Libby v. Government Employees Insurance

BLOOM, Judge. Appellee, Government Employees Insurance Company (GEICO), issued an automobile liability policy to appellant, Henry N. Libby, for a one year term beginning 1 February 1985. The policy was renewed for another one year term beginning 1 February 1986. It provided, inter alia, personal injury liability coverage of $500,000 per person and $1,000,000 per occurrence, but only $20,000/$40,000 uninsured motorist coverage. ⁷¹⁹ On 1 July 1986, appellant was a passenger in a car that was struck head-on by a motor vehicle which crossed the center line of the roadway to do so.

The tort-feasor apparently had no substantial assets other than an automobile liability insurance policy, and his carrier tendered the full amount of the policy limits, $100,000, in settlement of appellant’s claim against its insured. Contending that he had suffered losses, injuries, and damages in excess of $500,000, appellant brought an action against GEICO in the Circuit Court for Montgomery County, seeking a declaration that GEICO must provide him with uninsured motorist benefits, for the 1 July 1986 accident, up to the maximum available coverage of $500,000 per injured person. He also sought counsel fees and “such other further relief the court deems just and proper.” Following a non-jury trial, the court (Cave, J.) ruled in favor of GEICO, declaring that Mr. Libby is not entitled to have the contract of insurance reformed to provide uninsured motorist coverage equal to the liability coverage. This appeal is from that judgment.

Issues The parties do not agree on the issues that are presented on this appeal. As we see it, the questions before us are: 1. What duty is imposed upon a motor vehicle liability insurance carrier by Md. Code Ann., art. 48A, § 541(c)(2), to inform its insureds of the availability of underinsured motorist coverage? 2. Did GEICO breach that duty? 3.

If GEICO did breach that duty, is reformation of the insurance contract an appropriate remedy? Facts Appellant is a practicing attorney. His practice is confined to corporate and securities law; he has never been involved in any aspect of law dealing with negligence or insurance matters. Prior to 1 February 1985, appellant ⁷²⁰ carried automobile insurance with The Home Insurance Company.

Faced with steadily increasing insurance rates, he began to explore the possibility of obtaining comparable coverage for less cost through another carrier. In January 1985, he telephoned GEICO’s office and spoke to a Ms. Waters, who answered his questions concerning available coverage and premium rates. Satisfied that GEICO would provide the same coverage he had under the Home Insurance Company policy at considerably less cost, Mr. Libby chose to insure with GEICO. Being concerned that if he relied upon the mail to complete the transaction begun by telephone there might be a hiatus in his coverage, appellant went to GEICO’s office, met with a sales representative, filled out an application, and received a binder.

By so doing, appellant did not receive all the written information he would ordinarily have received either in the mail, if he had completed his transaction through Ms. Waters, or from the sales representative, if he had begun the transaction at GEICO’s office. Of importance to this case is the fact that Mr. Libby did not receive information, at the time he became one of GEICO’s insureds, that he could have obtained uninsured motorist coverage in a greater amount than the $20,000/$40,000 coverage GEICO included in the policy, not to exceed the $500,000/$l,000,000 personal injury liability coverage afforded by the policy. Appellant contended that he was actually misled by GEICO’s agent, Ms. Waters; he testified he specifically asked her what was the maximum amount of uninsured motorist coverage he could get and was told $20,000 for injury to one person and $40,000 for all persons injured in a single occurrence. The court, however, found that Mr. Libby was mistaken in that regard; that it was GEICO’s policy to inform prospective policyholders that they are entitled to have uninsured motorist coverage up to the maximum of their liability coverage; and that it was by reason of a misunderstanding or lack of communication, rather than any intentional or negligent misrepresentation, that appellant was not informed of the availability of the additional coverage.

The court also ⁷²¹ expressly found that if Mr. Libby had fully understood his right to obtain the additional coverage he would have paid the extra premium and obtained $500,000/$l,000,000 uninsured motorist coverage. In the fall of 1985, about 90 days prior to the expiration of the initial term of the policy, GEICO sent appellant a renewal solicitation package that contained, in addition to a questionnaire, a quantity of promotional material, i.e., information as to various kinds of insurance offered by GEICO. Included among that material was a form advising policyholders of the availability of uninsured motorist coverage in excess of the statutory minimum, up to the liability limits of the policy. The court expressly found that neither appellant nor his wife read any of the promotional or advertising material in the package and thus made no conscious decision not to avail themselves of the opportunity to increase the amount of the uninsured motorist coverage.

The court reiterated its finding that appellant would have purchased the additional coverage if he had known it was available. I Maryland Code Ann., art. 48A, § 541(c)(2), provides that every policy of motor vehicle liability insurance issued, sold, or delivered in this state shall contain coverage, in at least the amounts required under Title 17 of the Transportation Article of the Annotated Code of Maryland, 1 for damages which the insured is entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injuries sustained in an accident arising out of the ownership, maintenance, or use of that vehicle. At present, the statute further provides: There shall be available to the insured the opportunity to contract for higher amounts than those provided under ⁷²² Title 17 of the Transportation Article if those amounts do not exceed the amounts of the motor vehicle liability coverage provided by the policy. 2 The initial question that is presented by the facts of this case is what obligation does the statute impose on the insurer? Clearly, an insurer that told its policyholders that the maximum coverage obtainable was the required minimum of $20,000/$40,000 would (1) be guilty of a fraudulent or at least negligent misrepresentation and (2) would not be complying with the statutory mandate that there be available to the insured an opportunity to contract for a higher amount than the required minimum.

That situation, however, is not the case here. Judge Cave found as a fact that GEICO did not make an intentional or negligent misrepresentation. But is it enough to refrain from misrepresenting the fact of availability? Is there an affirmative obligation on the part of an insurance carrier to inform its policyholders that additional coverage is available?

It is certainly arguable that an insured who is not informed and does not know that additional coverage may be obtained does not have available to him the opportunity to contract for higher coverage. Appellant contends that the statute imposes on the insurance carrier an affirmative duty to give its insureds notice of the availability of higher coverage and, what is more, to do so in what he refers to as a “commercially reasonable manner.” In support of that contention, appellant refers us to cases from other jurisdictions, in which somewhat similar uninsured motorist insurance statutes were held to impose an obligation on insurance companies to notify their insureds of their right to obtain uninsured or underinsured motorist coverage up to the limits of their liability coverage. Appellant’s contention that an insurer is required to give notice of the availability of underinsured motorist coverage ⁷²³ in a “commercially reasonable manner” appears to be based on language employed by the Supreme Court of Minnesota in Jacobson v. Illinois Farmers Ins. Co., Minn., 264 N.W.2d 804 (1978), and later in Hastings v. United Pacific Ins.

Co., Minn., 318 N.W.2d 849 (1982). Jacobson involved a statute (Minn.Stat.1971, §§ 65B.25 and 65B.26(d)) which provided that effective January 1, 1972, no automobile liability policy could be renewed, issued or delivered in Minnesota unless underinsured motorist coverage up to the limits of the policy were “made available” to the insured. The Court construed the statute as imposing upon the insurance company an affirmative obligation to make the coverage available, i.e., to offer the coverage. It then held that the insurance company, by enclosing in its semi-annual premium notices a “stuffer” which explained the coverage and included an application form, had employed a “commercially reasonable” method of notifying the insured of the availability of the coverage.

The Minnesota statute was amended in 1977. The amended version (Minn.Stat. § 65B.49, subd. 6(e) (1977 Supp.) (Repealed 1980)), employing language far more positive than “make available,” provided that insurers “shall offer,” as an optional coverage, underinsured motorist coverage in an amount at least equal to the insured’s residual liability limits and also at lower limits. The Court in Hastings held the “offer” must contain sufficient information to enable the insured to make an intelligent choice and that notice of the option must be given the insured in a commercially reasonable manner. A letter that merely informed the insured that optional underinsured motorist coverage may be purchased, without explaining what underinsured motorist insurance means and without indicating that substantial protection could be obtained for only a small additional charge failed to meet the statutory obligation to “offer” the coverage.

The remedy afforded by the lower court, reformation of the policy, was affirmed. Tucker v. Country Mutual Ins. Co., 125 Ill.App.3d 329 , 80 Ill.Dec. 610 465 N.E.2d 956 (Ill.App. 4 Dist.1984), in ⁷²⁴ volved an Illinois statute (§ 143-1 of the Illinois Insurance Code ( 1979 Ill. Laws 4771 )) which provided that no motor vehicle liability insurance policy could be renewed or delivered or issued in Illinois unless underinsured motorist coverage is offered in an amount equal to the insured’s uninsured motorist coverage limits.

The Court adopted the same four-part test of compliance with that statute that the Supreme Court of Minnesota had applied to the similar Minnesota statute in Hastings : (1) if the offer is made in other than face to face