Two companion uninsured/underinsured motorist cases out of Cecil County were decided by the Maryland Court of Appeals last month. The take home message for Maryland lawyers handling uninsured motorist cases: if you don’t follow the rules by settling with the underlying carrier, the court is not going to let you off the mat. It is the ultimate in form over substance. I disagree with the law, but I can’t quibble with the court’s 6-1 decision. Really? Insurance companies should not be trying to eviscerate insurance agreements with their own clients, because their lawyers screwed up.
Both cases, Woznicki v. General Insurance Company and Morse v. Erie Insurance Exchange involved the typical scenario; in which the tortfeasor’s liability insurance tenders the policy and the plaintiff’s attorney accepts, while intending to make an uninsured motorist claim. This is a special set of facts. In this case, the insured’s UM policy explicitly stated that they had to bless any settlement with the tortfeasor’s liability insurance carrier — or pony up the policy themselves — to activate the UM coverage after a release was signed.
In the first case, Woznicki, the victim had GEICO UM coverage. The insurance company required notification and consent from GEICO of any settlement that would exhaust the tortfeasor’s liability insurance limits. Plaintiff sues the other driver, who agrees to settle the claim for policy limits.
Here’s the problem: on the same day she settles, her attorney sends a letter to GEICO saying that the tortfeasor had limited coverage, nothing else. A few months after the settlement with the liability carrier (Nationwide), they allegedly received oral permission from GEICO to settle the claim via phone call from a claims adjuster. This is not the law. But they follow up with a letter that says that the claim against Nationwide has been “tendered,” and ask for permission to settle the claim that they already settled.
Ask for forgiveness, not permission right? Coffee mug adages can let you down. GEICO rejects their letter, claiming that the “consent to settle” term of their policy was not followed, thus they cannot provide any UM coverage. Plaintiff filed a breach of insurance contract. GEICO successfully moves for summary judgment.
In granting summary judgment, the trial judge makes three important points which serve as the bases of the appeal: 1) The terms of the insurance policy and Maryland law were not adhered to by the plaintiff (by excluding GEICO from settlement negotiations with Nationwide); 2) The alleged phone conversation between Plaintiff #1’s attorney and the GEICO adjuster did not waive GEICO’s right to be informed of the settlement and 3) GEICO did not have to show prejudice caused by Plaintiff #1 failing to obtain consent to settle the case against the liability carrier.
The second case, Morse, is similar except that her attorney sent the request for permission to settle to the wrong address. While this blunder was getting sorted out, the Plaintiff became impatient and accepted the full value of the tortfeasor’s liability coverage. Once again, the UM carrier (Erie in this case) denied UM coverage and won at trial and again on appeal when COSA said that “obtaining consent to settle is not the equivalent of providing notice,” only the latter of which was done here.
Compliance with MD Settlement Procedure
Judge Greene wrote the majority opinion for a court that ruled in favor of the GEICO/Erie. After a brief history lesson about UM coverage in Maryland — one that is worth reading — the court dove into what this case is really about: compliance with two insurance statutes and the rationales behind them. Judge Greene was up front about the purpose of the UM insurance statutes: to protect an injured person’s right to make a claim against the liability carrier AND the UM carrier, something that was often difficult prior to the enactment of the two statutes at issue here. Those statutes, Md. Code Insurance, § 19-511 and § 19-110, lay out the procedure that Plaintiffs should have adhered to when settling their liability claims. Namely, notifying and obtaining consent from the UM carrier before accepting a settlement from the liability carrier.