Property & Casualty Insurance Guaranty Corp. v. Beebe-Lee

BARBERA, J. When a property or casualty insurer becomes insolvent, the Maryland Property & Casualty Insurance Guaranty Corporation (“PCIGC”) assumes responsibility for any outstanding claims or litigation. In the case before us, an insurance company settled a claim with an insured party but became insolvent before the agreement could be approved by a court. Maryland Code (1995, 2011 RepLVol.), § 9-306(e)(l)(ii) of the Insurance Article, 1 states that PCIGC “may review settlements, releases, and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which the settlements, releases, and judgments may be properly contested.” PCIGC argues that the insurance company should not have been liable on the claim and seeks to challenge the settlement ⁴⁷⁸ reached by the parties. PCIGC also contends that it should not have to pay its statutory maximum on both an underlying insurance policy and an umbrella policy when the claims stem from a single incident.

The Court of Special Appeals, in an unreported opinion, held that PCIGC may challenge a settlement only on limited grounds, such as fraud or collusion, and the corporation bears the burden of proving its reason for challenging a claim. Additionally, the Court held that PCIGC was liable for the statutory maximum on both policies. We granted a petition for a writ of certiorari, Property & Casualty Insurance Guaranty Corp. v. Beebe-Lee, 428 Md. 543 (2012), to answer the following questions: 1. Did the Circuit Court err in ruling, and the Court of Special Appeals err in affirming, that [§ 9-306(e)(l)(ii) ] provides PCIGC with only a limited right to contest settlements entered into between a claimant and an insolvent insurer, despite the absence of such limiting language in the governing statute? 2.

Did the Circuit Court err in declaring, and the Court of Special Appeals err in affirming, that PCIGC is liable to Claimants for twice its statutory limit of liability on a claim for a single bodily injury where the insolvent insurer provided both primary coverage and umbrella coverage? For reasons we shall explain, we answer no to both questions and affirm the judgment of the Court of Special Appeals. I. While visiting her grandparents at their home in Jefferson, Maryland on June 30, 2003, nine-year-old Ashley Beebe-Lee was seriously injured while riding a go-cart. 2 Prior to the accident, Ashley and another grandchild asked their grandfather William Lee if they could take the go-cart out of the garage. Lee initially resisted, telling them that the go-cart ⁴⁷⁹ had not been running for a year or more.

After the grandchildren washed dirt and dust off of the vehicle, Lee decided to see if it would operate. The go-cart’s engine started up, and Ashley drove the vehicle around the driveway and back lot of the property. At one point, Ashley lost control of the go-cart and drove into a trailer. She suffered severe injuries to her right arm and shoulder, and was flown ultimately to Children’s National Medical Center in Washington, D.C. for treatment.

She sustained two severed arteries, a broken collar bone, and two broken ribs in the accident, among other injuries. Ashley reportedly has permanent scarring and was estimated at one point to have roughly 62 percent impairment to her body, with serious impairment to her right arm, hand, and fingers. 3 Ashley’s mother, Belinda Beebe-Lee, on behalf of her minor daughter (hereinafter Respondents), hired an attorney and presented notice of a bodily injury claim against the Lees on November 3, 2003. Respondents filed the claim with the Lees’ insurer, Shelby Casualty Insurance Company (“Shelby”). The Lees had two policies with Shelby, one that provided homeowner’s personal liability protection up to $500,000 and a second umbrella policy that covered up to $1 million.

Respondents’ attorney communicated with Shelby by letter and fax on multiple occasions between December 2003 and March 2006, discussing the insurance company’s liability investigation. Respondents forwarded copies of medical bills to Shelby along with photographs documenting Ashley’s injuries and her recovery. 4 As of January 20, 2006, Ashley’s medical treatment totaled more than $155,000, and one doctor estimated the cost of future surgical procedures at roughly $300,000. After initially offering $750,000 to settle the claim on April 19, 2006, ⁴⁸⁰ Shelby raised its offer to $1 million in an email a month later, with a proposal to structure $500,000 of the settlement as an annuity. Gary Murtón, a litigation specialist at Shelby, wrote an email to Respondents’ attorney in which he stated, ‘You and I understand any settlement must be approved by the court and that the courts certainly look favorably upon the settlement to which we have agreed.” 5 In an affidavit signed on July 10, 2009, Murtón said that he viewed court approval as a “ministerial” matter “that did not prevent the settlement agreement from being binding.” On June 28, 2006, the Texas Department of Insurance sought, and was granted, a court order placing the Vesta Insurance Group and its affiliates, which included Shelby, into receivership.

After finding that Shelby was insolvent, the District Court of Travis County, Texas, ordered that the company be liquidated on August 1, 2006. Respondents learned of Shelby’s problems in late July and asked the company to place the $1 million settlement in escrow. Shelby responded by directing Respondents to PCIGC, describing it as the “only recourse” available. Respondents sent a letter on September 18, 2006 to PCIGC, informing it of the $1 million settlement reached with Shelby and that company’s liquidation.

PCIGC and Respondents’ attorney exchanged letters through the remainder of 2006 and early 2007. PCIGC stated that it was not clear whether Shelby had a duty to defend the claim, and it sought additional information about the policies and the accident to assist it in determining what its statutory obligations were under the circumstances. Respondents maintained that Shelby had a duty to defend and that, under § 9-306(c), 6 PCIGC was re ⁴⁸¹ quired to assume all of the obligations and duties that Shelby would have had if the company had not become insolvent. On January 31, 2007, PCIGC informed Respondents that its investigation failed to find any breach of duty on the part of the Lees and, consequently, it declined “to make any offer of settlement.” 7 Respondents filed a complaint against PCIGC seeking declaratory relief in the Circuit Court for Baltimore County on March 11, 2009.

Respondents asked the court to find that they settled the claim with Shelby for $1 million and that PCIGC was obligated to pay $599,800 on the claim under the two insurance policies. The parties filed cross-motions for summary judgment and the matter came on for a hearing in the Circuit Court on May 19, 2010. In an order issued July 12, 2010, the Circuit Court denied PCIGC’s motion for summary judgment and granted Respondents’ motion. The Circuit Court found that, as a matter of law, Respondents and Shelby had a binding settlement agreement.

Consequently, the Circuit Court ruled that this agreement constituted an “unpaid obligation” arising out of the Shelby policies for which PCIGC was responsible. The Circuit Court further found that PCIGC’s right to review settlements gave it the ability to contest a claim only if there was mistake, fraud, oppression, collusion, the failure of the insurer to defend, or other similar circumstances. PCIGC had not presented evidence supporting any of these rationales, the Circuit Court found. Additionally, the Circuit Court ruled that there can be multiple claims arising out of a single incident when there are multiple insurance policies in place. ⁴⁸² The Circuit Court therefore concluded that PCIGC was liable in the amount of $599,800 on the two combined policies.

In an unreported opinion, the Court of Special Appeals affirmed the decision of the Circuit Court. The Court held that Shelby was bound by the settlement agreement, even though it had not been approved by a court, and that, in order to properly contest the claim, PCIGC had the burden to prove that the insurance policies did not cover the claim or that the agreement was entered into based on fraud, collusion, or the failure of the insurer to properly investigate the claim. Additionally, the Court held that PCIGC was obligated to pay the statutory maximum twice because there were two policies covering the claim, even though it stemmed from a single incident. In dissent, Judge Shirley M. Watts disagreed that PCIGC was limited in its ability to challenge a settlement, and Judge Watts concluded that PCIGC should be entitled to contest the underlying question of whether Shelby was required to defend the Lees.

The present appeal followed.

II

Standard of Review This appeal is from the Circuit Court’s grant of summary judgment in favor of Respondents. In reviewing such an order, we review the record to determine if any material facts are in dispute. Whitley v. Md. State Bd. of Elections, 429 Md. 132, 148 , 55 A.3d 37 (2012). The parties, in seeking cross-motions for summary judgment, both acknowledged that there were no facts in material dispute. “If no genuine dispute of material fact exists, this Court determines ‘whether the Circuit Court correctly entered summary judgment as a matter of law.’ ” Id.

(quoting Anderson v. Council of Unit Owners of the Gables on Tuckerman Condo., 404 Md. 560, 571 , 948 A.2d 11 (2008)). “The standard of review of a trial court’s grant of a motion for summary judgment on the law is de novo, that is, whether the trial court’s legal conclusions were legally correct.” Messing v. Bank of America, 373 Md. 672, 684 , 821 A.2d 22 (2003). ⁴⁸³ This case hinges on the interpretation of the statute governing PCIGC. As such, “we rely on the often-cited rules of statutory interpretation.” Green v. Church of Jesus Christ of Latter-Day Saints, 430 Md. 119, 135 , 59 A.3d 1001 (2013). “A court’s primary goal in interpreting statutory language is to discern the legislative purpose, the ends to be accomplished, or the evils to be remedied by the statutory provision under scrutiny.” Id. (quoting Gardner v. State, 420 Md. 1, 8 , 20 A.3d 801 (2011)). We do not look beyond the ordinary meaning of the statute’s language where the wording is “plain and free from ambiguity, and expresses a definite and simple meaning.” Employees’ Ret.

Sys. of Balt. v. Dorsey, 430 Md. 100, 113 , 59 A.3d 990 (2013) (quoting Dep’t of Human Res. v. Hayward, 426 Md. 638, 650 , 45 A.3d 224 (2012)). “When the words of a statute are ambiguous, we attempt to resolve that ambiguity ‘by searching for legislative intent in other indicia, including the history of the legislation or other relevant sources intrinsic and extrinsic to the legislative process.’ ” Green, 430 Md. at 135 , 59 A.3d 1001 (quoting Gardner, 420 Md. at 9 , 20 A.3d 801 ). “In every case, the statute must be given a reasonable interpretation, not one that is absurd, illogical or incompatible with common sense.” Id.

III

Reviewing and Properly Contesting Settlement Agreements PCIGC was designed with two purposes in mind. The first is “to provide a mechanism for the prompt payment of covered claims under certain policies and to avoid financial loss to residents of the State who are claimants or policyholders of an insolvent insurer.” § 9-302(1). The second purpose is “to provide for the assessment of the cost of payments of covered claims and protection among insurers.” § 9-302(2). The General Assembly created what was then-known as the Maryland Insurance Guaranty Association in 1971 as a nonprofit, unincorporated legal entity.

Prop. & Cas. Ins. Guar. Corp. v. Yanni, 397 Md. 474, 482 , 919 A.2d 1 (2007).

Its structure was based on a 1969 model act drafted by the ⁴⁸⁴ National Association of Insurance Commissioners and later adopted by more than 40 states. Id. The PCIGC gained its current name in 1986 after the General Assembly made several changes to its operational structure, transforming it into a nonprofit, nonstock corporation and “declaring that it was not an agency or instrumentality of the State.” Id. All direct property and casualty insurers in Maryland must be members of PCIGC in order to sell insurance within the state. 8 §§ 9-303, 9-304(b).

Insurers are assessed fees in order for PCIGC to fulfill its statutory obligation to pay covered claims of insolvent insurance companies. § 9 — 306(d). “The PCIGC statute serves to lessen the impact on Maryland residents insured by insurance companies that become insolvent. The coverage, however, is not absolute.” Med. Mut. Liab.

Ins. Soc’y of Md. v. Goldstein, 388 Md. 299, 318 , 879 A.2d 1025 (2005). PCIGC is liable “to the extent of the covered claims existing on or before the determination of insolvency.” 9 § 9-306(a)(l). Claims must first qualify as “covered” in order for PCIGC to be obligated to pay them. § 9-301(d). 10 Even then, PCIGC is statutorily limited in the ⁴⁸⁵ amount it may pay on claims to between $100 and $300,000 per covered claim. § 9 — 306(a)(2).

Parties must exhaust other available sources of coverage before seeking relief through the PCIGC. § 9-310. PCIGC has the power to investigate claims brought against the corporation, § 9-306(e)(l)(i), and “may review settlements, releases, and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which the settlements, releases, and judgments may be properly contested.” § 9 — 306(e)(l)(ii). PCIGC must “adjust, compromise, settle, and pay covered claims to the extent of the Corporation’s obligation” and is required to “deny all other claims.” 11 § 9-306(e)(l)(i). The plain language of § 9 — 306(e)(l)(ii) (“may review settlements”) clearly gives PCIGC the ability to review the settle ⁴⁸⁶ ment at issue here. 12 The power to contest a settlement is further implied from the wording of § 9 — 306(e)(l)(ii) (“may review settlements ... to determine the extent to which the settlements ... may be properly contested”).

The extent of PCIGC’s power to review settlements to determine if they may be “properly contested” is what remains unclear. Terms such as “review” and “properly contest” are not defined in the Insurance Article 13 and the parties cite no opinions of this Court, nor have we found any, in which we have previously clarified the meaning of these words. Our review of the legislative history likewise fails to shed any further light on the matter. 14 We can conclude, though, that the use of the modifier “properly” before the word “contested” indicates that there are limits to PCIGC’s ability to challenge claims even if those limits are undefined. PCIGC argues that embedded within § 9-306(e)(l)(ii) is the discretion to determine whether a claim could be properly contested, and that this Court should not substitute its judgment for PCIGC’s discretionary determination.

PCIGC claims it acted in good faith in challenging Shelby’s settlement of the claim and maintains that the Insurance Article places no limits on the situations in which it may challenge a settlement. PCIGC contends that the Circuit Court and Court of Special ⁴⁸⁷ Appeals improperly read limiting language into the statute, curtailing PCIGC’s ability to contest settlements. Without any Maryland cases on point, both parties point to case law from outside the state in support of their respective positions. PCIGC cites Lopez v. Texas Property & Casualty Insurance Guaranty Association, 990 S.W.2d 504 (Tex.App. 1999), for the proposition that a guaranty association has the ability to challenge the underlying liability of a settled claim.

In Lopez, a judgment was entered against a motorist involved in an accident, and the defending insurance company later became insolvent. Id. at 505. The injured parties attempting to collect the judgment and the guaranty association agreed that the motorist had been driving the vehicle without the permission of its owner. 990 S.W.2d at 505. The driver, therefore, was not covered under the insurance policy.

Id. The court rejected the argument that the guaranty association should be estopped from challenging liability because the insolvent insurer did not raise the issue before the trial court. Id. at 506. Instead, the court concluded that the guaranty association was not required to pay the claim because the association was not responsible for claims that were outside the applicable coverage.

Id. Lopez is distinguishable from the present case because the parties there a,greed that the driver involved was not covered by the insurance policy. That concession gives a guaranty association a sound reason to “properly contest” a claim, a factor that is not present in the current case because the parties disagree about whether Shelby was required to cover the go-cart accident. 15 Respondents cite DeVane v. Kennedy, 205 W.Va. 519 , 519 S.E.2d 622 (1999), in support of the idea that a guaranty ⁴⁸⁸ association’s grounds for contesting a settlement agreement are limited. In DeVane , the court considered a statute that allowed for settlement agreements reached prior to insolvency to “be properly contested” by a guaranty association. 519 S.E.2d at 637 .

The court noted that “settlements are highly regarded and scrupulously enforced.” Id. The court observed: “Rather than automatically abrogating all settlements entered into by insurers prior to their insolvency, thereby resolutely relieving the [guaranty association] of these obligations, the Guaranty Act impliedly recognizes the validity of these voluntary agreements by absolving the Association’s liability therefor only insofar as such agreements ‘may be properly contested.’ ” Id. at 637 . The court concluded that the guaranty association was able to escape liability only by raising the same defenses available to the insolvent insurer, namely “accident, mistake, or fraud.” Id. at 637-38 . Like the West Virginia statute, Maryland’s Insurance Article does not absolve PCIGC of its responsibility for paying on claims reached by settlement.

West Virginia, too, uses the phrase “properly contested” in its statute and, notably, the court construed that phrase as placing limits on the power of a guaranty association. Another potential source for interpretation is the Post-Assessment Property and Liability Insurance Guaranty Association Model Act (“Model Act”). The Model Act, created by the National Association of Insurance Commissioners, was the basis for Maryland’s PCIGC. The Model Act defines the circumstances under which a guaranty association, such as PCIGC, may contest a settlement, release, or judgment.

Early versions of the Model Act used the phrase “properly contested,” 16 but more recent iterations have abandoned this language. 17 The Model Act does not define “properly contest ⁴⁸⁹ ed” and our research failed to uncover the drafter’s intent in using this phrase. As a result, we are unable to draw from the Model Act any firm conclusions about PCIGC’s power to contest settlements. The Court of Special Appeals concluded there are at least three instances in which PCIGC could contest a claim: 1) where PCIGC can prove that the insolvent insurer could have contested the settlement agreement prior to becoming insolvent; 2) where PCIGC can prove that the settlement agreement is the result of fraud, collusion, or the insurer’s failure to investigate the claim; and 3) where PCIGC can prove that the underlying insurance policy did not cover the claim. The Court’s reasons overlap at times with those advanced by the Circuit Court, but there are differences between them.

Notably, the Court of Special Appeals would allow PCIGC to contest the underlying liability of a policy if PCIGC could prove the claim was not covered. Despite differences in their reasoning, the Circuit Court and the Court of Special Appeals agreed that PCIGC bore the burden to prove one of the rationales for challenging the ⁴⁹⁰ settlement. We concur. See, e.g., In re The Wallace & Gale Co., 275 B.R. 223, 230 (D.Md.2002), vacated in part, on other grounds, 284 B.R. 557 (D.Md.2002) (“The insurer has the burden of proving any exclusions under the policy.”).

PCIGC correctly argues that Respondents bore the burden of proving that there is a right to recover under the policies. Id. at 230 (citing North Am. Acc. Ins.

Co. v. Plummer, 167 Md. 670, 678 , 176 A. 466 (1935)) (“In an action on an insurance policy, the plaintiff has the burden of proving every fact essential to his or her right to recover.”). Respondents met this burden, though, by showing proof of the settlement agreement. PCIGC now bears the burden to show why that claim is excluded from coverage. PCIGC steps into the shoes of the insurer, but it does so at a particular moment in time, namely after a claim has been settled.

See § 9-306(c) (“The Corporation ... shall have the rights, duties, and obligations that the insolvent insurer would have had if the insurer had not become insolvent”). This is significant because an insurer pre-settlement has options in handling a claim that change post-settlement. After the settlement, a party is more limited in the grounds it can assert to get out of the agreement. These grounds include fraud, duress, or mutual mistake.

See Koons Ford of Balt., Inc. v. Lobach, 398 Md. 38, 46-47 , 919 A.2d 722 (2007) (quoting Binder v. Benson, 225 Md. 456, 461 , 171 A.2d 248 (1961)) (noting that “the usual rule is that if there is no fraud, duress or mutual mistake, one who has the capacity to understand a written document who reads and signs it ... is bound by his signature as to all of its terms”). In other words, once Shelby reached a settlement agreement, it could not thereafter contest liability unless it had evidence of fraud or other grounds on which to suggest that a settlement was not properly reached. PCIGC asserts that the Circuit Court and Court of Special Appeals erred by narrowing the grounds on which it can. contest a claim. We agree that the statute does not delineate what limitations exist on PCIGC’s ability to contest claims, but we disagree with PCIGC that this means there are no limita ⁴⁹¹ tions.

The limitations are implicit in the statute (“properly contested”) and in PCIGC’s ability to step into the shoes of the insurer at a point in time after a settlement has occurred. The following rationales, identified by the Circuit Court and Court of Special Appeals, all qualify as grounds under which PCIGC could challenge a settled claim: fraud, collusion, duress, mutual mistake, or the failure of the insurer to use reasonable care in investigating or settling a claim (e.g., the policy did not cover the claim). This list is not exhaustive, but we are certain that challenging the underlying liability is not a ground available to PCIGC in these circumstances except as it relates to one of the above-noted rationales. To conclude otherwise would undermine the PCIGC’s duty “to provide a mechanism for the prompt payment of covered claims.” § 9-302(1).

Indeed, a construction of the statute that would allow PCIGC to re-open any settlement agreement for any reason inevitably would thwart the notion of “prompt payment,” as far more cases would likely be challenged and litigated. Our construction of the statute is consistent with its overall purpose, which is to lessen the financial loss suffered by Maryland residents who have claims with insolvent insurers. Given that PCIGC is not meant to be a complete panacea, we are confident that the General Assembly did not intend for claims to be paid when they are the result of fraud, collusion between the insured and insurer, or a failure by the insurance company even to investigate a claim. These situations are the ones in which PCIGC can investigate the facts behind a settlement agreement and properly challenge it.

Had the General Assembly wanted to ensure that PCIGC was not bound by any settlement agreement, and could contest underlying claims upon any basis, it could have made this plain in the statute. See, e.g., Texas Insurance Code Ann. § 462.303(a) (West 2013) (“The association is not bound by ... a judgment, settlement, or release entered into by the insured or the impaired insurer.”). We see no indication from the statute or the legislative history available to us that this was the General Assembly’s intent. ⁴⁹² Notably, PCIGC has the ability to reopen a default judgment in order