Government Employees Insurance v. Group Hospitalization Medical Services, Inc.

McAULIFFE, Judge. The District of Columbia Court of Appeals has certified to this Court 1 questions relating to a subrogee’s rights against an automobile casualty insurer who settled with the subrogor after receiving notice of the subrogee’s interest. The facts as given to us by the certifying Court, and the questions presented, are as follows: “On May 25, 1985, Frederick J. Proctor and a passenger were traveling south on Piscataway Road in Clinton, Maryland, on Proctor’s motorcycle when an automobile driven by Louise D. Thompson emerged from a driveway onto Piscataway Road. Proctor’s motorcycle struck Thompson’s automobile as the automobile, attempting to turn northward, crossed the southbound lane____ “Investigating police officers determined that the motorcycle was being driven at a very high rate of speed, in excess of sixty-five miles per hour.

It was also determined that Proctor, the driver of the motorcycle, had been drinking, and several witnesses reported that the motorcycle had rapidly accelerated just before the collision. “Group Hospitalization Medical Services, Inc. (“GHI”), had a health care contract with Mr. Proctor which provided that, in the event he was injured as a result of the negligence of another person, GHI would be subrogated ⁶⁴⁸ to Proctor’s rights against that person. Pursuant to this contract, GHI paid $21,518.26 for medical services rendered to Proctor as a result of his injuries. The contract provided further that GHI would have the right to obtain from Proctor any payments he received from that other person as the result of such injuries, or from any insurance company making such payments, as much of the recovery as would reimburse GHI for any medical expenses it paid. “At the time of the accident, Louise Thompson was insured by Government Employees Insurance Company (“GEICO”) with policy limits of $25,000/$50,000 per accident. On December 19, 1985, GHI sent GEICO written notice of its subrogation right regarding any settlement agreement that GEICO might make with Proctor.

On the same date, GHI sent a letter to Proctor and his attorney notifying them of GHI’s right of subrogation and its right to recover any fees for medical expenses received by them from, or on behalf of, the other party involved in the accident, Louise Thompson. “On January 7, 1986, GEICO, despite the contributory negligence of Mr. Proctor (which is stipulated in this case), settled Proctor’s claim against Thompson for the policy limit of $25,000. An internal GEICO memorandum dated January 2, 1986, reveals that GEICO had received GHI’s notice of December 19, 1985, which the memorandum characterized as a ‘lien letter.’ After receiving payment from GEICO, Proctor declared bankruptcy. GHI filed a claim in the bankruptcy proceedings to recover the amount of its subrogated medical expenses, but the claim was disallowed as not recoverable from Proctor. “On May 14, 1986, GHI sent a second letter to GEICO, again giving notice of GHI’s right of subrogation and the amount claimed, $21,518.26. GEICO replied in a letter dated June 9, 1986, informing GHI that $25,000 had been paid to Proctor and his attorney on January 7, and stating that since the policy limit had been exhausted, GEICO would not honor any subrogation lien. ⁶⁴⁹ “GHI then filed this action in the Superior Court of the District of Columbia seeking judgment against GEICO in the amount of its subrogation claim, plus interest and costs.

The trial court granted summary judgment for GHI, and GEICO brought this appeal. “This appeal presents two questions of law: “1. Under Maryland law, may GEICO defend against GHI’s subrogation claim by asserting that Proctor was contributorily negligent, despite having been notified of GHI’s right of subrogation before it paid Proctor’s claim against Thompson, GEICO’s insured? ... “2. Under Maryland law, did a contractual relationship exist between GHI (as Proctor’s subrogee) and GEI-CO, so that GEICO’s failure to include GHI in its settlement negotiations with Proctor constituted a breach of contract? ...” We answer question 1 “yes” and question 2 “no.” GHI advances three alternative theories of recovery against GEICO. First, GHI claims it acquired a lien against funds in GEICO’s hands when it gave GEICO notice of its subrogation claim, and the lien was not defeated by GEI-CO’s payment to Proctor.

Second, by its payment to Proctor, GEICO waived any right it may have had to plead contributory negligence or otherwise contest its liability for damages caused by the accident. Third, GEICO, by its action or inaction, became contractually obligated to pay GHI’s claim. GEICO, although eschewing any right to rely upon the release given it by Proctor, and abandoning its earlier contention that it could not be made to pay more than its policy limits, denies direct liability to GHI. We address GHI’s contentions separately.

The Lien Theory GHI, perhaps inspired in part by the language of its own letter informing GEICO that its “present total lien is $21,474.72,” and encouraged by GEICO’s internal memorandum characterizing GHI’s communication as a “lien letter,” claims a lien upon funds in the hands of GEICO. GHI ⁶⁵⁰ offers no authority for the contention that a subrogee acquires a lien when it obtains its subrogation rights, and we know of none. A subrogee acquires no greater rights than those possessed by the subrogor. Poe v. Phila.

Casualty Co., 118 Md. 347, 353 , 84 A. 476 (1912); General Cigar Co. v. Lancaster Leaf Tobacco Co., 323 F.Supp. 931, 935 (D.Md.1971); 16 Couch on Insurance 2d § 61:36 (rev. ed. 1983). Proctor never acquired a lien against GEICO; neither, therefore, did GHI. Waiver GHI contends that GEICO’s payment to Proctor constituted an implied waiver of GEICO’s right to raise the defense of contributory negligence — indeed to raise any defense related to liability — in a claim brought by Proctor’s subrogee for damages arising out of this accident. The doctrine of waiver may operate to deprive an insurer of a right it would otherwise enjoy.

St. Paul Fire & Mar. Ins. v. Molloy, 291 Md. 139, 144-45 , 433 A.2d 1135 (1981); A/C Electric Co. v. Aetna Ins. Co., 251 Md. 410, 419 , 247 A.2d 708 (1968). We have defined waiver in this context as “ ‘the intentional relinquishment of a known right’ existing for the benefit of the insurer.” St. Paul Fire & Mar.

Ins., 291 Md. at 145 , 433 A.2d 1135 , quoting from Rubinstein v. Jefferson Nat’l Life, 268 Md. 388, 392 , 302 A.2d 49 (1973). In general application, we have defined waiver as the intentional relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right, and may result from an express agreement or be inferred from circumstances. Food Fair v. Blumberg, 234 Md. 521, 531 , 200 A.2d 166 (1964). In 16B Appleman, Insurance Law and Practice § 9085 (1981), the authors note that waiver in insurance law requires “an actual intention to relinquish an existing right, benefit, or advantage, with knowledge, either actual or ⁶⁵¹ constructive, of its existence, or such conduct as to warrant an inference of such intention to relinquish.” The doctrine of waiver as applied to insurance contracts is subject to a very important qualification.

Stated most succinctly in Aetna Cas. & Sur. Co. v. Urner, 264 Md. 660, 668 , 287 A.2d 764 (1972), it is that “[[Insurance coverage can not be established by waiver.” (Emphasis added.) 2 The general rule and the exception were explained in A/C Electric Co. v. Aetna Ins. Co., supra, 251 Md. at 419 , 247 A.2d 708 : It is well recognized that an insurer may, by its conduct, be deemed to have waived a condition of its policy or some irregularity on the part of its insured, if no extension of coverage results. (Emphasis added.) Judge Wilner, writing for the Court of Special Appeals in Insurance Co. of N. Amer. v. Coffman, 52 Md.App. 732, 742-43 , 451 A.2d 952 (1982), took note of the exception to the rule of waiver: [T]he Court of Appeals sees a distinction between defenses founded upon lack of basic coverage and those arising from the failure of the claimant to satisfy some ‘technical’ condition subsequent.

The former, it is apparent, may not be waived merely by the company’s failure to specify them in its initial response to the claim, for the effect of that would be to expand the policy to create a risk not intended to be undertaken by the company. GHI does not argue that it acted, or failed to act, in reliance upon any representation made by GEICO. Thus, we need not decide whether coverage may ever be extended by estoppel, as opposed to waiver. See Prudential Ins.

Co. v. Brookman, 167 Md. 616, 620-21 , 175 A. 838 (1934); Bower ⁶⁵² & Kaufman v. Bothwell, 152 Md. 392, 396-97 , 136 A. 892 (1927); Snyder v. Travelers Insurance Company, 251 F.Supp. 76, 79-80 (D.Md.1966). Although the automobile insurance policy issued by GEI-CO is not before us, we assume that under its liability coverage, GEICO undertook to pay all sums (within policy limits) which its insured might become legally liable to pay because of bodily injury or property damage caused by accident resulting from the ownership, maintenance, or use of the insured vehicle. A strong argument may be made that even if the circumstances of this case are sufficient to permit a finding of implied waiver, the waiver cannot be utilized in the manner claimed by GHI because to do so would amount to extending the coverage of the policy. In this action against GEICO, GHI contends that GEICO is obligated to pay GHI’s claim in full, without any proof of liability of GEI-CO’s insured.

GEICO argues that if GHI is correct in its argument concerning waiver, the coverage of GEICO’s policy would be expanded from “payment of damages the insured may become legally obligated to pay” to “payment of all damages arising from an accident involving the insured, whether or not the insured is legally liable for those damages,” thus effectively creating a new insurance contract. We need not and do not resolve this question. Even if we assume, arguendo, that the use of a waiver to preclude the assertion of a defense to liability does not amount to an expansion of coverage, that would not be of any benefit to GHI, for we conclude that under Maryland