Insurers May Deny Uninsured Coverage

Insurers May Deny Uninsured Motorist Coverage Without Proving Prejudice for Insured’s Failure to Obtain Consent to Settle

By Charles L. Simmons

The Court of Appeals issued a recent important opinion addressing the issue of non-compliance with the consent to settle provisions of Maryland’s uninsured motorist statute, Md. Code Ann., Ins., §19-511. The consolidated opinion was issued in the cases of Woznicki v. GEICO and Morse v. Erie. 

In summary, an insurer may, in certain cases, disclaim UM coverage for failure of an insured/claimant to comply with the consent to settle provisions of the statute.  Additionally, an insurer can waive technical compliance with the statute through words and actions. Each of the Court’s holdings is important when adjusting a claim involving UM exposure.

As an introduction, § 19-511 and most personal lines policies require the claimant/insured to seek consent from the UM insurer prior to settling with the tortfeasor. The rationale being that the UM insurer may elect to consent to the underlying settlement and permit a release to be executed by claimant in favor of the tortfeasor. This has the effect of eliminating the UM insurer’s right of subrogation against the tortfeasor. Alternatively, the UM insurer may elect to object to the settlement, front the underlying limits to the claimant, and preserve the right of subrogation against the tortfeasor. 

There are several reasons why an insurer would consider fronting the underlying limits.  First, the UM insurer may have a legitimate chance to subrogate against the tortfeasor (i.e., the tortfeasor has assets and net worth that make subrogation chances viable).  Second, the UM insurer may want to keep the tortfeasor in the case for strategy reasons.  For example, the insurer may prefer at a jury trial that the case not be “Jones v. Insurer;” instead that the case remain “Jones v. Smith.”  

Returning to the opinion, both cases involved the interpretation of the consent to settle requirements of § 19-511 by out of state (Delaware) attorneys. In Woznicki, the tortfeasor’s policy with Nationwide had bodily injury limits of $20,000, and the UM coverage through GEICO had limits of $300,000 (i.e., $280,000 of potential exposure under the UM policy). Claimant’s attorney asserted a claim against the tortfeasor, and Nationwide offered the underlying policy limits in settlement in exchange for a release in favor of the tortfeasor. Claimant’s attorney accepted the tort limit settlement from Nationwide. His client then signed a release in favor of the tortfeasor. Claimant’s attorney claimed that he had contacted the UM insurer by telephone before the release was executed and that an adjuster (who he could not identify) had given oral consent for claimant to settle with the tortfeasor without prejudice to claimant’s right to proceed against the UM insurer. 

In Morse v. Erie, the tortfeasor’s policy with Nationwide had bodily injury limits of $15,000 and the UM coverage through Erie had limits of $250,000 (i.e., $235,000 of potential exposure under the UM policy).  Claimant, again represented by a Delaware attorney, was offered the limits of the Nationwide policy. Claimant’s attorney provided notice of the settlement offer to the UM insurer by regular mail, but sent the notice to the wrong address. Section 19-511 requires that the notice of a policy limits offer be sent certified mail. Erie claimed to have never received the notice of offer. In the meantime, claimant accepted the underlying settlement offer and signed a release in favor of the tortfeasor.

These cases raise two issues: (1) whether a UM insurer must prove prejudice in order to deny a UM claim where the claimant and his/her attorney fail to comply with the consent to settle provisions of the policy and/or § 19-511; and (2) whether a UM insurer can waive its right to receive notice and give or refuse consent to an underlying settlement. 

Concerning whether an insurer must prove prejudice to deny UM coverage, the Court started with the proposition that it is undisputed that the claimants in Woznicki and Morse failed to comply with the requirements of § 19-511.The Court noted that the failure of a claimant to comply with the consent to settle provisions of § 19-511 and/or the applicable policy deprive the UM insurer of the right to decide whether to seek subrogation against the alleged tortfeasor. Ultimately, the Court held that a UM insurer need not prove prejudice in order to disclaim coverage where the claimant fails to follow the consent to settle provisions of § 19-511 and a UM policy with language tracking those statutory provisions. In reaching this holding, the Court noted that the § 19-110 statutory requirement that the insured prove prejudice applies only when the insured has disclaimed coverage for the insured’ failure to cooperate or give notice of the claim.

Concerning waiver, the Court held that a UM insurer can waive the consent to settle requirements in § 19-511 and/or its own policy. The UM insurers in both cases argued that the language of § 19-511 precluded waiver of the consent to settle provisions. The Court held that a UM insurer, under appropriate facts not defined in the opinion, could validly waive the consent to settle requirements of § 19-511 and/or the policy. It held in Woznicki, however, that claimant’s attorney’s assertions that he spoke with an unknown GEICO representative and that representative orally consented to the settlement was insufficient to constitute a waiver. (An interesting and unanswered question is whether the Court would have found waiver if the insurer’s claim log contained an entry for the conversation. I believe the Court would have found such evidence sufficient to support waiver).In both cases, the claimant/insured lost the ability to seek UM benefits from his/her UM insurer because of their non-compliance. Interestingly, the Court’s opinion does not seem particularly concerned about this seemingly harsh result. It is possible the Court recognized that claimants could bring legal malpractice claims against their Delaware attorneys who failed to properly guide their clients through the technical requirements of § 19-511.

In summary, a UM insurer can waive technical compliance with the consent to settle provisions. Evidence of that waiver, however, would have to be something more than an undocumented statement that the attorney for the claimant spoke with a representative of the UM insurer and received an oral consent to settle. If a claimant fails to comply with the consent to settle provisions of § 19-511 and/or the policy, then under appropriate facts, the UM insurer may be entitled to disclaim coverage. Finally, the insurer would NOT have to prove prejudice caused by the failure of the claimant to comply.