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Overview of the State of Maryland Court System


Content:

Insurance Issues


A. State Minimum Limits of Financial Responsibility


Md. Code Ann., Insurance Article, §19-504 (formerly Art. 48A, §541(a)) provides that "[e]ach motor vehicle liability insurance policy issued, sold or delivered in this State shall provide the minimum liability coverage specified" in Md. Code Ann., Transp. §17-103(b). That section specifies "required security" which must provide for at least the following:

1) "The payment of claims for bodily injury or death arising from an accident of up to $30,000 for any one person and up to $60,000 for any two or more persons, in addition to interest and costs;"

2) "The payment of claims for property of others damaged or destroyed in an accident of up to $15,000, in addition to interest

and costs;"

3) PIP benefits, "[u]nless waived," and

4) Uninsured/underinsured motorists benefits.

The minimum limits in Maryland had been increased as of January 2011. Prior to that time, the limits were $20,000 for any one person and up to $40,000 for any two or more persons.

B. Uninsured Motorist Coverage


The main Maryland statute governing uninsured/underinsured motorist insurance is Md. Code Ann. §19-509 (formerly Art. 48A, §541(c)). §19-509(a) defines "uninsured motor vehicle" as follows:

a) "Uninsured motor vehicle" defined. -- In this section, "uninsured motor vehicle" means a motor vehicle:

1) the ownership, maintenance, or use of which has resulted in the bodily injury or death of an insured; and

2) for which the sum of the limits of liability under all valid and collectible liability insurance policies, bonds, and securities applicable to bodily injury or death:

(i) is less than the amount of coverage provided under this section; or

(ii) has been reduced by payment to other persons of claims arising from the same occurrence to an amount less than the amount of coverage provided under this section.

An insurer is not obligated to provide uninsured motorist coverage for buses, taxi cabs, vehicles owned by the state of Maryland, and certain "off-road" vehicles.

The minimum amount of uninsured motorist coverage that must be provided is $30,000 for injury or death of any one person in one accident, $60,000 for injury or death of more than one person in one accident, and $15,000 for property damage in one accident. Md. Code Ann., Transp., §17-103(b).

The insured who wishes to sue the insurer for the insurer's breach of contract regarding uninsured motorist benefits must file his lawsuit within three years of the date on which the insured knows or should have known that the insurer was denying his claim for uninsured motorist benefits.


C. No Fault Insurance


The principal Maryland statute governing PIP benefits is Md. Code Ann. §19-505(a) (formerly Art. 48A, §539). This section provides that "each insurer that issues, sells, or delivers a motor vehicle liability insurance policy in this State shall provide coverage for the medical, hospital, and disability benefits" set forth in §19-505 "[u]nless waived" by the first named insured. However, the insurer is not obligated to provide PIP benefits for vehicles owned by the State of Maryland, buses registered in Maryland, or taxicabs registered in Maryland.

PIP benefits cover seven classes of persons: 1.) the first named insured, 2.) members of the named insured's family residing in his or her household, 3.) persons using the insured vehicle with the express or implied permission of the named insured, 4.) guests or passengers in the named insured's automobile, 5.) pedestrians injured in an accident in which the insured motor vehicle is involved,

6.) persons injured in, on, or alighting from another vehicle operated by animal or muscular power in an accident in which the insured vehicle is involved, and 7.) persons injured on or alighting from an animal involved in an accident in which the insured vehicle is involved.

When the first named insured does not waive PIP benefits, his/her automobile insurance policy must "afford a minimum of $2,500 medical, hospital, disability and loss of income benefits..."

Md. Code Ann., §19-505(b) (formerly Art. 48A, §539(c)) provides that PIP benefits must be afforded for health care, funeral, wage, and household service expenses. All such expenses must be reasonable in amount, and must have been incurred in the accident in question. The insurer is obligated to pay only those expenses that are incurred within 3 years of the date of the accident. However, Md. Code Ann. §19-508(a)(2) (formerly Art. 48A, §544 (a)(1)) provides that an insurance policy may "set a period of not less than twelve months after the date of the motor vehicle accident within which the original claim for benefits must be filed with the insurer . . . ."

Md. Code Ann. §19-507(a)(2) (formerly Art. 48A, §540(a)(2)) provides that PIP benefits are payable without regard to "any collateral source of medical, hospital, or wage continuation benefits." However, Md. Code Ann. §19-513(b) (formerly Art. 48A, §543(a)) provides that "a person may not recover [PIP] benefits . . .

from more than one motor vehicle liability insurance policy or insurer on a duplicative or supplemental basis."

Md. Code Ann. §19-513(b) (formerly Art. 48A, §543(a)) provides that "a person may not recover [PIP] benefits...from more than one motor vehicle liability insurance policy or insurer on a duplicative or supplemental basis."

The insured who wishes to sue the insurer for the insurer's breach of contract regarding PIP benefits must file his lawsuit within three years of the date on which the insured knows or should have known that the insurer was denying his claim for PIP benefits.


D. Disclosure of Limits and Layers of Coverage


Maryland Code, Courts and Judicial Proceedings Article §§ 10-1101−1105 has the standards for insurers disclosing information regarding the applicable limits prior to suit being filed.

In order for a claimant to be entitled to that information, the claimant must provide

in writing:

1) The date of the vehicle accident;

2) The name and last known address of the alleged tortfeasor;

3) A copy of the vehicle accident report, if available;

4) The insurer's claim number, if available;

5) The claimant's health care bills and documentation of the claimant's loss of income, if any, resulting from the vehicle accident; and

6) The records of health care treatment for the claimant's injuries caused by the vehicle accident.

If the claimant is deceased, the estate or a beneficiary of the deceased can make a similar demand in writing, but must also show that the claimant is deceased, and certain proof that the estate or beneficiary has the requisity authority and connection to the claimant.

Based on 10-1103, it appears that such disclosure is NOT required if the amount of special damages are under $12,500. However, this law is recent and there have not been cases to interpret that portion of the statute to date.

Providing the disclosure of limits is not an admission that the claim is covered under the policy and does not waive any coverage issues or other defenses against co-defendants, or the claimant.


E. Unfair Claims Practices


It is an unfair claim settlement practice and a violation of this subtitle for an insurer or nonprofit health service plan to:

1) misrepresent pertinent facts or policy provisions that relate to the claim or coverage at issue;

2) refuse to pay a claim for an arbitrary or capricious reason based on all available information;

3) attempt to settle a claim based on an application that is altered without notice to, or the knowledge or consent of, the insured;

4) fail to include with each claim paid to an insured or beneficiary a statement of the coverage under which payment is being made;

5) fail to settle a claim promptly whenever liability is reasonably clear under one part of a policy, in order to influence settlements under other parts of the policy;

6) fail to provide promptly on request a reasonable explanation of the basis for a denial of a claim;

7) for health insurers, fail to meet the requirements of Title 15, Subtitle 10B of this article for preauthorization for a health care service;

8) for health insurers, fail to comply with the provisions of Title 15, Subtitle 10A of this article; or

9) fail to act in good faith, as defined under § 27-1001 of this title, in settling a first-party claim under a policy of property and casualty insurance.

10) as a life insurance provider, fail to search death master files.

Maryland Code, Courts and Judicial Proceedings Article 10-1101-1105 has the standards for insurers disclosing information regarding the applicable limits prior to suit being filed.

In order for a claimant to be entitled to that information, the claimant must provide in writing:

1) The date of the vehicle accident;

2) The name and last known address of the alleged tortfeasor;

3) A copy of the vehicle accident report, if available;

4) The insurer's claim number, if available;

5) The claimant's health care bills and documentation of the claimant's loss of income, if any, resulting from the vehicle accident; and

6) The records of health care treatment for the claimant's injuries caused by the vehicle accident If the claimant is deceased, the estate or a beneficiary of the deceased can make a similar demand in writing, but must also show that the claimant is deceased, and certain proof that the estate or beneficiary has the requisite authority and connection to the claimant.

Based on § 10-1103, it appears that such disclosure is NOT required if the amount of special damages are under $12,500. However, this law is recent and there have not been cases to interpret that portion of the statute to date.

Providing the disclosure of limits is not an admission that the claim is covered under the policy and does not waive any coverage issues or other defenses against co-defendants, or the claimant.


F. Bad Faith Claims


In Maryland, an insurer is under a duty to act in good faith in settling claims against the insured within policy limits. This obviously does not mean that the insurer must always settle a claim for less than policy limits if that can be done. Instead, it means only that the insurer must exercise good faith in its determination of whether or not to settle within policy limits. If the insurer fails to do so, then the insurer is liable to the insured for any verdict in excess of the policy limits, plus interest and costs.

Bad faith is more than a simple negligence in handling a claim, and is more than a "mere mistake of judgment." Although there is no certain formula to use to determine when an insurer is guilty of bad faith, the Court of Appeals of Maryland has set forth the following factors to be used to determine if an insurer is guilty of bad faith:

[T]he severity of the plaintiff's injuries giving rise to the likelihood of a verdict greatly in excess of the policy limits; lack of proper and adequate investigation of the circumstances surrounding the accident; lack of skillful evaluation of plaintiff's disability; failure of the insurer to inform the insured of a compromise offer within or near the policy limits; pressure by the insurer on the insured to make a contribution towards a compromise settlement within the policy limits, as an inducement to settlement by the insurer; and actions which demonstrate a greater concern for the insurer's monetary interests than the financial risk attendant to the insured's predicament.

State Farm Mut. Auto. Ins. Co. v. White, 248 Md. 324, 236 A.2d 269 (Md. 1967). The essence of bad faith is that the insurer could possibly be liable for a verdict

in excess of the policy limit if the insurer safeguards the insurer's own interests more than the insured's interests.

G. Coverage - Duty of Insured


Under most automobile liability insurance policies, the insured has three obligations to the insurer: (1) to notify the insurer of any suit(s) against the insured, (2) to forward the suit papers to the insurer, and (3) to cooperate with the insurer's investigation and defense.

An insurer is relieved of its obligations under a liability insurance policy only if the insured breaches the policy and the breach results in actual prejudice to the

insurer. On this issue, Md. Code Ann., Insurance, § 19-110 provides:

An insurer may disclaim coverage on a liability insurance policy on the ground that the insured or a person claiming the benefits of a policy through the insured has breached the policy by failing to cooperate with the insurer or by not giving the insurer required notice only if the insurer establishes by a preponderance of the evidence that the lack of cooperation or notice has resulted in actual prejudice to the insurer.

Although it is clear that the existence of actual prejudice will be determined on a case-by-case basis, the definition of actual prejudice is uncertain. The Maryland Court of Appeals has said that “the proper focus should be on whether the insured’s willful conduct has, or may reasonably have, precluded the insurer from establishing a legitimate jury issue of the insured’s liability, either liability vel non or for the damages awarded.” The insurer must show that the “failure of cooperation has, in a significant way, precluded or hampered it from presenting a credible defense to the claim.” Allstate v. State Farm Mut. Auto. Ins. Co., 363 Md. 106, 767 A.2d 831,843 (Md. 2001)

Even if actual prejudice is shown, the insurer may not be able to disclaim all liability. Disclaimer is allowed only to the extent that the insurer can establish actual prejudice. Id.

An insurer which intends to deny coverage based on an insured's alleged breach of one or more of the insured's obligations under the insurance policy must be careful not to lose the right to deny coverage through "waiver" or "estoppel." "Waiver" is a voluntary relinquishment of a known right;" "estoppel" is an involuntary loss of a right through the insured's reliance on the insurer's conduct which the insurer is not later allowed to repudiate. An insurer which may deny coverage based on an insured's alleged breach of one or more of the insured's obligations under the insurance policy must communicate that possible denial to the insured within a reasonable amount of time after learning of the breach. The usual way of communicating possible denial is by use of a reservation of rights letter to the insured.

H. Fellow Employee Exclusions


Many policies contain an exclusion of coverage for "[b]odily injury to any fellow employee of the insured arising out of and in the course of his or her employment." Like the household exclusion, this exclusion has been held to be invalid only to the extent of Maryland's minimum statutory $20,000/$40,000 liability limits, but valid above those limits.


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Overview of the State of Maryland Court System

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