Salamon v. Progressive Classic Insurance

HARRELL, Judge. This Court, on a number of occasions, has held that, under Maryland’s compulsory automobile insurance statute, contractual exclusions in automobile insurance policies that excuse or reduce benefits below the minimum statutorily required levels or types of coverage, and are not expressly authorized by the General Assembly, are invalid. Relevant to the present declaratory judgment action, the insured, a student employed as a part-time pizza delivery driver, was involved in a two car motor vehicle accident while on the job. His insurer, relying on a so-called “pizza exclusion” in the insurance policy contract, declined to indemnify or defend its insured regarding claims brought by the other driver.

The “pizza exclusion,” which purports to allow the insurer to deny coverage if an ³⁰⁴ insured driver was delivering “property for compensation” at the time of the accident, is not authorized expressly under the statute. Thus, we shall hold that the exclusion is invalid. I. On 9 April 2001, Michael Salamon was delivering pizzas for The Pizza Connection, an enterprise operated by GLW Enterprises (“GLW”). On that day, his vehicle collided with a vehicle owned and operated by Carol Dennis.

Salamon, the owner of the vehicle he was operating, maintained no commercial vehicle insurance, but instead had a personal automobile policy issued by Progressive Classic Insurance Company (“Progressive”). 1 Salamon secured his insurance five months before the accident, before he began employment with The Pizza Connection. There is no indication in the record whether Salamon had contemplated seeking such employment either at the time he applied for the policy or when it was issued by Progressive. The policy contained a series of exclusions, including one referred to here as the “pizza exclusion:” 2 “Coverage under this Part I [Liability to Others], including [Progressive’s] duty to defend, does not apply to: ³⁰⁵ “1. bodily injury or property damage arising out of the ownership, maintenance, or use of a vehicle while being used to carry persons or property for compensation or a fee, including, but not limited to, delivery of magazines, newspapers, food, or any other products. This exclusion does not apply to shared-expense car pools “Coverage under this Part IV [Damage to a Vehicle] does not apply for loss: 1. to a covered vehicle, non-owned vehicle, or trailer, while being used to carry persons or property for compensation or a fee, including, but not limited to, delivery of magazines, newspapers, food, or any other products.

This exclusion does not apply to shared-expense car pools ...” After Salamon informed his insurer of the occurrence and circumstances of the accident, Progressive filed a complaint in the Circuit Court for Baltimore County seeking a declaratory judgment that, based on the “pizza exclusion,” it was not liable under the policy to Salamon, Dennis, or the Government Employees Insurance Company (GEICO) (Dennis’s insurer). 3 In a separate, subsequent action, Dennis filed suit in the same court against Salamon, GLW, and Progressive for her injuries and property damage stemming from the accident. The Circuit Court granted a stay in Dennis’s suit pending final resolution of this declaratory judgment action brought by Progressive. Progressive filed a motion for summary judgment in its declaratory judgment action. Salamon opposed Progressive’s motion and filed a counter-motion for summary judgment.

In ³⁰⁶ memoranda and in oral argument at an 11 December 2002 hearing on the cross-motions, Progressive contended that the pizza exclusion in the policy unambiguously excused it from both coverage and the duty to defend. Salamon countered that the exclusion was void because it was inconsistent with Maryland’s compulsory insurance statute. The trial court granted Progressive’s motion for summary judgment. 4 , 5 Salamon appealed, presenting only the question of whether Progressive’s exclusion “contravenes Maryland public policy ... and, as a result, is invalid and unenforceable.” Before the Court of Special Appeals could decide the appeal, this Court granted certiorari on its own initiative. Salamon v. Progressive, 376 Md. 139 , 829 A.2d 530 (2003).

II

Maryland Rule 2-501(e), governing summary judgment, states, in relevant part: “Entry of Judgment. The 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.” The facts relevant to the declaratory judgment action — that Salamon, Progressive’s insured, was delivering pizzas, in violation of the “pizza exclusion” in the policy, when his car collided ³⁰⁷ with Dennis’s vehicle — are not in dispute. 6 “When reviewing a grant of summary judgment, we must make the threshold determination as to whether a genuine dispute of material fact exists, and only where such dispute is absent will we proceed to review determinations of law.” Remsburg v. Montgomery, 376 Md. 568, 579 , 831 A.2d 18, 24 (2003). “An appellate court reviews a trial court’s grant of a motion for summary judgment de novo. The trial court will not determine any disputed facts, but rather makes a ruling as a matter of law. The standard of appellate review, therefore, is whether the trial court was legally correct.” Id.

(citations omitted). The only issue presented in this case is a question of law involving statutory interpretation, which we review de novo.

III

During the 11 December 2002 hearing, the trial judge explained his reasoning for granting Progressive’s motion for summary judgment. 7 The majority of the judge’s comments were directed toward his determination that Sala ³⁰⁸ mon’s actions fell within the unambiguous language of the contractual “pizza exclusion,” a point that Salamon essentially conceded. Salamon’s main contention before the trial court, as before this Court, was that the exclusion was invalid as contrary to Maryland public policy. The trial judge gave the following substantive response to Salamon’s “public policy” argument: “[I]n this case Progressive Insurance provides insurance to Mr. Salamon with the understanding that he’s not going ³⁰⁹ to use his car for business purposes, to deliver pizzas. And I don’t think that anyone who would read the policy would have any doubt about that, that we don’t provide coverage if you do that.

Well, that was the contract. That’s the contract. I don’t see anything against public policy for an insurer to contract with an insured under those conditions. Yeah, we will provide you coverage as long as you don’t use your car for commercial purposes.

I don’t see how that can be against public policy, [it] doesn’t seem to me to be. “One would have to wonder if an insurer can’t make that a condition of a policy, a contract of insurance, what would all of our insurance rates be? If all of us could get a personal use policy and then use our cars to engage in business which involves the car, the use of the car, my God, what would the rates have to be? That may be a policy, a public policy consideration that would overcome any other, but I’m not deciding that, but I am saying that this was a contract. “It was an unambiguous contract, it was clear, the contract was violated by Mr. Salamon. And Progressive does not have to provide coverage because it is not provided for in the contract that was entered into between the parties.

So, the motion for summary judgment ... is granted.” The judge, however, failed to address the true gravamen of Salamon’s argument: that Maryland’s compulsory insurance law, codified at Maryland Code (1977, 2002 Repl.Vol.), §§ 17-101 to 17-110 of the Transportation Article and Maryland Code (1995, 2002 RepLVol.), §§ 19-501 to 19-516 of the Insurance Article, renders void the exclusion that Progressive relied upon to deny Salamon coverage and defense. As we shall explain, Salamon was correct in arguing that Progressive may not deny him what he purchased, the statutory minimum levels of coverage, even though the accident occurred while he was employed as a pizza delivery driver. The trial judge’s determination to the contrary was erroneous as a matter of law. ³¹⁰ A. The 73rd Act of the 1972 session of the Maryland General Assembly was a “comprehensive law that, among other things, inaugurated compulsory insurance or other required security, established [the Maryland Automobile Insurance Fund] as an insurer of last resort, prohibited the arbitrary cancellation and non-renewal of motor vehicle insurance policies, and required policies to contain collision and [personal injury protection] coverage.” Maryland Auto. Ins.

Fund v. Perry, 356 Md. 668, 674 , 741 A.2d 1114, 1117 (1999). Those provisions are now codified at title 19, subtitle 5 of the Insurance Article and title 17, subtitle 1 of the Transportation Article. The portions of that statute relevant to this case are those intended to “make certain that those who own and operate motor vehicles in this State are financially responsible. This 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’l Mut.

Cas. Ins. Co. v. Gartelman, 288 Md. 151, 154 , 416 A.2d 734, 736 (1980) (citations omitted). The General Assembly advanced its goal of assuring that every motorist has adequate insurance by enacting provisions requiring each vehicle owner to obtain motor vehicle insurance or a substitute security, limiting the ability of insurers to cancel or refuse to renew insurance policies, establishing the Maryland Automobile Insurance Fund (MAIF) as an insurer of last resort, and requiring the Motor Vehicle Administration to suspend the registration of any motor vehicle for which the required insurance or security lapsed until replaced. 1972 Md. Laws, Chap. 73.

Maryland Code (1977, 2002 Repl.Vol.), § 17-103 of the Transportation Article now reads: “The security required under this subtitle shall provide for at least: (1) The payment of claims for bodily injury or death arising from an accident of up to $ 20,000 for any one person and up ³¹¹ to $ 40,000 for any two or more persons, in addition to interest and costs; (2) The payment of claims for property of others damaged or destroyed in an accident of up to $ 15,000, in addition to interest and costs; (3) Unless waived, the benefits described under § 19-505 of the Insurance Article [personal injury protection coverage] as to basic required primary coverage; and (4) The benefits required under § 19-509 of the Insurance Article [uninsured motorist coverage] as to required additional coverage.” More than thirty years after the General Assembly originally enacted compulsory insurance provisions, the requirement that every driver maintain at least these minimum levels of motor vehicle insurance remains an integral part of Maryland statutory law and public policy. Any portion of a motor vehicle insurance policy that is inconsistent with this statutory scheme is void and unenforceable. Lewis v. Allstate Ins. Co., 368 Md. 44, 47 , 792 A.2d 272, 274 , (2002).

See also Enterprise Leasing Co. v. Allstate Ins. Co., 341 Md. 541, 550 , 671 A.2d 509, 514 (1996) (“insurance policy exclusion clauses that are inconsistent with the public policy of this State” are invalid). “In light of the comprehensive nature of the statutory provisions regulating motor vehicle insurance, and the various limitations, conditions, exceptions and exclusions expressly authorized by the Legislature, this Court has consistently “held invalid insurance policy limitations, exclusions and exceptions to the statutorily required coverages which were not expressly authorized by the Legislature.” Lewis, 368 Md. at 48 , 792 A.2d at 274 (quoting Van Horn, 334 Md. at 686, 641 A.2d at 203). This Court consistently has declared invalid insurance policy exclusions that excuse or reduce the insured parties’ coverage below the statutory minimum level where such exclusions are not authorized explicitly by the General Assembly. Examples of this are legion.

A policy provision that reduced the amount ³¹² of uninsured motorist benefits by the amount of money the insurer previously had paid to the insured under a medical payments endorsement in the policy was not authorized by statute and was, therefore, invalid. Lewis, 368 Md. 44 , 792 A.2d 272 . Where no statute authorized a reduction in coverage for payments from other insurers, an automobile insurance provider was required to pay personal injury protection coverage even though the insured’s treatments already had been paid for by his health insurance provider. Dutta v. State Farm Ins.

Co., 363 Md. 540 , 769 A.2d 948 (2001). The exclusion of vehicles “Owned or operated by a self-insurer” or “Owned by any governmental unit or agency” from the definition of “uninsured/underinsured vehicles” for the purposes of the state’s compulsory uninsured/underinsured coverage requirement was unauthorized and void. West Am. Ins.

Co. v. Popa, 352 Md. 455 , 723 A.2d 1 (1998). In Enterprise Leasing, 341 Md. 541 , 671 A.2d 509 , a car rental company had not authorized its lessee to allow third party drivers to drive the rental car without the company’s authorization. Nevertheless, the car rental company was liable as a self-insurer for an accident caused by a third-party driver, who was driving the vehicle with the lessee’s permission, but without the car rental company’s permission, because the General Assembly had not authorized an exclusion of this type. Similarly, a moving company’s insurer was liable to provide coverage for the injuries of one of the moving company’s employees who was injured by a truck driven by another employee because the “fellow employee” exclusion in the policy was not authorized by statute.

Larimore v. American Ins. Co., 314 Md. 617 , 552 A.2d 889 (1989). Although the General Assembly had authorized insurers to reduce their benefits by the amount of worker’s compensation payments the insured party already had recovered, an exclusion that reduced the insured party’s benefits by the amount of worker’s compensation the insured party was entitled to receive in the future was unauthorized and void. Gable v. Colonial Ins.

Co., 313 Md. 701 , 548 A.2d 135 (1988). The “household ³¹³ exclusion,” preventing one family member’s recovery for injuries sustained in an accident with another member of the same household, was held to be unauthorized and invalid. Jennings v. Gov’t Employees Ins. Co., 302 Md. 352 , 488 A.2d 166 (1985).

Where an insurer had notice of a suit between its insured and the uninsured driver of the other vehicle involved in an accident, it could not rely on a “consent to sue” clause in its policy to refrain from paying the judgment against the uninsured driver because “consent to sue” clauses were not authorized by the General Assembly. Nationwide Mut. Ins. Co. v. Webb, 291 Md. 721 , 436 A.2d 465 (1981).

A personal injury protection exclusion that denied coverage when an accident occurred while the insured was riding a “motor vehicle owned by the named insured ... which is not an insured motor vehicle” has been held invalid. Gartelman, 288 Md. 151 , 416 A.2d 734 . An insurer was not authorized to require the insured party to secure a judgment against a tortfeasor before recovering uninsured motorist benefits. Reese v. State Farm Mut.

Auto. Ins. Co., 285 Md. 548 , 403 A.2d 1229 (1979). An insurer was not entitled to limit uninsured motorist coverage to situations in which there was actual contact between the insured vehicle and a phantom vehicle.

State Farm Mut. Auto. Ins. Co. v. Maryland Auto.

Ins. Fund, 277 Md. 602 , 356 A.2d 560 (1976); see also Lee v. Wheeler, 310 Md. 233 , 528 A.2d 912 (1987) (actual contact requirement was invalid even though the accident occurred outside the State of Maryland). Where