Nationwide Mutual Insurance v. Wilson

KENNEY, J. Nationwide Mutual Insurance Company (“Nationwide”) appeals the judgment of the Circuit Court for Carroll County, granting summary judgment in favor of Taylor Wilson. The circuit court found invalid the fellow employee exclusion in the Nationwide business automobile policy issued to Allegheny Industries, Inc. (“Allegheny”). The court declared that Nationwide had a duty to indemnify up to $1,000,000 for any liability arising from an accident that Daniel McFarland caused during the course of his employment with Allegheny. Nationwide presents one question for our review, which we have slightly reworded: Did the circuit court err by declaring invalid a “fellow employee exclusion” in Allegheny’s commercial automobile policy, which reduces the amount of liability coverage under ⁵³⁰ the policy to the minimum amount permitted under Maryland’s compulsory motor vehicle insurance statute?

For the following reasons, we hold that the fellow employee exclusion at issue is valid and enforceable. FACTUAL AND PROCEDURAL HISTORY The material facts are undisputed. Allegheny, a Maryland corporation, performs general contracting work in the field of telecommunications. Its principal place of business is located in Carroll County, Maryland.

On the evening of June 19, 2002, Wilson and McFarland, both employees of Allegheny, were dispatched in a vehicle owned by Allegheny to perform maintenance work. While returning from the job in the early morning hours of June 20, '2002, McFarland, the driver, reportedly fell asleep, crossed the center line of the highway, and struck another vehicle head on. Wilson sustained severe injuries, including broken bones, cuts, and bruises. As a result of his injuries, he has undergone several operations, including two operations to remove more than ten feet of his small intestine.

His medical expenses exceeded $100,000. At the time of the accident, Allegheny maintained two insurance policies with Nationwide: a business automobile policy (the “Auto Policy”) and a workers’ compensation policy (the “Workers’ Compensation Policy”). The amount of liability coverage under the Auto Policy was $1,000,000. The Auto Policy provided, in relevant part: SECTION II-LIABILITY COVERAGE A. Coverage.

We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies, caused by an “accident” and resulting from the ownership, maintenance or use of a covered “auto.” ⁵³¹ We have the right and duty to defend any “insured” against a “suit” asking for such damages or a “covered pollution cost or expense.” However, we have no duty to defend any “insured” against a “suit” seeking damages for “bodily injury” or “property damage” or a “covered pollution cost or expense” to which this insurance does not apply. We may investigate and settle any claim or “suit” as we consider appropriate. Our duty to defend or settle ends when the Liability Coverage Limit of Insurance has been exhausted by payment of judgments or settlements. 1. Who is An Insured The following are “insureds”: a.

You for any covered “auto.” b. Anyone else while using with your permission a covered “auto” you own, hire or borrow. B. Exclusions This insurance does not apply to any of the following: 5. Fellow Employee “Bodily injury” to any fellow “employee” of the “insured” ai’ising out of and in the course of the fellow “employee’s” employment or while performing duties related to the conduct of your business.

A standard endorsement for Nationwide business automobile policies issued in Maryland was made part of the Auto Policy. The endorsement provided, in pertinent part: With respect to coverage provided by this endorsement, the provisions of Coverage Form apply unless modified by the endorsement. For a covered “auto” licensed or principally garaged in, or “garage operations” conducted in, Maryland, the Coverage Form is changed as follows: A. Changes in Liability Coverage ⁵³² Except with respect to the Business Auto Physical Damage Coverage Form, the Fellow Employee Exclusion is replaced by the following: This insurance does not apply to “bodily injury” to any fellow “employee” of the “insured” arising out of and in the course of the “fellow employee’s” employment or while performing duties related to the conduct of your business. Howevér, this exclusion does not apply for coverage up to the minimum limit specified by the Maryland Vehicle Law.

Wilson made demand upon McFarland and Nationwide, the insurer of the vehicle, for personal injury damages sustained as a result of the accident. Nationwide responded that, because Wilson was a fellow employee of McFarland and was injured in the course of employment, the “fellow employee” exclusion limited liability coverage under the policy to $20,000, the minimum amount of coverage required by Maryland Code (1977, 2002 Repl.Vol.), § 17-103(b) of the Transportation Article (“Trans.”). Nationwide offered to settle with Wilson for $20,000 in exchange for a release of all claims. On January 6, 2004, Wilson filed a complaint for declaratory judgment in the Circuit Court for Carroll County, naming Nationwide, Allegheny, and McFarland as defendants.

In his complaint, he argued that the fellow employee exclusion was invalid under Maryland law and requested a declaratory judgment to that effect. In his answer to Wilson’s complaint, McFarland also asserted the invalidity under Maryland law of the fellow employee exclusion in the Auto Policy. Therefore, he requested that the court declare that Nationwide had both a duty to defend him in any action relating to the collision of June 20, 2002, and a duty to indemnify up to the full policy limit of $1,000,000 for any recovery due Wilson resulting from the collision. Allegheny initially filed a motion to dismiss, but, after withdrawing that motion, it answered Wilson’s complaint, asserting that the fellow employee exclusion was invalid.

Ac ⁵³³ cording to Allegheny, the court should issue a declaration imposing a duty on Nationwide to both defend Allegheny in any action relating to the June 20, 2002 collision and to indemnify Allegheny up to the full policy limit of $1,000,000. Neither McFarland nor Allegheny filed counterclaims seeking declaratory relief. Nationwide filed a timely answer and moved to dismiss the complaint. On August 6, 2004, Wilson filed a motion for summary judgment.

McFarland, in his response, requested that the court grant Wilson’s motion. Allegheny also filed a counter-motion for summary judgment, asserting that Wilson’s claim under Maryland’s Workers’ Compensation Act constituted his exclusive remedy against Allegheny. Allegheny, therefore, requested the court to deny Wilson’s motion for summary judgment “and/or ... declare [Allegheny’s] liability to [Wilson] consistent with Maryland Law and the terms and conditions of the automobile policy.” On September 10, 2004, Nationwide filed its own counter-motion for summary judgment. It requested that the court declare that the fellow employee exclusion in the Auto Policy was valid; that it had no duty under that policy to indemnify Allegheny in connection with any claim arising from the collision; and that its duty to indemnify McFarland was limited to $20,000.

On February 23, 2005, the circuit court, having determined that the material facts were undisputed, granted Wilson’s motion for summary judgment. The court declared that the fellow employee exclusion was invalid as a matter of law and that Nationwide was obligated to fully indemnify Allegheny and McFarland “for any sums that Daniel Richard McFarland, as an employee of Allegheny Industries, Inc. becomes legally obligated to pay as a result of the accident that occurred June 20, 2002.” Nationwide noted this timely appeal. 1 ⁵³⁴ STANDARD OF REVIEW Under Maryland Rule 2 — 501(f), a court “shall enter judgment in favor of or against the moving party if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law.” We ⁵³⁵ review “a trial court’s grant of a motion for summary judgment de novo.” Remsburg v. Montgomery, 376 Md. 568, 579 , 831 A.2d 18 (2003). See also Todd v. Mass Trans. Admin., 373 Md. 149, 154 , 816 A.2d 930 (2003); Beyer v. Morgan State Univ., 369 Md. 335, 359 , 800 A.2d 707 (2002); Schmerling v. Injured Workers’ Ins.

Fund, 368 Md. 434, 443 , 795 A.2d 715 (2002). When reviewing a grant of summary judgment, we first determine whether a genuine dispute of material fact exists “and only where such dispute is absent will we proceed to review determinations of law.” Remsburg, 376 Md. at 579 , 831 A.2d 18 . Moreover, “we construe the facts properly before the court, and any reasonable inferences that may be drawn from them, in the light most favorable to the non-moving party.” Id. at 579-80 , 831 A.2d 18 . We generally “ ‘uphold the grant of a summary judgment only on the grounds relied on by the trial court.’ ” Mitchell v. Baltimore Sun Co., 164 Md.App. 497, 508 , 883 A.2d 1008 (2005) (quoting Ashton v. Brown, 339 Md. 70, 80 , 660 A.2d 447 (1995)).

DISCUSSION Here, the sole issue is the validity of the “fellow employee” provision in the Auto Policy, expressly limiting liability coverage for fellow employee claimants injured during the course of employment to the minimum coverage permitted under Maryland’s compulsory motor vehicle insurance statute. Nationwide contends that the provision is valid because the policy provides for the minimum amount of security for bodily injury and death required by Trans. § 17 — 103(b). It finds support for that contention in the fact that the Court of Appeals has upheld an automobile liability exclusion that limits the level of coverage available to a family member residing with the insured at the time of the accident to the statutorily mandated ⁵³⁶ level of liability coverage. Stearman v. State Farm Mut.

Auto. Ins. Co., 381 Md. 436 , 849 A.2d 539 (2004). Wilson argues that the exclusion at issue is indistinguishable from the fellow employee exclusion that was held to be invalid in Larimore v. American Ins.

Co., 314 Md. 617 , 552 A.2d 889 (1989). Morever, he asserts that upholding the fellow employee exclusion would permit insurers to avoid indemnification despite an insured’s payment of premiums for more than minimum coverage. This, he contends, subverts the public policy underlying Maryland’s compulsory automobile insurance law. Fellow employee exclusions are liability exclusions in automobile policies that are seen most often in commercial polices.

See Andrew Janquitto, Maryland Motor Vehicle Insurance § 7.11(B), 234. (2d. ed.1999). Such exclusions are designed to prevent an employer from maintaining coverage for employees under both worker’s compensation and business automobile insurance policies. Job A. Sandoval, Construction and Application of Provision of Automobile Liability Policy Expressly Excluding From Coverage Liability Arising From Actions Between Fellow Employees, 45 A.L.R.3d 288 , § 3 (1972 & Supp.2004) (explaining that fellow employee exclusions seek to “relieve the employer of the onerous requirement of insuring his employees under his public liability insurance policy, such employees being already protected by the workmen’s compensation statutes”).

Prior to legislative enactment of mandatory automobile insurance coverage, fellow employee exclusions were upheld by federal courts applying Maryland law. See, e.g., Bevans v. Liberty Mut. Ins. Co., 356 F.2d 577, 581 (4th Cir.1966) (interpreting Maryland law and reasoning that the fellow employee exclusion operates to preclude a fellow employee from recovery under general liability insurance in addition to worker’s compensation).

In 1972, the General Assembly enacted legislation designed to assure that drivers operating motor vehicles on Maryland roads were financially responsible. See Trans. § 17-101-110; Maryland Auto. Ins. Fund v. Perry, 356 Md. 668 , 741 A.2d ⁵³⁷ 1114 (1999).

The “legislative policy has the overall remedial purpose of protecting the public by assuring that operators and owners of motor vehicles are financially able to pay compensation for damages resulting from motor vehicle accidents.” Pennsylvania Nat. Mut. Cas. Ins.

Co. v. Gartelman, 288 Md. 151, 154 , 416 A.2d 734 (1980). Under the statutory scheme, every vehicle, with certain limited exceptions not here applicable, must maintain personal injury liability coverage of at least “$20,000 for any one person and up to $40,000 for any two or more persons” and property damage coverage of at least $15,000. Trans. § 17-103(b)(l)-(2). After the enactment of the compulsory liability insurance law, certain exclusions commonly found in automobile insurance policies that effectively excluded all liability coverage were held to violate public policy and declared invalid.

See, e.g., Salamon v. Progressive Classic Ins. Co., 379 Md. 301, 303 , 841 A.2d 858 (2004) (holding that a “pizza exclusion,” by which an insurer could deny coverage to an insured driver delivering property for compensation at the time of the accident, was void as against public policy); Lee v. Wheeler, 310 Md. 233, 237 , 528 A.2d 912 (1987) (concluding that a “phantom vehicle exclusion,” which excluded liability coverage to a Maryland insured in cases where there was no physical contact between the insured vehicle and the phantom vehicle, was invalid under Maryland law). Among these exclusions that were held to violate the compulsory liability insurance law was the so-called “household exclusion,” which excluded coverage for bodily injury sustained by the insured or any family member of the insured residing in the insured’s household. The household exclusion sought to limit the potential for fraudulent or collusive claims being brought by members of the insured’s household.

In Jennings v. Gov’t Employees Ins. Co., 302 Md. 352 , 488 A.2d 166 (1985), the Court of Appeals determined that a household exclusion was inconsistent with Maryland’s compulsory liability insurance law. It reasoned that, “ ‘[b'jecause the stated purpose of the [compulsory liability insurance law] is to assure that a driver be insured to a minimum level, such an ⁵³⁸ exclusion provision contravenes the purpose and policy of the ... act.’ ” Id. at 362 , 488 A.2d 166 (quoting Bishop v. Allstate Ins. Co., 623 S.W.2d 865, 866 (Ky.1981)).

The Court further explained that, ordinarily, where a statute provides for specific exclusions, others will not be permitted. In other words, if the legislature had intended to permit the exclusion from coverage of members of an insured’s household, it would have created an express exception to the mandatory coverage provisions. Id. at 359-60, 488 A.2d 166 . According to the Court, “if any and all exclusions from this required liability coverage are valid so long as they are not expressly prohibited by statute, the purpose of the compulsory automobile liability insurance could be frustrated to a significant extent.” Id. at 360 , 488 A.2d 166 .

One year later, in State Farm Mut. Auto. Ins. Co. v. Nationwide Mut.

Ins. Co., 307 Md. 631 , 516 A.2d 586 (1986), the Court of Appeals considered “[w]hether the ‘household exclusion’ [wa]s wholly invalid, or whether its invalidity extended] only to the amount of the minimum liability coverage required by the compulsory insurance law.” Id. at 633 , 516 A.2d 586 . Recognizing that the compulsory liability insurance statute created a floor rather than a ceiling to liability coverage, and relying upon the general principle that “[a] contractual provision that violates public policy is invalid, but only to the extent of the conflict between the stated public policy and the contractual provision,” the Court determined that the household exclusion was a valid and enforceable contractual provision for limiting coverage above the statutory minimum. Id. at 643 , 516 A.2d 586 .

The Court remarked: Put simply, what the legislature has prohibited is liability coverage of less than the minimum amounts required by § 17-103(b)(l) of the Transportation Article____ The “household exclusion” violates public policy only to the extent it operates to prevent this mandatory minimum coverage. Id. at 637, 516 A.2d 586 . Recently, in Stearman v. State Farm Mut. Auto.

Ins. Co., 381 Md. 436 , 849 A.2d 539 (2004), the Court of Appeals again ⁵³⁹ considered the validity of the household exclusion. The policy in Stearman provided for general liability coverage up to $100,000, but limited coverage for bodily injury to the insured or any member of the insured’s family residing in the insured’s household, to “the limits of liability required by law.” Id. at 440 , 849 A.2d 539 . The claimant argued that State Farm was “‘limited to the facts of that case and is not a general validation of exclusions above statutory minimum requirements.’ ” Id. at 445 , 849 A.2d 539 .

The Stearman Court acknowledged that “State Farm is not a ‘general validation’ of any exclusion above a statutory minimum ... it [is] quite clear that the case does validate household exclusions above those mínimums.” Id. It was also argued in Stearman that Maryland Code (1997, 2002 RepLVol.), § 19-502(b) of the Insurance Article (“Ins.”) demonstrated a legislative intent to require those insurance policies providing for liability coverage in excess of the statutory minimum to provide the same amount of coverage under all circumstances. Insurance § 19-502(b) provides: On the amount of liability coverage provided by insurer.— Neither this substitle nor Title 17 of the Transportation Article prevents an insurer from issuing, selling, or delivering motor vehicle liability insurance policies that provide liability coverage in excess of the requirements of the Maryland Vehicle Law. The Court rejected the claimant’s contention.

Judge Greene, writing for a majority of the Court, explained: The plain language of the quoted section evidences an intention to permit insurance companies to offer policies that contain greater coverage than that required by statute. It certainly does not require insurance companies to provide coverage greater than that mandated by statute. Nor does it display a legislative intention to change the public policy embodied in the statutorily mandated minimum liability coverage requirements. ⁵⁴⁰ As we noted previously, the purpose of the Maryland compulsory insurance statutes is to “ ‘[assure] recovery for innocent victims of motor vehicle accidents.’ ” Despite the allure of the idea of total compensation for any innocent victim of a motor vehicle accident, there is no indication that the General Assembly’s purpose in enacting the compulsory insurance statutes was to assure complete insurance recovery for all victims. As we stated in State Farm, we “do not view that purpose as extending beyond the prescribed statutory minimum coverage, so far as the ‘household exclusion’ is concerned.

Clearly, if the General Assembly had intended something closer to complete insurance recovery for all victims, they would have said so or increased the mandatory minimum liability limits.” [2] Id. at 448-450, 849 A.2d 539 (citations and footnotes omitted). As the Stearman Court pointed out, had the General Assembly intended uniform coverage beyond the statutory limit for all victims it could have enacted legislation requiring such coverage. For example, the statutory provisions regulating uninsured/underinsured motorist coverage require, unless otherwise waived, that “the amount