Stearman v. State Farm

• Decision Date: 14 May 2004
• Docket Number: No. 67,67
• Citation: 381 Md. 436,849 A.2d 539
• Parties: Jay H. STEARMAN, et al. v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY.
• Court: Maryland Court of Appeals

849 A.2d 539

381 Md. 436

Jay H. STEARMAN, et al. v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY.

No. 67, Sept. Term, 2003.

Court of Appeals of Maryland.

May 14, 2004.

Andrew Janquitto (Mudd, Harrison & Burch, Towson; Bruce M. Plaxen, Plaxen & Adler, P.A., Columbia, on brief), for appellants/cross-appellees.

Michael J. Budow (Richard E. Schimel, Laura Basem Jacobs, Budow and Noble, P.C., on brief), Bethesda, for appellee/cross-appellant.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA, and GREENE, JJ.

GREENE, Judge.

Jay Stearman and Carla Stearman are married. On June 5, 2002, Mrs. Stearman suffered serious injuries as a result of an accident that occurred while she was passenger in a vehicle driven by Mr. Stearman. Mrs. Stearman sued State Farm Mutual Automobile Insurance Company and Mr. Stearman in the Circuit Court for Baltimore County. Mrs. Stearman alleged that her husband's negligence caused her injuries. She and Mr. Stearman both sought a declaration that the household exclusion in State Farm's auto liability insurance policy was invalid. The trial court heard argument on the motions on July 28, 2003, and granted State Farm's motion for summary judgment, declaring that the household exclusion was valid. The Stearmans noted their appeal and cross-appeal on August 7, 2003. Thereafter, Mr. Stearman filed a petition for writ of certiorari, which this Court granted before the Court of Special Appeals heard the case. Stearman v. State Farm, 377 Md. 111, 832 A.2d 204 (2003).

The issue before the Court is the validity of a household exclusion that reduces the limit of liability in an auto insurance policy to the statutory minimum amount, if that policy otherwise provides liability coverage in excess of the statutory minimum liability limits. We hold that the exclusion is valid.

FACTS

As a result of the June 5, 2002 collision, Mrs. Stearman suffered serious injuries, including a broken rib, a broken collar bone, and a collapsed lung. The only vehicle involved in the collision was the vehicle driven by Mr. Stearman. Mrs. Stearman alleges that her husband's negligence caused the collision and her injuries.

At the time of the collision, appellant and his wife were both insured by State Farm under an automobile policy that obligates State Farm to pay "damages which an insured becomes legally liable to pay because of bodily injury to others ... caused by accident resulting from the ownership, maintenance or use" of an insured vehicle. The declarations page of the policy provides for $100,000 per person of bodily injury liability coverage.

The policy also includes the following language under the Liability Coverage section of the policy:

Who is an Insured

When we refer to your car, a newly acquired car or a temporary substitute car, insured means:

1. you;

2. your spouse;

3. the relatives of the first person named in the declarations;

4. any other person while using such a car if its use is within the scope of consent of you or your spouse; and

5. any other person or organization liable for the use of such a car by one of the above insureds.

(Emphasis in the original.)¹

The policy also included the following restriction on coverage:

When Coverage Does Not Apply.

In addition to the limitations of coverage in Who is an Insured and Trailer Coverage:

THERE IS NO COVERAGE:

* * *

2. FOR ANY BODILY INJURY TO:

* * *

c. ANY INSURED OR ANY MEMBER OF AN INSURED'S FAMILY RESIDING IN THE INSURED'S HOUSEHOLD TO THE EXTENT THE LIMITS OF LIABILITY OF THIS POLICY EXCEED THE LIMITS OF LIABILITY REQUIRED BY LAW.

(Emphasis in original.)

DISCUSSION

The Stearmans argue that State Farm's attempt to reduce liability coverage from the stated policy amount of $100,000 per person to the statutory limit of $20,000 per person is unsuccessful because such a restriction is invalid and void as against public policy. State Farm, however, asserts that this Court's decision in State Farm Mut. Auto. Ins. Co. v. Nationwide Mut. Ins. Co., 307 Md. 631, 516 A.2d 586 (1986), invalidated household exclusions that attempted to exclude coverage below the statutory minimums, but also validated household exclusions that provided coverage above the statutory minimum. We agree with State Farm's position.

Prior to State Farm v. Nationwide, however, this Court decided Jennings v. Government Employees Insurance Company, 302 Md. 352, 488 A.2d 166 (1985). In Jennings, we held that a household exclusion clause in an automobile liability insurance policy was invalid because the clause was contrary to the public policy as embodied in the compulsory automobile insurance requirements. Id. at 357, 488 A.2d at 168. The household exclusion in the policy in that case excluded all liability coverage for injury to the insured and members of his household. Id. at 354, 488 A.2d at 167. The insured, Jennings, was a passenger in an automobile owned by him and operated by his stepson at the time of Jennings's injuries. Id. at 353-54, 488 A.2d at 167.

Jennings sued his stepson and obtained a default judgment in the amount of $100,000. Id. at 354, 488 A.2d at 167. Jennings then brought a declaratory judgment action against GEICO, seeking to establish that GEICO must pay the judgment that Jennings obtained against his stepson. Jennings, 302 Md. at 354, 488 A.2d at 167. Jennings contended that the household exclusion was void because it was contrary to statute. Id. Both sides filed motions for summary judgment and the circuit court granted GEICO's motion. Id. at 354-55, 488 A.2d at 167. Jennings appealed, and, prior to the argument in the Court of Special Appeals, this Court granted certiorari. Id. at 355, 488 A.2d at 167.

We noted, generally, that any clause in an insurance policy that is contrary to the public policy of this State, as set forth in any statute, is invalid and unenforceable. Id. at 356, 488 A.2d at 168. We concluded, specifically, that the household exclusion clause in Jennings violated the public policy embodied in the 1972 General Assembly's action to require compulsory automobile insurance for all Maryland automobiles, with specific mandatory minimum coverage amounts.² Jennings, 302 Md. at 357, 488 A.2d at 168. The General Assembly expressly authorized certain exclusions from mandatory coverage in the statutory provisions enacted in 1972. Id. at 358, 488 A.2d at 169. The household exclusion was not among those expressed by the Legislature, and, consequently, we stated that we "will not insert exclusions from the required coverages beyond those expressly set forth by the Legislature." Id. at 358-59, 488 A.2d at 169. Such an exclusion would be "`contrary to the remedial legislative purpose of assuring compensation for damages to victims of motor vehicle accidents....'" Id. at 359, 488 A.2d at 169 (quoting Pennsylvania Nat'l Mut. v. Gartelman, 288 Md. 151, 156, 416 A.2d 734 (1980) (invalidating an insurance policy provision that excluded an insured from PIP coverage)).

We emphasized that "[w]hile many exclusions in automobile insurance policies do not conflict with legislative policy and are therefore valid, the so-called household exclusion from compulsory automobile liability insurance does not fall into such a category." Jennings, 302 Md. at 362,488 A.2d at 171 (emphasis added). Jennings invalidated a provision of a policy that excluded an insured from all liability coverage. It did not address the question of whether such a household exclusion would be valid above mandatory minimum coverage requirements. That question was resolved by this Court in State Farm Mut. Auto. Ins. Co. v. Nationwide Mut. Ins. Co., 307 Md. 631, 516 A.2d 586 (1986).

In State Farm, we addressed whether a household exclusion was "wholly invalid, or whether its invalidity extends only to the amount of the minimum liability coverage required by the compulsory insurance law." Id. at 633, 516 A.2d at 586-87. We concluded that such an exclusion was invalid to the extent of the statutory limits. Id. at 633, 516 A.2d at 587.

In State Farm, State Farm Mutual Automobile Insurance Company insured Carroll, who suffered injuries as a result of an accident that took place when he was a passenger in his own insured vehicle. Id. A friend of Carroll's, named Glass, drove the vehicle off the road and it overturned, killing Glass and another passenger, and injuring Carroll. Id. Carroll sued Glass's estate. State Farm, 307 Md. at 634, 516 A.2d at 587. Glass had been insured by Nationwide Mutual Insurance Company and her policy insured her 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. Id. at 633-34, 516 A.2d at 587. Carroll's policy included liability coverage of $100,000 per person and $300,000 per accident. Id. at 633, 516 A.2d at 587. Carroll's policy also excluded coverage for injury to "any insured or any member of an insured's family residing in the insured's household." Id.

Nationwide sought a declaration that the household exclusion in State Farm's policy was void as against public policy. Id. at 634, 516 A.2d at 587. State Farm argued that the exclusion was valid. State Farm, 307 Md. at 634, 516 A.2d at 587. As noted in State Farm, while that case was pending in the circuit court, this Court decided Jennings, in which we decided that a household exclusion that eliminated all liability coverage was invalid. Id. at 634, 516 A.2d at 587. Consequently, State Farm and Nationwide agreed that Jennings eliminated State Farm's argument that the exclusion in this case was valid below the statutory minimum personal injury coverage of $20,000 per person and $40,000 per incident, required by section 17-103(b)(1) of the Transportation Article. Id. Nonetheless, State Farm maintained that the exclusion should be considered valid above the statutory minimum requirements. Id. at 635, 516 A.2d at 587.

To answer the question raised in State Farm, this Court discussed Jen...