State Farm Mut. Auto. Ins. Co. v. Nationwide Mut. Ins. Co.

Decision Date07 November 1986
Docket NumberNo. 18,18
Citation307 Md. 631,516 A.2d 586
PartiesSTATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY v. NATIONWIDE MUTUAL INSURANCE COMPANY et al. Sept. Term 1986.
CourtMaryland Court of Appeals

Melvin J. Sykes of Baltimore (Charles E. Stoner, Stoner, Preston & Boswell, Chartered, on the brief), Westminster, for appellant.

Charles N. Ketterman (Douglas M. Scheller, Donahue, Ehrmantraut & Montedonico, Chartered, on the brief), Baltimore, for appellees.

Argued before MURPHY, C.J., ELDRIDGE, COLE, RODOWSKY, McAULIFFE, and ADKINS, JJ., and MARVIN H. SMITH, Associate Judge of the Court of Appeals of Maryland (retired) Specially Assigned.

ADKINS, Judge.

In Jennings v. Government Employees Ins., 302 Md. 352, 488 A.2d 166 (1985), we held that the "household exclusion" clause of an automobile liability insurance policy was invalid. We reasoned that the exclusion was contrary to the public policy expressed in Maryland's compulsory automobile liability insurance law. We are now asked to decide a question that was neither raised nor expressly addressed in Jennings: Whether the "household exclusion" is wholly invalid, or whether its invalidity extends only to the amount of the minimum liability coverage required by the compulsory insurance law. We adopt the latter position and reverse the judgment of the Circuit Court for Carroll County.

The facts are undisputed. On 17 March 1982 appellant, State Farm Mutual Automobile Insurance Company, issued an automobile liability insurance policy to Robert E. Carroll, Jr. The policy, approved by the insurance commissioner, limited bodily injury coverage to $100,000 for any one person and $300,000 for any one accident. Carroll was the named insured. The policy excluded coverage for injury to "any insured or any member of an insured's family residing in the insured's household." 1

Carroll owned a 1978 AMC Jeep. In June 1982, the vehicle, operated (with Carroll's permission) by his friend, Christina Glass, and occupied by Carroll and another friend as passengers, went off the road and overturned. Glass and the other friend were killed; Carroll was injured. Glass was insured by appellee, Nationwide Mutual Insurance Company. The Nationwide policy insured her, among other things, against liability for any accident involving her use of a motor vehicle belonging to someone who, like Carroll, was not a member of her household.

Carroll sued Glass's estate, claiming damages for his injuries. Later, Nationwide brought the present action against State Farm and Carroll. It sought a declaration that the "household exclusion" in State Farm's policy was void as against public policy. State Farm, for its part, asked the trial court to uphold the exclusion and to declare Nationwide to be the primary insurer. Carroll adopted a neutral position: one of the insurers should pay him; he was indifferent as to which.

While the declaratory judgment action was pending in the Circuit Court for Carroll County, we decided Jennings. The parties agreed that Jennings, if applicable to this case, eliminated State Farm's argument that the exclusion was entirely valid. The issues in the trial court, therefore, were (1) the retrospective application of Jennings and (2) whether the exclusion was valid as to State Farm's coverage above and beyond the statutory minimum personal injury coverage of $20,000/$40,000 prescribed by the compulsory insurance law, Md.Transp.Code Ann., § 17-103(b)(1). See Md.Ann.Code, Art. 48A, § 541(a).

The circuit court (Heise, J.) decided both issues against State Farm. State Farm appealed to the Court of Special Appeals, raising only the question of the effect of public policy on the "household exclusion." 2 We issued the writ of certiorari while the case was pending in the intermediate appellate court. 305 Md. 683, 506 A.2d 254 (1986).

State Farm now argues that if a contract provision is to be invalidated on the basis of conflict with public policy, the invalidation should extend no further than the demands of that policy: in this case, that motorists have liability coverage in the minimum amounts of $20,000/$40,000 with respect to personal injury. Since public policy, as statutorily promulgated, requires no more coverage than that, an insurance exclusion should be given effect as to larger sums. It views Jennings as being perfectly consistent with this approach. Nationwide, on the other hand, points out that Jennings held "that the household exclusion is invalid." 302 Md. at 362, 488 A.2d at 171. That being so, it contends the entire exclusion should be excised from the insurance contract; the document should be read as if the exclusion were not there. To place these contentions in context, we briefly review some of the history recited in Jennings.

As Jennings notes, 302 Md. at 357, 488 A.2d at 168, in or before 1972, this Court had considered the "household exclusion" in a number of cases. Most of them dealt with construction and application of the exclusion; its validity was not questioned. See, e.g., Hicks v. Hatem, 265 Md. 260, 289 A.2d 325 (1972); Parker v. State Farm Mut. Auto. Ins. Co., 263 Md. 206, 282 A.2d 503 (1971); State Farm Mut. Auto. Ins. Co. v. Briscoe, 245 Md. 147, 225 A.2d 270 (1967). Absent a statute to the contrary, Maryland followed the general rule, which was to uphold the validity of the exclusion. See Annot., 46 A.L.R.3d. 1024 (1972); Annot., 50 A.L.R.2d 131 (1956). Maryland had held that the exclusion was not invalidated by the public policy expressed in the motor vehicle financial responsibility law (then Code, Art. 66 1/2, § 131 (1957)). Kelsay v. State Farm Mut. Auto. Ins. Co., 242 Md. 528, 219 A.2d 830 (1966).

"Beginning in 1972, however, the General Assembly substantially changed the public policy of this State with regard to motor vehicle insurance and reparations for damages caused by motor vehicle accidents." Jennings, 302 Md. at 357-358, 488 A.2d at 168. That change, of course, was the mandating of compulsory automobile insurance with required minimum coverages. Among those provisions are subsections (a) and (b) of § 541, Art. 48A, which in pertinent part provide:

"(a) ... Nothing in this subtitle [Motor Vehicle Casualty Insurance--Required Primary Coverage] affects or limits the provisions of Title 17 of the Transportation Article, and every policy of motor vehicle liability insurance issued, sold, or delivered in this State shall provide the minimum liability coverage specified therein.

"(b) ... Nothing in this subtitle or in Title 17 of the Transportation Article prevents an insurer from issuing, selling, or delivering a policy of motor vehicle liability insurance providing liability coverage in excess of the requirements of the Maryland Vehicle Law...."

Title 17 of the Transportation Article, to which these subsections refer, calls for minimum coverage for liability "for bodily injury or death arising from an accident of up to $20,000 for any one person and up to $40,000 for any two or more persons, in addition to interest and costs." Section 17-103(b)(1).

These and related statutes were before us in Jennings. Judge Eldridge, for the Court, observed that "a clause in an insurance policy, which is contrary to 'the public policy of this State, as set forth in ... the Insurance Code' or other statute, is invalid and unenforceable." 302 Md. at 356, 488 A.2d at 168 (quoting Guardian Life Ins. v. Ins. Comm'r, 293 Md. 629, 643, 446 A.2d 1140 (1982)). We base our consideration of the question presented in this case on that established principle. Despite Nationwide's arguments to the contrary, however, Jennings does not provide the answer Nationwide seeks.

It is true, as we have already noted, that Jennings speaks in broad terms of the invalidity of the household exclusion because of its violation of the statutory compulsory liability insurance policy. But Nationwide reads Jennings too sweepingly. While the opinion does not deal explicitly with the issue now before us, it appears that appellant Jennings argued for essentially the result now sought by State Farm. In his brief he contended that "where minimum insurance coverage is statutorily mandated, any provision of an insurance policy which causes there to be less than the statutory amount is void." Brief and Appendix for Appellant Jennings at 13. And in explaining our holding in that case Judge Eldridge wrote (quoting Bishop v. Allstate Ins. Co., 623 S.W.2d 865, 866 (Ky.1981)):

" 'An exclusionary clause in an insurance contract which reduces below minimum or eliminates either of these coverages [basic reparation benefits and liability coverage] effectively renders a driver uninsured to the extent of the reduction or elimination. Because the stated purpose of the MVRA is to assure that a driver be insured to a minimum level, such an exclusion provision contravenes the purpose and policy of the compulsory insurance act.' "

302 Md. at 362, 488 A.2d at 171.

We agreed with this and similar reasoning set forth in other cases cited in the opinion. Read in the light of this language, which immediately precedes the holding in Jennings, that case does not foreclose the argument now made by State Farm; rather, it supports that argument.

Put simply, what the legislature has prohibited is liability coverage of less than the minimum amounts required by § 17-103(b)(1) of the Transportation Article. That is the plain import of Art. 48A, § 541(a). See also § 541(c)(2). 3 The "household exclusion" violates public policy only to the extent it operates to prevent this mandatory minimum coverage.

Nationwide seeks to avoid this conclusion by arguing that the compulsory insurance law does not authorize the "household exclusion." It is true that this exclusion is not among those expressly permitted by § 541. It also is true that in DeJarnette v. Federal Kemper Ins. Co., 299 Md 708, 725, 475 A.2d 454, 463 (1984), we said that " '[w]here a statute expressly provides for certain exclusions, others...

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