News

NEW OPINION REGARDING UIM SETTLEMENTS

On December 6, 2007, the Court of Appeals of Maryland issued an important opinion that will affect the considerations that you must make when faced with a UIM claim.

The opinion is Maurer v. Pennsylvania National Mutual Casualty Ins. Co., No. 131, Sept. Term 2006. It arose out of a single car accident that occurred after the driver and passenger had spent the evening drinking together. The passenger, Maurer, was seriously injured. The driver’s liability carrier, GEICO, offered Maurer its liability limits of $25,000. Maurer then notified his UIM carrier, Penn National, of the settlement offer and, within the requisite 60 days, Penn National consented to the settlement, and GEICO paid Maurer the $25,000. Maurer subsequently filed a UIM claim against Penn National, seeking damages in excess of $25,000. His UIM limits were $225,000. The case proceeded to trial with Penn National arguing that Maurer could not recover because he was contributorily negligent and/or assumed the risk of injury. The jury found in favor of Penn National, deciding that Maurer was contributorily negligent.

Maurer appealed and prior to argument in the intermediate appellate court, the Court of Appeals issued a writ of certiorari. The issues briefed and argued by the parties were focused on the jury instructions presented at trial. The Court of Appeals analyzed the jury instruction issues for eight pages and concluded that the instructions amounted to prejudicial error. Thus, judgment was reversed and the case was remanded for a new trial.

After reaching this conclusion, the Court of Appeals took the opportunity to sua sponte address the effect that the UIM carrier’s consent to settlement pursuant to 19-511 had on its ability to present liability defenses in the UIM litigation. Because the case was being remanded for a new trial, the Court addressed this issue as a way to guide the Circuit Court in the new trial.

The Court of Appeals ruled that an uninsured motorist carrier’s consent under section 19-511 of the Insurance Article to its insured’s acceptance of the liability carrier’s offer of settlement precludes the UIM carrier from asserting any defense to the tortfeasor’s liability. Thus, in this case, the Court ruled that, on remand, Penn National should not be allowed to contest the issue of the driver’s tort liability. It cannot argue that its insured was contributorily negligent or assumed the risk, even though this was the basis for the first jury’s verdict in Penn National’s favor. The Court based this decision on the fact that UIM coverage is coverage for damages that the insured is entitled to recover from the uninsured/ underinsured tortfeasor. Under the 19-511 situation, when the insured settles with the tortfeasor, that resolves the issue of whether the insured is entitled to recover from the tortfeasor. The issue of how much the insured is entitled to recover is usually still unresolved.

The effect that this Court’s opinion will have on UIM carriers’ conduct is complicated by the Court of Special Appeals’ recent opinion in Ohio Casualty Ins. Co. v. Chamberlin, 172 Md. App. 229, 914 A.2d 160 (2007). As outlined in our January 4, 2007 letter to you, that case held that, under 19-511, when a UIM carrier refuses to consent to the acceptance of a settlement offer and, instead, pays the settlement offer (as required by 19-511(c)), "it bears the risk that a jury might return a verdict in an amount less than the amount advanced or in favor of the defendant(s) and is not entitled to a refund of any amount paid." Id. at 240. Thus, if the UIM carrier believes that there exists a valid tort liability defense, and it refuses to consent to the acceptance of the liability carrier’s settlement offer, the UIM carrier will not be entitled to a reimbursement of its payment for that settlement offer, even if it was correct in its belief that there was a valid defense to tort liability. Despite there being no liability on behalf of the tortfeasor, the UIM carrier is required to pay the amount of the tortfeasor’s liability policy.

Prior to this opinion, the UIM carrier’s other option was to consent to the acceptance of the settlement offer and waive subrogation. Following Maurer, however, if the UIM carrier believes that there is a valid tort liability defense, it may not have any choice but to refuse to consent to their insured’s acceptance of a settlement offer and pay it directly to the insured. This is the only method by which a UIM carrier could raise a tort liability defense. Following Ohio Casualty, of course, if the UIM carrier prevails on the tort liability defense that it raised on behalf of the underinsured motorist, and, in fact, establishes that its insured was not entitled to recover from the tortfeasor, it cannot recover the settlement amount that it paid in order to be able to raise the liability defense in the first place.

The Maurer decision was not limited to prospective application. The Court of Appeals was interpreting the law as it understands it to currently exist. Thus, the decision affects pending litigation. What has not been directly answered by the Court is whether an explicit agreement that the UIM carrier’s waiver of subrogation does not affect its ability to raise the tortfeasor’s liability defenses is valid. In other words, if the UIM carrier waived subrogation, but obtained an agreement from the insured’s counsel that such waiver did not affect its ability to raise the tortfeasor’s liability defenses, would such an agreement be enforceable?

It is our understanding that the UIM insurer is moving for reconsideration. Perhaps the Court will once again reconsider its ruling. However, given that this is the second time the Court has made such a ruling, it is deemed unlikely. We will keep you advised of any changes. In the meantime, if you have any questions regarding this opinion, please do not hesitate to contact us.

Amy L. Leone
Jonathan R. Clark