Automobile Insurance
Company automobile insurance policy. State Farm denied coverage because the
accident took place in Mexico.
According to State Farm, under the terms of the policy, liability coverage
applied to areas of Mexico,
but uninsured motorist coverage was excluded.
MacNealy filed a complaint claiming she was
entitled to uninsured motorist coverage. The trial court and the appellate
court decided in favor of MacNealy, finding that the
geographic limitation provision relied upon by State Farm was
invalid and unenforceable. Because its decision conflicted with decisions of
other courts, the court of appeals certified two issues for review by the
Supreme Court of Ohio. The first issue was whether limiting the geographic
scope of uninsured motorist coverage violated the statute that governed
uninsured motorist coverage in Ohio.
The second issue, which was dependent upon resolution of the first, was how to
define the scope of the geographic limitation of the State Farm policy.
MacNealy argued that geographic limitations
on uninsured motorist coverage are unenforceable because they keep insureds from obtaining coverage for causes of action
recognized by Ohio
law. The Supreme Court of Ohio disagreed. The court explained that the public
policy of the state is to ensure that all motorists maintain some form of
liability coverage on motor vehicles operated within Ohio. To construe the law to preclude
insurers from imposing geographic limitations would require them to insure
risks that were either unknown or so high as to make coverage impractical.
Premiums would dramatically increase, and motorists who did not travel outside
the country would end up subsidizing those who did. The court concluded that Ohio's uninsured motorist statute did not prohibit
insurers from limiting uninsured motorist coverage to accidents occurring in
the United States and Canada.
Next, the court evaluated
the geographic scope of the coverage under the State Farm policy. As required
by Ohio law,
when MacNealy applied for her automobile insurance,
State Farm offered her uninsured motorist coverage as well. As to coverage in Mexico, the relevant provision in the policy
stated that "The liability, medical payments and physical damage coverages also apply in Mexico
within 50 miles of the United
States border. A physical damage coverage
loss in Mexico is determined
on the basis of cost at the nearest United States point."
Uninsured motorist coverage was limited to the United
States and Canada. Because the law did not
require State Farm to offer uninsured motorist coverage that was equivalent in
all ways to the liability coverage available under the policy, and because MacNealy accepted State Farm's offer of uninsured motorist
coverage, the court held that MacNealy was not
entitled to uninsured motorist coverage for the accident that occurred in Mexico.
The judgment of the court
of appeals was reversed.
Fazio vs. Hamilton Mutual Insurance
Company-No.
2004-1559-Supreme Court of Ohio-October 12, 2005-835 North Eastern Reporter 2d
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