E.L.B. v. The Brethren Mutual Insurance Co., #27-1001-09-00014 (June 30, 2009).
Insurer acted in bad faith by not filing claim file with MIA, asserting obviously incorrect legal theories that ignored binding precedent and a highly implausible reading of a third party release that ignored the plain language of the UM statute.
***Full Disclosure: I worked as an expert for Brethren on this matter, but was not involved with the legal defense at issue in this case.***
The MIA found that The Brethren Mutual Insurance Company acted in bad faith by asserting obviously incorrect legal arguments. Brethren’s position relied on simply ignoring binding precedent from the Court of Appeals, and on interpreting a release contrary to both a controlling statute and the intent of the parties. Brethren’s legal positions were so outlandish that asserting them was acting in bad faith. Brethren also failed to file its claims file with the MIA, which counts as a procedural default.
Plaintiff, aged 65, was injured after the car in which she was riding veered off the road late at night and hit a concrete wall on March 18, 2007. The driver was drunk and arrested at the scene. Plaintiff suffered severe injury, including several surgeries. She left Shock-Trauma on March 30, 2007 for a rehab center, where she remained until May 25, 2007. Her undisputed past medical bills totaled $213,251 and her bills continued rising. (Op. 4-5.)
The driver of the vehicle had GEICO insurance with a policy limit of $100,000. Plaintiff held a UM policy with Brethren with a $300,000 limits. Plaintiff therefore notified Brethren that she intended to pursue a UM claim. (Op. 5.)
GEICO offered policy limits on August 8, 2007. Plaintiff asked Brethren for its permission to accept the settlement and “to release Plaintiff from any further liability and subrogation.” (Op. 5.) Brethren waived subrogation against Plaintiff. (Op. 6.) Plaintiff released GEICO and GEICO’s insured and took the money.
Plaintiff then sought to recover the balance of the UM policy ($200,000) from Brethren. Brethren refused to pay, asserting Assumption of Risk. Plaintiff sued. Brethren answered with Contributory Negligence, Assumption of Risk, and Release. Plaintiff then filed with the MIA. (Op. 6.) Brethren sought a stay pending the Circuit Court litigation, but the MIA declined to grant one both because good faith had not been raised in the Circuit Court and because Plaintiff should have gone to the MIA first. (Op. 8).
The MIA found that Brethren acted without good faith by asserting tort defenses against Plaintiff after waiving subrogation. Under Maryland law, UM insurers are bound by judgments or settlements between UM policy holders and the tortfeasors who injured them. The Court of Appeals had already clearly held in Maurer v. Pennsylvania Mut. Cas. Ins. Co., 404 Md. 60 (2007) that once an insurer consents to a settlement with a tortfeasor, the insurer cannot contest liability later. Brethren knew about the case, but ignored it because a bill had been introduced in the General Assembly to overturn Maurer. (Op. 10-11.) Simply ignoring binding precedent “was a failure to act honestly and diligently.” (Op. 12.)
Brethren argued that Plaintiff had accidentally released Brethren when Plaintiff settled with GEICO and GEICO’s insured. The release purported to be “a ‘release in full of all claims’ as to ‘all other persons, firms, or corporations.” (Op. 12.) Brethren felt that the release had relased all claims against them.
The MIA rejected Brethren’s position because it was “inconsistent with the plain language of §19-511(e). §19-511(e) required that an injured party could (with its insurer’s permission) accept a tortfeasor’s settlement “without prejudice to any claim the injured party may have against the uninsured motorist insurer.” (Op. 12 (quoting §19-511(e)). The MIA felt because of the “strong public policy” expressed by the statute, any release drafted in a UM case “must be viewed as having been drafted and signed consistently with the enabling statute.” (Op. 13).
But after laying the ground work for voiding Brethren’s interpretation as contrary to public policy, the MIA decided the case based on drafter’s intent. The record showed that “all parties including Brethren, intended that the release be limited to claims between Plaintiff, GEICO, and GEICO’s client.” Since the release never intended to release Brethren, it did not. But even asserting a position so at odds with the plain language of the statute rose to Bad Faith.
You can find the decision here.
P.S. Brethren litigated this issue up to the Court of Appeals. (Technically, they appealed a grant of summary judgment against them in a separate-but-related Circuit Court suit for breach of contract against Buckley.) See Brethren Mut. Ins. Co. v. Buckley, 437 Md. 332, 86 A.3d 665, (2014). It lost. That opinion contained a shout-out to this opinion. See our discussion here.