Kritsings v. State Farm Mutual Automobile Insurance

JAMES R. EYLER, Judge. On October 5, 2002, eight-year-old Carrissa Woodward (“Carrissa”) was injured when the bicycle on which she was riding collided with a motor vehicle being operated by Karen Smith (“Ms. Smith”), on Shirley Manor Road in or near Reisterstown. At the time of the accident, Carrissa was insured under a policy issued by State Farm Mutual Automobile Insurance Company, appellee, to Carrissa’s mother, Rhonda Kritsings, appellant. The policy included uninsured/under-insured motorist coverage in the amount of $100,000 per person (“UM coverage”).

On September 14, 2005, appellant, as mother and next friend of Carrissa, filed a complaint in the Circuit Court for Baltimore County against Ms. Smith and appellee, alleging that Ms. Smith’s negligent operation of her vehicle caused the accident, and alleging breach of contract against appellee for failing to pay the amount of its UM coverage. Subsequently, appellant settled with Ms. Smith upon the payment of $50,000, the limit of her liability insurance coverage. Appellant then filed a motion for partial summary judgment against appellee, on the issue of Ms. Smith’s liability, based on an assertion that appellee had consented to the settlement with Ms. Smith. The court denied the motion.

Prior to the beginning of trial, counsel for the parties stipulated that the claims against Ms. Smith would be dismissed; the case would be tried on the issue of Ms. Smith’s liability, and not damages; and that in the event of a judgment against appellee, appellee would pay $50,000, the limit of its UM coverage less the amount received from Ms. Smith’s liability carrier. At the conclusion of evidence at trial, appellee moved for judgment. The court denied it, and a jury returned a verdict, finding that Ms. Smith was negligent and ³⁷¹ Carrissa was not contributorily negligent. Appellee filed a motion for judgment notwithstanding the verdict, and the court granted it, on the ground that Carrissa was contributorily negligent as a matter of law.

On appeal, appellant contends the court erred in (1) denying her motion for partial summary judgment, and (2) granting appellee’s motion for judgment notwithstanding the verdict. We shall affirm. Facts relevant to motion for partial summary judgment On February 27, 2008, appellant filed a motion for partial summary judgment against appellee and attached an affidavit by Michael Smith, counsel for appellant. The affidavit recited that, prior to February 23, 2006, Ms. Smith’s liability insurer offered its policy limits in the amount of $50,000 to settle appellant’s claim, which offer was confirmed in writing.

After receiving the written offer, the affiant sent a letter dated February 23, 2006, certified mail, return receipt requested, and by first class mail, to appellee, notifying it of the offer. The letter recited that it was being sent pursuant to Maryland Code (2006 Repl. Vol.), § 19-511of the Insurance Article, 1 and ³⁷² enclosed a copy of that statute. Appellee responded by letter dated March 9, 2006.

The February 23 and March 9 letters were attached to the affidavit. The March 9 letter from appellee stated, in pertinent part: Enclosed please find a copy of our correspondence of April 10, 2003, previously forwarded to counsel for Ms. Woodward, indicating subrogation has been waived against Karen Smith, and we are denying a future claim for under-insurance benefits. Our investigation thus far indicates Ms. Woodward was negligent for failure to stay right of center when she initiated contact with Ms. Smith’s vehicle. The April 10, 2003 letter stated, in pertinent part: It is our conclusion your client was negligent in this accident for failure to stay right of center when she crossed the center line and initiated contact with the vehicle driven by Karen Smith.

Therefore, we are unable to honor your client’s claim for Underinsurance Benefits. Please note State Farm Mutual Automobile Insurance Company is waiving subrogation against Karen Smith. In support of her motion for partial summary judgment as to liability, appellant argued that appellee had consented to a settlement with Ms. Smith and, relying on § 19-511 and the ³⁷³ decision in Maurer v. Pennsylvania National Mutual Casualty Insurance Co., 404 Md. 60 , 945 A.2d 629 (2007), argued that appellee, by virtue of its consent to settle, could not contest Ms. Smith’s liability. On March 10, 2008, appellee filed an opposition to appellant’s motion.

In it, appellee referenced its letters dated April 10, 2003 and March 9, 2006 and to answers to interrogatories filed in the case, in which it denied liability on the ground that Ms. Smith was not liable to appellant. Appellee acknowledged that, in July, 2006, counsel for the parties agreed that appellant could settle with Ms. Smith and the parties would dismiss their claims against Ms. Smith, but that it was pursuant to a stipulation between counsel that would govern how the case was going to be tried. Appellee asserted that it was specifically understood by all parties that the stipulation was not an admission that Ms. Smith was liable. 2 Appellee explained that, following depositions on June 19, 2006, counsel for the present parties entered into a stipulation to try the case on the issue of liability only with a judgment to be entered in the amount of $50,000 in the event liability was determined in favor of appellant. Appellee attached a letter dated July 12, 2006 from its counsel to appellant’s counsel, advising it had authority to enter into the above stipulation, and it attached a letter dated July 14, 2006, from appellant’s counsel confirming the above stipulation. 3 Appellee also attached a copy of the relevant portions of its policy.

On April 1, 2008, appellant filed a reply, in which she stated that appellee had either consented to settlement or had refused to respond in the manner required by § 19-511, and in either case, pursuant to § 19-511 and Maurer , appellee had waived its right to contest the liability of Ms. Smith. With ³⁷⁴ respect to the letters between counsel in July, 2006, appellant stated they were “inapplicable” because Maurer was not issued until December, 2007, and “Plaintiffs counsel could not have foreseen the explanation in Maurer and now Defendant cannot escape it.” On May 6, 2008, the court denied appellant’s motion on the ground that appellee’s denial of Ms. Smith’s liability was not a consent to settle, and the later agreement between counsel, in 2006, was with the understanding that liability of Ms. Smith was being denied. On September 17, 2008, appellant filed a motion for reconsideration of the court’s ruling, reiterating her earlier arguments. The case was scheduled for trial on September 22, 2008, and the court heard argument on appellant’s motion on September 22, prior to trial.

Appellee renewed its motion for summary judgment, see note 3, supra, and the court heard argument on that as well. The court denied both motions. Analysis of denial of motion for partial summary judgment Appellee, under its UM coverage, agreed to pay damages, up to its limits, for bodily injury and property damage that its insured was legally entitled to collect from the owner or operator of an uninsured/underinsured motor vehicle. The policy provided that the insured could not settle with any person who may be liable for bodily injury without appellee’s written consent, but it also contained language tracking the language in § 19-511.

The policy contained a subrogation provision which, inter alia, entitled appellee, to the extent it made payment under its UM coverage, to the proceeds of any settlement recovered by the injured insured from a tortfeasor. Before discussing the specific issue before us, providing some background information may be helpful. Since 1975, Maryland has mandated that motor vehicle liability insurance policies issued in this State contain UM coverage, providing an amount of coverage equal to the minimum amount required under the financial responsibility laws for liability coverage. ³⁷⁵ Maryland Code (1957, 1979 Repl. Yol.) Art. 48A, § 541(c); Nationwide Mutual Ins.

Co. v. Webb, 291 Md. 721, 724 , 436 A.2d 465 (1981). In 1981, the legislature amended § 541(c) to require insurers to make available to insureds the opportunity to purchase higher amounts of UM coverage than the minimum required, up to the amount of liability coverage provided to the insured. Laws of 1981, ch. 510; Waters v. United States Fid. & Guar. Co., 328 Md. 700, 711 , 616 A.2d 884 (1992).

The 1981 amendment also required UM coverage to provide underinsurance coverage as well as uninsured coverage. Specifically, it provided that a tortfeasor is uninsured whenever the amount of UM coverage purchased by an insured exceeds the amount of the tortfeasor’s liability coverage. Waters, 328 Md. at 713 , 616 A.2d 884 . The effect was to provide an injured insured with compensation equal to that which would have been available had the tortfeasor carried liability insurance in an amount equal to the amount of the injured insured’s UM coverage. 4 Policies containing UM endorsements frequently contain consent to sue and/or consent to settle clauses.

A consent to sue clause usually takes one of two forms. It provides that if an insured prosecutes to judgment a tort action against the alleged tortfeasor without the consent of the UM insurer, either (1) coverage is lost or (2) the judgment is not binding on the insurer. Webb, 291 Md. at 732 , 436 A.2d 465 . Generally, consent to sue clauses have been determined to be invalid in states with statutes mandating UM coverage similar to those in Maryland.

The Court of Appeals has held such clauses to be invalid. Id. at 736 , 436 A.2d 465 . In holding consent to sue clauses invalid and as one response to the insurers’ argument that declaring them invalid was unfair, the Court of Appeals pointed out that consent to ³⁷⁶ settle clauses generally have been held to be valid, observing that such clauses provided some protection for a UM insurer to prevent its injured insured from settling with a tortfeasor without its consent. Id. at 740, 436 A.2d 465 .

The Court cited cases which upheld the validity of a consent to settle clause but also held that a UM insurer was bound by a judgment or settlement if it occurred with the UM insurer’s consent, i.e., it constituted an admission of liability of the tortfeasor. Id. An injured insured with UM coverage has a tort action against the tortfeasor and a contract action against the UM insurer. Id. at 735-736, 436 A.2d 465 .

In the case of the latter, the injured insured must establish the liability of the tortfeasor to satisfy a condition under the contractual coverage. Id. In other words, an action on the contract requires proof of the underlying tort claim as an element of the right to recover. If an injured insured files a tort action against the alleged tortfeasor, the UM insurer has a right to intervene.

Even if the policy has a consent to settle clause, if the UM insurer does not consent to settlement, but is given notice of the tort action and an opportunity to intervene, but it declines, it is bound by the result, whether by judgment or settlement. Id. at 743, 436 A.2d 465 . Waters, 328 Md. at 718 , 616 A.2d 884 . This brings us to the issues before us, and thus, the significance of the Maurer case and § 19-511.

In Maurer , the insured sued his insurer pursuant to his underinsured coverage seeking payment over and above that collected from the tortfeasor for injuries he sustained in a motor vehicle accident. The case was tried, and a jury returned a verdict in favor of the insurer. 404 Md. at 60-68 , 945 A.2d 629 . The insured appealed and argued that the court erred in its instructions to the jury. The Court of Appeals agreed, but for the guidance of the court and parties on remand, it addressed the effect of the fact that the insurer had consented to the insured’s settlement with the tortfeasor. ³⁷⁷ The tortfeasor’s liability insurer offered its policy limits to the insured.

Id. at 65 , 945 A.2d 629 . Pursuant to § 19-511, the insured notified its insurer of the offer, giving the insurer 60 days to consent to the settlement offer or to send a written refusal to consent. Id. The insurer “consented to the settlement.” Id.

The Court’s opinion does not further explain the content or form of the consent, but indicates that the insurer expressly consented. The Maurer Court stated that Maryland law is clear that a carrier providing UM coverage containing a clause requiring consent to settle, “which consents to the settlement of its insured’s tort claim against an uninsured/underinsured tortfeasor is bound by the settlement.” Id. at 73 , 945 A.2d 629 . The UM carrier cannot thereafter contest tort liability. Id.

After observing that the same result ordinarily occurs if the policy does not contain a clause requiring consent to settle, the Court referenced § 19-511 and stated: Under some circumstances, where the amount of the settlement or settlements, arising out of the same occurrence, would exhaust liability limits, the uninsured/underinsured carrier is by statute given the option to consent or not to consent to the settlement. Under such circumstances, there exists a “consent to settle” clause by statute. Id. at 73, n. 4, 945 A.2d 629 . At a later point in the opinion, the Court again referenced § 19-511 and stated that it set forth certain procedures when a settlement offer was made, from an underinsured tortfeasor or the tortfeasor’s liability insurer, to the injured claimant with underinsured motorist coverage.

Section 19-511 also modified existing law when the underinsured carrier refused to consent to the settlement. Section 19-511, however, did not change the law when the underinsured carrier consented to the settlement. Id. at 75, n. 6, 945 A.2d 629 . The Court clearly regarded its statement of the effect of a consent to settle as a statement of preexisting and not new law, citing Webb, 291 Md. at 739-740 , ³⁷⁸ 436 A.2d 465 ; Waters, 328 Md. at 717-718 , 616 A.2d 884 ; and West American v. Popa, 352 Md. 455, 468 , 723 A.2d 1 (1998), cases in which that proposition had been stated.

Section 19-511 addresses a situation in which the liability insurer of the alleged tortfeasor offers its policy limits to the injured person. It provides that the injured insured shall send a copy of the offer by certified letter to the injured insured’s insurer providing UM coverage. § 19-511(a). Within 60 days after receipt of the notice, the UM insurer shall send written consent to the acceptance of the offer or written refusal to consent. § 19-511(b). If the UM insurer refuses to consent, it must pay the amount of the settlement offer to its insured. § 19-511(c).

If the UM insurer makes such payment, its subrogation rights against the tortfeasor and the right to any payments made by or behalf of the tortfeasor are preserved. § 19-511(d). If the UM insurer consents to acceptance of the offer or it does not comply with the requirements in (b) or (c), the injured insured may accept the offer from the tortfeasor and execute a release “without prejudice to any claim the injured person may have against the uninsured motorist insurer.” § 19-511(e). Prior to enactment of the statute, if a policy providing UM coverage contained a clause requiring consent to settle, and the insured settled with a tortfeasor without such consent, the insured risked breaching its contract with the UM carrier and compromising the UM carrier’s subrogation rights, thus jeopardizing the insured’s ability to collect underinsured payments. The effect was that the insured could not accept the settlement offer without running the risk of breaching its contract, absent consent, if the UM insurer wanted to be involved. 5 The statute changed that result, when policy limits are offered by the liability insurer for the tortfeasor.

When policy limits are offered, the insurer providing UM coverage ³⁷⁹ must either consent to acceptance of the offer and give up its ability to contest liability or, if it refuses to consent, pay the amount of the offer, with an opportunity to recoup the amount paid. The statute protects an injured insured when a liability carrier acknowledges liability and offers its limits but the UM carrier refuses to consent to acceptance because it concludes it has nothing to lose by forcing a trial on liability. The statute enables the injured insured to get the benefit of the amount of the proceeds offered by the tortfeasor without running the risk of breaching its contract with its insurer. In the case before us,