Thursday, July 5, 2012

Maryland Legislature Fixes Flaw in Underinsured Motorist Claims with House Bill 715, Governor Signs Into Law

          On May 2, 2012, Governor Martin O’Malley approved legislation that appears to change the landscape of how insurance companies can deal with offers of settlement by an underlying tortfeasor when they are faced with an underinsured motorist claim.  House Bill 715 effectively repeals and reenacts § 19-511 of the Insurance Article of the Maryland Code to add provisions that allow the underinsured motorist (“UIM”) carrier to continue to defend liability in that matter even if they consent to the plaintiff accepting the underlying tortfeasor’s insurance policy limits.   In doing so, the legislature appears to restore common sense to the law, returning it to what it was before Maurer v. Penn National, 404 Md. 60 (2007).

            In 2007, the Court of Appeals changed the way insurance companies were required to handle claims made for underinsured motorist benefits with its decision in Maurer.  Prior to this decision, upon presentation of an offer of settlement from the underlying tortfeasor’s carrier that exhausted the underlying policy limits, the UIM insurance carrier was free to consent to the underlying settlement and allow the plaintiff to be paid the proceeds of that policy, while still retaining its right to defend all aspects of the case, including liability, up to and through trial.  With the surprising Maurer decision, however, that process was changed substantially. In that decision, the Court of Appeals held that consenting to the acceptance of payment by the underlying carrier and releasing the underlying tortfeasor from that action acted as a waiver of defenses to liability in that case by the UIM carrier.  In other words, after Maurer, by consenting to the underlying settlement, the insurance company defendant effectively waived its liability defenses and admitted liability. 

            The Maurer decision had an immediate and substantial effect on pending cases from a defense perspective.  Certainly, the realization that Maryland’s highest court deemed liability admitted in a pending case was not a comfortable position to be in, and the long-term effects of the decision were not surprising.  The process of evaluating cases in which to accept the underlying tender was altered to accommodate the liability issue, and insurance companies simply refused to consent to the settlements where they would have before, as is their right under the statute.  Practically speaking, this meant that more parties were going to trial, which meant more attorneys were going to trial, which resulted in longer trials and less efficiency in an already overburdened court system.

            House Bill 715 deals directly with the waiver issue in its altering of the Insurance Article.  Specifically, it adds the following subsections to § 19-511, the section that deals with the procedure when dealing with an underlying tortfeasor’s policy limits offer:

(F) Written consent by an Uninsured Motorist Insurer to acceptance of a Settlement Offer under Subsection (B)(1) of this section:

(1)   May not be construed to limit the right of the Uninsured Motorist Insurer to raise any issue relating to Liability or Damages in an action against the Uninsured Motorist Insurer; and

(2)   Does not Constitute an admission by the Uninsured Motorist Insurer as to any issue raised in an action against the Uninsured Motorist Insurer.

            This piece of legislation directly responds to the changes made in the law in 2007 and returns the right to defend all issues in the case to the uninsured motorist carrier.  Thus, as of the effective date of the law, which takes effect on October 1, 2012, the waiver of liability will no longer be an issue when evaluating whether to accept a settlement between the plaintiff and an underlying tortfeasor.  While the UIM carrier certainly benefits from this amendment to the existing law and regains its right to defend liability in a given case, it is also likely that the plaintiff and tortfeasor also profit from this change, both of whom benefit from the incentive added to consent to settlements.  Certainly, with fewer claims and, consequently, fewer attorneys going to trial, the over-burdened court system gains from what can only be a decrease in the amount of administrative costs and trial time that was required after the Maurer decision.

            It should be noted that the rights relating to subrogation by the UIM carrier against the underinsured tortfeasor, and the waiver of those rights upon acceptance of settlement and release of the tortfeasor, do not appear to be changed as a result of House Bill 715.

Article Contributed by Thomas Neary

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