Maryland Automobile Insurance Fund v. Baxter

SALMON, Judge. The main question presented in this appeal is whether Maryland law requires an automobile insurer to provide uninsured motorist coverage to an uninsured stranger/pedestrian who is struck by an automobile driven by a person excluded under the insurer’s policy. We shall answer that question in the negative, as did the Circuit Court for Baltimore City. I. On January 21, 2007, Teresa Ann Palugi owned a 1998 Jeep Grand Cherokee that she insured with Interstate Automobile ¹⁵⁰ Insurance Company (“Interstate”). ' When Mrs. Palugi applied for insurance, Interstate discovered that William Palugi, her husband, did not have a valid driver’s license.

Because Interstate’s underwriting rules do not allow it to insure someone without a valid driver’s license, Mrs. Palugi agreed to exclude her husband as an insured. Accordingly, the Interstate policy was issued with a “named driver’s exclusion” that listed William Palugi as an excluded driver. Interstate’s policy read, in pertinent part, as follows: When a motor vehicle covered under the policy is operated by an excluded operator or user, ALL COVERAGE provided by the [Interstate] policy is EXCLUDED for the following: 1. The excluded operator or user; 2.

The vehicle owner(s); 3. Family members residing in the household of the vehicle owner(s); and 4. Any other person, except for Personal Injury Protection benefits and Uninsured Motorist coverage if such insurance is not available to that other person under another motor vehicle policy. This exclusion applies whether or not the operation of the motor vehicle by the named excluded operator or user was with the express or implied permission of an insured person.

(Emphasis added.) On January 21, 2007, Stephanie Scott was struck and killed by the 1998 Jeep Grand Cherokee owned by Mrs. Palugi. At the time of the accident, the Jeep was being driven by William Palugi, the excluded driver. Ms. Scott did not know the Palugis prior to the accident. Her only contact with the Palugis was that she was struck by a vehicle owned by Mrs. Palugi and driven by William Palugi.

On January 11, 2008, Conchita Baxter, as personal representative of Ms. Scott’s estate, and Shirley Goldsborough, Ms. Scott’s mother, filed a complaint in the Circuit Court for ¹⁵¹ Baltimore City asking the court to decide whether they were entitled to coverage for the January 21, 2007 accident under the policy issued by Interstate, or whether they were entitled to recovery from the Maryland Automobile Insurance Fund. According to the complaint, the death of Ms. Scott was solely caused by the negligence of William Palugi. The Maryland Automobile Insurance Fund (MAIF) was named as a defendant because the uninsured division of MAIF is required to investigate, pay, and otherwise administer claims by Maryland residents who are involved in motor vehicle accidents with uninsured motorists and who have no other source of recovery. The type of claims that can be made against the uninsured division of MAIF are ones that arise when an accident is caused by an unidentified motorist, a disappearing motorist, or a known uninsured motorist.

Both MAIF and Interstate filed motions for summary judgment. The circuit court granted Interstate’s motion and denied the motion filed by MAIF. In a memorandum and order, the circuit court declared the rights of the parties as follows: The plaintiffs’ decedent was not an insured under [Interstate’s] policy and nothing in the policy or the statutes relied upon by MAIF entitled plaintiffs to recover under the UM coverage of that policy. See, Erie v. Ins.

Exchange v. Reliance Ins. Co. [Erie Ins. Exchange v. Reliance Ins. Co.], 63 Md.App. 612 , 493 A.2d 405 (1985).

The fact that the deceased was in contact with the insured automobile at the time of collision does not qualify her as a person “occupying” the automobile. MAIF relies upon the language in the exclusions and exceptions to exclusions in the policy and the statutes. To be excluded one must first be included, in this case as an insured. One can not become an insured under [a] policy or statutory language which provides for exclusions from coverage or exceptions to exclusions.

See e.g. American Home Assurance v. Osbourn, 47 Md.App. 73 at 82 , 422 A.2d 8 (1981)[1980], ¹⁵² Ms. Baxter, 1 along with MAIF, filed a timely appeal to this Court.

II

In its opening brief, MAIF did not contend that coverage was provided to the plaintiffs under the terms of Interstate’s policy. Instead, it contended only that the terms of Interstate’s policy conflicted with provisions of the Maryland Uninsured Motorist Statute as codified in the Insurance Article of the Maryland Code Ann. (2006 Repl.Vol., 2008 Supp.). 2 Ms. Baxter makes a similar contention but she also argues, in the alternative, that the Interstate policy, as written, did provide coverage to Ms. Scott. • In its reply brief, MAIF asserted for the first time that the insurance policy issued by Interstate did provide coverage, albeit for a different reason than that advanced by Ms. Baxter.

III

MAIF’s Claim That Interstate’s Policy, as Written, Provided Coverage to Ms. Scott or Persons Claiming Through Her. Before setting forth the pertinent parts of Interstate’s policy, it is important to bear in mind that uninsured motorist coverage is first-party coverage, i.e., a promise by an insurer “to pay its own insured, rather than a promise to pay some third party.” Bausch & Lomb, Inc. v. Utica Mutual Ins. Co., 355 Md. 566, 583 , 735 A.2d 1081 (1999) (quoting Reese v. State Farm Mutual Auto. Ins. 285 Md. 548, 552 , 403 A.2d ¹⁵³ 1229 (1979)).

To make a successful uninsured motorist (“UM”) claim, the plaintiff must prove either: 1) that he or she was insured under the terms of the policy issued by the defendant’s insurance company or 2) that if the insurance policy written by the defendant insurer had provided the coverage required by section 19-509 of the Insurance Article, he or she would have been insured. See Blue Bird Cab Co., Inc., v. Amalgamated Casualty Insurance Co., 109 Md.App. 378, 388 , 675 A.2d 122 (1996) (citing Jennings v. GEICO, 302 Md. 352, 356 , 488 A.2d 166 (1985)). The UM coverage provided by Interstate’s policy was set forth in part C, which read in pertinent part: INSURING AGREEMENT “We” will pay compensatory damages which an “insured” is legally entitled to recover from the owner or operator of an “uninsured motor vehicle” because of: 1. “Bodily injury” sustained by an “insured” and caused by an accident: and 2. “Property damage” caused by an accident.... The owner’s or operator’s liability for these damages must arise out of the ownership, maintenance or use of the “uninsured motor vehicle.” The following definitions apply to part C: “Insured” means: 1. “You” or any “family member”; 2.

Any other person “occupying” “your covered auto”; or 3. Any person for damages that person is entitled to recover because of “bodily injury” to which this coverage applies sustained by a person described in 1. or 2. above. In insurance parlance, the three categories of insured just mentioned are often called Clause 1, 2 and 3 insured. See ¹⁵⁴ Mundey v. Erie Insurance Group, 396 Md. 656, 667-68 , 914 A.2d 1167 (2007).

Mrs. Palugi was the named insured in Interstate’s policy. Ms. Scott was clearly not a Clause 1 insured. She was not “You,” which is defined in the policy as meaning the named insured and the named insured’s spouse. Moreover, Ms. Scott was not a “family member,” which the policy defines as a person related by blood, marriage or adoption to the named insured or the named insured’s spouse.

In their opening briefs, neither Ms. Baxter nor MAIF contended that Ms. Scott was a Clause 1, Clause 2, or Clause 3 insured. More specifically, neither Ms. Baxter nor MAIF contended that Ms. Scott was “occupying” the Jeep at the time the accident occurred. The policy defines “occupying” as “in or upon or entering into or alighting from.” In its reply brief, however, MAIF contends that Ms. Scott was “occupying” the Jeep that struck her. It devotes only two sentences in support of that argument, saying: “Ms. Scott was crossing Greenmount Ave when she was struck by one of the vehicles listed in the policy.

Since she was struck by the vehicle, she certainly was upon the vehicle at the time of the accident.” Ordinarily, we will consider as waived any issue not raised by an appellant in its opening brief. See Oak Crest Village, Inc. v. Murphy, 379 Md. 229, 241-42 , 841 A.2d 816 (2004) (“An appellant is required to articulate and adequately argue all issues the appellant desires the appellate court to consider in the appellant’s initial brief. It is impermissible to hold back the main force of an argument to a reply brief and thereby diminish the opportunity of the appellee to respond to it.”). But even if MAIF had made its “occupying” argument in its initial brief, the argument would not succeed.

See generally, R.P. Davis, Annotation, Scope of Clause of Insurance Policy covering injuries sustained while “in or on” or “in or upon” motor vehicle, 39 A.L.R.2d 952 § 4 (1955). ¹⁵⁵ Although there are numerous cases in this country dealing with the meaning of the word “upon” in the context of a policy defining “occupying” in a manner similar to the definition set forth in Interstate’s policy, MAIF cites no case (nor have we found one) from any jurisdiction supporting its contention that a pedestrian, who had no prior connection with the insured vehicle, was nevertheless “occupying” that vehicle simply because he or she was struck by it. In Utica Mutual Insurance Co., v. Contrisciane, 504 Pa. 328 , 473 A.2d 1005, 1008-09 (1984), the court said: Among those jurisdictions which have resolved the issue, there seems to be two basic approaches to interpreting the definition of “occupying”. The first is the strict literal approach whereby a person cannot be “occupying” a vehicle unless he, or part of him is inside or in physical contact with the vehicle. See Testone v. Allstate Insurance Co., 165 Conn. 126 , 328 A.2d 686 (1973); Jarvis v. Pennsylvania Threshermen and Farmers’ Mutual Casualty Insurance Co., 244 N.C. 691 , 94 S.E.2d 843 (1956); Green v. Farm Bureau Mutual Auto.

Insurance Co., 139 W.Va. 475 , 80 S.E.2d 424 (1954). See also Greer v. Kenilworth Insurance Co., 60 Ill.App.3d 22 , 17 Ill.Dec. 347 , 376 N.E.2d 346 (1978). The second approach, focuses upon whether the person claiming benefits was performing an act (or acts) which is (are) normally associated with the immediate “use” of the auto. See Nickerson v. Citizens Mutual Insurance Co., 393 Mich. 324 , 224 N.W.2d 896 (1975); Hathcox v. Liberty Mutual Insurance Co., 90 Mich.App. 511 , 282 N.W.2d 374 (1979); Sayers v. Safeco, 192 Mont. 336 , 628 P.2d 659 (1981); Rau v. Liberty Mutual Insurance Co., 21 Wash.App. 326 , 585 P.2d 157 (1978); Sentry Insurance Co. v. Providence Washington Insurance Co., 91 Wis.2d 457 , 283 N.W.2d 455 (1979); Robson v. Lightning Rod Mutual Insurance Co., 59 Ohio App.2d 261 , 393 N.E.2d 1053 (1978).

We believe that the second approach represents the better view, for it is most consistent with the Uninsured Motorist Act, which we have held was intended to protect those “persons who while lawfully using the highways themselves ¹⁵⁶ suffer grave injuries through the negligent use of those highways by others.” (Emphasis omitted). Pattani v. Keystone Insurance Co., 426 Pa. 332, 338 , 231 A.2d 402, 404 (1967), quoting Katz v. American Motorist Insurance Co., 244 Cal.App.2d 886 , 53 Cal.Rptr. 669 (1966). In light of this purpose we believe a liberal interpretation of the term “occupying” is required and we cannot accept the narrow and restrictive interpretation which has been urged upon us by appellant. Although not cited by the Utica Mutual Court, it is clear that Maryland is among the jurisdictions that utilize the approach that focuses upon whether, at the time of the accident, the claimant was performing an act or acts normally associated with the immediate use of the automobile.

See Goodwin v. Lumbermens Mutual Casualty Co., 199 Md. 121 , 85 A.2d 759 (1952). The issue in Goodwin was whether the plaintiffs were “upon” the insured vehicle when it was struck. One of the claimants in Goodwin asserted that she was “upon” the vehicle even though she was a pedestrian who was not touching the insured vehicle at the time of the accident. The court allowed the pedestrian [and other claimants who were with her] to recover based on two factors, viz: the women were in close proximity to the vehicle at the time of the collision, and they were persons who intended to use the vehicle as a passenger or driver. 199 Md. at 133 , 85 A.2d 759 .

See also Rednour v. Hastings Mutual Insurance Co., 468 Mich. 241 , 661 N.W.2d 562, 566-67 (2003) (rejecting an interpretation of the word “upon” that “will provide (and require payment for) supplemental coverage in the form of uninsured motorists benefits for anyone who happened to be near the covered automobile and injured when the auto is struck by an uninsured motorist even though the person has no connection with the owner, named insured, or covered vehicle.”). We hold that a pedestrian who has had no connection with the insured vehicle, except for the fact that he or she was struck by it, was not “upon” the vehicle and thus was not “occupying” it as that latter term is used in Clause 2 of Interstate’s policy. ¹⁵⁷ IV. Under The Insurance Code, Who Must Be Afforded UM Coverage? Much of the language used in the excluded driver’s endorsement found in the Interstate policy and quoted, supra, is taken almost verbatim from section 27-609(c)(4) of the Insurance Article.

Section 27-609 reads, in material part, as follows: 27-609. Exclusion of named driver (a) Cancellation, nonrenewal, or premium increase.— (l)(i) This paragraph applies to a private passenger motor vehicle liability insurance policy issued in the State under which more than one individual is insured. (ii) If an insurer is authorized under this article to cancel, nonrenew, or increase the premiums on a policy of private passenger motor vehicle liability insurance subject to this paragraph because of the claim experience or driving record of one or more but less than all of the individuals insured under the policy, the insurer, instead of cancellation, nonrenewal, or premium increase, shall offer to continue or renew the insurance, but to exclude all coverage when a motor vehicle is operated by the specifically named excluded individual or individuals whose claim experience or driving record could have justified the cancellation, nonrenewal, or premium increase. (c) Policy endorsements.-—A policy described in subsection (a) or (b) of this section may be endorsed to exclude specifically all coverage for any of the following when the named excluded driver is operating a motor vehicle covered under the policy whether or not that operation or use was with the express or implied permission of an individual insured under the policy: (1) the excluded operator or user; (2) the vehicle owner; ¹⁵⁸ (3) family members residing in the household of the excluded operator or user or vehicle owner; and (4) any other person, except for the coverage required by §§ 19-505 [dealing with Personal Injury Protection] and 19-509 of this article if that coverage is not available under another motor vehicle policy.

(Emphasis added.) The aforegoing statutory provision, as applied to this case, means that an exclusion is invalid to the extent that it attempts to exclude certain persons from collecting the UM coverage required by section 19-509. We turn next to the question: What coverage is required by section 19-509? Section 19-509(c) specifies who must be provided with UM coverage in Maryland. That subsection reads: (c) Coverage required.-—In addition to any other coverage required by this subtitle, each motor vehicle liability insurance policy issued, sold, or delivered in the State after July 1, 1975, shall contain coverage for damages, subject to the policy limits, that: (1) the insured is entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injuries sustained in a motor vehicle accident arising out of the ownership, maintenance, or use of the uninsured motor vehicle; and (2) a surviving relative of the insured, who is described in § 3-904 of the Courts Article, is entitled to recover from the owner or operator of an uninsured motor vehicle because the insured died as the result of a motor vehicle accident arising out of the ownership, maintenance, or use of the uninsured motor vehicle.

(Emphasis added.) As can be seen, companies that write insurance policies in Maryland are required to provide UM coverage for damages, subject to policy limits, that either an insured or a surviving relative of an insured “is entitled to recover from the owner or ¹⁵⁹ operator of an uninsured motor vehicle because of bodily injuries sustained in a motor vehicle accident arising out of the ownership, maintenance, or use of the uninsured motor vehicle.” The critical words in section 19-509(c)(l) are “insured is entitled to recover.” The uninsured motorist statute does not define the word “insured,” but this is not uncommon. See Alan Widiss, Uninsured and Under Insured Motorist Coverage (Rev.2nd. Ed. 1999), section 2.8. As will be seen, however, Maryland precedent provides us with the meaning of the word “insured” as it is used in section 19-509(c).

The Court of Appeals interpreted section 19—509(c)(1) as requiring “each motor vehicle liability insurance policy to include coverage for that policy’s insured for bodily injury sustained by that policy’s insured, in a motor vehicle accident involving the use of an uninsured motor vehicle.” Johnson v. Nationwide Mutual Insurance Co., 388 Md. 82, 89 , 878 A.2d 615 (2005) (emphasis added); see also Mundey v. Erie Insurance Group, 396 Md. 656, 673 , 914 A.2d 1167 (2007) (citing Johnson, supra, for the proposition that in section 19-509(e)(1) use of the word “insured,” although not defined in the statute, had its ordinary meaning, i.e., “covered or coverage at the time of the accident.” 3 ). In other words, Maryland’s unin ¹⁶⁰ sured motor statute only requires that UM coverage be provided to persons that are insured under the policy, not third-parties like Ms. Scott. What the Court of Appeals said in Johnson and Mundey, both supra, was foreshadowed by this Court’s decision in Erie Insurance Exc. v. Reliance Ins. Co., 63 Md.App. 612 , 493 A.2d 405 (1985).

One of the issues presented in the Reliance case was the interpretation of section 541(c)(2) of Article 48A of the Maryland Annotated Code, which was the predecessor to what is currently codified as § 19-509(c)(1) of the Insurance Article. Id. at 617, 493 A.2d 405 . More specifically, we were called upon to interpret a statutory provision that read: “in addition to any other coverage required by this subtitle, every policy of motor vehicle liability insurance issued, sold, or delivered in this State ... shall contain coverage, in at least the amount required under , Title 17 of the Transportation Article, for ¹⁶¹ damages which the insured is entitled to recover from, the owner or operator of an uninsured vehicle because of bodily injuries sustained in an accident .... ” Id. at 617 , 493 A.2d 405 . Judge Alan Wilner, speaking for this Court, observed that the “most sensible meaning” of the term “insured” was that it meant the person or persons designated as an insured under the policy issued by the insurer.

Id. at 619 , 493 A.2d 405 . Because section 19-509(c) only requires uninsured motorist coverage to be