Swartzbaugh v. Encompass Insurance Co. of America

WOODWARD, J. Appellants, Kenneth, Lynne, and Kelly Swartzbaugh, 1 challenge the Circuit Court for Carroll County’s entry of a declar ¹³⁷ atory judgment on behalf of appellee, Encompass Insurance Company of America (“Encompass”). In obtaining personal automobile insurance for her family, Lynne signed a Waiver of uninsured motorist benefits 2 that otherwise would have been in the same amount as the liability coverage under the policy. After Kelly—who is the daughter of Kenneth and Lynne—was involved in an automobile accident with an underinsured motorist, the Swartzbaughs brought a declaratory judgment action against Encompass, requesting the trial court to rule that Encompass was legally obligated to provide uninsured motorist benefits equal to their liability coverage, because the Waiver signed by Lynne was invalid. The trial court, however, determined that the Waiver was valid and enforceable and that the Swartzbaughs were not entitled to uninsured motorist benefits in addition to the amount provided in their policy.

Accordingly, the court granted summary judgment for Encompass and entered a declaratory judgment consistent with that ruling. The Swartzbaughs filed a timely notice of appeal to this Court. This appeal presents one question for review by this Court, which we have stated as: Did the circuit court err by holding that the Waiver signed by the second of the two insureds listed on a policy of motor vehicle insurance satisfied the requirement of Maryland Code (1996, 2006 Repl.Vol.), § 19-510 of the Insurance Article (“Ins.”) that the Waiver be signed by “the first named insured?” ¹³⁸ For the reasons set forth herein, we shall affirm the judgment of the circuit court. BACKGROUND The facts in the case sub judice are undisputed, and the parties submitted an “Agreed Statement of Facts” to both the circuit court and to this Court.

The Agreed Statement of Facts reads: 1. This case arises out of an automobile accident that occurred on March 8, 2008 in which [Kelly] was injured as a passenger in a vehicle driven by Steven Hedrick. [ ] Hed-rick’s vehicle was insured by Allstate with bodily injury liability limits in the amount of $50,000 per person. Allstate tendered its limits of $50,000 and, after the uninsured motorist carrier, [] Encompass, waived subrogation and consented to the settlement, [Kelly] accepted the policy limits tendered by Allstate. 2. [Kelly] has now filed this Declaratory Judgment action against [ ] Encompass seeking uninsured motorist benefits under a policy of automobile insurance maintained by her parents, Kenneth and Lynne Swartzbaugh (now Sieppe) (the “Policy”, attached hereto as Exhibit A). The Policy attached as Exhibit A is a true and accurate copy of the policy in effect at the time of the accident at issue. 3.

The questions the Court is asked to address are: (a) whether [Kelly] is entitled to uninsured motorist coverage benefits under the Policy; and, if so, (b) the amount of uninsured motorist coverage available to her in light of a waiver signed by [Kelly’s] mother, [Lynne], which limits the amount of uninsured motorists coverage to Maryland’s statutory minimum coverage limits of $20,000 each person/$40,000 each accident. The Plaintiffs challenge the validity of the waiver. 4. On or about July 27, 1998, [Lynne] signed the Personal Auto Application (the “Auto Application”), a true and accurate copy of which is attached hereto as Exhibit B, and submitted it to Keller-Stonebraker Insurance, Inc., an inde ¹³⁹ pendent insurance agency (“Keller-Stonebraker”),[ 3 ] for the purpose of obtaining private passenger motor vehicle automobile liability insurance for vehicles owned by her and her husband. 5. On September 26, 1998, [Lynne] signed the Universal Security Policy Maryland Supplemental Application, a true and accurate copy of which is attached hereto as Exhibit C, which contains a “Waiver of Increased Limits of Uninsured Motorist Coverage Private Passenger Motor Vehicle Liability Insurance” (the “Waiver”).

This Waiver is on the form the Commissioner requires. 6. The Auto Application reflects bodily injury liability limits of $250,000 each person/$500,000 each accident, and uninsured motorist limits of $20,000 each person/$40,000 each accident. 7. At no time prior to the date of the Occurrence at issue (March 8, 2008) did any party withdraw or amend the Waiver. (Emphasis omitted).

On June 22, 2009, Kelly filed her original complaint in the circuit court for declaratory judgment and other relief against Encompass. On September 24, 2009, Kelly filed an amended complaint to add her parents, Kenneth and Lynne, as plaintiffs. In the amended complaint, the Swartzbaughs asserted that beginning in approximately 1998 and continuing to the present time, Kenneth and Lynne obtained their motor vehicle insurance from Encompass, which included uninsured motorist coverage for Kelly as a resident relative of the named insureds. They alleged that, as a result of the accident, Kelly had incurred medical expenses in excess of $40,000.00, had suffered significant lost wages, and will suffer substantial reduced earnings and wages for the rest of her work life.

They claimed that the $50,000.00 tendered by Allstate was “woefully inadequate” to compensate Kelly for the losses and ¹⁴⁰ damages she had sustained as a result of the accident. According to the amended complaint, Encompass maintained that there existed only $20,000.00 in uninsured motorist coverage under the policy issued to Kenneth and Lynne, instead of the $250,000.00 to which the Swartzbaughs were entitled to under the liability coverage. The Swartzbaughs asserted, however, that Encompass failed to require the “FIRST named insured,” Kenneth, to execute the Waiver as required by Ins. § 19-510 and thus “Encompass must provide uninsured motorist coverage in an amount equal to the amount of the liability coverage provided under policy, ie., $250,000.00.” They requested that the circuit court, inter alia: (1) determine and adjudicate the rights and liabilities of the parties with respect to the subject policy of automobile insurance, (2) find and declare that “the affirmative written waiver” on the policy was invalid, and (3) reform the contract of insurance so as to provide uninsured motorist coverage to Kelly in an amount equal to the amount of the liability coverage. On March 31, 2010, the parties filed cross motions for summary judgment based on the Agreed Statement of Facts.

In an order entered on June 18, 2010, the circuit court denied the Swartzbaughs’ motion for summary judgment and granted Encompass’s motion for summary judgment. The court explained: The Court has been asked to declare whether or not there is any right of recovery on the part of the [Swartzbaughs], and if so, the nature and extent of available potential benefits to [Kelly] from her parents’ carrier. The problem with the case is that [Kelly] seeks to set aside a waiver executed by [Lynne] at the time the original policy of insurance was issued by Encompass to her parents on the grounds that [Lynne] executed the waiver of any right to obtain any additional uninsured motorist coverage, and that that waiver has never been modified. [Kelly] contends that [Kenneth] is the first named insured on the policy, and that under [the] applicable statute, the first named insured must waive the uninsured motorist coverage, and ¹⁴¹ therefore, notwithstanding the waiver signed by [Lynne], that uninsured motorist coverage benefits exist, and that a recovery is possible from Encompass. The Court has carefully reviewed all of the legal arguments advanced in this matter, and notes that there is no precise statutory definition of “first named insured” that would be fully dispositive of this issue.

By the same token, the Court finds that the waiver executed by [Lynne] some ten (10) years ago, presumably would operate to bar any recovery against Encompass for any uninsured motorist benefits under the facts and circumstances of this case, and that no recovery against Encompass is available as a matter of law or fact. (Emphasis added). On the same day, the court entered a declaratory judgment in favor of Encompass and declared: (1) Kelly [] is not entitled to uninsured motorist benefits pursuant to the terms and conditions of the [Swartzbaughs’ insurance policy]; (2) The affirmative written waiver signed by Lynne [] complies with [Ins.] § 19-510, in form and substance, and is valid and enforceable; (3) The notice required under [Ins.] § 19-510, was provided by Encompass; and (4) The uninsured motorist bodily injury limits under the [Swartzbaughs’ insurance policy] are limited to $20,000 per person/$40,000 per accident, such that the vehicle at issue (in which Kelly [ ] was a passenger at the time of the accident) was not an uninsured motor vehicle and Kelly [ ] is not entitled to any uninsured motorist benefits under the [Swartzbaughs’ insurance policy]. The Swartzbaughs filed a timely notice of appeal to this Court.

Additional facts will be set forth below as necessary to resolve the question presented. DISCUSSION The Parties’ Contentions The Swartzbaughs argue that the term “first named insured” in Ins. § 19-510 should be “liberally construed” in their ¹⁴² favor because of the statute’s remedial nature. According to them, because the term “first named insured” is not defined in Encompass’s policy or in the statute, this Court should interpret the term by its plain meaning, ie., “the insured who is named first in the policy.” The Swartzbaughs also assert that, if this Court interprets “first named insured” as synonymous with “named insured,” then this Court would be ignoring the word “first,” which violates the principle of statutory construction that requires “a statute, if reasonably possible, [ ] to be read so that no word ... is rendered surplusage, superfluous, meaningless, or nugatory.” (Quoting Mgmt. Pers.

Servs., Inc. v. Sandefur, 300 Md. 332, 341 , 478 A.2d 310 (1984)). The Swartzbaughs further contend that the parties could not have defined by contract a term in a legislatively enacted statute. In other words, they assert that the parties could not have defined “first named insured” amongst themselves and designated Lynne as the first named insured. They assert that, because Kenneth’s name was listed first on the policy, Lynne’s signature on the waiver form did not constitute a valid waiver, and thus they have not waived uninsured motorist benefits equal to the amount of liability coverage. 4 Encompass responds that “first named insured” has not been defined in the Insurance Code or in the insurance policy at issue.

Encompass contends that thus “there is no generally accepted definition of ‘first-named insured’ which this Court should impose upon the parties.” With “no generally accepted definition,” Encompass relies on general contract principles to argue that the parties are able to designate one of the named insureds as the “first named insured.” Encompass concludes ¹⁴³ that the parties to the contract permissibly identified Lynne as the “first named insured.” Standard of Review In Dutta v. State Farm Ins. Co., 363 Md. 540 , 769 A.2d 948 (2001), the Court of Appeals provided the following guidelines for interpreting a statute: In construing the meaning of a word in a statute, the cardinal rule is to ascertain and carry out the real legislative intention. Legislative intent generally is derived from the words of the statute at issue. We are not constrained, however, by ... the literal or usual meaning of the terms at issue.

Furthermore, we do not read statutory language in isolation or out of context [but construe it] in light of the legislature’s general purpose and in the context of the statute as a whole. When we pursue the context of statutory language, we are not limited to the words of the statute as they are printed in the Annotated Code. We may and often must consider other external manifestations or persuasive evidence, including a bill’s title and function paragraphs, amendments that occurred as it passed through the legislature, its relationship to earlier and subsequent legislation, and other material that fairly bears on the fundamental issue of legislative purpose or goal, which becomes the context within which we read the particular language before us in a given case. Id. at 549-50 , 769 A.2d 948 (first and second alterations in original) (emphasis added) (citations and quotations omitted).

Analysis 1. Mandatory Uninsured Motorist Coverage In 1975, the General Assembly first introduced into law the requirement for mandatory uninsured motorist coverage un ¹⁴⁴ der Maryland Code (1957, 1979 Repl.Vol.), Article 48A § 541. 1975 Md. Laws, Chap. 562. The stated purpose of the law was to “requir[e] that every motor vehicle liability insurance policy issued after a certain date contain uninsured motorist coverage in certain minimum amounts.” Id. Subsection 541(c) addressed uninsured motorist coverage and stated in full: (c) Uninsured motorist coverage.—In addition to any other coverage required by this subtitle, every policy of motor vehicle liability insurance issued, sold, or delivered in this State after July 1,1975 shall contain coverage, in at least the amounts required under Title 17 of the Transportation Article, 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.

The coverage required under this subsection (c) shall be in such form and subject to such conditions as may be approved by the Commissioner of Insurance. Any provision in any policy of motor vehicle liability insurance issued after July 1, 1975, with respect to the coverage provided for damages sustained by the insured as a result of the operation of an uninsured motor vehicle, which commands or requires the submission of any dispute between the insured and the insurer to binding arbitration, is prohibited and shall be of no legal force or effect. In no case shall the uninsured motorist coverage be less than the coverage afforded a qualified person under Article 48A §§ 243H and 243-1. The coverage required under this subsection shall be primary to any right to recover from the Maryland Automobile Insurance Fund pursuant to § 243H of this article.

(Emphasis added). In 1981, the General Assembly added language to section 541 that required insurance companies make available to the insured “the opportunity to contract for higher amounts than ¹⁴⁵ those provided under Title 17 of the Transportation Article,” as long as the “amounts do not exceed the amounts of the motor vehicle liability coverage provided by the policy.” 1981 Md. Laws, Chap. 510 (emphasis added). In 1989, the General Assembly revised section 541 to require insurance companies to offer in writing the opportunity to contract for higher amounts of uninsured motorist coverage. 1989 Md. Laws, Chap. 542. Prior to the 1989 amendment, section 541 required only that the insurance company issue the additional coverage upon request and “take[ ] reasonable steps to inform its insureds that such coverage is available to them.” See Libby v. Gov’t Emps.

Ins. Co., 79 Md.App. 717, 726-27 , 558 A.2d 1236 (1989). In 1992, the legislature significantly amended section 541 to require insurance companies to provide uninsured motorist coverage in the same amount as liability coverage unless waived by the insured. 1992 Md. Laws, Chap. 641. Delegate Carolyn Krysiak explained the rationale behind the 1992 amendment: Maryland law does not go far enough to prevent auto owners from opting for inadequate [uninsured motorist] coverage.

Maryland law requires that all auto owners carry [uninsured motorist] coverage at rates of $20,000/$40,000 for bodily injury and $10,000 for property damage. The cost of this mandatory coverage is $10 a year. The law further requires insurance carriers to make higher [uninsured motorist] rates available, up to the policy face value limit. A 1989 law requires insurance carriers to inform policyholders and prospective policyholders in writing that such increased [uninsured motorist] coverage is available and give them the opportunity to obtain it.

Nevertheless, approximately 50% of the State’s drivers continue to carry only the 20-40-10 mandatory [uninsured motorist] coverage. The more policyholders I speak with, the more I am convinced that this is because most people are simply unaware of the importance of carrying [uninsured motorist] coverage in the same amount as their basic policy and how little it costs to do so. It costs an additional ¹⁴⁶ $16 on the yearly premium to increase [uninsured motorist] personal injury coverage to $100,000/$300,000 and [uninsured motorist] property damage to $25,000. In short, the auto owner who carries 100/300 in coverage, but only has 20/40/10 in [uninsured motorist] coverage, has shortchanged his own protection under his own policy.

He has protected the other party to an accident to a greater degree than he has protected himself and his family. ... But unfortunately, most people only learn this fact when they have been involved in a serious accident with an uninsured or underinsured motorist ... and then, it’s too late. Hearing Before Economic Matters Committee, H.B. 1039, 1992 Leg., 404th Sess. (Md.1992) (second ellipsis in original).

In sum, the impetus behind the 1992 amendment was the lack of awareness regarding the importance of carrying uninsured motorist coverage in an amount equal to the policy’s liability coverage. By requiring the insured to affirmatively waive higher uninsured motorist coverage, an “insured’s inaction [wa]s more protection,” and the “ ‘default setting’ recognize[d] the realities of life and dovetailed] with the legislative aim of [uninsured motorist] coverage—a full recovery.” Andrew Janquitto, Maryland Motor Vehicle Insurance, § 8.7 (2008 Supp.). The 1992 amendment was originally introduced as Senate Bill 767 (“S.B. 767”). S.B. 767 required “the amount of uninsured motorist coverage to be equal to the amount of motor vehicle liability coverage in a private passenger motor vehicle liability insurance policy unless the insured makes a specified waiver of that level of coverage under designated circumstances.” (Emphasis added).

The original draft of S.B. 767 did not use the term “first named insured.” After the Senate passed S.B. 767, the House of Delegates amended the bill to conform with H.B. 1039, the' cross filed version of S.B. 767. The House’s revision provided that the “first named insured” could reduce the higher limits on the ¹⁴⁷ uninsured motorist coverage “by affirmatively waiving it in a manner that is similar to the PIP [ (personal injury protection) ] waiver.” Thus the House