Nationwide Mut. Ins. Co. v. Webb

• Citation: 291 Md. 721,436 A.2d 465
• Decision Date: 06 November 1981
• Docket Number: No. 11,11
• Parties: , 24 A.L.R.4th 1001 NATIONWIDE MUTUAL INSURANCE COMPANY v. William Jackson WEBB. MARYLAND AUTOMOBILE INSURANCE FUND v. Anthony J. FRANZ, Indiv. and t/a Diamond Cab.
• Court: Court of Appeals of Maryland

Page 721

291 Md. 721

436 A.2d 465, 24 A.L.R.4th 1001

NATIONWIDE MUTUAL INSURANCE COMPANY v. William Jackson WEBB.

MARYLAND AUTOMOBILE INSURANCE FUND v. Anthony J. FRANZ, Indiv. and t/a Diamond Cab.

No. 11.

Court of Appeals of Maryland.

Nov. 6, 1981.

John W. T. Webb and Ernest I. Cornbrooks, III, Salisbury (Webb, Burnett & Duvall, Salisbury, on the brief), for appellant, Nationwide Mut. Ins. Co.

Sidney G. Leech, Baltimore (Semmes, Bowen & Semmes, Baltimore, on the brief), for appellant, Maryland Auto. Ins. Fund.

Thomas S. Simpkins, Princess Anne, for appellee, William Jackson Webb.

Douglas W. Knight, Baltimore (Leonard, Phillips & Knight, Baltimore, on the brief), for appellee, Anthony J. Franz, Indiv. and t/a Diamond Cab.

Argued before MURPHY, C. J., and SMITH, DIGGES, ELDRIDGE, COLE, DAVIDSON, and RODOWSKY, JJ.

ELDRIDGE, Judge.

The Maryland Legislature has mandated that every motor vehicle liability insurance policy issued, sold or delivered in this State after July 1, 1975, shall contain coverage in certain minimum amounts "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 vehicle." ¹ Maryland Code (1957, 1979 Repl. Vol.), Art. 48A, § 541(c). That subsection, known as the uninsured motorist law, goes on to provide, inter alia, that any provision in an uninsured motorist endorsement which requires the submission to binding arbitration of any dispute between the insured and insurer is prohibited and shall be of no legal effect. ²

We granted petitions for writs of certiorari in these two cases, and ordered that the cases be consolidated, because both petitions seemed to encompass the same important legal issue arising under the uninsured motorist statute. That issue concerned the enforceability, in light of the statute and the surrounding circumstances, of a "consent to sue" clause in an uninsured motorist endorsement. The clause provided that no judgment against any person alleged to be legally responsible for the insured's injuries will be conclusive, as between the insured and the insurer, on the issues of the liability of that person to the insured or the amount of damages which the insured is entitled to recover, "unless such judgment is entered pursuant to an action prosecuted by the insured with the written consent of the (insurance) Company." Although both cases had appeared to present this issue, it is now clear that only one of them, Maryland Automobile Insurance Fund v. Franz, actually involves the question. Consequently, we shall deal with the cases separately in this opinion.

I. Maryland Automobile Insurance Fund v. Franz

On January 1, 1976, the Maryland Automobile Insurance Fund (MAIF) issued, upon payment of the requisite premium, an automobile liability insurance policy to Anthony J. Franz, providing insurance coverage, including an uninsured motorist endorsement, on Mr. Franz's taxicab from January 1, 1976, until January 1, 1977. ³ Under one of the "coverage" sections of the endorsement, it was provided that no default judgment against anyone "alleged to be legally responsible" for the insured's damage "shall be conclusive, as between the insured and the company," as to liability or damages "unless such judgment is entered pursuant to an action prosecuted by the insured with the written consent of the Company." The same coverage section provided that the insured's legal entitlement to recover against the uninsured motorist and the amount of that recovery, in the absence of an agreement between the insurer and insured, was to be determined by arbitration. ⁴

In addition, there was an exclusion in the uninsured motorist endorsement if the insured or his representative "without written consent of the company, made any settlement with any person or organization who may be legally liable" for the insured's bodily injury or property damage. Finally, the endorsement in the MAIF policy contained a detailed arbitration clause. ⁵

On January 17, 1976, the insured, Mr. Franz, while operating his taxicab, was injured in a collision in Baltimore City between his vehicle and an automobile owned and operated by John Henry Adams. The insurance policy on Adams's automobile had been cancelled the day before because of nonpayment of premium, and thus Adams was an uninsured motorist. It is undisputed that Franz timely notified MAIF of the accident, made a claim under the uninsured motorist endorsement of his policy, submitted proof of his injuries, and demanded payment from MAIF. The insurer refused to pay Franz's claim without giving any reason for its refusal.

After MAIF's rejection of his claim, Franz, in September 1976, filed in the District Court of Maryland, sitting in Baltimore City, a tort action against the uninsured motorist Adams, seeking recovery of his damages resulting from the accident. Also in September, Franz, by his attorney, sent MAIF a letter notifying the insurer of the suit, enclosing copies of the "suit papers," and requesting that MAIF appear in the matter. MAIF replied by a letter dated September 28, 1976, informing Franz's attorney that it would not participate in the case. Franz's attorney, on December 2, 1976, and again on January 3, 1977, wrote to MAIF and informed the insurer that the tort suit was scheduled for trial on January 25, 1977, that, if MAIF did not intervene and enter a defense, Franz would seek a default judgment against Adams (who apparently, had made it known that he would not defend), and that Franz would take steps to enforce the judgment against MAIF under the uninsured motorist endorsement of the policy. At the trial of the tort suit on January 25, 1977, MAIF did not appear and a default judgment was entered in favor of Franz and against Adams for $3,182.84 plus court costs. Shortly thereafter, Franz notified MAIF of the judgment and requested payment, but the insurer refused.

Franz then instituted the present contract action against MAIF in the Superior Court for Baltimore City, claiming damages of $3,196.84 (consisting of the $3,182.84 tort judgment plus $14.00 court costs in the tort action). Franz filed a motion for summary judgment, taking the position that MAIF, having had notice and an opportunity to intervene in the tort action but having refused to intervene, was liable as a matter of law for the amount of the tort judgment against Adams. Franz contended that the clause in the uninsured motorist endorsement, requiring MAIF's consent for the prosecution of the tort suit in order for the insurer to be bound by the default judgment, was unenforceable under the uninsured motorist law.

MAIF opposed the motion for summary judgment on the ground that it had not consented to the prosecution of the tort suit against Adams and that, therefore, it was not bound by the default judgment under the terms of the endorsement. MAIF's position was that Franz was required to relitigate, in the contract action, the issues of Adams's tort liability and the amount of damages. MAIF's answer did not suggest that it had any contract defenses apart from the issues resolved in the tort suit; instead, the insurer relied entirely upon its asserted right under the policy to have the Superior Court, in the contract action, "adjudicate the legal liability of the uninsured motorist, John Henry Adams, to the Plaintiff, Anthony J. Franz ...."

The Superior Court, agreeing with MAIF's position, denied the motion for summary judgment and ordered that the case be tried. At the subsequent non-jury trial, MAIF defended on the ground that Franz's contributory negligence had been the proximate cause of the collision between his taxicab and Adams's uninsured automobile. At the conclusion of the trial testimony, the court found that Franz was not contributorily negligent and awarded him judgment in the amount of $3,000.00 plus costs.

MAIF appealed to the Court of Special Appeals, contending that the trial court's finding were clearly erroneous and that Franz was guilty of contributory negligence. Franz took a cross-appeal, insisting that the issues in the earlier tort case should not have been re-litigated in the contract action, that under the circumstances MAIF was bound by the judgment in the tort suit, and that, therefore, he was entitled to a judgment for $3,196.84 instead of the $3,000.00 awarded.

The Court of Special Appeals, agreeing with Franz, modified the judgment of the Superior Court of Baltimore City by raising the award to the same figure as the judgment in the tort case, and, as modified, affirmed. The intermediate appellate court, in an opinion by Judge Lowe, held that the clause in the uninsured motorist endorsement, requiring the insurer's consent to prosecute a tort suit against the uninsured motorist in order for that judgment to be binding, was void under the statute and that an insurer, having notice of the tort action and an opportunity to intervene, was bound by the determinations in that tort action regarding the liability of the uninsured motorist to the insured and the amount of damages, 44 Md.App. 547, 409 A.2d 1127 (1980). This Court then granted MAIF's petition for a writ of certiorari, 287 Md. 754.

This Court has consistently rejected attempts by insurers, as well as insureds and the insurance commissioner, to circumvent the plain language of the required coverage provisions of the statutes dealing with automobile insurance. Yarmuth v. Gov't Employees Ins. Co., 286 Md. 256, 407 A.2d 315 (1979); Reese v. State Farm Mut. Auto. Ins., 285 Md. 548, 403 A.2d 1229 (1979); State Farm Mut. v. Ins. Comm'r, 283 Md. 663, 670-674, 392 A.2d 1114 (1978); Government Employees Ins. v. Harvey, 278 Md. 548, 366 A.2d 13 (1976); Travelers Ins. Co. v. Benton, 278 Md. 542, 365 A.2d 1000 (1976); State Farm v. Md. Auto Ins. Fund, 277 Md. 602, 356 A.2d 560 (1976); Maryland Auto Ins. Fund...