Uninsured Motorist Coverage in Maryland

Uninsured Motorist Coverage in Maryland

By Charles L. Simmons

Maryland, like most other states, has enacted a statutory scheme designed to protect the drivers on its roads from drivers who lack insurance.  The law requires that all Maryland drivers have automobile insurance coverage, but, nevertheless, many drivers do not.  Thus, Maryland requires a particular type of coverage known as Uninsured Motorist (“UM”) Coverage.

In Maryland, UM coverage applies to situations where (1) the at-fault driver has no liability insurance (“uninsured”), and (2) the at-fault driver has insufficient liability insurance limits to meet the amount of damages sought by the injured party (“underinsured”). The at-fault driver is considered to be underinsured if the at-fault driver’s insurance limits for bodily injury are lower than the limits of the injured party’s UM coverage.  Waters v. United States Fidelity & Guaranty Co., 328 Md. 700 (1992).

Statutory Definitions and Requirements on Insurers

Maryland law, by statute, defines the extent of the UM insurer’s liability under UM coverage:

Limit of insurer liability. – The limit of liability for an insurer that provides uninsured motorist coverage under this section is the amount of that coverage less the amount paid to the insured, that exhausts any applicable liability insurance policies, bonds, and securities, on behalf of any person that may be held liable for the bodily injury or death of the insured.

Md. Code Ann., Ins. s19-509(g).

Maryland case law supports the statutory definition:  “The concept of ‘uninsured’ was broadened to include any vehicle insured with liability limits in an amount ‘less than the amount of coverage provided to the insured under [the uninsured motorist provision].'”  Waters v. U.S. Fidelity & Guaranty Co., 328 Md. 700, 711 (1992).

UM coverage is mandatory in Maryland, and the Insurance Article of the Maryland Code lays out the basic requirements that insurers and policyholders must meet. Md. Code Ann., Ins. s19-509 defines an uninsured motor vehicle, states the amount of coverage that is required to be offered to the policyholder, and states the limit of liability of an UM insurer. A policyholder may waive UM coverage only if he/she executes a written waiver of that coverage.  See Md. Code Ann., Ins. s19-510.  It is important to note that a waiver only reduces UM coverage to the statutory minimum, and does not eliminate the coverage entirely.  Id.  Finally, settlement procedures for UM cases are set forth in Md. Code Ann., Ins. s19-511.

Uninsured motorist situations are relatively straight-forward. The at-fault motorist lacks liability insurance, so the only financial recourse for the injured person is the UM coverage under his/her own auto policy. The injured insured must then establish (via the claims process or a lawsuit if necessary) the liability of the uninsured tortfeasor, along with the amount of damages.

Underinsured motorist (“UIM”) situations tend to be slightly more complicated.  The duty to provide UIM coverage arises in underinsured situations when (1) the damages of the injured insured exceed the at-fault driver’s liability policy limits, and (2) the UM coverage available to the injured insured exceeds the at fault driver’s policy limits. Most UM endorsements issued in Maryland define an underinsured motor vehicle as follows:

An underinsured motor vehicle is a motor vehicle or trailer for which the sum of all liability bonds or policies at the time of an “accident” provides at least the amounts specified by the Financial Responsibility Law of Maryland, but that sum is less than the limit of insurance of this coverage.

Direct Suits Against UM Insurers

In Maryland, an insured who has been injured in an automobile accident may directly sue his or her UM carrier before suing the at-fault motorist. Reese v. State Farm Mutual Auto Insurance Co., 285 Md. 548, 554 (1979).  Even if no action has been filed against the at-fault driver, the insured can properly file a breach of contract action against the insurer.  Additionally, a plaintiff may properly decide to simultaneously bring a contract action against the UM insurer and a tort action against the at-fault driver. Id.

In Reese, the Court of Appeals held that an insured may recover from his or her UM carrier even if the insured has not secured a judgment against the tortfeasor.  Id.  As the Court explained, “we agree with the majority of our sister jurisdictions that an insured need not, as a condition for recovery against his insurer under the uninsured motorist endorsement, sue and obtain a judgment against the uninsured tortfeasor.”  Id. at 554.  See also Nationwide Mutual Insurance Co. v. Webb, 291 Md. 721, 736 (1981).

In general, Maryland courts have taken a broad view of the underinsured motorist statutes.  As the Court of Special Appeals noted in Ohio Casualty Insurance Company v. Chamberlin, 172 Md. App. 229, 235 (2007):The uninsured motorist provision was enacted to protect innocent victims from irresponsible drivers who drive without insurance.  It is liberally construed to ensure that innocent victims of motor vehicle accidents can be compensated for the injuries they suffer as a result of such accidents.

The uninsured motorist provision was enacted to protect innocent victims from irresponsible drivers who drive without insurance.  It is liberally construed to ensure that innocent victims of motor vehicle accidents can be compensated for the injuries they suffer as a result of such accidents.

Intervention by UM Insurers

Even if not a named party in the suit, the UM insurer should monitor any case where the damages are substantial because it may be bound by any verdict/judgment above the at-fault drivers’ liability coverage. See Nationwide Mutual, 291 Md. at 738. A UM carrier is bound by the judgment rendered against the at-fault driver if it has sufficient notice of a lawsuit and the opportunity to intervene in it against the at-fault driver, but fails to do so. Id. at 743. By intervening in the litigation, the UM insurer is able to present all available liability and damages defenses, including both tort defenses and contract defenses. See Reese, 285 Md. at 555-56.

Settlement Offers in Underinsured (UIM) Situations

Md. Code Ann., Ins. s19-511 sets forth a fairly complicated template for settlement of UIM claims.  The injured insured, the tortfeasor, and the UIM carrier all face strategic decisions in the settlement process.  Once the at-fault motorist’s liability carrier makes an offer to the injured insured, the injured insured must present this offer to his or her UIM carrier (See Md. Code Ann., Ins. s19-511 for specific requirements, including timelines). [1] The UIM insurer then generally has two options:

1. Consent to the offer from the liability insurer and release the tortfeasor

In this case, the at-fault motorist’s liability insurer tenders its policy limits to the injured insured.  The injured insured then executes releases in favor of the liability insurer and the tortfeasor.  Consequently, the injured insured may proceed with his or her claim against his or her own UIM carrier for damages over and above the tortfeasor’s policy limit.  See Md. Code Ann., Ins. s19-511(e).

Importantly, if the UIM insurer chooses this option, it waives its subrogation rights against the tortfeasor.  In addition, the Court of Appeals has recently determined that should a UM insurer consent to a settlement of the underlying tort suit, the insurer is also then prevented from contesting liability in an ensuing contract action against its own insured.  In the case of Maurer v. Pennsylvania National Mutual Casualty Insurance Co., 404 Md. 60 (2007), a tortfeasor’s liability carrier offered its policy limits to the injured insured, and the UIM carrier consented, thereby waiving its subrogation rights against the tortfeasor.  The UIM carrier then proceeded to trial against the injured insured, prevailing with a defense of assumption of the risk.  Even though neither party addressed the issue on appeal, the Court raised the matter of liability defenses sua sponte.  Specifically, the Court ruled, “Since Penn National consented to the settlement in this case, it should not have been allowed to contest the issues of tort liability.”  Id. at 74.  Clearly, this ruling has impacted the decision process for UIM carriers as they determine whether or not to consent to a settlement offer.

2. Refuse to consent and pay

Under s19-511, a UIM insurer may also refuse to consent to an offer from the tortfeasor’s liability carrier to the injured insured.  In that instance, a UIM insurer retains its right of subrogation against the tortfeasor.  However, when the UIM insurer refuses to consent, it must tender the liability policy limits to the injured insured within thirty (30) days of its written refusal to consent.<em.SeeMd. Code Ann., Ins. s19-511(c).

When the UIM insurer chooses this option, it cannot recover the settlement funds it has tendered, even when a jury verdict in favor of the injured insured is for less than the amount tendered by the UIM insurer to its insured.  In Ohio Casualty Insurance Company v. Chamberlin, 172 Md. App. 229 (2007), the injured insured was offered policy limits ($20,000) by Progressive Insurance Company, the liability carrier for the tortfeasor.  Ohio Casualty, the UIM carrier, did not consent to settlement.  As a result, it forwarded $20,000 to its injured insured.

The insured proceeded to trial with her suit against both the tortfeasor and Ohio Casualty.  The jury returned a verdict in favor of the insured for $5,445.00.  The liability carrier forwarded $5,445.00 to Ohio Casualty.  At that point, Ohio Casualty issued a written demand to the insured instructing her to return the advanced $20,000 to the extent that it exceeded the amount of the jury verdict in her favor.

After an extensive review of legislative intent, the Court determined that “a subsequent jury verdict less than the payment made by a UIM carrier cannot justify a ‘refund’ of that portion of the payment that exceeds the verdict.”  Id. at 237.  Continuing with a discussion of similar cases in other jurisdictions, Judge Karwacki ultimately set out the Court’s holding with forceful language:

Thus, we hold that when a UIM chooses to thwart a proposed settlement between a plaintiff and an alleged tortfeasor by substituting payment of the settlement amount, it bears the risk that a jury might return a verdict in an amount less than the amount advanced or in favor of the defendant(s) and it is not entitled to a refund of any amount paid.

Id. at 240

Clearly, the UM statute has been interpreted to offer strong protection to the insured, ensuring that he or she will be encouraged to settle, and compensated for any injuries.

Lack Of Good Faith

The most recent development in UM law came in 2007, as Senate Bill 389 went into effect creating a “bad faith” law.  This law was created to protect consumers and to prevent insurance carriers from using unscrupulous methods to settle claims for less than the claim might be worth.  It applies only to first party claims (claims by an insured to his or her own insurer), including UM coverage.  The components of the Bill were spread over several different statutes, including Md. Code Ann., Cts. & Jud. Proc. s3-1701.  That section defines “good faith” as “an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim.”

Md. Code Ann., Ins. s27-1001 sets forth the process for filing a lack of good faith claim with the Maryland Insurance Administration (MIA).  If both parties agree, the MIA filing can be waived, with the parties proceeding directly to Circuit Court pursuant to Md. Code Ann., Cts. & Jud. Proc. s3-1701.  Otherwise, the insured files an MIA claim, including his or her specific allegations regarding lack of good faith, along with all documentation the insured has submitted to his or her insurer.

The MIA then forwards this complaint to the UM insurer, which has thirty (30) days to respond.  The UM insurer files a response, and provides documentation to the MIA (generally, this documentation includes a redacted claims file).  The MIA then conducts an in camera review and has ninety (90) days in which to issue its opinion.

If both sides to agree to waive the MIA procedure and go directly to circuit court, then full discovery is allowed, and a jury may be requested by either side.  The fact finder must determine if there is coverage for the claim, and then whether or not the insurer failed to act in good faith.


[1] Notably, if the insured fails to follow settlement procedures as set forth in the statute and in the policy, the UIM insurer may be able to disclaim coverage for failure to cooperate, but the insurer must show “actual prejudice.”  See Md. Code Ann., Ins. s19-110.