General Accident Insurance v. Scott

HOLLANDER, Judge. In this case, we are asked to resolve a dispute concerning underinsured motorist coverage. Florence E. Scott, appellee and cross-appellant, was injured in a two-ear collision. At the time, she was one of several passengers in a car operated by Norvin Jones that was insured by the Hartford Accident & Indemnity Company (“Hartford”), appellee.

Jones’s car was struck from behind by a vehicle driven by William Bain, Jr.; that car was owned by Valencia Watson (who was a passenger) and insured by State Farm Mutual Insurance Company (“State Farm”). Approximately two and one half years after the accident, when Watson’s liability policy was insufficient to compensate Scott for her injuries, Scott made demand on her own insurer, General Accident Insurance Company (“General Accident”), appellant and cross-appellee, pursuant to the underinsured motorist provisions of Scott’s policy. When General Accident denied Scott's claim, she instituted a declaratory judgment action in the Circuit Court for Baltimore City to determine the responsibilities of Hartford and General Accident. Scott and General Accident filed cross-motions for summary judgment.

After a hearing, the circuit court (Gordy, J.) granted summary judgment in favor of Scott and against General Accident. At a later date, summary judgment was entered in favor of Hartford. General Accident now appeals and presents the following issues for our review, which we have rephrased slightly: I. Did the trial court err in entering summary judgment in favor of Scott even though Scott unreasonably notified General Accident two years and five months after the accident and only after a finding by an arbitrator on both liability and damages?

II

Did the trial court err in finding that General Accident, not Hartford, must indemnify Scott for the underlying judgment after the culpable car’s insurance carrier, State Farm, paid its $25,000 limit of liability, even though the Hartford single limit of $50,000 exceeded the State Farm policy’s $25,000 per person limit of liability? ⁶⁰⁷ We answer both questions in the negative; therefore, we shall affirm. FACTUAL BACKGROUND On January 27, 1991, Scott was injured in an automobile accident in the District of Columbia. At the time, Scott was a passenger in a car driven by Norvin Jones that was owned by Security America (“the Jones vehicle”). Jones’s daughters, Aleesha and Sherice Jones, and Talika Brown were also passengers.

The Jones vehicle allegedly was stopped at a red light and was struck in the rear by the car behind it, which was driven by Bain and owned by Watson (“the Watson vehicle”). All of the occupants of the Jones vehicle were injured in the accident. Three groups of insurance policies are relevant to this case. The Jones vehicle was insured under a policy issued by Hartford which provided uninsured/underinsured coverage 1 up to $50,000 per accident.

The Watson vehicle was insured by State Farm, whose policy provided liability coverage up to $25,000 for each person injured in an accident, with a maximum liability of $50,000 per occurrence. Scott’s General Accident policy, insuring her personal vehicle, provided uninsured motorist protection up to $50,000 for each person injured in an accident, with a maximum coverage of $100,000 per occurrence. Following the accident, Scott retained an attorney, Leslie Gladstone, who investigated the incident and began the process of seeking compensation for her injuries. Given the relatively low coverage limits of Watson’s policy with State Farm ($25,000 per person and $50,000 per accident), Gladstone recognized that Scott might need to make an uninsured motorist claim and he informed Hartford of the accident.

Apparently, Gladstone was incorrectly informed that the Hartford’s uninsured motorist policy limit was $500,000 per accident. As ⁶⁰⁸ a result, Gladstone evidently felt that Scott would not need to make any claim on her own uninsured motorist policy with General Accident and he did not notify General Accident of the occurrence. In November 1992, the occupants of the Jones vehicle, including Scott, filed suit against Bain and Watson in the Superior Court of the District of Columbia. As permitted by that court’s rules of procedure, the parties agreed to submit the case to non-binding arbitration.

A hearing was held before an arbitrator in May 1993, who found in favor of Scott and the other plaintiffs. Scott was awarded damages in the amount of $61,610.60, and the other plaintiffs were awarded damages totalling $29,740.08. It is undisputed that, as of this time, General Accident still knew nothing of these proceedings. After the arbritrator made her award, the other plaintiffs accepted a total of $25,000 from Watson’s $50,000 State Farm insurance policy.

Consequently, $25,000 remained on State Farm’s policy to cover Scott’s award of $61,610.60. Thereafter, Gladstone learned that the Hartford liability limit was $500,000, but that its uninsured motorist coverage was only $50,000. Accordingly, on June 10, 1993, some two years and five months after the accident, Gladstone’s associate notified General Accident of the accident and Scott’s claim under her policy. That telephone call was followed by a letter to General Accident the next day.

Gladstone sought to cooperate with General Accident in minimizing any harm resulting from the delay in notice. As permitted by the Superior Court’s rules on non-binding arbitration, he delayed the entry of a final judgment on the arbitration award by filing a request for a trial de novo. Counsel also sought to give General Accident the opportunity to intervene in the litigation to protect its rights. On June 16, 1993, Gladstone wrote to Reggie Lemon, a General Accident adjuster assigned to Scott’s claim.

He offered to provide General Accident a thirty day period to investigate the accident and to decide on its course of action. Gladstone wrote: I do not wish to do anything, however, that would be deemed prejudicial to the interest of General Accident ⁶⁰⁹ Insurance Company and I am willing to provide any reasonable period of time for you to properly investigate this matter as well as to defend it as you deem appropriate. Gladstone also told Lemon to let him know whether he needed additional time to complete his investigation, and said that he would withdraw his request for a trial de novo if he did not hear anything within thirty days. In addition, counsel asked Scott to contact General Accident to provide a statement regarding the accident.

General Accident never responded to Gladstone. Accordingly, on July 14, 1993, Gladstone sent another letter to Lemon, advising him that he would withdraw his request for a trial de novo on July 16, unless Lemon requested otherwise. When Gladstone did not receive a response, he called Lemon on July 29, 1993 to ask him about General Accident’s position. Lemon responded that, in General Accident’s view, Hartford had the responsibility to provide Scott with uninsured motorist benefits.

Lemon added that General Accident had referred the matter to its attorney. Gladstone then called the attorney and left a message, but received no response. On July 30, 1993, Scott’s counsel formally withdrew his request for a trial de novo in the Superior Court. Consequently, a judgment on the arbitration award was entered on August 16,1993.

Meanwhile, Hartford also refused to make any payments to Scott under the uninsured motorist provision of its policy. Hartford took the position that, because the $50,000 liability limit under the State Farm policy was the same as its $50,000 uninsured limit, the Watson vehicle was not an “underinsured” vehicle under the policy, and thus Hartford had no obligation to pay. With both insurance carriers denying coverage, Scott filed her declaratory judgment action against the insurers on September 16,1993. Scott and General Accident each moved for summary judgment.

General Accident argued that Scott had forfeited coverage under the policy because Scott had unreasonably waited twenty-nine months after the accident before informing Gen ⁶¹⁰ eral Accident of her claim, and the insurer was prejudiced by the inordinate delay. General Accident also argued that Hartford should be the primary uninsured motorist insurance carrier, and thus General Accident should not have any obligation to pay until Hartford’s coverage was exhausted. Hartford reiterated its position that the Watson vehicle was not an uninsured vehicle under its policy. After a hearing on the cross-motions on March 11,1994, the circuit court rejected General Accident’s untimely notice argument and accepted Hartford’s contention that the Watson vehicle was not underinsured under its policy.

Accordingly, it entered summary judgment in favor of Scott and against General Accident, and denied General Accident’s motion against Scott. The order made no mention of Hartford, however, presumably because Hartford was not a movant. Nor did the court ever enter a formal declaratory judgment, as Scott had requested in her complaint for declaratory judgment. General Accident noted an appeal to this Court.

Under Rule 2-602(a), an order that “adjudicates the rights and liabilities of fewer than all the parties to the action ... is not a final judgment.” Since the circuit court’s order of March 11, 1994 did not adjudicate the rights and liabilities of Hartford, it was not a final judgment and, therefore, this Court lacked jurisdiction. Once advised of the problem, Scott and General Accident filed a joint motion under Rule 8-602(e)(l), seeking a remand to the trial court. Accordingly, on December 13,1994, this Court remanded the case to the circuit court “so that the Court may direct the entry of a final declaratory judgment as to all parties.” Scott and General Accident then submitted proposed orders to the trial judge, seeking to adjudicate the rights and obligations of all three parties to the litigation. Both of the proposed orders explicitly provided that “Hartford shall not be liable to” Scott under its insurance policy and that “judgment is hereby entered in favor of Hartford.” The proposed orders differed only in that Scott’s version sought 5% interest from ⁶¹¹ August 16, 1993, the date on which she obtained her judgment against Watson and Bain.

On April 18, 1995, the judge executed General Accident’s proposed order, which did not provide for an award of interest. General Accident then pursued the instant appeal. Scott and General Accident have informed us in their briefs that, during the pendency of this appeal, the judgment on the arbitration award entered in the Superior Court of the District of Columbia has been vacated at the request of Watson and Bain. Consequently, the case has been returned to the civil docket of the Superior Court for a trial on the merits that is now pending.

We will provide additional facts as they pertain to our discussion of the issues presented. STANDARD OF REVIEW Maryland Rule 2-501 provides that a court shall enter summary judgment on the motion of a party where “there is no genuine dispute as to any material fact and ... the party is entitled to judgment as a matter of law.” It is fundamental that a summary judgment proceeding is not a substitute for trial. Maloney v. Carling National Breweries, Inc., 52 Md. App. 556, 559 , 451 A.2d 343 (1982). Thus, the court’s task is not to decide disputed facts.

Coffey v. Derby Steel Co., 291 Md. 241, 247 , 434 A.2d 564 (1981). Rather, it is to determine whether there are disputes as to “material” facts, Impala Platinum Ltd. v. Impala Sales (U.S.A.), Inc., 283 Md. 296, 326 , 389 A.2d 887 (1978), whose resolution would somehow affect the outcome of the case. King v. Bankerd, 303 Md. 98, 111 , 492 A.2d 608 (1985). In reviewing a trial court’s grant of summary judgment, an appellate court must also determine whether the trial court’s ruling was legally correct.

Baltimore Gas and Electric Co. v. Lane, 338 Md. 34, 43 , 656 A.2d 307 (1995); Nationwide Mutual Insurance Co. v. Scherr, 101 Md.App. 690, 694 , 647 A.2d 1297 (1994). In order to defeat a motion for summary judgment, the opposing party must show with some particularity that there ⁶¹² is a genuine dispute as to a material fact. Beatty v. Trailmaster Products, Inc., 330 Md. 726, 737 , 625 A.2d 1005 (1993). In determining whether there are any material facts in dispute, the trial court must give the non-moving party the benefit of all reasonable inferences and must resolve all inferences in the light most favorable to the non-moving party.

Id. at 739 , 625 A.2d 1005 ; Clea v. City of Baltimore, 312 Md. 662, 678 , 541 A.2d 1303 (1988). But “general allegations which do not show facts in detail and with precision are insufficient to prevent summary judgment.” Beatty, supra, 330 Md. at 738 , 625 A.2d 1005 . Nor are mere conclusory denials or allegations sufficient to overcome a motion for summary judgment. See Seaboard Surety Co. v. Richard F. Kline, Inc., 91 Md.App. 236, 243 , 603 A.2d 1357 (1992).

As the Court said in Beatty , “the mere existence of a scintilla of evidence in support of the plaintiffs claim is insufficient to preclude the grant of summary judgment.” Id., 330 Md. at 738 , 625 A.2d 1005 . DISCUSSION I. The uninsured motorist provision of Scott’s insurance policy with General Accident provides: No judgment for damages arising out of a suit brought against the owner or operator of an “uninsured motor vehicle” is binding on us unless we: 1. Received reasonable notice of the pendency of the suit resulting in the judgment; and 2. Had a reasonable opportunity to protect our interests in the suit.

General Accident contends that, by informing the company of her claim twenty-nine months after the accident, Scott did not provide “reasonable notice” of her suit and denied appellant a “reasonable opportunity” to protect its interests. It also vigorously argues that, as a matter of law, it was prejudiced by the untimely notice, because it could not investigate and defend the claim. ⁶¹³ In a case involving an insurer’s allegation that its insured has forfeited coverage based on a failure to provide timely notice of the claim, the court must determine two issues: (1) whether the delay was, under all the surrounding circumstances, a reasonable one, Lennon v. American Farmers Mutual Insurance Co., 208 Md. 424, 430 , 118 A.2d 500 (1955); American Casualty Co. v. Purcella, 163 Md. 434, 437 , 163 A. 870 (1933); and (2) whether the insurer suffered any prejudice. 8C John Alan Appleman & Jean Appleman, Insurance Law and Practice § 5083.35 at 293-94 (1981). Whether a delay is reasonable depends on its length and the reason for it. Appleman, supra, § 5083.25 at 286-88 (1981); State Farm Mutual Automobile Insurance Co. v. Burgess, 474 So.2d 634 (Ala.1985).

If the delay is reasonable, then the court’s inquiry is at an end, because the insured’s actions would not constitute a breach of the policy provision. If the delay is unreasonable, however, the insurer may avoid coverage only if it proves, by a preponderance of the evidence, that it suffered prejudice from the delay. See Appleman, supra, § 5083.35 at 293-94. The insurer will avoid summary judgment if it raises genuine disputes of material fact regarding these issues.

General Accident claims that Scott’s delay was unreasonable. It relies on the undisputed fact that the notification occurred almost two and one-half years after the accident. It also contends that Scott’s reason for the delay—that she thought that the Hartford policy provided adequate uninsured motorist coverage—does not justify the delay. But we need not resolve whether General Accident generated a genuine dispute on the reasonableness issue, because we conclude that its factual allegations were insufficient to raise a genuine dispute on the issue of prejudice.

We turn, then, to consideration of the prejudice issue. Simply put, the question we must address distills to this: What constitutes “prejudice” in the context of this case? General Accident essentially claims that it established prejudice based on Scott’s inordinate delay in providing notice. It asserts: ⁶¹⁴ Even if General Accident could not identify specific instances of prejudice, this would not mean that it has not been prejudiced____ This extremely tardy notice made it impossible for General Accident to carry out the functions that prompt notice enables it to fulfill, such as easily locating witnesses, interviewing witnesses while the accident is fresh in the'r minds, observing the physical condition of the scene before it changes, promptly evaluating liability, settling claims early and hopefully at a lower cost, preparing a defense, rapidly evaluating the claim and promptly investigating. ...

In our consideration of the degree of prejudice that must be shown by the insurer, we are guided by Md.Code Ann., art. 48A, § 482 (1994). 2 It requires, in the liability insurance context, that an insurer must prove actual prejudice. Section 482 provides: Where any insurer seeks to disclaim coverage on any policy of liability insurance issued by it, on the ground that the insured or anyone claiming the benefits of the policy through the insured has breached the policy by failing to cooperate with the insurer or by not giving requisite notice to the insurer, such disclaimer shall be effective only if the insurer establishes, by a preponderance of the evidence^] that such lack of cooperation or notice has resulted in actual prejudice to the insurer. (Emphasis added). We also note that Md.Ann.Code art. 48A, § 541(c)(2) (Supp. 1995) requires that “every policy of motor vehicle liability insurance ... shall contain” uninsured motorist coverage.

Arguably, § 482 applies to uninsured motorist coverage, because that kind of coverage is a part of the liability insurance policy. See Andrew Janquitto, Maryland Motor Vehicle Insur ⁶¹⁵ anee § 8.12 at 354 n. 469 (1992) (§ 482 applies to uninsured motorist insurance). But we need not decide whether § 482 actually applies to uninsured motorist coverage. 3 Regardless of the specific applicability of § 482, the uninsured motorist carrier must confront many of the same considerations that a liability insurer must consider, such as who caused the accident and the nature and extent of injuries sustained by the insured. Thus, in our view, an insurer cannot avoid coverage under an uninsured motorist policy on the grounds of an unreasonably late notice, unless the insurer proves that it suffered “actual prejudice.” The requirement of “actual prejudice” means that an insurer may not disclaim coverage on the basis of prejudice that is only possible, theoretical, conjectural, or hypothetical.

See The American Heritage Dictionary at 7 (1983) (defining “actual” as “existing in fact; real”, “existing or acting at the present moment”). Nor is it enough to surmise harm that may have occurred by virtue of the passage of time; prejudice cannot be presumed from the length of the delay. Strict adherence to the requirement of actual prejudice is particularly important in the context of uninsured motorist insurance, as there is a strong public policy in favor of uninsured motorist coverage. See Nationwide Mutual Insurance Co. v. Webb, 291 Md. 721 , 436 A.2d 465 (1983) (holding void a provision in an uninsured motorist insurance policy that disallowed coverage unless the insured obtained the insurer’s written consent to sue the tortfeasor).

Thus, courts must be especially watchful against allowing insurers to avoid coverage on the basis of illusory harm. With this background in mind, we analyze the facts. General Accident submitted an affidavit from German Busch, the claims manager of its Washington, D.C. office. Busch averred ⁶¹⁶ that: (1) General Accident “could not fully investigate the underlying facts,” such as by taking “timely” statements from witnesses, “photographing any property damage,” or investigating the scene of the accident; (2) it could not evaluate its potential exposure; (3) it could not participate in the decision as to whether to submit the case to arbitration; and (4) it could not decide whether to “set high/low parameters.” Applying the summary judgment principles that we outlined earlier, appellant’s allegations were insufficient, as a matter of law, to raise a genuine dispute as to whether General Accident suffered actual prejudice; conclusory allegations about difficulties and inconveniences that would result from any delay in notification are not sufficient.

General Accident failed to identify any specific, palpable instances to show how its ability to protect its interests was frustrated. To the contrary, General Accident conceded that it was unable to show that it had lost any important evidence, material witnesses, or meritorious defenses as a result of Scott’s delay. See 46A. C.J.S. Insurance § 1397 at 156 (1993) (insurer is prejudiced where either (1) it is denied all opportunity to investigate or evaluate the claim, or (2) the delay caused the loss of evidence that “would have led to a more advantageous result in the disposition of the action”).

Indeed, at the hearing, the court asked General Accident’s counsel what “meritorious defense” might he have raised in the District