By Mark B. Houts

Recent amendments to Oklahoma’s uninsured motorist statute, 36 O.S. §3636, will take effect on Nov. 1, 2009.

Currently, section 3636 requires that every policy of automobile liability insurance issued in the state of Oklahoma include uninsured motorist (UM) coverage. However, “[a] named insured or applicant shall have the right to reject uninsured motorist coverage in writing.”¹ The statute goes on to provide that an additional rejection form must be executed:

1. When an insurer is notified of a change in or an additional named insured;

2. When there is an additional vehicle that is not a replacement vehicle; provided, a new form shall not be required for the addition, substitution or deletion of a vehicle from a commercial automobile liability policy; or

3. When the amount of bodily injury liability coverage is amended. Provided, any change in premium alone shall not require the issuance of a new form.²

This language has caused some confusion among insurance agents regarding precisely when it is necessary to execute an additional UM rejection form. This confusion has led to countless lawsuits based upon technical mishaps and created “free” UM coverage in situations where neither the insured nor the insurer had any intent of doing so.

NATURE OF THE AMENDMENT

This confusion was the impetus for the recent amendment. Pursuant to this amendment, an agent must obtain only one UM rejection form, even if the policy is later amended. In other words, effective Nov. 1, 2009, it will no longer be necessary for an agent to obtain an additional rejection form when an additional “named insured” is added to the policy, when new vehicles are purchased, or when bodily injury coverage is amended. Subsection (G) of the amended statute reads as follows:

The form signed by the insured or applicant which initially rejects coverage or selects lower limits shall remain valid for the life of the policy and the completion of a new selection form shall not be required when a renewal, reinstatement, substitute, replacement, or amended policy is issued to the same- named insured by the same insurer or any of its affiliates. Any changes to an existing policy, regardless of whether these changes create new coverage, do not create a new policy and do not require the completion of a new form.³

POTENTIAL SNARLS

Clearly, an agent must obtain only a single rejection form for any policy issued after Nov. 1, 2009. However, the statutory amendment raises a couple of questions: 1) whether the amendment will apply to a policy that was issued before Nov. 1, 2009 (i.e., whether a rejection will be required for changes made after Nov. 1, 2009, to a policy in effect prior to Nov. 1, 2009); and 2) whether the amendment will apply to an agent’s failure to obtain a UM rejection before Nov. 1, 2009. A number of factors demonstrate that a single “rejection” form in the policy file – regardless of when that rejection was obtained – will effectively preclude the insured from later recovering uninsured motorist benefits on any claim arising after Nov. 1, 2009.

LEGISLATIVE INTENT

 State Sen. Cliff Aldridge, who authored S.B. 533, gave some insight into the Legislature’s purpose. “If there is a valid rejection form in the file, it will be good, regardless of whether it was executed before or after November first,” he said. Aldridge, who is also an insurance agent, explained that agents feel compelled to obtain a rejection form “every time a policyholder blinks,” out of fear a court may later determine that failure to obtain an updated rejection will give rise to UM coverage. Sen. Aldridge’s comments suggest that a single UM rejection will effectively negate a subsequent UM claim. Likewise, a single rejection form should satisfy an agent’s duty to procure a binding UM rejection form.

SUBSEQUENT CHANGES TO POLICIES ISSUED BEFORE NOV. 1, 2009

The language of the amendment itself provides a clear answer to the question of whether the statutory amendment will apply to a policy issued before the effective date. As amended, the statute provides that the initial rejection form “shall remain valid for the life of the policy.” It further provides:

Any changes to an existing policy… do not create a new policy and do not require the completion of a new form.⁴

Thus, the statutory amendment expressly gives some degree of retroactive effect, in that it applies to “an existing policy” (i.e., a policy in effect on Nov. 1, 2009), so that a new rejection form will not be required for policy changes after the effective date. The amendment does not distinguish based upon when the policy was issued.

FAILURE TO REJECT BEFORE NOV. 1, 2009

The second question set forth above deals with whether the amendment is truly “retroactive,” i.e., whether an agent’s failure to obtain a signed rejection form prior to the amendment’s effective date would be cured by the amendment. The following time-line presents a situation in which this issue could arise:

1. an insured purchases a liability policy and properly executes a UM rejection;

2. a change is made to the policy prior to the statutory amendment, and the insured does not execute a UM rejection;

3. the statutory amendment goes into effect on Nov. 1, 2009; then,

4. the insured suffers a loss and makes a UM claim.

There are two different scenarios under which this question could arise, discussed more fully below. Under each scenario, the insurer should file a declaratory judgment action to resolve the coverage issue. This is so, because:

Statutes are to be construed as having a prospective operation unless the purposes and intention of the Legislature to give them a retroactive effect is expressly declared, or is necessarily implied from the language used. * * * In every case of doubt the doubt must be resolved against the retrospective effect.⁵

Thus, a declaratory judgment action would comport with the insurer’s duty to deal fairly and in good faith, in case the courts find in favor of coverage. An insurance defense attorney might also suggest that the insurers’ agents obtain one additional UM rejection form after Nov. 1, 2009, from each insured who has rejected UM coverage. Doing so would help prevent that insurer from being the company to “test the statute” in the courts.

First Scenario

 An insured may be involved in an accident after the effective date, and also after renewing the policy. The courts would probably determine that an agent’s failure to obtain a rejection prior to Nov. 1, 2009, would be cured by the first renewal after Nov. 1, 2009.

Rights under §3636 (uninsured motorist coverage) depend on the statute in effect when the policy was issued or was last renewed.⁶

In other words, if there is a single UM rejection in the file, a court should determine that renewal of the policy after Nov. 1, 2009, would cure the failure to obtain a rejection form, because the policy would be interpreted according to the statute as amended. Still, there is not sufficient guidance on this issue, and a declaratory judgment action would be advisable.

Second Scenario

In the second scenario, an insured might suffer a UM loss after Nov. 1, 2009, but prior to renewing the policy. In this scenario, an insured would argue that the statutory amendment creates a “case of doubt” under Hankins, so that the amendment is not retroactive and the agent’s failure to obtain a rejection would give rise to UM coverage.

Remedial or procedural statutes which do not create, enlarge, diminish, or destroy vested or contractual rights, and which relate only to remedies or modes of procedure are generally held to operate retroactively and to apply to pending actions or proceedings, unless such operation would affect substantive rights.⁷

In other words, an insured would argue that failure to obtain a UM rejection in making policy changes prior to Nov. 1, 2009, would give rise to UM coverage at that time. If the amendment abrogates that coverage, “such operation would affect substantive rights.” Thus, according to the insured’s argument, absent clear legislative intent to make the amendment retroactive, that UM coverage would remain in effect.

The insured’s argument should fail. The language discussed above demonstrates the Legislature’s intent to require only a single rejection form, regardless of when that form was signed. Particularly convincing is the fact that a single rejection “shall remain valid for the life of the policy.” Retroactive effect is, therefore, “necessarily implied” in the language of the amendment, as anticipated in Hankins, 1980 OK 66, supra. Furthermore, the purpose of the amendment is to balance an insured’s right to elect UM coverage against the windfall that would result if the insured could recover UM benefits without paying UM premiums. This purpose would be thwarted if the insured could recover UM benefits indefinitely based upon a single mistake made by an agent, weeks, months or years prior to an otherwise uninsured loss.

CONCLUSION

 If called upon to interpret the recent amendments to 36 O.S. §3636, the Oklahoma Supreme Court should determine that a single, properly-executed rejection form will effectively guard against any UM claim arising on or after Nov. 1, 2009. Certainly, this is true for a policy issued after Nov. 1, 2009. Most likely, this is true regardless of when the policy was issued. However, an insured will have a stronger argument if the policy was issued prior to Nov. 1, 2009. Although a court is likely to find in favor of the insurer so long as the file contains a single valid rejection form, the insurer should file a declaratory judgment action for any claim arising after Nov. 1, 2009, on a policy issued before that date. Doing so would help prevent a successful bad faith claim in case the courts find UM coverage.

• 1. Id. at (G).
• 2. Id. at (H).
• 3. S.B. 533, 1st Session, 52nd Leg. (Ok. 2009).
• 4. Id. (emphasis added).
• 5. MFA Ins. Co. v. Hankins, 1980 OK 66, 610 P.2d 785, 787 (interpreting prior amendments to §3636).
• 6. Tidmore v. Fullman, 1982 OK 73, 646 P.2d 1278, 1283 (emphasis added).
• 7. Id. at 788 (quoting Thomas v. Cumberland Operating Co., 1977 OK 164, 569 P.2d 974, 976) (emphasis added).

About The Author

Mark B. Houts is an associate with Pignato, Cooper, Kolker and Roberson PC. He graduated from the OU College of Law in 2006, where he served as articles editor of the Oklahoma Law Review.