Government Employees Insurance v. Ropka

ALPERT, Judge. FACTS On October 15, 1982, Michael Chilcoat and his wife and two daughters were killed in a tragic automobile accident. Michael Chilcoat was driving the automobile that was involved in an accident with a truck operated by Consolidated Rail Corporation (hereinafter “Conrail”). The personal representatives of the four decedents filed a wrongful death action against Conrail and the Pennsylvania Department of Transportation.

Those defendants filed a third-party claim against the estate of Michael Chilcoat, seeking contribution and/or indemnification because he was the driver of the other vehicle. Frances Ropka, the personal representative of Michael Chilcoat’s estate, demanded that Government Employees Insurance Co. (Michael Chilcoat’s insurer, hereinafter referred to as “GEICO”) defend against the third-party claim. GEICO refused to defend the third-party action, arguing that a “household exclusion” in the policy protected it from liability. The exclusion provided: ²⁵³ Bodily injury to an insured or any family member of an insured residing in the insured’s household is not covered.

(Emphasis in the policy). GEICO filed a declaratory judgment action in the Circuit Court for Carroll County. GEICO sought a declaration that the household exclusion was valid, and that GEICO was not required to defend any claims against, nor pay any judgments rendered against, Michael Chilcoat’s estate. After the declaratory judgment action was filed, but before a hearing was held on the merits, the Court of Appeals of Maryland decided Jennings v. Government Employees Insurance Co., 302 Md. 352 , 488 A.2d 166 (1985).

Jennings held that a household exclusion in an automobile liability insurance policy was inconsistent with public policy and thus was invalid. A trial on the declaratory judgment action instituted by GEICO was held on December 5, 1985, the Honorable Donald J. Gilmore presiding. In an order dated June 26, 1986, Judge Gilmore held that the household exclusion, pursuant to Jennings , “was void from the beginning,” and that GEICO was required to defend Frances Ropka and pay any judgment arising out of the third-party case. The 30-day period for appeal expired without appeal by GEICO.

Then on October 2, 1986, counsel for GEICO filed a Motion to Revise Enrolled Judgment. The attorneys for GEICO filed affidavits with the court stating that they had not received a copy of Judge Gilmore’s order of June 26, 1986. They asked for a reissuance of the order, to give them time for an appeal. A hearing on the Motion to Revise Enrolled Judgment was held on March 13,1987 and on March 19 Judge Gilmore vacated his June 26, 1986 decision and reissued it unchanged as of March 19, 1987.

GEICO then noted this appeal, challenging Judge Gilmore’s decision that GEICO was obligated to defend against the third-party claim. Frances Ropka, as Michael Chilcoat’s personal representa ²⁵⁴ tive, filed a cross-appeal, contending that the trial judge improperly granted GEICO’s Motion to Revise Enrolled Judgment. 1 I. The first issue we must dispose of is a procedural one. If GEICO’s Motion to Revise Enrolled Judgment was improperly granted, then GEICO would have failed to appeal the judgment entered against it within the 30-day period prescribed by Rule 1012. Thus, we would be without jurisdiction to entertain an appeal on the merits of the declaratory judgment entered on June 26, 1986.

Section 6-408 of the Courts and Judicial Proceedings Article of the Annotated Code of Maryland provides: § 6-408. Revisory power of court over judgment. For a period of 30 days after the entry of a judgment, or thereafter pursuant to motion filed within that period, the court has revisory power and control over the judgment. After the expiration of that period the court has revisory power and control over the judgment only in case of fraud, mistake, irregularity, or failure of an employee of the court or of the clerk’s office to perform a duty required by statute or rule.

(1977, ch. 271). Md.Cts. & Jud.Proc.Code Ann. § 6-408 (1984 Repl. Vol., 1987 Cum.Supp.) (emphasis added). Similarly, Maryland Rule 2-535(b) provides that a trial court has continuing revisory power over judgments.

It provides: Rule 2-535. REVISORY POWER # * * sjc * * (b) Fraud, Mistake, Irregularity.— On motion of any party filed at any time, the court may exercise revisory power and control over the judgment in case of fraud, mistake, or irregularity. ²⁵⁵ Failure to provide a copy of an order required to be sent by Rule 1-324 can be grounds for exercising the court’s revisory power. See Maryland Lumber Co. v. Savoy Constr. Co., 286 Md. 98 , 405 A.2d 741 (1979); Kramer v. McCormick, 59 Md.App. 193 , 474 A.2d 1346 (1984).

As the Court of Appeals noted in Mutual Benefit Society of Baltimore, Inc. v. Haywood, 257 Md. 538 , 263 A.2d 868 (1970): The express provision for notice to the litigants overrides our often stated proposition that it is the duty of the defendant “to keep [himjself informed as to what [is] occurring in the case.” Id. at 541 , 263 A.2d 868 , citing Tasea Inv. Corp. v. Dale, 222 Md. 474, 479 , 160 A.2d 920 (1960). Ropka, as cross-appellant, contends that GEICO failed to establish sufficiently that the court clerk failed to send GEICO a copy of the order as required by Rule 1-324. Pursuant to Bowen v. Rohnacher, 15 Md.App. 280 , 290 A.2d 560 , cert. denied, 266 Md. 742 (1972), GEICO must establish the irregularity by “clear and convincing” evidence.

Id. at 284, 290 A.2d 560 . After reviewing the record, we find that GEICO met its burden of proving that a copy of the order was not sent to its counsel. It should be noted at the outset that the clerk’s office in Carroll County did not keep a record that definitively showed whether a copy of the order was sent to counsel for GEICO. The attorneys for GEICO filed affidavits stating they had not received a copy of the order, and testified to that effect at the hearing.

There also was testimony from Doris Haines of the clerk’s office who was personally responsible for making the docket entries and mailing copies of the orders to the proper parties. In response to a question about to whom she most likely mailed copies of the order, she testified: I went to the last two pleadings and took the names from there. I told him [counsel for GEICO] that’s probably who I sent copies to, but that I could not be sure____ ²⁵⁶ I ... could not be sure of that. I never told [GEICO’s counsel] I was certain of anything.

The notation on the docket stated that copies of the order were sent to “Plaintiff’s Attorney” and “Defendant’s Attorney,” both in the singular. Thus, the docket entry appears to confirm GEICO’s claim that copies of the order were mailed to only two of the three parties who should have received them. We hold that the evidence was legally sufficient to establish that GEICO was not sent a copy of Judge Gilmore’s final order. That determination alone, however, does not automatically entitle GEICO to a reissuance of the order.

As the party moving to set aside an enrolled judgment, GEICO must also establish “that it is acting in good faith, with ordinary diligence, and that it has a meritorious defense or cause of action.” Maryland Lumber Co. v. Savoy Constr. Co., 286 Md. at 102 , 405 A.2d 741 . Applying the Maryland Lumber standard, we believe that the trial judge was correct in giving GEICO an opportunity to appeal the merits of the declaratory judgment action. Implicitly, he found no indication that GEICO acted in any way other than consonant with good faith.

Judge Gilmore wholly accepted the statements of the attorneys for GEICO that they did not receive a copy of the order and that, consequently, they were not on notice that the 30-day period for appeal had begun to run. Furthermore, the evidence was sufficient to establish that GEICO’s counsel acted with ordinary diligence. The hearing on the declaratory judgment was held on December 5, 1985. In March 1986 counsel for GEICO had been advised of a heavy backlog of cases dating back to May 1985 and, therefore, he anticipated a long wait.

Judge Gilmore’s order was issued on June 25, 1986. It appears from the record that one of the attorneys for GEICO investigated the status of the declaratory judgment action on September 30, 1986, and discovered that the order had been enrolled. He promptly instituted the Motion to Revise ²⁵⁷ on October 2, 1986. Judge Gilmore did not abuse his discretion in granting the motion to revise.

II

DUTY TO DEFEND We now turn to the merits of the declaratory judgment action. GEICO argues that it is not required to defend Michael Chilcoat’s estate in the third-party claim because of a household exclusion in the decedent’s insurance policy. The exclusion provided: Bodily injury to an insured or any family member of an insured residing in the insured’s household is not covered. (Emphasis in the policy.) It is generally true that an insurer has no duty to defend a cause of action against an insured if that cause of action asserts liability on the part of the insured that comes within an exclusion in the insurance policy.

See Appleman, Insurance Law and Practice, § 4685, p. 119 (2d ed. 1979) (“Even though an accident might otherwise be covered, if the claim is for injuries to people that are excluded by the policy, there is no duty to defend.”). It is also settled, however, that a clause in an insurance policy which is contrary to the public policy of this State is invalid and unenforceable. See Jennings v. Government Employees Ins. Co., 302 Md. at 356 , 488 A.2d 166 , citing Guardian Life Ins. v. Insurance Comm’r, 293 Md. 629, 643 , 446 A.2d 1140 (1982).

The Court of Appeals in Jennings found that the mandatory insurance statutes passed by the General Assembly “substantially changed the public policy of this State with regard to motor vehicle insurance and reparations for damages caused by motor vehicle accidents.” 2 Id. 302 Md. at ²⁵⁸ 357, 488 A.2d 166 . After an analysis of a household exclusion identical to the exclusion in the case sub judice, the Court of Appeals in Jennings concluded: In our view, the household exclusion clause is inconsistent with the public policy which the General Assembly adopted in Ch. 73 of the Acts of 1972, providing for compulsory automobile insurance for all Maryland automobiles with specified required coverages. Id. Pursuant to Jennings , GEICO is required to defend the estate against the third-party claim despite the household exclusion.

GEICO, however, argues that the Jennings decision was “an improper exercise of legislative power.” Clearly, GEICO cannot expect this court to overrule recently announced opinions of the Court of Appeals. See Wiggins v. State, 22 Md.App. 291, 302 , 324 A.2d 172 (1974), aff'd, 275 Md. 689 , 344 A.2d 80 (1975). Alternatively, GEICO argues that Jennings cannot be applied to the case at bar because Jennings was decided after its declaratory judgment action was instituted. We note, preliminarily, that in Jennings the Court of Appeals did not decide whether household exclusions in automobile liability policies were invalid retrospectively.

The court invalidated the exclusion at issue in Jennings , although there too the insurer had inserted the provision without knowledge the court would find it was void as against public policy. GEICO contends that invalidating the household exclusion in Michael Chilcoat’s insurance policy would be an improper “invalidation of a contract clause which was valid under existing law during the entire time the contract was in force.” This argument is fatally flawed, however, because it is based on a fallacy: it assumes that the exclusion was valid until Jennings was decided. This assumption is simply incorrect. The court in Jennings did not ²⁵⁹ make new law.

Rather, it was for the first time faced with an evaluation of the household exclusion in light of the legislature’s passage of the 1972 compulsory insurance laws. The household exclusion was not included in Michael Chilcoat’s policy until 1979, and the exclusion was invalid ab initio. This is not a case involving retroactive application of a statute to a previously existing contract. Consequently, GEICO’s arguments that Jennings cannot be applied “retroactively” have no relevance.

As the Court of Appeals noted in response to a similar argument: [I]t seems to be suggested that decisions of this court are not “applicable retroactively”. Such a suggestion is groundless____ [CJourts ... adhere, with relentless logic, to the orthodox theory that courts “declare” the law as it has been from the beginning. “Judge-made law” has no date of enactment. Rules of construction and constitutional limitations against retroactive legislation are not applicable to judicial decisions. Fletcher v. Safe Deposit & Trust Co., 193 Md. 400, 410 , 67 A.2d 386 (1949).

III

EXTENT OF GEICO’S POTENTIAL LIABILITY Our decision that GEICO must defend against the third-party claim asserted against Michael Chilcoat’s estate does not end our inquiry, however. We are also faced with the question of the extent of GEICO’s potential liability. GEICO seeks a determination that under State Farm Mutual Automobile Insurance Co. v. Nationwide Mutual Insurance Co., 307 Md. 631 , 516 A.2d 586 (1986), its liability is limited to the amount of the minimum liability coverage required by the compulsory insurance laws. 3 In State Farm, the Court of Appeals explained that Jennings did ²⁶⁰ not wholly invalidate household exclusions in automobile liability policies: We are now asked to decide a question that was neither raised nor expressly addressed in Jennings : Whether the “household exclusion” is wholly invalid, or whether its invalidity extends only to the amount of the minimum liability coverage required by the compulsory insurance law. 307 Md. at 633 , 516 A.2d 586 . The court went on to hold: Put simply, what the legislature has prohibited is liability coverage of less than the minimum amounts required by § 17-103(b)(l) of the Transportation Article.

That is the plain import of Art. 48A, § 541(a). See also § 541(c)(2). The “household exclusion” violates public policy only to the extent it operates to prevent this mandatory minimum coverage. Id. at 637, 516 A.2d 586 (footnote omitted).

See also Provident Gen. Ins. Co. v. McBride, 69 Md.App. 497 , 518 A.2d 468 (1986). A. Discretion—Court’s Revisory Power We pause at this juncture to note that this appeal in part stems from the refusal of the trial court to modify its judgment insofar as State Farm may be applicable.

While it does not specifically so argue, we believe that, in effect, GEICO asks us to hold that the trial judge abused his discretion in refusing to consider the application of State Farm. This case is before us in a most peculiar posture. The judgment of June 26, 1986, was revised by Judge Gilmore, pursuant to Maryland Rule 2-535(b), in order to give GEICO the opportunity to note an appeal. At that time, the question of State Farm’s applicability automatically became viable, and that part of the judgment which ignored State Farm was subject to revision under Rule 2-535(a).

The question of whether it should be further revised was within the sound discretion of the trial court. Clarke Baridon v. Union Co., 218 Md. 480, 483 , 147 A.2d 221 (1958) (whether a judgment properly entered should be ²⁶¹ vacated in whole or in part is within the sound discretion of the trial court); Weaver v. Realty Growth Investors, 38 Md.App. 78 , 379 A.2d 193 (1977). If the case were one of default or similar technical deficiency, that discretion, of course, must be exercised liberally. Here, however, the reason for seeking further revision is not default or a similar procedural deficiency, but rather what law should govern.

Under the unique procedural posture of this appeal, it is not a simple task to determine whether there has been an abuse of discretion. The following chronology is pertinent to an understanding of our consideration of this issue. (1) February 7, 1985—GEICO filed a declaratory judgment action to establish its duties under the Chilcoat policy. (2) February 22, 1985—The Court of Appeals held in Jennings that the “household exclusion” clause is invalid.

(3) June 26, 1986—The circuit court handed down its Memorandum Opinion and Order adverse to GEICO. (4) October 2, 1986—GEICO filed a Motion to Revise Enrolled Judgment because it did not learn about the court’s order until September 30, 1986. (5) November 7, 1986—State Farm was decided holding the “household exclusion” invalid only to the extent of Maryland’s minimum statutory liability for automobile insurance policies. (6) March 13, 1987—A hearing was held on GEICO’s Motion to Revise.

(7) March 19, 1987—Judge Gilmore vacated his Opinion and Order of June 26, 1986, and re-entered it. Thus, as mentioned earlier, the question of whether the trial court abused its discretion in not applying State Farm arises in an unusual procedural context. At the time of Judge Gilmore’s first Opinion and Order, State Farm had not been decided, but it had been decided prior to the court’s hearing on the Motion to Revise. Over a century ago, the Court of Appeals stated: ²⁶² It is a settled doctrine, that courts in deciding questions arising before them, will look to the law as it is at the time, and are not to be governed by what it may have been—unless proceedings under a prior existing law had been complete, or rights had become vested.

This principle has been held to apply as well to cases before an appellate court, as to those that are pending in courts of original jurisdiction. Wade v. St. Mary’s Indust. School, 43 Md. 178, 181 (1875) (citations omitted); see also Firstman v. Atlantic Constr. & Supply Co., 28 Md.App. 285, 294-98 , 345 A.2d 118 (1975). We have found no Maryland cases, however, that discuss whether a trial judge should employ its revisory powers to modify a judgment pursuant to a subsequent Court of Appeals decision.

We note, however, that numerous federal cases have arisen in this context under Fed.R.Civ.Pro. 60(b)(6), which provides in pertinent part: On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; ... (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. It is generally held that no relief from a final judgment is available under this rule merely because of a change in the law. See Collins v. City of Wichita, 254 F.2d 837, 839 (10th Cir.1958) (“Litigation must end some time, and the fact that a court may have made a mistake in the law when entering judgment, or that there may have been a judicial change in the law after its entry, does not justify setting it aside.”) (citing Sunal v. Large, 332 U.S. 174 , 67 S.Ct. 1588 , 91 L.Ed. 1982 (1947); Simmons Co. v. Grier Bros.

Co., 258 U.S. 82 , 42 S.Ct. 196 , 66 L.Ed. 475 (1922); Elgin Nat. Watch ²⁶³ Co. v. Barrett, 213 F.2d 776 (5th Cir.1954); United States v. Kunz, 163 F.2d 344 (2d Cir.1947)). In Overbee v. Van Waters & Rogers, 765 F.2d 578 (6th Cir.1985), however, the court granted relief under Fed.R. 60(b)(6). This negligence action, that accrued on November 11, 1977, was removed to federal court, where trial began on March 31, 1981.

At the close of all the evidence, plaintiffs requested an instruction on comparative negligence. The court, applying Ohio law, instructed the jury on contributory negligence and the jury returned a verdict in favor of the defendants. Judgment was entered by the court on April 3, 1981. Plaintiffs moved for a new trial based on allegations that extraneous prejudicial information was improperly brought before the jury.

The court denied the motion without a hearing and an appeal was filed. Effective June 20, 1980, the Ohio legislature adopted comparative negligence, but the Act was unclear as to whether it applied to causes of action that accrued after the effective date, or to actions tried after that date. On August 11, 1982, while the Overbee case was on its first appeal, the Supreme Court of Ohio held that the Act applied to causes of action that accrued after the June 20 effective date. On May 10,1983, the 6th Circuit Court of Appeals reversed the denial of a new trial and remanded the case for an evidentiary hearing on the jury misconduct issue.

While on remand, but prior to the hearing, the Supreme Court of Ohio reversed itself and held that the Act applied to cases tried after June 20, 1980. Plaintiffs then filed a motion for relief pursuant to Fed.R. 60(b)(6) requesting a new trial so that the jury could receive an instruction on comparative negligence. The District Court denied the motion without analysis in the same opinion and order that held, after a hearing, that there was no basis to set aside the jury’s verdict. A second appeal followed.

The 6th Circuit Court of Appeals reversed and ordered a new trial. The appellate court held that the District Court had abused its discretion in denying relief under Fed.R. 60(b)(6) for two reasons. First, the court found there was no final ²⁶⁴ judgment when the motion was filed because the case was on remand at the time. Second, the court found extraordinary circumstances justifying relief.

The court explained: The action of the Ohio Supreme Court in reversing itself within one year is certainly an unusual occurrence. Had that court reached the decision in Viers [v. Dunlap, [ 1 Ohio St.3d 173 ] 438 N.E.2d 881 (1982) ] that it ultimately reached in Wilfong [v. Batdorf, [ 6 Ohio St.3d 100 ] 451 N.E.2d 1185 (1983)], plaintiffs would have prevailed on the instruction issue during the first appeal to this court. Id. at 580. While Overbee is somewhat persuasive, before we can determine whether the trial judge abused his discretion here, we deem it appropriate to review the evidence that had come before him prior to his decision rejecting State Farm and the legal principles generated by that evidence.

At the hearing on the merits held on December 5,1985, in addition to the testimony of Alfred Charles Fulton, an underwriter for GEICO, GEICO filed a number of exhibits in support of its position. The argument at that point in time focused primarily on two issues: one, whether Jennings was retroactive, and two, the applicability of Art. 48A, § 240AA. The evidence presented at the hearing on the Motion to Revise related solely to the issue of the mailing and receipt of the Opinion and Order of June 25, 1986. The oral argument at the hearing on the Motion to Revise as it related to the application of State Farm was de minimus.

We have no doubt that State Farm controls and, thus, would reduce GEICO’s liability to the statutory minimums of $20,000 and $40,000, absent any defects with respect to GEICO's implementation of the family exclusion, i.e., the implementation of its reduction of coverage. The Court of Appeals in State Farm apparently recognized that its holding might not obtain where the insured was improperly deprived of a contractual benefit for which he had paid. Judge Adkins, speaking for the court, observed: ²⁶⁵ Nationwide persuaded Judge Heise that to uphold the exclusion as to coverage above the statutory minimum would somehow deprive the insured of a contractual benefit for which he had paid. The judge found that “The insured has already paid additional premiums in order to purchase the additional coverage.” Memorandum of Opinion and Decree at E-90.

The record, however, is silent as to how much Carroll paid for his State Farm policy, or how the premium was computed. It could just as readily be inferred that the premium took account of the exclusion contained in the policy. In any case, Judge Heise’s finding, being without evidentiary support, is clearly erroneous. Md.Rule 886; see Stuart Kitchens, Inc. v. Stevens, 248 Md. 71 , 234 A.2d 749 (1967).

State Farm, 307 Md. at 638 . Recognizing this opening in State Farm, Conrail argues that State Farm is not dispositive of this case because it is readily distinguishable. Conrail contends that: State Farm, supra, is factually distinguishable from the present case. There, the Circuit Court had held that to uphold the household exclusion as to the amount of coverage in excess of the statutory minimum would deprive the insured of a contractual benefit for which he had paid.

The trial court’s conclusion in that regard was rejected by the Court of Appeals as being without evidentiary support, since the record was silent as to the premium paid for the coverage. The record here is not silent in that regard____ Between March 1, 1970 and March 1, 1979, the policy form did not include a household exclusion as to liability coverage. Such an exclusion was first added by policy amendment effective March 1, [1979]. No notice of the newly included limitation of coverage was sent to Mr. Chilcoat.

GEICO’s witness conceded that the policy change limited the scope of risks which had been undertaken by GEICO. Despite the limitation in coverage and a reduction in the scope of coverage afforded under GEICO’s policy as a ²⁶⁶ result of the addition of the household exclusion, GEICO made no adjustment in the premium charged to Mr. Chilcoat. As a result, subsequent to March 1, 1979 Mr. Chilcoat was paying to GEICO the same premium for less coverage. In its reply brief, GEICO responded as follows: Conrail has also concocted an argument that State Farm does not apply because it would deprive Chilcoat of a paid for benefit (Conrail Br. 23).

There is no support in the record for this argument. The record is undisputed that GEICO followed all applicable statutory procedures in adding the household exclusion to the Chilcoat contract (E. 206-212). The policy which included the household exclusion was sent to Chilcoat in 1980 (E. 212), and it certainly defies common sense to argue (Conrail Br. 24) that somehow in 1982 Chilcoat paid for a policy that did not have this exclusion. In contrast to State Farm, testimony in the case at bar by an underwriter for GEICO established that the first policy was issued to Michael Chilcoat on March 1, 1970.

The policy was renewed annually until Mr. Chilcoat’s estate requested that it be cancelled on February 4, 1983.