Kurtz v. Erie Insurance Exchange

BARBERA, J. Maryland Code (1997), § 19-509(g) of the Insurance Article establishes the limit of liability of a carrier of uninsured/underinsured (“UM”) benefits. That section authorizes a UM carrier to require that an insured “exhaust” the liability limits of a tortfeasor’s insurance policy before applying for and receiving underinsured motorist (“UM”) benefits under the insured’s policy. We are asked in this case to decide what is meant by the term “exhaust.” For the reasons that follow, we hold that the exhaustion requirement in § 19—509(g) means that an insured must have been paid the full amount of the tortfeasor’s limit of liability in order to seek UM benefits; payment of anything less than the full amount of that limit entitles the insured’s UM carrier to deny the insured’s claim for additional benefits. FACTS AND LEGAL PROCEEDINGS The background facts of this case are undisputed.

It stems from a two-car accident that occurred on February 12, 1998, on Route 1 near Chadds Ford Township in Delaware County, Pennsylvania. A vehicle driven by Edgar Leroy Lewis, Jr., a Pennsylvania motorist, struck the rear of a vehicle driven by Mark Kurtz and owned by appellants, Mark and Theresa Kurtz (“the Kurtzes”). Mr. Kurtz sustained bodily injuries in the accident. The vehicle driven by Mr. Lewis was insured by Allstate Indemnity Company under a $25,000.00 single limit liability policy (“the Allstate policy”).

The Kurtzes’ vehicle was insured by appellee, Erie Insurance Company (“Erie”), under a policy with $100,000.00 per person and $300,000.00 per occurrence limits for both liability coverage and UM coverage (“the policy”). The Kurtzes were the named insureds under the Erie policy. One month after the accident, appellant Mark Kurtz made a claim for benefits against Erie. Four months later, the Kurtzes informed Erie by letter that there might exist “a possible underinsured motorist claim in light of Mr. [KurtzJ’s serious injuries and economic losses.” Erie eventually ac ¹⁴⁶ knowledged receipt of this letter and, by return letter, requested that the Kurtzes inform Erie of the status of their underlying claim against Allstate.

In January 2001, the Kurtzes, by counsel, sent a letter to Erie confirming a conversation that counsel had with a claim adjuster for Erie. The letter includes a reference to Erie’s having orally waived its rights to subrogation, and allowing the Kurtzes to sign a general release “in the event we are able to settle with Allstate Insurance Company.” The letter also explained the extent of Mr. Kurtz’s injuries and made a demand, “without prejudice,” of $100,000.00. The Kurtzes thereafter negotiated a settlement with Allstate. Allstate agreed to pay the Kurtzes $23,500.00 in exchange for a release of all liability against the alleged tortfeasors (Laurie and Edgar Lewis and Edgar Leroy Lewis, Jr.).

The Kurtzes sent photocopies of the signed release and of the $23,500.00 check to Erie. Four months later, Erie declined by letter to pay the Kurtzes UM benefits, explaining that it did “not feel the value of [Mr. Kurtz’s] case exceeds the limit of $25,000.00, which is the policy limit coverage with the underlying carrier, Allstate Insurance Company.” This led the Kurtzes to file a two-count complaint in the Circuit Court for Harford County, alleging that Erie had breached the UM coverage provision of its policy (Count I), and that Erie interfered with the Kurtzes’ marital relationship (Count II). They sought $125,000.00 in damages. Erie answered, setting forth several affirmative defenses.

Erie also filed a motion for summary judgment, arguing that the Kurtzes were not entitled to UM benefits because the Allstate policy had not been exhausted by payment of its limits, and Erie did not give written consent to the Kurtzes to settle their claim against Allstate. The Kurtzes filed an opposition and the matter came on for a hearing. Following the hearing, the court issued an opinion and order granting summary judgment in favor of Erie. 1 The ¹⁴⁷ court concluded that “Erie Insurance Company[ ] has no obligation to pay the [Kurtzes] under either the terms of the policy of insurance issued to [them] or under the law of the [S]tate of Maryland because the [Kurtzes] failed to live up to the terms of the policy by not exhausting all other insurance coverage.” The court did not rule on the effect, if any, of the Kurtzes’ decision to settle with Allstate without receiving written consent from Erie. This appeal followed.

DISCUSSION I. Because this case is before us by way of a grant of summary judgment, we review the judgment de novo. Tyma v. Montgomery County, 369 Md. 497, 504 , 801 A.2d 148 (2002). Summary judgment is only appropriate when, upon review of the facts and inferences therefrom in the light most favorable to the non-moving party, there is no genuine issue of material fact and the party in whose favor judgment is entered is entitled to judgment as a matter of law. Md. Rule 2-501(e); Sadler v. Dimensions Healthcare Corp., 378 Md. 509, 515 , 836 A.2d 655 (2003).

Inasmuch as there is no dispute of material fact, the only issue is whether the court was legally correct in deciding that the Kurtzes were not entitled to UM benefits under the Erie policy.

II

Since 1973, Maryland “has required every motor vehicle insurance carrier to offer certain minimum uninsured motorist coverage in every motor vehicle insurance policy issued” in this State. Waters v. United States Fidelity & Guar. Co., 328 Md. 700, 710 , 616 A.2d 884 (1992). Found at § 19-501 et seq. of the Insurance Article, the legislative scheme has the pur ¹⁴⁸ pose of “ ‘assuring] financial compensation to the innocent victims of motor vehicle accidents who are unable to recover from financially irresponsible uninsured motorists.’ ” Crespo v. Topi 154 Md.App. 391, 394 , 840 A.2d 156 (2003) (citation omitted).

The legislative scheme, however, also authorizes UM carriers to impose certain exclusions, conditions, and limits on the required UM coverage. Lewis v. Allstate Ins. Co., 368 Md. 44, 48-49 , 792 A.2d 272 (2002). One such authorized limit on UM coverage is set forth in § 19-509(g), which provides: Limit of insurer’s liability.—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.

In this case, Erie denied the Kurtzes’ claim for UM benefits by invoking the policy’s provision that addressed the limit of Erie’s UM liability. That provision declares, in part: When the accident involves underinsured motor vehicles, we will not pay until all other forms of insurance under all bodily injury and property damage liability bonds and insurance policies and self-insurance plans applicable at the time of the accident have been exhausted by payment of their limits. (Emphasis added.) Erie submits that this provision is consistent with § 19-509(g) and permitted Erie to deny the Kurtzes’ claim because they had not exhausted the tortfeasor’s liability policy. We agree with Erie that this provision essentially mirrors the language of § 19-509(g), and the Kurtzes do not argue to the contrary.

Neither do the Kurtzes suggest that the term “exhaust” has any different meaning in the policy than it does in the statute. ¹⁴⁹ The parties’ dispute focuses instead on the proper construction of the term “exhaust,” as it is employed in the statute (and therefore the policy). Erie asserts that the term should be given its ordinary dictionary meaning and, thus defined, required the Kurtzes to have been paid the $25,000.00 maximum coverage of the tortfeasor’s policy. Because they settled for $23,500.00, they failed to exhaust the policy limits. The Kurtzes urge a definition of exhaustion that is more favorable to them and is, in their view, more in keeping with the purpose of Maryland’s comprehensive scheme of regulating uninsured/underinsured motorist coverage.

They argue that exhaustion must be construed simply as a “threshold” to UM coverage, so that any payment received by the injured party on the underlying liability policy, even if less than its limits, would satisfy the exhaustion requirement. This construction would permit recovery under the injured party’s UM coverage, the Kurtzes argue, so long as a credit is given to the UM carrier for the difference between the amount received under the underlying liability policy and the limit of its coverage. Unfortunately for the Kurtzes, Erie has the better part of the argument. As we discuss below, giving the word “exhaust” its plain and ordinary meaning, and reading that word in the context in which it is employed in § 19-509(g), the statute unambiguously requires the injured party to be paid the full amount available under the tortfeasor’s liability policy.

This construction, moreover, is consistent with how exhaustion is understood in insurance parlance; is confirmed by resort to the legislative history of § 19—509(g); and conforms to the construction given the word “exhaust,” or other similar terms, in states having similar exhaustion statutes. Finally, our reading of § 19-509(g) does not conflict with the overarching purpose of Maryland’s scheme to provide UM coverage.

III

Our analysis calls for us to employ principles of statutory construction, the most fundamental of which is to ¹⁵⁰ ascertain and give effect to the legislative intention. Western Corr. Inst. v. Geiger, 371 Md. 125, 140 , 807 A.2d 32 (2002). The starting point is the language of the statute itself.

Id. at 141 , 807 A.2d 32 . “In fact, all statutory interpretation begins, and usually ends, with the statutory text itself, for the legislative intent of a statute primarily reveals itself through the statute’s very words.” Price v. State, 378 Md. 378, 387 , 835 A.2d 1221 (2003) (internal citations omitted). And we are cautioned not to “add [ ]or delete language so as to reflect an intent not evidenced in the plain and unambiguous language of the statute,” nor may we “construe the statute with forced or subtle interpretations that limit or extend its application.” Id. “[I]f the words of a statute clearly and unambiguously delineate the legislative intent, ours is an ephemeral enterprise. We need investigate no further but simply apply the statute as it reads.” Id. Neither the word “exhaust,” nor the statute in which it is used, is ambiguous. “Exhaust” is defined as “to use up the whole supply or store of: expend or consume entirely.” Webster’s Third New International Dictionary 796 (2002).

Giving the word exhaust its ordinary meaning and reading it in context, the intent of § 19-509(g) is plain: it requires that the insured must have been paid the entire amount of the tortfeasor’s liability policy to be entitled to additional benefits under the insured’s UM policy. Moreover, this construction of § 19-509(g) comports with how the concept of exhaustion is understood in insurance law. In insurance parlance, exhaustion contemplates the complete use of a primary liability policy before resort to any secondary or excess policy. As this Court has declared, “[wjithin the meaning of an excess policy, ‘exhaustion’ does not occur until the limits of underlying insurance have been met.” Mayor & City Council of Baltimore v. Utica Mut.

Ins. Co., 145 Md.App. 256, 314 , 802 A.2d 1070 , cert. granted, 371 Md. 613 , 810 A.2d 961 (2002), dismissed, 374 Md. 81 , 821 A.2d 369 (2003). We conclude that § 19-509(g) unambiguously states that, in order to be entitled to UM benefits, the insured must use up, ¹⁵¹ or consume entirely, the coverage provided by the tortfeasor’s liability policy; if the insured does not do so, § 19-509(g) authorizes the UM carrier to deny payment. Furthermore, as we discuss next, this construction of § 19-509(g) is confirmed by its legislative history.

See Mayor & City Council of Baltimore v. Chase, 360 Md. 121, 131 , 756 A.2d