Sixth Circuit Clarifies that Umbrella Policies Do Not “Drop-Down” to Provide Underinsured-Motorist Coverage Absent Clear Incorporation Language

Introduction

Thomas Rable, as administrator of the Estate of Atsushi Tanaka, sought more than the $1 million policy limits paid by the tort-feasor’s insurer following a fatal traffic accident. Rable contended that Tanaka’s employer’s insurance program—comprised of a $1 million commercial-auto policy with a specific underinsured-motorist (UIM) endorsement and a $10 million umbrella policy—should respond for the shortfall. Sompo America Insurance Company denied the claim, and the federal district court dismissed the ensuing coverage and bad-faith action.

On appeal, the U.S. Court of Appeals for the Sixth Circuit addressed two intertwined questions under Ohio law:

When does a vehicle qualify as “underinsured” where the tort-feasor’s liability limits equal the UIM limits in the insured’s policy?
Does listing an underlying auto policy on an umbrella policy’s declarations page automatically incorporate the auto policy’s UIM coverage into the umbrella layer?

Answering both questions in the insurer’s favor, the court affirmed dismissal, creating an important clarifying precedent on the boundaries of excess-liability contracts and UIM claims practice.

Summary of the Judgment

Applying Ohio substantive law under Erie Railroad v. Tompkins, the Sixth Circuit held:

The tort-feasor’s semitruck was not an “underinsured motor vehicle” because its $1 million liability limit matched—not fell below—the $1 million UIM limit in Sompo’s endorsement (subsection (a) of the definition).
The small reduction of the settlement proceeds by a property-damage lien did not trigger subsection (b) of the definition, and in any event the Estate pled no facts establishing that the lien represented payments to “others injured in the accident.”
The umbrella policy unambiguously provides only excess liability coverage for sums the insured must pay to others. It neither “drops down” nor incorporates UIM benefits simply because the auto policy is referenced on the declarations page.
Ohio appellate decisions—Gilkey v. Grange, Arn v. McLean, Blake v. Thornton, and Seifke v. Bond—foreclose the Estate’s incorporation theory, and no contrary Ohio Supreme Court authority suggests otherwise.

The district court’s dismissal of the Estate’s declaratory-judgment, breach-of-contract, and bad-faith claims was therefore affirmed.

Analysis

1. Precedents Cited and Their Influence

Gilkey v. Grange Mut. Cas. Co. (2016) – Ohio Court of Appeals rejected the argument that an umbrella policy inherits UIM coverage simply by referencing an underlying policy. The Sixth Circuit relied heavily on Gilkey to adopt a “comprehensive reading” methodology.
Arn v. McLean (2005) – Clarified that umbrella policies may cover fewer risks than underlying policies; mere mention of an auto policy does not add coverages.
Blake v. Thornton (2009) & Seifke v. Bond (2008) – Each interpreted similar “ultimate net loss” clauses and held that umbrella layers furnish only third-party liability protection, not first-party UIM benefits.
Ohio Rev. Code § 3937.18(C) – Statutory backdrop mandating that UIM benefits be reduced by amounts “available for payment” under any liability policies covering the tort-feasor.
Distinguished authority: the Michigan decision Switalski v. Clevenger and out-of-state federal cases (Lindsay v. Owners; Stubbe v. Guidant) were deemed non-controlling and based on materially different policy language.

2. Court’s Legal Reasoning

Plain-Meaning Contract Construction
Following recent Ohio Supreme Court guidance (Acuity; Motorists Mut. v. Ironics), the panel applied ordinary-language definitions to resolve ambiguity claims. The term “this coverage” inside the auto policy’s UIM endorsement was held to refer only to that endorsement, not to any separate umbrella contract.
“Ultimate Net Loss” & First-Party vs. Third-Party Risk
The umbrella’s insuring agreement covers sums the insured is “legally obligated to pay” to third parties. Because UIM benefits compensate the insured rather than people harmed by the insured, there is a fundamental risk-transfer mismatch that defeats any suggestion of drop-down coverage.
Schedule References ≠ Coverage Grants
The court emphasized that listing underlying policies serves the administrative purpose of describing “retained limits,” not expanding coverage. There was no incorporation clause, cross-reference, or premium charge indicating UIM benefits at the umbrella level.
Burden of Proof
Ohio law places the burden on the insured to demonstrate coverage. The Estate’s complaint lacked allegations sufficient under Twombly/Iqbal to show either (a) an underinsured vehicle under subsection (b) or (b) umbrella incorporation.

3. Impact on Future Litigation and Insurance Practice

Clearer Boundary Between Auto and Umbrella Layers – Insureds and practitioners must now assume that, under Ohio law, excess or umbrella policies do not provide UIM coverage unless the policy expressly says so.
Policy Drafting – Insurers can avoid unintended drop-down claims by using “ultimate net loss” wording and explicit declarations stating that first-party coverages are excluded. Conversely, policyholders seeking umbrella-level UIM protection must negotiate specific endorsements.
Pleading Standards – Plaintiffs alleging UIM entitlement must plead concrete facts (e.g., nature of liens, payments to others) or face early Rule 12 dismissal.
Appellate Predictability – The decision strengthens the persuasive weight of Ohio Court of Appeals precedent when federal courts make an Erie guess, reducing forum shopping and enhancing uniformity.

Complex Concepts Simplified

Underinsured Motorist (UIM) Coverage: Insurance that pays an insured when the at-fault driver’s liability limits are too low to cover the insured’s damages. In Ohio, UIM limits are offset by the tort-feasor’s available liability limits.
Umbrella Policy: A high-limit excess-liability policy that sits above specified “underlying” coverages. Typically protects the insured against large damages claims made by others, not against the insured’s own losses.
“Drop-Down” or Incorporation Theory: The argument that an umbrella policy supplies primary-level coverage where the underlying policy’s limits are insufficient or where a particular coverage (e.g., UIM) is present below. Rable clarifies that this theory fails absent explicit language.
Ultimate Net Loss Clause: Defines the sum the insured must pay to third parties after recoveries, which the umbrella insurer agrees to indemnify. It signals that the policy addresses third-party—not first-party—exposure.
Erie Guess: When a federal court applies state law but the state’s highest court has not decided the issue, the federal court predicts (“guesses”) how the state court would rule, using intermediate appellate decisions as persuasive authority.

Conclusion

The Sixth Circuit’s opinion in Thomas Rable v. Sompo America Insurance Co. cements two core principles of Ohio insurance law. First, a tort-feasor’s vehicle is not “underinsured” when its liability limits equal the insured’s UIM limits. Second—and of broader systemic importance—an umbrella policy’s mere reference to an underlying auto policy does not import UIM coverage into the excess layer. Absent unmistakable incorporation language, umbrella policies remain vehicles for excess liability protection, not first-party indemnity.

For policyholders, the decision is a cautionary tale: scrutinize umbrella contracts and purchase stand-alone UIM endorsements when necessary. For insurers, it validates the drafting approach that ties umbrella coverage to “ultimate net loss” and excludes first-party benefits by structure rather than by explicit exclusion. Future litigants will confront a stiffer hurdle when attempting to convert excess-liability forms into surrogate UIM policies, thereby promoting clarity and consistency in the allocation of insurance risk.