Morse v. Erie Ins. Exch.

• Decision Date: 29 April 2014
• Docket Number: No. 0511,Sept. Term, 2013.,0511
• Citation: 90 A.3d 512,217 Md.App. 1
• Parties: Jeannine MORSE v. ERIE INSURANCE EXCHANGE.
• Court: Court of Special Appeals of Maryland

217 Md.App. 1

90 A.3d 512

Jeannine MORSE

v.ERIE INSURANCE EXCHANGE.

No. 0511, Sept. Term, 2013.

Court of Special Appeals of Maryland.

April 29, 2014.

Ryan S. Perlin (Salsbury, Clements, Berkman, Marder & Adkins, LLC, on the brief), Baltimore, MD, for Appellant.

Jonathan R. Clark (Amy Leete Leone, McCarthy, Wilson, LLP, on the brief), Rockville, MD, for Appellee.

Panel: WOODWARD, MATRICCIANI, CHARLES E. MOYLAN, JR. (Retired, Specially Assigned), JJ.

MOYLAN, J.

In this uninsured motorist insurance coverage dispute, we must choose between two diverging roads: one requiring compliance with a statutory scheme, the other excusing compliance in favor of a more equitable (or at least less harsh) result. Unlike Robert Frost,¹ we feel constrained to choose the first road, more traveled as it may be. For the parties here—Jeannine Morse, the appellant, and Erie Insurance Exchange, the appellee—that will make all the difference.

The Acceptance of the Settlement Offer

This case arises out of an April 28, 2007 automobile accident between Jeannine Morse and Paula Smallwood in New Castle, Delaware. The accident itself is not relevant to this appeal, and the parties agree that Smallwood was at fault. Smallwood maintained an automobile insurance policy with Nationwide Insurance Company that provided up to $15,000 in liability coverage. Morse maintained her own uninsured motorist coverage through Erie Insurance Exchange. The uninsured motorist endorsement on Morse's policy contained a consent to settle clause that mirrors the settlement procedures set forth in Md.Code, § 19–511 of the Insurance Article.²

On October 13, 2008, Nationwide offered Morse the full $15,000 policy limit in settlement of her claim against Smallwood. On October 14 or 15, 2008, Morse's then-attorney notified Erie of the settlement offer by telephone. On October 27, 2008, she notified Erie of the offer by mail. Morse's attorney did not send the notice by certified mail, however, and Erie claims it did not receive the notice until December 5 or 6, 2008.

In the meantime, on November 3, 2008, without obtaining Erie's consent to the settlement, Morse accepted Nationwide's offer and signed a release of all claims against Smallwood. Morse's attorney stamped the release with a notation: “Nothing contained in this release waives, limits, or extinguishes any future claims for UM/UIM or PIP benefits.” Erie learned that Morse had accepted the settlement on February 4, 2009, but did not receive a copy of the executed release agreement until July 8, 2009.

On November 5, 2009, Erie denied Morse's claim for uninsured motorist benefits. Erie gave three reasons: 1) “Ms. Morse signed the Release agreement and negotiated the Nationwide settlement check prior to sending ERIE the notice as required by [Md.Code, § 19–511 of the Insurance Article]”; 2) “the subject release agreement signed by Ms. Morse was a global release and served to preclude any and all claims, including the subject Underinsured Motorists claim”; ³ and 3) Morse “settled her claim against the tortfeasor without ERIE's written consent,” in violation of the policy.

The Jury's Verdict

On June 17, 2011, through her present attorneys, Morse filed suit against Erie in the Circuit Court for Cecil County for breach of the insurance contract. On April 22–23, 2013, the case was tried to a jury on the issues of whether Erie breached the contract by denying Morse's uninsured motorist claim and, if so, the extent of Morse's damages resulting from the automobile accident. Morse moved for judgment on the ground that Erie had failed to show any prejudice resulting from her failure to obtain its consent to settle with Nationwide. The court denied the motion. The court also denied Morse's request for a jury instruction to the effect that her failure to notify Erie of the settlement offer would relieve Erie from its responsibility to provide coverage only if Erie showed actual prejudice.⁴ The jury found in favor of Erie. Morse has appealed from that adverse jury verdict.

The Statutory Milieu

Our analysis in this case revolves around two sections of the Insurance Article of the Maryland Code. First, § 19–110 prohibits an insurer from disclaiming coverage on a liability insurance policy on the ground that an insured failed to cooperate or to provide “required notice,” unless the insurer shows “actual prejudice” resulting therefrom. Section 19–110 provides:

An insurer may disclaim coverage on a liability insurance policy on the ground that the insured or a person claiming the benefits of the policy through the insured has breached the policy by failing to cooperate with the insurer or by not giving the insurer required notice only if the insurer establishes by a preponderance of the evidence that the lack of cooperation or notice has resulted in actual prejudice to the insurer.

Second, § 19–511 creates a procedure that allows an injured insured to settle her claim against a tortfeasor's liability insurer for full policy limits without prejudice to her claim for uninsured motorist benefits. Upon receiving from its insured a settlement offer from a liability insurer for policy limits, the uninsured motorist insurer is afforded sixty days to choose to consent to the settlement (thereby waiving its subrogation rights against the tortfeasor), or to refuse to consent and instead pay its insured the amount of the offer directly (thereby preserving its subrogation rights). If the injured insured has complied with § 19–511 but the uninsured motorist insurer has not timely responded or paid out, the injured insured still may accept the settlement offer without prejudice to her uninsured motorist claim, just as if the uninsured motorist insurer had consented to the settlement. See Kritsings v. State Farm Mut. Auto. Ins. Co., 189 Md.App. 367, 378, 984 A.2d 395, 401 (2009), cert. denied,413 Md. 229, 991 A.2d 1274 (2010). See also Buckley v. Brethren Mut. Ins. Co., 207 Md.App. 574, 586–87, 53 A.3d 456, 463 (2012), aff'd, 437 Md. 332, 86 A.3d 665 (2014).⁵

In construing this statutory scheme, we take our guiding principles from Government Employees Ins. Co. v. Insurance Comm'r of Md., 332 Md. 124, 630 A.2d 713 (1993):

[T]he primary goal ... is determining the intent of the Legislature when it enacted the subject statute. We begin our search for legislative intent with the words of the statute to be interpreted, considered in light of the context in which the statute appears. Context may include related statutes, pertinent legislative history and “other material that fairly bears on the ... fundamental issue of legislative purpose or goal ...” Where the statute to be construed is a part of a statutory scheme, the legislative intention is not determined from that statute alone, rather it is to be discerned by considering it in light of the statutory scheme. When, in that scheme, two statutes, enacted at different times and not referring to each other, address the same subject, they must be read together, i.e., interpreted with reference to one another, and harmonized, to the extent possible, both with each other and with other provisions of the statutory scheme. Neither statute should be read, however, so as to render the other, or any portion of it, meaningless, surplusage, superfluous or nugatory. In attempting to harmonize them, we presume that, when the Legislature enacted the later of the two statutes, it was aware of the one earlier enacted.

Even though two statutes may require conflicting results with regard to their common subject, they are not thereby necessarily rendered irreconcilable. Where provisions of one of the statutes deal with the common subject generally and those of the other do so more specifically, the statutes may be harmonized by viewing the more specific statute as an exception to the more general one.

Id. at 131–33, 630 A.2d at 717–18.

Competing Contentions

Morse contends that the court should have granted her motion for judgment on the breach of contract issue becauseErie failed to present evidence of actual prejudice resulting from her failure to obtain Erie's consent to settle with Nationwide. She does not contend that she complied with § 19–511. Instead, she asks us to extend the safety net of § 19–110 to require a showing of actual prejudice for disclaimers of coverage based not only on an insured's failure to provide required notice, but also on an insured's failure to obtain consent to settlement. She classifies both as “technical” violations that should not merit the harsh sanction of forfeiture of insurance coverage. She asserts that Erie could not have been prejudiced by her settlement with Nationwide because the settlement was for the full limit of the only liability insurance policy Smallwood had.

Erie takes a very different view of the statutory provisions. Erie contends that § 19–511 created a mandatory procedure that an insured and insurer must follow in order for the insured to accept a settlement offer from a tortfeasor without prejudice to her claim for uninsured motorist benefits. Erie contends that § 19–110 is strictly limited to denials of liability coverage based on an insured's failure to provide notice or to cooperate, and that it cannot be extended to cover a denial of uninsured motorist coverage based on an insured's failure to obtain consent to settle. Erie views a mere failure to provide notice as something altogether different from Morse's denial of its opportunity to review the offer and decide whether to grant or refuse consent to the settlement.

In a Nutshell

The issue before us is whether an injured insured's failure to obtain her uninsured motorist insurer's consent to settle with a tortfeasor's liability insurer for policy limits, in violation of her insurance policy and § 19–511, triggers either the § 19–110 or common law prejudice rules. We hold that it does not. The § 19–110 prejudice rule is not a safe harbor that would excuse noncompliance with § 19–511. By its terms,...