Nationwide Mut. Insurance v. Shilling

Nationwide Mutual Insurance Company v. Margaret Shilling, No. 38, September Term, 2019. Opinion by Getty, J. INSURANCE LAW–STATUTE OF LIMITATIONS–UNDERINSURED MOTORIST CLAIM The Court of Appeals held that the statute of limitations in an underinsured motorist claim—i.e., when the insured institutes a contract action against its own insurer to recover underinsured motorist benefits—begins to run when the insurer denies the insured’s demand for benefits, thereby breaching the insurance contract. Circuit Court for Anne Arundel County Case No. C-02-CV-16-002948 Argued: December 6, 2019 IN THE COURT OF APPEALS OF MARYLAND No. 38 September Term, 2019 ______________________________________ NATIONWIDE MUTUAL INSURANCE COMPANY v. MARGARET SHILLING ______________________________________ Barbera, C.J. McDonald, Watts, Hotten, Getty, Booth, Harrell, Glenn T., Jr. (Senior Judge, Specially Assigned), JJ. ______________________________________ Opinion by Getty, J. ______________________________________ Filed: April 20, 2020 Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic. 2020-09-09 11:41-04:00 Suzanne C. Johnson, Clerk Uninsured and underinsured motorist coverage is a statutorily required component of every motor vehicle liability insurance policy issued in Maryland. Md. Code (1957, 2017 Repl.

Vol., 2019 Supp.), Insurance (“IN”) §§ 19-509 to 19-511. This mandatory coverage protects insured drivers involved in motor vehicle accidents from paying out-of- pocket expenses when the liable party, a tortfeasor, is either completely uninsured or inadequately insured to cover the extent of the insured’s injuries. In this case, an underinsured tortfeasor extended to the insured a policy limits settlement offer of $20,000, which the latter accepted. The insured, in turn, attempted to collect additional underinsured motorist benefits from her own insurer, which covered up to $300,000 per person for bodily injury caused by an uninsured or underinsured motorist.

This case requires us to determine when the statute of limitations begins to run against the insured in an underinsured motorist claim against her insurer. The controlling statute of limitations provision, Md. Code (1957, 2013 Repl. Vol.), Courts and Judicial Proceedings (“CJ”) § 5-101, requires that “[a] civil action at law shall be filed within three years from the date it accrues.” In light of this Court’s prior jurisprudence interpreting the uninsured motorist statute and because an insured’s action against his or her own insurer sounds in contract—where principles of contract law dictate that a contract action accrues upon breach—we hold that the statute of limitations begins to run in an underinsured motorist claim when the insurer breaches the contract to provide underinsured motorist benefits by denying the insured’s claim. BACKGROUND Respondent Margaret Shilling (“Ms. Shilling”) was injured in an automobile accident on April 19, 2011.1 As Ms. Shilling was braking her vehicle because of slow traffic on Odenton Road in Anne Arundel County, she was hit from behind by a vehicle driven by Barbara Gates (“Ms. Gates”).

After the initial impact pushed her automobile forward, Ms. Shilling applied the brakes to stop but was hit again by Ms. Gates. Ms. Shilling’s injuries from the multiple-impact collision required medical treatment that continued from April 2011 to July 2014. Ms. Gates was an underinsured motorist. Her motor vehicle liability insurance policy with Agency Insurance Company of Maryland (“Agency”) provided up to $20,000 per person in bodily injury coverage.

Ms. Shilling was insured by the Petitioner, Nationwide Mutual Insurance Company (“Nationwide”), under a motor vehicle liability insurance policy that included uninsured and underinsured motorist coverage in the amount of $300,000 per person in bodily injury coverage. Settlement Negotiations with Agency Nearly two years after the accident, on April 4, 2013,2 Agency offered Ms. Shilling $20,000 to release all outstanding claims and causes of action against Ms. Gates resulting from the accident. Agency conditioned the offer on Nationwide’s willingness to waive its 1 The facts germane to this appeal are procedural in nature and thus the record contains only minimal facts about the accident and Ms. Shilling’s injuries. 2 The Court of Special Appeals opinion below indicates that this date is April 14; however, the offer letter from Agency to Ms. Shilling’s attorney is dated April 4, 2013. 2 subrogation rights and Ms. Shilling’s signed release of all claims. On April 23, 2013, Nationwide advised Ms. Shilling’s attorney that it would waive its subrogation rights against Ms. Gates.

Ms. Shilling’s attorney transmitted Nationwide’s waiver of subrogation to Agency on January 27, 2014. In the same email, Ms. Shilling’s attorney requested Agency’s draft release. Ms. Shilling executed Agency’s “Full Release of All Claims and Demands” (the “Release”) on February 3, 2014. Ms. Shilling’s attorney deposited the $20,000 settlement check into an escrow account on February 14, 2014.

Settlement Negotiations with Nationwide According to the parties, Ms. Shilling and Nationwide began settlement discussions after April 23, 2013.3 On January 26, 2015, Ms. Shilling sent Nationwide a formal demand letter stating her desire to recover underinsured motorist benefits under the Nationwide policy. Ms. Shilling enclosed a chronology of her medical care as a result of the accident and supporting medical records. Nationwide confirmed receipt of Ms. Shilling’s letter on February 2, 2015 and informed her that a review of the claim was pending. On February 6, 2015, Nationwide requested additional medical reports and records to aid in evaluating Ms. Shilling’s claim.

Thereafter, Nationwide contacted Ms. Shilling’s attorney on four separate occasions in 2015—February 11, March 18, April 13, and June 12—to check on the status of the outstanding documents Nationwide requested. Nationwide did not deny Ms. Shilling’s claim during these settlement negotiations. 3 The record does not reveal the extent or content of these settlement discussions. The only indication that negotiations were ongoing after this date is derived from the circuit court’s order dated July 28, 2017. 3 Proceedings in the Circuit Court for Anne Arundel County On September 23, 2016, Ms. Shilling filed suit against Nationwide in the Circuit Court for Anne Arundel County. Under Nationwide’s underinsured motorist coverage, Ms. Shilling sought the balance of unpaid damages not covered by Agency’s $20,000 settlement.

Nationwide filed a motion to dismiss, arguing that Ms. Shilling’s claim was time-barred because the three-year statute of limitations under CJ § 5-101 had expired. The circuit court held a hearing on February 7, 2017. At the hearing, the parties disagreed about the relevant event that triggers the statute of limitations. Nationwide averred that the statute of limitations should begin to run when the tortfeasor’s insurance policy is exhausted.

According to Nationwide, the date of exhaustion occurred in mid-April 2013 when Ms. Shilling accepted Agency’s settlement offer. Ms. Shilling countered that the statute of limitations “always begins to run on the date of denial,” i.e., when the insurer denies the insured’s claim for additional benefits. Under this theory, Ms. Shilling argued that the statute of limitations never began to run against her because Nationwide had not formally denied her claim for underinsured motorist benefits. The circuit court agreed with Nationwide, and by Memorandum Opinion and Order, granted Nationwide’s motion to dismiss on July 28, 2017, reasoning: On April 23, 2013[,] a contract was formed by the settlement agreement in this case.

Notwithstanding the fact that a demand letter was sent in January 2015 and that there were discussions between the parties taking place through June 2015, the statute of limitations on the breach of contract action began 4 running on the date of settlement with [Agency].[4] Thus, if [Ms. Shilling] believed there was a breach by [Nationwide, Ms. Shilling] needed to file suit by April 23, 2016. [Ms. Shilling] failed to do so. Ms. Shilling noted a timely appeal to the Court of Special Appeals on August 16, 2017 (Docket No. 1154, Sept. Term, 2017). While pending in the Court of Special Appeals, Ms. Shilling advised Nationwide that she did not execute Agency’s release until February 3, 2014, approximately ten months after Nationwide consented to Agency’s settlement offer, causing the parties to file a Joint Motion to Stay Appeal and Remand to the Circuit Court. The Court of Special Appeals granted the parties’ motion on January 29, 2018.

The intermediate appellate court remanded the case to the circuit court for the purpose of determining whether, in the context of [Ms. Shilling’s] underlying claim for breach of an underinsured motorist contract, the date of exhaustion of the tortfeasor’s policy is (1) the date the insurer consented to the settlement with the tortfeasor, (2) the date the insurer and tortfeasor signed the Release, or (3) the date the settlement check was deposited. On remand, the circuit court held another hearing to determine when the statute of limitations began to run. The circuit court considered three possible dates of exhaustion: (1) April 23, 2013—the date Nationwide consented to the settlement agreement with Agency; (2) February 3, 2014—the date Ms. Shilling executed the release; or (3) February 14, 2014—the date Ms. Shilling’s attorney deposited the settlement check. Nationwide maintained that the tortfeasor’s liability coverage is exhausted “when the underinsured carrier consents [to settlement.]” Ms. Shilling adapted her argument to address the question 4 In a later order dated April 30, 2018, discussed infra, the circuit court clarified that this sentence should have read “the statute of limitations for the breach of contract action began running on the date the insurer consented to settlement with [Agency].” 5 posed by the Court of Special Appeals.

At the remand hearing, Ms. Shilling argued that “exhaustion occurs when [a] settlement is reached between the tortfeasor and the [insured.]” The circuit court issued a second order on April 30, 2018, finding that “April [23], 2013 is the date of the exhaustion of [Ms. Gates’] policy in this case.”5 Therefore, the circuit court held that Ms. Shilling’s suit was time-barred. Ms. Shilling again noted a timely appeal to the Court of Special Appeals on May 14, 2018 (Docket No. 515, Sept. Term, 2018). Ms. Shilling also filed a Motion to Lift Stay and Consolidate Appeals, which the Court of Special Appeals granted on June 6, 2018. Proceedings in the Court of Special Appeals The Court of Special Appeals reversed the judgment of the circuit court in a reported opinion.

Shilling v. Nationwide Ins. Co., 241 Md. App. 261 (2019).6 Distilling the basic principles of Lane v. Nationwide Mutual Insurance Co., 321 Md. 165 (1990), and Pfeifer v. Phoenix Insurance Co., 189 Md. App. 675 (2010), the Court of Special Appeals held that Ms. Shilling’s suit was not time-barred because “the earliest date for commencing contract limitations is February 3, 2014, the date when Ms. Shilling, with Nationwide’s 5 This order indicates “April 13, 2013” as the date of exhaustion; however, the parties agree this is a typographical error that should read “April 23, 2013” when Nationwide consented to the settlement and waived subrogation. See Shilling v. Nationwide Ins. Co., 241 Md. App. 261 , 267 n.2 (2019). 6 While Ms. Shilling’s complaint identified Nationwide as “Nationwide Insurance Company,” we gather from Nationwide’s Motion to Dismiss in the circuit court and its filings in this Court, that it is properly referred to as “Nationwide Mutual Insurance Company.” 6 permission, accepted [Agency’s] offer of $20,000 and executed the Release in favor of [Ms. Gates].

That is the date when [Ms. Gates’] coverage was ‘exhausted’ pursuant to Pfeifer.” Id. at 274–75. The Court of Special Appeals reasoned that such a holding comported with this Court’s decision in Lane, because insureds have “the absolute statutory right to initially sue the tortfeasor in tort and thereafter sue the [underinsured motorist insurer] in contract.” Id. at 275 . Moreover, according to the court, setting the exhaustion date at Ms. Shilling’s execution of the release further accorded with Lane because “contract limitations are not triggered until the insured/injured party makes a demand for payment under the [underinsured motorist] policy.” Id. at 275–76. Therefore, the court concluded that “Nationwide’s consent to the proposed settlement and agreement to waive subrogation does not start the running of contract limitations.” Id. at 276 .

Nationwide timely petitioned this Court for writ of certiorari, which we granted on August 26, 2019. Nationwide Mut. Ins. Co. v. Shilling, 465 Md. 665 (2019).

Nationwide presents a single question for this Court’s review,7 which we have rephrased as follows: When does the statute of limitations begin to run in an insured’s action against his or her own insurer to recover underinsured motorist benefits? 7 Nationwide’s petition for writ of certiorari presented the question as follows: (1) Did the Court of Special Appeals err in holding that the statute of limitations for an underinsured motorist claim starts to run on the date a plaintiff executes a release with the tortfeasor’s insurance carrier, thereby allowing a plaintiff to unilaterally determine when the statute of limitations runs, prejudicing defendants? 7 For the reasons that follow, we hold that the statute of limitations in an underinsured motorist claim begins to run when the insurer denies an insured’s demand for benefits, thereby breaching the insurance contract. As it pertains to Ms. Shilling, the record before us does not reveal a definitive date on which Nationwide denied her claim for benefits; however, the underinsured motorist claim is not time-barred because Nationwide did not deny the claim more than three years prior to her instituting the lawsuit on September 23, 2016. Accordingly, while we affirm the judgment of the Court of Special Appeals, we do so on different grounds. DISCUSSION Uninsured and underinsured motorist coverage is a form of first-party coverage that enables an insured to recover damages even if “the at-fault tortfeasor has no liability insurance or insufficient insurance funds.” TravCo Ins.

Co. v. Williams, 430 Md. 396, 403 (2013) (citing Reese v. State Farm Mut. Auto. Ins. Co., 285 Md. 548, 552 (1979)).

IN § 19- 509 refers only to “uninsured” motorists and motor vehicles; however, the legislature has defined,8 and we have noted, that an uninsured motorist or motor vehicle is, for all intents 8 IN § 19-509 defines an uninsured motor vehicle as one that (1) the ownership, maintenance, or use of which has resulted in the bodily injury or death of an insured; and (2) for which the sum of the limits of liability under all valid and collectible liability insurance policies, bonds, and securities applicable to bodily injury or death: (i) is less than the amount of coverage provided under [IN § 19-509]; or 8 and purposes, the same as an underinsured motorist or motor vehicle. Connors v. Gov’t Emps. Ins. Co., 442 Md. 466 , 474 n.4 (2015) (emphasis added).

While these terms connote different factual scenarios, they are interchangeable: “Uninsured motorist” coverage describes when an insured is involved in an accident with a motorist who does not carry any liability insurance coverage whatsoever. “Underinsured motorist” coverage describes when an insured is involved in an accident with a motorist who carries liability insurance, but whose insurance coverage is less than the insured’s underinsured motorist coverage. Id. We think it prudent to briefly explain the nature of Ms. Shilling’s suit. When an insured is involved in an automobile accident with an uninsured or underinsured motorist, the insured can pursue two separate and distinct actions.

The insured can initiate (1) a tort action against the uninsured or underinsured motorist; or (2) a contract action against his or her own insurer for uninsured or underinsured motorist benefits; or (3) both. The insured’s action against his or her own insurer—an “uninsured or underinsured motorist claim”—is at issue in this case. Because Ms. Shilling’s damages exceeded Ms. Gates’ liability coverage of $20,000, we tailor our language in the following analysis to Ms. Shilling’s underinsured motorist claim. (ii) has been reduced by payment to other persons of claims arising from the same occurrence to an amount less than the amount of coverage provided under [IN § 19-509].

IN § 19-509(a). 9 A. Maryland’s Uninsured Motorist Statute. The General Assembly first enacted Maryland’s uninsured motorist statute in 1972. Woznicki v. GEICO Gen. Ins.

Co., 443 Md. 93, 109 (2015); 1972 Md. Laws, ch. 73. As originally enacted, the statute provided in pertinent part: [E]very policy of motor vehicle liability insurance issued, sold, or delivered in this State . . . MAY contain coverage . . . 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 such uninsured motor vehicle. Woznicki, 443 Md. at 109 (citing State Farm Mut.

Auto. Ins. Co. v. DeHaan, 393 Md. 163 , 171–72 (2006)) (capitalization in original); 1972 Md. Laws, ch. 73. Since the uninsured motorist statute’s original enactment, the General Assembly has enacted subsequent legislation to broaden its scope.

In 1975, the General Assembly removed the term “may” and replaced it with “shall,” to make uninsured motorist coverage mandatory for all motor vehicle liability insurance policies issued, sold, or delivered in Maryland. Woznicki, 443 Md. at 109 ; 1975 Md. Laws, ch. 562. Notably, the General Assembly defined uninsured motor vehicles to encompass underinsured motor vehicles in 1981. Woznicki, 443 Md. at 109 ; 1981 Md. Laws, ch. 510.

The General Assembly revised the statute in 1983 to exempt certain vehicles, which did not travel on highways, from the requirement of obtaining uninsured motorist coverage. 1983 Md. Laws, ch. 656. In the 1983 revisions, the General Assembly also permitted excess coverage insurers to provide uninsured motorist coverage. Woznicki, 443 Md. at 109–10; 1983 Md. Laws, ch. 656. In 1989, the General Assembly further revised the statute to require motor vehicle liability insurers to offer, in writing, the ability to contract for 10 higher amounts of uninsured motorist coverage than those required by statute.

Woznicki, 443 Md. at 110 ; 1989 Md. Laws, ch. 542. Legislation in 1992 required insurers to provide uninsured motorist coverage equal to the amount of liability coverage afforded under the policy, unless waived by the insured. Woznicki, 443 Md. at 110 ; 1992 Md. Laws, ch. 641. In 1995, the General Assembly expanded the definition of uninsured motor vehicles to its present state, noted supra at 8 n.8.

Woznicki, 443 Md. at 110 ; 1992 Md. Laws, ch. 515. As part of Maryland’s code revision,9 the General Assembly recodified the Insurance Article into three separate volumes between 1995 and 1997.10 The uninsured motorist statute, formerly Article 48A, § 541, became recodified at IN §§ 19-509 to 19- 511. 1996 Md. Laws, ch. 11. The first post-recodification substantive revision occurred in 2012 when the General Assembly made clear that the insurer’s written consent for the insured to accept a tortfeasor’s settlement offer did not (1) limit the insurer’s ability to litigate liability or damages in the insured’s subsequent contract action or (2) constitute an admission against the insurer to any issue raised in the insured’s subsequent contract action. 9 “[C]ode revision is a periodic process by which statutory law is re-organized and restated with the goal of making it more accessible and understandable to those who must abide by it.” Johnson v. State, ___ Md. ___, ___ n.8 (2020) (quoting In re S.K., 466 Md. 31 , 56 n.21 (2019)). “Maryland Code Revision began in 1970 as a long-term project to create a modern comprehensive code when Governor Marvin Mandel appointed the Commission to Revise the Annotated Code. This formal revision of the statutory law for the General Assembly was coordinated by the Department of Legislative Services.

Code Revision was completed in 2016 with the enactment by the General Assembly of the Alcoholic Beverages Article.” Id. 10 1995 Md. Laws, ch. 36; 1996 Md. Laws, ch. 11; 1997 Md. Laws, ch. 35. 11 2012 Md. Laws, ch. 269. Most recently, the General Assembly revised the statute to enable insureds to purchase enhanced uninsured motorist coverage.11 2017 Md. Laws, ch. 815. This Court has previously explained that “[t]he purpose of the uninsured motorist statute is to provide minimum protection for individuals injured by uninsured motorists.” Woznicki, 443 Md. at 110 (quoting Erie Ins. Exch. v. Heffernan, 399 Md. 598, 612 (2007)).

The “statute creates a floor to liability not a ceiling.” Id. (quoting Heffernan, 399 Md. at 612 ); see also Nationwide Mut. Ins. Co. v. Webb, 291 Md. 721, 737 (1981) (“[T]he purpose of uninsured motorist statutes is ‘that each insured under such coverage have available the full statutory minimum to exactly the same extent as would have been available had the tortfeasor complied with the minimum requirements of the [statute].’” (citation omitted)).

Moreover, the uninsured motorist statute is remedial in nature. DeHaan, 393 Md. at 176 . As such, it “dictates a liberal construction in order to effectuate its purpose of assuring recovery for innocent victims of motor vehicle accidents.” Id. (quoting State Farm Mut.

Auto. Ins. Co. v. Md. Auto. Ins.

Fund, 277 Md. 602, 605 (1976)); see also Pa. Nat’l. Mut. Cas.

Ins. Co. v. Gartelman, 288 Md. 151, 159 (1980) (“Maryland’s uninsured motorist statute is remedial in nature and should be liberally construed in order to promote its purpose of recovery for innocent victims of motor vehicle accidents.”). This case implicates the settlement procedures in the uninsured motorist statute established in IN § 19-511.12 If an insured (1) receives a written settlement offer from a 11 2017 Md. Laws, ch. 815 applies only to policies issued “on or after July 1, 2018.” 12 IN § 19-511 provides, in pertinent part: 12 (b) If an injured person receives a written offer from a motor vehicle insurance liability insurer or that insurer’s authorized agent to settle a claim for bodily injury or death, and the amount of the settlement offer, in combination with any other settlements arising out of the same occurrence, would exhaust the bodily injury or death limits of the applicable liability insurance policies, bonds, and securities, the injured person shall send by certified mail, to any insurer that provides uninsured motorist coverage for the bodily injury or death, a copy of the liability insurer’s written settlement offer. (c) Within 60 days after receipt of the notice required under subsection (b) of this section, the uninsured motorist insurer shall send to the injured person: (1) written consent to acceptance of the settlement offer and to the execution of releases; or (2) written refusal to consent to acceptance of the settlement offer.

(d) Within 30 days after a refusal to consent to acceptance of a settlement offer under subsection (c)(2) of this section, the uninsured motorist insurer shall pay to the injured person the amount of the settlement offer. (e)(1) Payment as described in subsection (d) of this section shall preserve the uninsured motorist insurer’s subrogation rights against the liability insurer and its insured. (2) Receipt by the injured person of the payment described in subsection (d) of this section shall constitute the assignment, up to the amount of the payment, of any recovery on behalf of the injured person that is subsequently paid from the applicable liability insurance policies, bonds, and securities. (f) The injured person may accept the liability insurer’s settlement offer and execute releases in favor of the liability insurer and its insured without prejudice to any claim the injured person may have against the uninsured motorist insurer: (1) on receipt of written consent to acceptance of the settlement offer and to the execution of releases; or (2) if the uninsured motorist insurer has not met the requirements of subsection (c) or subsection (d) of this section. 13 tortfeasor’s motor vehicle liability insurer (2) to settle a claim for bodily injury or death, and (3) the amount of the settlement offer would exhaust the applicable liability insurance policy’s limits, an insured must, by certified mail, send a copy of the settlement offer to the insurer providing uninsured motorist coverage.

IN § 19-511(b). Within sixty days of receiving the insured’s