Swartzbaugh v. Encompass Insurance Co. of America

⁶¹⁶ McDonald, J. In the motor vehicle insurance law, the phrase “first named insured” makes a cameo appearance, serving only to identify the person who has authority to accept or waive certain types of coverage under a policy. In 1996, when that law was recodified as part of the new Insurance Article of the Maryland Code, the code revisors observed that “the meaning of the terms ‘insured’ and ‘first named insured’ is not always clear. The General Assembly may want to consider clarifying the meaning of these terms....” 1 The General Assembly has not yet taken up that suggestion. The issue that the code revisors foresaw is at the center of this case, which turns on the meaning of “first named insured.” We hold that, in the context of a motor vehicle insurance policy, the phrase “first named insured” refers to a person insured under the policy and specifically named in the policy, who acts on behalf of the other insured parties and is designated as such in the policy documents.

Motor Vehicle Insurance Compulsory Motor Vehicle Insurance Since the early 1970s, Maryland’s compulsory motor vehicle insurance law has been designed to ensure that “those who own and operate motor vehicles registered in the State are financially able to pay compensation for damages from motor vehicle accidents.” Enterprise Leasing Co. v. Allstate Insurance Co., 341 Md. 541, 549 , 671 A.2d 509, 514 (1996). That law makes automobile liability insurance a prerequisite to the registration of a motor vehicle. Maryland Code, Transportation Article (“TR”), §§ 17-103, 17-104. The law specifies certain types of coverage that a policy must contain.

As a result, policies will generally contain similar or identical provisions in order to comply with Maryland law, although there is no standard automobile insurance policy in Maryland. A. ⁶¹⁷ Janquitto, Maryland Motor Vehicle Insurance (3d ed.2011) (“Janquitto”), § 6.6 at 161. Required Coverages Under the compulsory insurance law, a motor vehicle insurance policy must provide minimum liability coverage of $30,000 per person for personal injuries, up to a total of $60,000 per accident, and $15,000 for property damage. Maryland Code, Insurance Article (“IN”), § 19-504, TR § 17-103(b)(1),(2).

The policy must also provide a form of no fault insurance — generally referred to as personal injury protection or “PIP coverage” — to cover medical, hospital, and disability expenses for the insured, family members, guests and authorized users without regard to fault. IN § 19-505; TR § 17-103(b)(3). Finally, pertinent to this case, a policy must provide protection against damages caused by uninsured motorists, sometimes referred to as “UM coverage.” IN § 19-509; TR § 17 — 103(b)(4). It is well-settled that UM coverage includes coverage for accidents involving under-insured, as well as uninsured, motorists.

GEICO v. Comer, 419 Md. 89 , 91 n. 1, 18 A.3d 830 (2011). Waivers of PIP and UM Coverage With respect to both PIP and UM coverage, State law allows for waivers of the coverage that the law otherwise specifies. In particular, PIP coverage may be waived altogether with respect to named insured individuals and drivers listed in a policy, as well as family members over the age of 16 residing in the household. IN § 19-506(b)(2).

The waiver must be in writing on a form devised by the Maryland Insurance Administration (“MIA”) that complies with certain statutory standards concerning format and content. IN § 19-506(d). The waiver is to be executed by the “first named insured.” IN § 19-506(a). Such a waiver would presumably reduce the cost of the insurance policy.

See MAIF v. Perry, 356 Md. 668, 675-76 , 741 A.2d 1114 (1999) (waiver provision added to statute in light of escalating cost of PIP coverage); IN § 19-506(d)(3)(i) (waiver form to explain cost of coverage). ⁶¹⁸ Under the State insurance code, UM coverage under a motor vehicle insurance policy is by default equal to the liability coverage under the policy. IN §§ 19-509(e)(2), 19-510(b)(2). This level of coverage may be waived, however, in favor of a lesser amount at least equal to the minimum coverage required by the motor vehicle law. IN § 19-510.

As with the waiver of PIP coverage, this waiver must be in writing on a form devised by the MIA that complies with certain statutory standards concerning format and content. IN § 19-510(d). The waiver is to be executed by the “first named insured.” IN § 19 — 510(b). Again, the waiver of higher limits of coverage will reduce the premium owed for the policy.

The effectiveness of a waiver of enhanced UM benefits in favor of the minimum amounts required by law is at issue in this case. The Swartzbaugh Case The facts are straightforward and not in dispute. This case concerns an insurance policy purchased by Kenneth and Lynne Swartzbaugh and its potential coverage of an accident involving their daughter, Kelly Swartzbaugh. 2 In July 1998, Lynne, who handled the family finances with respect to insurance and related items, applied for insurance coverage for the family with a local independent insurance broker. She ultimately purchased a “package” policy that included both homeowners and motor vehicle insurance with Respondent Encompass Insurance Company. 3 With respect to motor vehicle ⁶¹⁹ insurance, the policy provided liability coverage in the amounts of $250,000 per person and up to $500,000 per accident.

As later amended, it listed three vehicles, and named Kenneth, Lynne, and Kelly as drivers. In connection with the automobile policy, Lynne executed a waiver of higher UM coverage on the standard MIA form. The form included a paragraph above the signature line which stated: This is to certify that: I am the first named insured!applicant. I have been offered Uninsured Motorist Coverage in amounts equal to my Personal Liability Coverage limits at a total premium of $204 annually.

I affirmatively waive this offer and instead elect to purchase lower uninsured motorists limits of $20/$40 (bodily injury) and $10 (property damage), at a total premium of $61 annually, subject to the minimum limits required by Maryland law. (emphasis added). 4 Immediately beneath the signature line appeared the legend: “(Signature of First Named Insured).” The reference to “$20/$40 (bodily injury) and $10 (property damage)” referred to the minimum coverage amounts in effect when the waiver was executed in 1998 — $20,000 for personal injuries per person up to $40,000 per accident and $10,000 for property damage 5 — all substantially below the UM coverage that would have prevailed under the policy in the absence of a waiver. By its terms, consistent with Maryland law, the waiver remained in effect until withdrawn. See IN § 19-510(e).

The waiver was never withdrawn. In March 2008, Kelly was injured while a passenger in an accident involving an under-insured driver. The driver’s in ⁶²⁰ surer tendered the limits of his policy. Because the higher limits of UM coverage on the Petitioners’ own motor vehicle policy had been waived, she was unable to collect further damages from Encompass under that policy’s UM coverage.

The Petitioners then brought a declaratory judgment action in the Circuit Court for Carroll County, seeking a declaration that the waiver was ineffective on the ground that Lynne was not in fact the “first named insured” on the policy. The circuit court disagreed and ruled that the waiver signed by Lynne was valid and enforceable. The Petitioners appealed to the Court of Special Appeals, which affirmed the circuit court in a reported decision. Swartzbaugh v. Encompass Ins.

Co., 201 Md.App. 133 , 28 A.3d 785 (2011). We granted certiorari to decide the significance of the phrase “first named insured” as used in IN § 19-510 and its application to this case. Analysis Petitioners challenge the effectiveness of Lynne’s waiver of enhanced UM coverage. As indicated above, the effectiveness of the waiver turns on whether Lynne was properly considered the “first named insured” with respect to the Petitioners’ motor vehicle insurance policy at the time she executed the waiver in 1998. 6 The determination of this question is, in part, a matter of statutory construction — for it is the statute that specifies that the waiver is to be made by the “first named insured.” We start with the statutory language, consider its context and history, and assess the proposed constructions. ⁶²¹ Statutory Language The relevant statute provides as follows: (a) This section applies only when the liability coverage under a policy or binder of private passenger motor vehicle liability insurance exceeds the amount required under §17-103 of the Transportation Article.

(b) (1) If the first named insured under a policy or binder of private passenger motor vehicle liability insurance does not wish to obtain uninsured motorist coverage in the same amount as the liability coverage provided under the policy or binder, the first named insured shall make an affirmative written waiver of having uninsured motorist coverage in the same amount as the liability coverage. (2) If the first named insured does not make an affirmative written waiver under this section, the insurer shall provide uninsured motorist coverage in an amount equal to the amount of the liability coverage provided under the policy or binder. (c) A waiver made under this section is not effective unless, prior to the waiver, the insurer gives the first named insured written notice of the nature, extent, benefit, and cost of the level of the uninsured motorist coverage being waived. (d) (1) A waiver made under this section shall be made on the form that the Commissioner requires.

(2) The form may be part of the insurance contract. (3) The form shall clearly and concisely explain in 10 point boldface type: (i) the nature, extent, benefit, and cost of the level of the uninsured motorist coverage that would be provided under the policy if not waived by the first named insured; (ii) that a failure of the first named insured to make a waiver requires an insurer to provide uninsured motorist coverage in an amount equal to the amount of the liability coverage provided under the policy or binder of private passenger motor vehicle liability insurance; ⁶²² (iii) that an insurer may not refuse to underwrite a person because the person refuses to waive the excess uninsured motorist coverage under the section; and (iv) that a waiver made under this section must be an affirmative written waiver. (4) Subject to the Commissioner’s approval, a waiver made under this section may be made on the same form as the waiver made under § 19-506 of this subtitle. (e) A waiver made under this section by a person that is insured continuously by an insurer or by the Maryland Automobile Insurance Fund is effective until the waiver is withdrawn in writing.

(f) (1) An insurer may not refuse to underwrite a person because the person refuses to waive the excess uninsured motorist coverage under this section. (2) An insurer that violates this subsection is subject to the penalties provided by § § 4-113 and 4-114 of this article. IN § 19-510 (emphasis added). The phrase “named insured” is defined, for purposes of the motor vehicle insurance law, as “the person denominated in the declarations in a motor vehicle liability insurance policy.” IN § 19 — 501(d).

The phrase “first named insured” is not defined in IN § 19-510, nor is it defined elsewhere in the insurance code. Statutory Context Neither the State motor vehicle law nor the insurance code explicitly requires any particular individuals to be named in, or insured under, a motor vehicle insurance policy, as the law literally requires that vehicles, not specific individuals, be. covered. See TR § 17 — 104(b); IN § 19-504. It is a reasonable inference, however, that a policy would name and cover at least the owner of the vehicle or the individual who routinely drives it.

See Janquitto, § 7.6 at 193 & n. 116. In any event, neither the motor vehicle law nor the insurance code necessarily dictates the identity of the individuals to be insured under a policy, much less designates who should be “first named ⁶²³ insured.” Nor does it appear that the Legislature was incorporating a standard industry form in referring to the “first named insured” because, as mentioned earlier, there is no standard automobile insurance policy in Maryland. A motor vehicle insurance policy also typically covers various classes of individuals who are not specifically named in the policy. For example, some individuals insured under a motor vehicle policy are covered by “omnibus” clauses that describe categories of individuals, such members of the policyholder’s family or permissive users of the automobile.

Janquitto, § 7.7 at 195ff. 7 Thus, it appears likely that the concept of a “named insured,” at least in the context of an automobile insurance policy, distinguishes those individuals covered by the policy who are specifically named in the policy, in contrast to those who are covered but only generally described and not named. Legislative History The legislative history of the waiver provisions for PIP and enhanced UM coverage was thoroughly reviewed by the Court of Special Appeals in its opinion in this case, 201 Md.App. at 143-49 , 28 A.3d 785 , and we need only briefly summarize it here. When the General Assembly first mandated in 1975 that motor vehicle insurance policies include UM coverage, it required that such coverage be in “at least” the minimum amount of liability coverage required by the compulsory insurance law. Chapter 562, Laws of Maryland 1975.

During the 1980s, it amended the statute to require insurers to offer, in writing, higher UM coverage limits up to the amounts of liability coverage provided by the particular policy. Chapter 542, Laws of Maryland 1989; Chapter 510, Laws of Maryland 1981. There was concern, however, that Maryland drivers were not taking advantage of the higher UM coverage limits that were available. In 1992, the Legislature amended the