Ferrando v. Auto-Owners Mut. Ins. Co.

98 Ohio St.3d 186 (2002)

This case changed the law in Ohio as to when a person who is an insured under an automobile insurance policy with uninsured/underinsured motorist (“UM/UIM”) coverage can recover despite the fact that he/she technically breached a provision of the policy requiring the insured to protect the insurer’s subrogation rights. Bringing Ohio law in line with the majority rule in the United States, the Ohio Supreme Court in Ferrando adopted the actual prejudice rule for breaches of notice and subrogation provisions in insurance policies.

Prior to Ferrando, in the case of Bogan v. Progressive Cas. Ins. Co. (1988), 36 Ohio St.3d 22, the Supreme Court had held that the breach of a subrogation provision (which requires an insured to take all necessary measures to protect the insurer’s subrogation rights against the tortfeasor and/or to seek the UM/UIM carrier’s permission before settling with the tortfeasor) automatically destroyed the insured’s right to UM/UIM coverage under the policy.

In other words, if the insured settled his claim with the tortfeasor without notifying the UM/UIM carrier of his claim, or otherwise violated the insurer’s subrogation right against the tortfeasor, the insured would be automatically precluded from seeking UM/UIM coverage under his policy, even if the insurer’s subrogation right was valueless or illusory because the tortfeasor had no assets worth pursuing.

In Ferrando, the Supreme Court of Ohio overruled that aspect of the holding in Bogan, and held instead that the insured’s destruction of the insurer’s subrogation rights without its consent would not void coverage unless the insurer was actually prejudiced thereby.

Under Ferrando, if the insurer claims its subrogation right was breached, the court is to engage in a two-step analysis. First, the court asks whether a breach occurred; second, the court asks whether the insurer was prejudiced thereby. If the subrogation provision was breached, a presumption of prejudice arises. However, the insured may introduce evidence to rebut this presumption, thus creating an issue of fact as to whether the insurer was actually prejudiced. Ferrando also clarified the law as to breach of notice provisions, applying the same two-step analysis to determine whether the breach would void UM/UIM coverage.

Subsequent to Ferrando, numerous cases on appeal have been reversed and remanded for the lower courts to engage in what has come to be known as the “Ferrando” analysis.