Wednesday, October 19, 2011

Lack of Signature Does Not Void Uninsured Motorist Waiver

             In Swartzbaugh v. Encompass Insurance Co. of Am., the Maryland Court of Special Appeals affirmed the judgment of the trial court that the waiver of uninsured motorist benefits was valid, even though the person who signed the waiver was not the person listed first on the policy.  In affirming, the Court of Special Appeals concluded that the waiver was not necessarily void simply because Kenneth Swartzbaugh (“Mr. Swartzbaugh”) was listed first on the policy and Lynne Swartzbaugh (“Mrs. Swartzbaugh”), listed second, was the actual signatory to the waiver.

            The case arose from a motor vehicle accident that occurred on March 8, 2008 in which Kelly Swartzbaugh (“Kelly”) was injured as a passenger in a vehicle driven by Steven Hedrick (“Hedrick”).  Hedrick accepted liability for the accident and his carrier tendered the policy limits to Kelly.  However, Hedrick’s policy had bodily injury liability limits of $50,000 per person.  Kelly and her parents, Mr. and Mrs. Swartzbaugh, claimed that the $50,000 was “woefully inadequate” to compensate Kelly for the losses and damages she suffered as a result of the accident.

            As a result, Kelly requested underinsured motorist coverage from her parent’s plan, provided by Encompass Insurance Company of America (“Encompass”).  Kelly and her parents asserted that the plan included uninsured motorist coverage for Kelly as a resident relative of the named insureds.  Encompass denied coverage, arguing that Mrs. Swartzbaugh signed a waiver of uninsured motorist benefits.  Kelly then brought a declaratory judgment action against Encompass, requesting uninsured motorist benefits claiming that the waiver signed by Mrs. Swartzbaugh was invalid.
            Mr. and Mrs. Swartzbaugh’s insurance policy had bodily injury liability limits of $250,000 for each person and $500,000 for each accident and uninsured motorist limits of $20,000 for each person and $40,000 for each accident.  However, pursuant to MD. CODE ANN., INS. § 19-510, Encompass offered, and the Swartzbaughs had the option to accept, uninsured motorist coverage in the same amount as liability coverage.  The Swartzbaughs rejected the higher coverage and agreed to the lesser amount.

            The issue arose from the manner in which the Swartzbaughs declined the higher amount of uninsured motorist coverage.  § 19-510 provides that the “first name insured shall make an affirmative written waiver” if the insured chooses to elect the lower amount of uninsured motorist coverage.  Here, Mr. Swartzbaugh was listed first on the insurance policy, but it was Mrs. Swartzbaugh who actually signed the waiver.

            The Swartzbaughs contended that the waiver was invalid because Encompass failed to require the “first” named insured, Mr. Swartzbaugh, to sign the waiver as required by § 19-510.  Because of this, it was their view that Encompass should have provided uninsured motorist coverage to Kelly in an amount equal to liability coverage.  Encompass responded that “first name insured” was not defined in the Insurance Code or in the insurance policy at issue.  Encompass argued, therefore, that general contract principles enabled the parties to designate one of the named insureds as the “first named insured” and the parties permissibly identified Mrs. Swartzbaugh as the “first named insured.”

            The Court of Special Appeals reviewed the legislative history of § 19-510 but found no definition of “first named insured.”  The Court of Special Appeals also looked to other jurisdictions for assistance but found that only one other state, Pennsylvania, utilized the term “first named insured.”  With no guidance from the legislative history or other jurisdictions, the Court of Special Appeals then looked to the purpose of the legislation.

            In affirming the waiver, the Court of Special Appeals held that the term “first named insured” under § 19-510 means the person designated as such in the insurance policy or in a document executed as a part of insurance policy or renewal of such policy.  In essence, the court interpreted § 19-510 as directing the parties to designate the “first named insured” of the insurance policy.  By signing the waiver, Mrs. Swartzbaugh represented in writing that she was the “first named insured” and in effect, designated herself as the “first named insured” for purposes of waiving uninsured motorist benefits.

Article Contributed by Andrew Nichols

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