Uninsured Motorist Coverage in Maryland
© 1999 Gorman & Williams
by:
Charles L. Simmons
Francis J. Gorman
Gorman & Williams
CLSimmons@GandWLaw.com
FJGorman@GandWLaw.com
www.gandwlaw.com
Fax: 410-528-0602
Phone: 410-528-0600
November, 1999
In Maryland, uninsured motorist (UM) coverage applies
to situations where (1) the at-fault driver has no liability insurance
(“uninsured”), and (2) where the at-fault driver has insufficient liability
insurance limits (“underinsured”). The at-fault driver is considered
underinsured if the at-fault driver’s insurance limits for bodily injury
are lower than the limits of the UM coverage. Waters v. United
States Fidelity & Guaranty Co., 328 Md. 700 (1992).
The Statutory Requirements On Insurers
UM coverage must be offered by an insurer who offers
automobile liability insurance policies in Maryland. Section 19-509
of the Insurance Article defines an uninsured motor vehicle, states the
amount of coverage that is required to be offered to the policyholder,
and states the limit of liability of an UM insurer. A policyholder
may waive UM coverage in the policy only if he/she executes a written waiver
of that coverage. Section 19-510, Insurance Article. How a claim/suit
is settled in a way that resolves the obligations and rights of a UM insurer
is set forth in Section 19-511.
Uninsured motorist situations are relatively straight-forwarded.
There is no liability insurance for the at-fault driver, so the only financial
recourse for the injured person is the UM coverage under his/her own auto
policy. The injured insured establishes in a claim or a suit the
liability of the uninsured motorist and also establishes the amount of
his/her damages. The duty to provide UM coverage arises in underinsured
situations when (1) the damages of the injured insured exceed the
at-fault driver’s liability policy limits, and (2) the UM coverage
available to the injured insured exceeds the at fault driver’s policy limits.
Most UM endorsements issued in Maryland define an
underinsured motor vehicle as:
An underinsured motor vehicle is a motor vehicle or trailer
for which the sum of all liability bonds or policies at the time of an
“accident” provides at least the amounts specified by the Financial Responsibility
Law of Maryland, but that sum is less than the limit of insurance of this
coverage.
Maryland statutory law defines the extent of the UM
insurer’s liability under UM coverage:
The limit of liability for an insurer that provides uninsured
motorist coverage under this section is the amount of that coverage less
the amount paid to the insured that exhausts any applicable liability insurance
policies, bonds, and securities on behalf of any person that may be held
liable for the bodily injuries or death of the insured.
Insurance Article, Maryland Code Ann., Section 19-509(g).
Maryland case law interprets uninsured motorists
coverage to include underinsured motorists:
The concept of “uninsured” was broadened
to include any vehicle insured with liability limits in an amount “less
than the amount of coverage provided to the insured under [the uninsured
motorist provision].
Waters v. U.S. Fidelity & Guaranty Co., 328 Maryland 700, 711
(1992).
Therefore, under Maryland statutes, policy provisions,
and Maryland case law an underinsured motorist is also considered an uninsured
motorist.
Direct Suits Against UM Insurers Are Permissible
In Maryland, the insured who has been injured in
an automobile accident may sue directly the carrier of UM coverage before
suing the at-fault motorist. Reese v. State Farm Mutual Auto Insurance
Co., 285 Md. 548, 554 (1979). A breach of contract action can
be filed directly against the provider of “uninsured” motorist (UM) coverage,
even if no action has been filed against the at-fault driver.
Additionally, a plaintiff can simultaneously bring a contract action against
the UM insurer and a tort action against the at-fault driver. Id.
A judgment against the at-fault driver is not required
before recovery is available against an insurer providing UM coverage:
We agree with the majority of our sister jurisdictions that
an insured need not, as a condition for recovery against his insurer under
the uninsured motorist endorsement, sue and obtain a judgment against the
uninsured tortfeasor.
Id. See also Nationwide Mutual Insurance Co. v.
Webb, 291 Md. 721, 736 (1981).
The UM insurer pays only the damages in excess of
the at-fault driver’s limits. Typical language in a UM clause of
a policy provides:
If this insurance provides a limit in excess of the amount
specified by the Financial Responsibility Law of Maryland, we will pay
only after all liability bonds or policies have been exhausted by judgments
or payments.
There would be no “liability bonds or policies” to exhaust
by judgment or payments in a true uninsured situation. In underinsured
situations, the policy contemplates that the duty to provide coverage arises
only after the liability carrier tenders policy limits or a judgment is
entered against the at-fault driver.
The UM insurer can be liable for the entire judgment
amount above the at-fault drivers’ liability coverage. See Nationwide
Mutual Insurance Co. v. Webb, 291 Md. at 738. Even if the UM
carrier is not initially brought into the tort action it may be advisable
at some point to seek to intervene if the case has not settled and if the
judgment for damages could be substantial. By
intervening in the litigation, the UM insurer is able to take advantage
of the opportunity to present all available liability and damages defenses,
both tort defenses and contract defenses. See Reese v.
State Farm Mutual Auto Insurance Co., 285 Md. at 555-56.
Even if not a party to the suit, the UM insurer should
monitor any case where the damages are substantial because it may be bound
by any verdict/judgment. A UM carrier is bound by the judgment rendered
against the at-fault driver if it has sufficient notice of a lawsuit and
the opportunity to intervene in it against the at-fault driver, but fails
to do so. Nationwide Mutual Insurance Company v. Webb, 291
Md. 721 (1981). Additionally, the UM insurer should stay in touch
with the at-fault driver’s insurer.
Settlement Offers
The settlement procedures to be followed by an injured
person/plaintiff when that person also intends to pursue an uninsured motorist
claim are set forth in a Maryland statute, i.e. the Insurance Code of Maryland,
Section 19-511. That statute sets forth how an injured person is
to proceed and how an uninsured motorist insurer is to proceed in connection
with the settlement of a suit by the injured person against an alleged
tortfeasor.
Under Maryland law, any offer to settle from the
liability insurer must be submitted by certified mail to the provider of
UM coverage.
Once a settlement offer is made at the at-fault party’s
policy limits, the UM insurer usually has a choice of one of three courses
of action:
Consent And Have The At-Fault Driver Released
It can consent to the acceptance of a settlement
offer. Following this choice would mean that the UM carrier waives
any subrogation right against the original tortfeasors. The injured
insured would be free to press with the UM carrier his/her claim for damages
over and above the at-fault defendant’s policy limit he has already received,
and the UM carrier is free to pay money to
the injured insured for his alleged damages in excess of the tortfeasor’s
policy limits or refuse to pay. If the UM carrier refuses to pay,
then the injured insured could file a suit against the UM carrier under
the Uninsured Motorist coverage claiming that his damages are in excess
of the tortfeasor’s policy limits.
Refuse to Consent And Pay
The UM carrier could give a written refusal to consent
to the acceptance of the settlement offer of policy limits. This
is one of the statutory options given to an uninsured motorist insurer.
If the UM carrier refuses to consent, however, the statute requires that
it pay to the injured insured within thirty (30) days of its written refusal
the amount of the policy limits of the at-fault driver. After the
UM carrier pays the tortfeasor’s policy limits, the injured insured could
gain additional amounts only if he
pursues a lawsuit against the tortfeasors (the driver and/or owner
of the automobile). In this case, the UM carrier does not waive its
subrogation rights against the at-fault driver.
Refuse To Consent Or Pay Because The Insured Did Not Follow
The Statutory Settlement Process
If the injured insured fails to follow the statutory
settlement procedure set forth in Section 19-511, which causes prejudice
to the UM carrier’s rights, the UM carrier may be entitled to (1) refuse
to consent to the settlement,(2) not pay to the injured insured the tortfeasor’s
policy limits, and (3) file a
declaratory judgment action for a ruling that UM benefits are not available.
There is a legal basis for the position that an injured
insured has prejudiced the UM insurer’s substantive rights and thereby
waived or forfeited any claim for uninsured motorist coverage benefits.
The matter is governed by the Maryland statute on uninsured motorist coverage
(as it existed on the date when the policy was issued -- 1995 or 1996)
and by the terms of the UM
endorsement to the policy.
Uninsured motorist coverage is “first party coverage”,
and an insurer has the right of subrogation against the tortfeasor when
the insurer pays the insured for a covered loss or damage. As with
any insurance coverage, the insured may not do anything that would
prejudice the insurer’s rights, such as admit liability in a liability
(third party claim) situation or release a tortfeasor in an uninsured motorist
(first party claim) situation.
Some common examples of activity that would prejudice
the UM carrier’s rights are:
1. failing to give timely notice of the
suit against the at-fault tortfeasor. Maryland court decisions are
clear as are the terms of many UM endorsements that the UM insurer is entitled
to notice so it can protect its rights by intervening in the suit.
2. Settlement is entered into without the statutory
provisions being followed. The injured insured executes a release
in favor of the at-fault driver. The UM carrier’s subrogation right
is extinguished prior to it deciding whatever to consent to the settlement
or pay the at-fault driver’s policy limits.
Here is a typical situation. The injured insured
is a 30-year old man who was seated as a passenger in a vehicle owned by
a van service with UM coverage. The at-fault driver made an
improper U-turn and collided with the van. As a result of the collision,
the injured insured claims to have suffered various soft-tissue injuries
and filed a tort claim against the at-fault driver. The
injured insured also filed suit against the UM insurer under a theory
of breach of contract for failure to provide benefits under the UM provision
of the policy. The at-fault driver’s liability policy contained Maryland
minimums for bodily injury claims, i.e., $20,000 per person/$40,000 per
occurrence, while the limit of UM coverage is $250,000.
If the at-fault liability insurer were to offer to
settle for $20,000, the injured insured is required to give her UM insurer
notice of the settlement offer. If the UM insurer accepted the settlement
offer, then the UM insurer would lose its right to subrogate against the
at fault driver for any amounts paid pursuant to the UM provisions of the
policy and would be responsible for any settlement or damage award above
$20,000.
If the UM insurer refused to consent to the settlement,
the UM insurer would have to pay $20,000 to the injured insured until such
time that a judgment was entered against the at-fault driver. If
the judgment was for $20,000, the injured insured would be required to
return all $20,000 to the UM insurer. If the judgment were for $15,000,
the injured insured would be required to return $15,000 to the UM insurer,
keeping $5,000 to make up the $20,000 that she could have settled the case
for before trial. Any judgment for the injured insured’s damages
over the at-fault driver’s $20,000 policy limits would be the UM insurer’s
responsibility up to the limits of the UM coverage.
