UM and/or UIM Coverage is Not Required Under an Umbrella Policy

The Maryland Court of Special Appeals recently issued an opinion in Stickley v. State Farm, holding that Section 19-509.1 of the Insurance Article merely permits, rather than requires, insurers to offer uninsured motorist coverage in their umbrella policies.

                          

The case arose when Plaintiff and her husband were involved in an automobile accident. Plaintiff’s husband was killed as a result of the collision, and although she survived, Plaintiff suffered serious injuries. At the time, the Plaintiff had a number of insurance policies with State Farm and its subsidiaries, including a motor vehicle liability policy with limits for bodily injury of $100,000/$300,000 and a Personal Liability Umbrella Policy, which had limits of $2,000,000 for personal liability and $2,000,000 for UM and UIM coverage. As the accident was attributable to Plaintiff’s husband, Plaintiff filed claims with State Farm for the injuries she suffered. After Plaintiff exhausted the liability policy limit of $100,000, State Farm denied her UIM claim under the umbrella policy based on a “household exclusion” clause in the agreement, which excluded coverage for bodily injuries sustained by household members.

After this denial, Plaintiff filed suit seeking a declaratory judgment of coverage. Her legal theory was based on Section 19-504 of the Insurance Article, which states that when liability coverage under a policy for a private motor vehicle exceeds the state minimums ($30,000.00/$60,000.00) an insurer has to offer to the first named insured “insurance liability coverage for claims made by a family member in the same amount as the liability coverage for claims made by a nonfamily member under the policy.”  Relying on this language, Plainitff asserted that the household exclusion in her umbrella policy was void and that State Farm was required to offer coverage under the umbrella policy.

The circuit court disagreed and found that State Farm had satisfied the requirements of Section 19-504.1 when it provided Mrs. Stickley with the same amount of coverage pursuant to primary policy as it would provide a non-family member. In reaching this conclusion, the Circuit Court explained that an umbrella policy is not a “private passenger motor vehicle liability insurance policy” and thus is not subject to the requirements of Section 19-504.1.

On review, the Court affirmed the circuit court’s grant of summary judgment and explained that in the period since the General Assembly adopted the compulsory automobile insurance statutes and articulated Maryland public policy of guaranteeing minimum insurance coverage levels, the Court of Appeals has repeatedly held and reaffirmed the principle that “household exclusion” clauses are only valid where the exclusion is above the statutory minimum automobile liability insurance amounts.  In 2004, the General Assembly adopted Section 19-504.1 to ensure that, when getting a private car insurance policy with coverage limits over the statutory minimum, insured persons would have a right to purchase that policy without a household exclusion. The Court referenced the Court of Appeals’ interpretation of similarly worded statutes relating to uninsured motorist coverage, where the court held that insurers who provide excess policies may, but are not required to, offer uninsured motorist coverage. This led the Court to conclude that Section 19-504.1 does not apply to insurers providing excess or umbrella policies for their customers.

Article contributed by Andy Nichols