REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 0511
September Term, 2013
JEANNINE MORSE
v.
ERIE INSURANCE EXCHANGE
Woodward,
Matricciani,
Moylan, Charles E., Jr.
(Retired, Specially Assigned),
JJ.
Opinion by Moylan, J.
Dissenting Opinion by Woodward, J.
Filed: April 29, 2014
In this uninsured motorist insurance coverage dispute, we must choose between two
diverging roads: one requiring compliance with a statutory scheme, the other excusing
compliance in favor of a more equitable (or at least less harsh) result. Unlike Robert Frost,1
we feel constrained to choose the first road, more traveled as it may be. For the parties here
– Jeannine Morse, the appellant, and Erie Insurance Exchange, the appellee – that will make
all the difference.
The Acceptance of the Settlement Offer
This case arises out of an April 28, 2007 automobile accident between Jeannine
Morse and Paula Smallwood in New Castle, Delaware. The accident itself is not relevant
to this appeal, and the parties agree that Smallwood was at fault. Smallwood maintained
an automobile insurance policy with Nationwide Insurance Company that provided up to
$15,000 in liability coverage. Morse maintained her own uninsured motorist coverage
through Erie Insurance Exchange. The uninsured motorist endorsement on Morse's policy
contained a consent to settle clause that mirrors the settlement procedures set forth in Md.
Code, § 19-511 of the Insurance Article.2
1
Robert Frost, "The Road Not Taken."
... Two roads diverged in a wood, and I –
I took the one less traveled by,
And that has made all the difference.
2
The "Uninsured/Underinsured Motorists Coverage Endorsement" of Morse's Erie
policy contained the following clause under the heading "Rights and Duties – General Policy
Conditions":
(continued...)
On October 13, 2008, Nationwide offered Morse the full $15,000 policy limit in
settlement of her claim against Smallwood. On October 14 or 15, 2008, Morse's then-
attorney notified Erie of the settlement offer by telephone. On October 27, 2008, she
2
(...continued)
The following duties are added:
...
3. "Anyone we protect" must notify "us" by certified mail of any offer
to settle a claim for bodily injury or death that, in combination with any other
settlement for the same loss, would exhaust the applicable bodily injury or
death limits of the liability insurance policy. Within 60 days after receipt of
such notice, "we" will send "anyone we protect:"
a. written consent to accept the settlement and to the execution
of releases; or
b. written refusal not to accept the settlement offer [sic]. Within
30 days of such notice of refusal, "we" will pay "anyone we protect" the
amount of the settlement offer. Payment of the amount of the settlement offer
to "anyone we protect" preserves "our" right of recovery from anyone else
held responsible. Once this payment is made, "anyone we protect" is required
to transfer the right of recovery up to the amount of such payment to "us" and
to do nothing to harm this right. Anyone receiving payment from "us" and
from someone else for the same accident or loss will reimburse "us" up to the
amount of "our" payment.
If "we" fail to meet all of the requirements imposed on "us" under this
section, "anyone we protect" may accept a settlement offer and execute
releases from [sic] anyone held responsible for the loss without prejudice to
any uninsured motorists claim.
(Emphasis supplied).
-2-
notified Erie of the offer by mail. Morse's attorney did not send the notice by certified mail,
however, and Erie claims it did not receive the notice until December 5 or 6, 2008.
In the meantime, on November 3, 2008, without obtaining Erie's consent to the
settlement, Morse accepted Nationwide's offer and signed a release of all claims against
Smallwood. Morse's attorney stamped the release with a notation: "Nothing contained in
this release waives, limits, or extinguishes any future claims for UM/UIM or PIP benefits."
Erie learned that Morse had accepted the settlement on February 4, 2009, but did not receive
a copy of the executed release agreement until July 8, 2009.
On November 5, 2009, Erie denied Morse's claim for uninsured motorist benefits.
Erie gave three reasons: 1) "Ms. Morse signed the Release agreement and negotiated the
Nationwide settlement check prior to sending ERIE the notice as required by [Md. Code, §
19-511 of the Insurance Article]"; 2) "the subject release agreement signed by Ms. Morse
was a global release and served to preclude any and all claims, including the subject
Underinsured Motorists claim";3 and 3) Morse "settled her claim against the tortfeasor
without ERIE's written consent," in violation of the policy.
The Jury's Verdict
3
Although the terms "uninsured" and "underinsured" may have distinct meanings in
the insurance industry, and both terms are used in the Insurance Article of the Maryland
Code, for ease of reference, we shall employ the term "uninsured" to refer to both
"uninsured" and "underinsured" motorist insurance.
-3-
On June 17, 2011, through her present attorneys, Morse filed suit against Erie in the
Circuit Court for Cecil County for breach of the insurance contract. On April 22-23, 2013,
the case was tried to a jury on the issues of whether Erie breached the contract by denying
Morse's uninsured motorist claim and, if so, the extent of Morse's damages resulting from
the automobile accident. Morse moved for judgment on the ground that Erie had failed to
show any prejudice resulting from her failure to obtain its consent to settle with Nationwide.
The court denied the motion. The court also denied Morse's request for a jury instruction
to the effect that her failure to notify Erie of the settlement offer would relieve Erie from its
responsibility to provide coverage only if Erie showed actual prejudice.4 The jury found in
favor of Erie. Morse has appealed from that adverse jury verdict.
The Statutory Milieu
4
Morse requested the following jury instruction, a modified version of MPJI-Civil
14:11, Cooperation by Insured:
The insurance policy issued to the insured contains a provision
requiring the insured to send to her insurer a copy of the other driver's written
settlement offer.
The failure of the insured to give this notice frees the insurance
company from responsibility for the claimed injury, damage, or loss provided
that the failure actually prejudiced the insurance company in investigating or
defending against the claim. The insurer insurance company [sic] must
establish by a preponderance of the affirmative evidence that it actually was
prejudiced by the failure to give the necessary notice.
(Pattern instruction modified as indicated). The court was correct in not giving this
instruction because, as we shall explain, it is not a correct statement of the law as it applies
to this case.
-4-
Our analysis in this case revolves around two sections of the Insurance Article of the
Maryland Code. First, § 19-110 prohibits an insurer from disclaiming coverage on a liability
insurance policy on the ground that an insured failed to cooperate or to provide "required
notice," unless the insurer shows "actual prejudice" resulting therefrom. Section 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 the 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.
Second, § 19-511 creates a procedure that allows an injured insured to settle her claim
against a tortfeasor's liability insurer for full policy limits without prejudice to her claim for
uninsured motorist benefits. Upon receiving from its insured a settlement offer from a
liability insurer for policy limits, the uninsured motorist insurer is afforded sixty days to
choose to consent to the settlement (thereby waiving its subrogation rights against the
tortfeasor), or to refuse to consent and instead pay its insured the amount of the offer directly
(thereby preserving its subrogation rights). If the injured insured has complied with § 19-
511 but the uninsured motorist insurer has not timely responded or paid out, the injured
insured still may accept the settlement offer without prejudice to her uninsured motorist
claim, just as if the uninsured motorist insurer had consented to the settlement. See Kritsings
v. State Farm Mut. Auto. Ins. Co., 189 Md. App. 367, 378, 984 A.2d 395, 401 (2009), cert.
-5-
denied, 413 Md. 229 (2010). See also Buckley v. Brethren Mut. Ins. Co., 207 Md. App.
574, 586-87, 53 A.3d 456, 463 (2012), aff'd, ___ Md. ___, 86 A.3d 665 (2014).5
5
Section 19-511 provides, in full:
(a) Settlement offers sent to insurers providing uninsured motorist
coverage – If an injured person receives a written offer from a motor vehicle
insurance liability insurer or that insurer's authorized agent to settle a claim for
bodily injury or death, and the amount of the settlement offer, in combination
with any other settlements arising out of the same occurrence, would exhaust
the bodily injury or death limits of the applicable liability insurance policies,
bonds, and securities, the injured person shall send by certified mail, to any
insurer that provides uninsured motorist coverage for the bodily injury or
death, a copy of the liability insurer's written settlement offer.
(b) Consent or refusal to consent to acceptance of settlement offer –
Within 60 days after receipt of the notice required under subsection (a) of this
section, the uninsured motorist insurer shall send to the injured person:
(1) written consent to acceptance of the settlement offer and to
the execution of releases; or
(2) written refusal to consent to acceptance of the settlement
offer.
(c) Payment of amount of settlement offer by uninsured motorist
insurer – Within 30 days after a refusal to consent to acceptance of a
settlement offer under subsection (b)(2) of this section, the uninsured motorist
insurer shall pay to the injured person the amount of the settlement offer.
(d) Preservation of uninsured motorist insurer’s subrogation rights –
(1) Payment as described in subsection (c) of this section shall
preserve the uninsured motorist insurer's subrogation rights against the
liability insurer and its insured.
(2) Receipt by the injured person of the payment described in
(continued...)
-6-
In construing this statutory scheme, we take our guiding principles from Government
Employees Ins. Co. v. Insurance Comm'r of Md., 332 Md. 124, 630 A.2d 713 (1993):
[T]he primary goal ... is determining the intent of the Legislature when it
enacted the subject statute. We begin our search for legislative intent with the
words of the statute to be interpreted, considered in light of the context in
which the statute appears. Context may include related statutes, pertinent
legislative history and "other material that fairly bears on the ... fundamental
issue of legislative purpose or goal ..." Where the statute to be construed is a
5
(...continued)
subsection (c) of this section shall constitute the assignment, up to the amount
of the payment, of any recovery on behalf of the injured person that is
subsequently paid from the applicable liability insurance policies, bonds, and
securities.
(e) Acceptance of settlement offer and execution of releases – The
injured person may accept the liability insurer's settlement offer and execute
releases in favor of the liability insurer and its insured without prejudice to
any claim the injured person may have against the uninsured motorist insurer:
(1) on receipt of written consent to acceptance of the settlement
offer and to the execution of releases; or
(2) if the uninsured motorist insurer has not met the
requirements of subsection (b) or subsection (c) of this section.
(f) Construction of written consent to acceptance of settlement offer –
Written consent by an uninsured motorist insurer to acceptance of a settlement
offer under subsection (b)(1) of this section:
(1) may not be construed to limit the right of the uninsured
motorist insurer to raise any issue relating to liability or damages in an action
against the uninsured motorist insurer; and
(2) does not constitute an admission by the uninsured motorist
insurer as to any issue raised in an action against the uninsured motorist
insurer.
-7-
part of a statutory scheme, the legislative intention is not determined from that
statute alone, rather it is to be discerned by considering it in light of the
statutory scheme. When, in that scheme, two statutes, enacted at different
times and not referring to each other, address the same subject, they must be
read together, i.e., interpreted with reference to one another, and harmonized,
to the extent possible, both with each other and with other provisions of the
statutory scheme. Neither statute should be read, however, so as to render the
other, or any portion of it, meaningless, surplusage, superfluous or nugatory.
In attempting to harmonize them, we presume that, when the Legislature
enacted the later of the two statutes, it was aware of the one earlier enacted.
Even though two statutes may require conflicting results with regard
to their common subject, they are not thereby necessarily rendered
irreconcilable. Where provisions of one of the statutes deal with the common
subject generally and those of the other do so more specifically, the statutes
may be harmonized by viewing the more specific statute as an exception to the
more general one.
Id. at 131-33, 630 A.2d at 717-18.
Competing Contentions
Morse contends that the court should have granted her motion for judgment on the
breach of contract issue because Erie failed to present evidence of actual prejudice resulting
from her failure to obtain Erie's consent to settle with Nationwide. She does not contend
that she complied with § 19-511. Instead, she asks us to extend the safety net of § 19-110
to require a showing of actual prejudice for disclaimers of coverage based not only on an
insured's failure to provide required notice, but also on an insured's failure to obtain consent
to settlement. She classifies both as "technical" violations that should not merit the harsh
sanction of forfeiture of insurance coverage. She asserts that Erie could not have been
-8-
prejudiced by her settlement with Nationwide because the settlement was for the full limit
of the only liability insurance policy Smallwood had.
Erie takes a very different view of the statutory provisions. Erie contends that § 19-
511 created a mandatory procedure that an insured and insurer must follow in order for the
insured to accept a settlement offer from a tortfeasor without prejudice to her claim for
uninsured motorist benefits. Erie contends that § 19-110 is strictly limited to denials of
liability coverage based on an insured's failure to provide notice or to cooperate, and that it
cannot be extended to cover a denial of uninsured motorist coverage based on an insured's
failure to obtain consent to settle. Erie views a mere failure to provide notice as something
altogether different from Morse's denial of its opportunity to review the offer and decide
whether to grant or refuse consent to the settlement.
In a Nutshell
The issue before us is whether an injured insured's failure to obtain her uninsured
motorist insurer's consent to settle with a tortfeasor's liability insurer for policy limits, in
violation of her insurance policy and § 19-511, triggers either the § 19-110 or common law
prejudice rules. We hold that it does not. The § 19-110 prejudice rule is not a safe harbor
that would excuse noncompliance with § 19-511. By its terms, § 19-110 is limited to denials
of liability coverage based on an insured's failure to cooperate or failure to provide required
notice. Obtaining an uninsured motorist insurer's consent to settle with a tortfeasor's liability
-9-
insurer is not equivalent to providing required notice. Maryland's common law prejudice
rule is not noticeably broader than § 19-110.
Section 19-511, by contrast, sets forth a specific procedure an injured insured must
follow in order to settle with a tortfeasor's liability insurer without prejudice to her uninsured
motorist claim. Extending the prejudice rule to also excuse failure to obtain consent to settle
would render § 19-511 a nullity. Reading the statutory provisions in harmony with each
other, as we must, we hold that an uninsured motorist insurer may disclaim coverage based
on its insured's failure to comply with § 19-511, without having to show actual prejudice.
The Prejudice Rule
Since 1964, as a matter of statute, and since 2005, as a matter of common law,
Maryland has followed a "prejudice rule," whereby
[a]n insurer may not disclaim coverage for either lack of notice or failure to
cooperate unless it demonstrates that the deficiency has resulted in actual
prejudice to the insurer.
See Allstate Ins. Co. v. State Farm Mut. Auto. Ins. Co., 363 Md. 106, 122, 767 A.2d 831,
840 (2001). In Maryland, it is the insurer who bears the burden of "establish[ing] by a
preponderance of affirmative evidence that the delay in giving notice has resulted in actual
prejudice to the insurer." See Sherwood Brands, Inc. v. Hartford Accident & Indem. Co.,
347 Md. 32, 42, 698 A.2d 1078, 1083 (1997). The rule avoids the "disproportionate"
forfeiture that would result "when [a] notice provision is enforced in the absence of
prejudice," in which case "the insurer suffers no harm and the insured forfeits the premiums
- 10 -
and loses coverage." See Prince George's County v. Local Gov't Ins. Trust, 388 Md. 162,
187, 879 A.2d 81, 96 (2005).
Although the majority of states follow some form of prejudice rule today,6 that was
not always the case. In Watson v. U.S.F. & G. Co., 231 Md. 266, 272, 189 A.2d 625, 627
(1963), the Court of Appeals rejected a prejudice rule as "not in accord with the Maryland
decisions, nor with the weight of authority elsewhere in this country." The General
Assembly overruled that decision the next year by enacting the forerunner of present § 19-
110, former Article 48A, § 482. See 1964 Md. Laws Chap. 185. The statute originally was
limited to "motor vehicle liability insurance"; it was extended to all liability insurance in
1966. See 1966 Md. Laws Chap. 205. According to the Code Revisor's Note, the current
§ 19-110, adopted in 1997, is "new language derived without substantive change" from
former Article 48A, § 482. In 2005, the Court of Appeals adopted the prejudice rule as a
matter of common law. Prince George's, 388 Md. at 187, 879 A.2d at 96 ("In accordance
with the overwhelming weight of authority of courts across the country and the expression
of public policy by the Maryland General Assembly as stated in § 19-110, we adopt the
prejudice rule."). See also Sherwood Brands, Inc. v. Great American Ins. Co., 418 Md. 300,
322 n.18, 13 A.3d 1268, 1282 n.18 (2011).
A. Section 19-110 Applies Only to Failure to Cooperate and Failure to
Provide Notice
6
As of 2005, thirty-eight states and two territories had adopted a prejudice rule. See
Prince George's, 388 Md. at 183 n.9, 879 A.2d at 94 n.9.
- 11 -
Although Maryland courts have now fully embraced the prejudice rule as articulated
in § 19-110, they have uniformly recognized its narrow scope. By its terms, § 19-110
requires an insurer to show actual prejudice only where the insurer disclaims liability
coverage as a consequence of its insured's "fail[ure] to cooperate with the insurer" or failure
to "giv[e] the insurer required notice."
In Government Employees Ins. Co. v. Harvey, 278 Md. 548, 366 A.2d 13 (1976), the
Court of Appeals explained that the General Assembly had already limited the types of
failures by an insured that would be protected by the prejudice rule. The version of the
statute originally proposed would have required an insurer to show prejudice when it
disclaimed liability "for any reason." The version of the statute actually enacted restricted
application of the prejudice rule to disclaimers based on failure to cooperate or failure to
provide notice.
As originally introduced before the General Assembly, § 482 provided
that an insurance company was required to prove actual prejudice in an action
under a motor vehicle liability insurance policy where it filed a disclaimer of
insurance for "any reason." The words "any reason" were deleted from the bill
prior to final passage. As amended and ultimately enacted, § 482 required
insurance companies to prove actual prejudice only where the disclaimer was
based on the insured's failure "to cooperate with the insurer or by not giving
requisite notice to the insurer."
Id. at 552, 366 A.2d at 16-17 (emphasis supplied).
In Harvey, the injured insured notified her insurer that she had been in an accident
nine days after it occurred. The insurer responded by providing the insured with forms
necessary to submit proof of claim with regard to personal injury protection ("PIP") benefits.
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The insured retained an attorney, and the insurer sent the attorney two reminders that,
according to the policy and a statute governing PIP coverage, proof of claim for PIP benefits
needed to be submitted within six months of the accident. The insured finally submitted
proof of claim seven-and-a-half months after the accident. The insurer denied coverage.
The insured brought suit and obtained a judgment in the District Court. The Baltimore City
Court affirmed on the ground that the insured's failure to timely submit proof of claim was
protected by the statutory prejudice rule.
The Court of Appeals reversed, holding that the prejudice statute did not apply to an
insured's failure to provide timely proof of loss, which is "separate and distinct from a notice
of accident." The Court explained:
We think it clear from the history and language of § 482 that its
provisions do not apply to insurance disclaimers grounded on the insured's
failure to submit proof of loss within the time specified in the policy. That a
proof of loss or claim is separate and distinct from a notice of accident is well
recognized.
Id. at 553, 366 A.2d at 17 (emphasis supplied). Thus, the insurer was entitled to deny the
PIP claim solely because the proof of loss was untimely, without having to show prejudice.
In Phillips Way, Inc. v. American Equity Ins. Co., 143 Md. App. 515, 517, 795 A.2d
216, 217 (2002), this Court dealt with a professional liability insurance policy with a no-
action clause providing that the insured could not maintain an action to recover under the
policy unless and until the amount of loss was fixed by a final judgment rendered after trial
or "by agreement between the parties with the written consent of the [insurer]." Instead of
- 13 -
trying the case to judgment, however, the insured "settled a claim made against it by a third
party but did so without the knowledge or consent of its insurer." Id. The insured sued to
collect on the insurance policy. The circuit court granted summary judgment in favor of the
insurer, and this Court affirmed.
On appeal, we rejected the insured's argument that § 19-110 applied to its failure to
obtain consent to settle. We recalled the legislative history of § 19-110, as explained in
Harvey. We noted that the General Assembly had "specifically rejected" an approach that
would make § 19-110 "applicable to any defense raised by the insurer." Id. at 521, 795 A.2d
at 219. We reiterated the Harvey Court's conclusion "[t]hat an insurer must show prejudice
only if it raises a failure to cooperate defense or a defense based on lack of notice." Id. We
reasoned that extending the prejudice rule to an insured's breach of a no-action clause would
"put the nearly impossible burden on the [insurer] of showing collusion [between the insured
and the other party to the settlement] or demonstrating, after the fact, the true worth of the
settled claim." Id. at 524, 795 A.2d at 221.
In Perini/Tompkins Joint Venture v. ACE American Ins. Co., 738 F.3d 95 (4th Cir.
2013), the United States Court of Appeals for the Fourth Circuit applied Phillips Way to
similar facts and reached the same result, concluding that § 19-110 did not apply to an
insured's failure to obtain its insurer's consent to settle in violation of a no-action clause.
B. "Providing Notice" Is Not Equivalent to "Obtaining Consent to Settle"
- 14 -
Sensing the outer limits of § 19-110, Morse has attempted to squeeze her situation
into one of the statute's two areas of applicability. She argues only that her failure to obtain
Erie's consent to settle was a form of failure to provide required notice, not that it was a
failure to cooperate. In our view, providing required notice and obtaining consent to settle
are simply not the same thing.
Maryland courts have rejected attempts to equate mere notice violations, which
trigger the § 19-110 prejudice rule, with other deficiencies by insureds, which do not trigger
the § 19-110 prejudice rule. In Harvey, the Court refused to equate an insured's failure to
timely submit a "proof of loss or claim" with an insured's failure to provide a "notice of
accident."
That a proof of loss or claim is separate and distinct from a notice of accident
is well recognized. A proof of loss enables the insurer to ascertain the nature,
extent and character of the loss and to set reserves accordingly. The chief
purpose of a proof of loss "is to acquaint the insurance company with certain
facts and circumstances relative to the loss, forming a basis for further steps
to be taken by the company, ranging from full settlement to absolute
repudiation of liability." The insurer's right to a proof of loss, where required
by the policy, has been characterized as "an important one to the insurer, and
one in which it is to be protected."
278 Md. at 553, 366 A.2d at 17.
In a case that predates § 19-511, Waters v. U.S.F. & G. Co., 328 Md. 700, 616 A.2d
884 (1992), the Court of Appeals noted that a consent to settle clause provides an uninsured
motorist insurer with greater protection against undesired settlements than a mere notice
clause. The policy in that case contained a notice clause, but not a consent to settle clause.
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The insured provided notice of a liability insurer's pending settlement offer, but accepted the
offer without obtaining its uninsured motorist insurer's consent. The Court held that the
insurer still was bound by the settlement, even though it did not consent, because it had
notice of the pending settlement offer and was a party to the action between the insured and
the tortfeasor.
When the uninsured motorist carrier fails to include a consent to settle clause
in the uninsured motorist provisions of the policy, and when the carrier, with
notice of the tort suit, does not attempt to litigate at trial the underlying tort
issues of liability and/or damages, the carrier will ordinarily be bound by a
settlement of the tort suit entered into between its insured and the uninsured
tortfeasor.
Id. at 719, 616 A.2d at 893 (emphasis supplied). The Court explained that the insurer could
have "protect[ed] itself from an allegedly inappropriate settlement between its insured and
the uninsured tortfeasor" by inserting a consent to settle clause into its policy, or by
intervening in the action and litigating the liability and damages issues, but it chose not to
do so. Id. at 718-19, 616 A.2d at 892-93.
In West American Ins. Co. v. Popa, 352 Md. 455, 723 A.2d 1 (1998), another pre-
§ 19-511 case, the uninsured motorist policy provided that no judgment against a tortfeasor
would be binding upon the uninsured motorist insurer unless the insured had provided
"reasonable notice of the pendency of the suit" and the insurer had a "reasonable
opportunity" to protect its interests. The policy did not contain a consent to settle clause.
After trial against the tortfeasor proceeded to judgment, the insured made a claim for
uninsured motorist benefits. The insurer argued that it could not be bound by the judgment
- 16 -
because, at the time, it did not know that an uninsured motorist claim would eventually be
made. The Court rejected that argument and held that the insurer was afforded due process
because it had notice of the tort suit and an opportunity to intervene prior to trial. Id. at 464,
723 A.2d at 5.
The insurer also argued that its insured had no right to recover more on a judgment
against one of the parties than it already had recovered, because the insured had filed an
"order of satisfaction" as to that judgment. The Court reiterated
that when an insured plaintiff gives his uninsured/underinsured motorist
carrier timely notice of the tort action, and when the uninsured/underinsured
provisions of the insurance policy do not contain a clause requiring the
carrier's consent before the insured can settle with the tortfeasor, the insured
is entitled to enter a settlement or a consent judgment with the tortfeasor
without obtaining the consent of or without further notice to the carrier.
Id. at 468, 723 A.2d at 7 (emphasis supplied).7
In Phillips Way, we rejected an insured's attempt to equate its failure to obtain
consent to settle with a failure to provide notice. As we have noted, the insured in that case
had violated a no-action clause in a professional liability policy that, under the
circumstances, operated as a consent to settle clause. We explained that, even if the insured
had notified its insurer of the pending settlement agreement and had cooperated by giving
7
Although the Popa Court also discussed how other states had handled the situation
we face here, where an insured settles with a tortfeasor for policy limits in violation of a
consent to settle clause, the Court made clear that it was not presented with that situation and
that it "need not ... address [it]." 352 Md. at 468 n.3, 723 A.2d at 7 n.3. The Court made
no mention of the § 19-511 settlement procedure, which existed but was not applicable
because the accident at issue occurred before the statute's effective date.
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the insurer an opportunity to decide whether to consent, the policy still would have been
breached because the insurer had not consented. Thus, the failure to obtain consent was
something more than a failure to provide notice or to cooperate and it did not trigger the
prejudice rule.
The appellant's argument, while ingenious, is unpersuasive. First of all,
it is not technically true that to obtain American Equity's consent to the
settlement, Phillips Way would have had to notify the insurer of the pending
settlement – such notification could have been made by UMCP or even by an
officious intermeddler. But even if it were technically true that in order for
American Equity to give its consent to the intended settlement, Phillips Way
would have had to notify and cooperate with its insurer, that fact is irrelevant.
If Phillips Way had notified American Equity of the intended settlement and
gave the latter its full cooperation, the condition precedent would still have
been breached if American Equity failed to give its written consent to that
settlement.
143 Md. App. at 520, 795 A.2d at 218 (emphasis supplied).
An insurer's right to consent to settle takes on even greater importance in the context
of uninsured motorist insurance. By contrast to a mere right to notice, which does not
necessarily trigger anything in terms of the ongoing litigation, an uninsured motorist
insurer's statutory right to consent to certain settlements can effectively put the action on
hold for up to sixty days while the insurer makes a decision. See § 19-511(b). An insurer's
decision whether to grant or refuse consent is not as simple or inconsequential as Morse
would have it. The insurer must consider much more than the obvious question whether to
waive or to preserve its subrogation rights against the tortfeasor, who may or may not be
"judgment-proof." By refusing consent and advancing the amount of the settlement offer
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to its insured, the insurer assumes the risk that it could recover less than that amount, or
nothing at all, in a subrogation action against the tortfeasor. Under the law that applies to
this case, by granting consent, an insurer became bound by the settlement and waived any
right to assert the tortfeasor's lack of negligence or its own insured's contributory negligence
as a defense to liability on the policy.
By refusing consent to settle, an insurer takes on the risk that it may later recover less
than the non-refundable amount it must advance to its insured, or even that it may later
recover nothing at all. In Ohio Cas. Ins. Co. v. Chamberlin, 172 Md. App. 229, 914 A.2d
160 (2007), the uninsured motorist insurer refused to consent to a liability insurer's offer to
settle for policy limits of $20,000 and, in accordance with § 19-511(c), advanced the
$20,000 to its insured. The action against the tortfeasor proceeded to trial, and a jury
returned a verdict in favor of the insured for only $5,445. The uninsured motorist insurer
then sought repayment from its insured of the $20,000 it had advanced. The circuit court
denied that request, and we affirmed. We held
that when a UIM [carrier] 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, 914 A.2d at 167.
By granting consent to settle – under the law as it stood at the time that, had Morse
complied with § 19-511, Erie would have had to decide whether to grant or refuse consent
- 19 -
– an insurer was precluded from later contesting tort liability. In Maurer v. Pennsylvania
Nat. Mut. Cas. Ins. Co., 404 Md. 60, 945 A.2d 629 (2007), the insured followed the
procedures set forth in § 19-511 and obtained his uninsured motorist insurer's consent to
settle with the tortfeasor's insurer. After that settlement, the insured sued his insurer on the
policy. The court granted partial summary judgment in favor of the insured, ruling that the
tortfeasor had been negligent as a matter of law. Nevertheless, the court submitted the case
to a jury on the issues of whether the insured had been contributorily negligent or had
assumed the risk of his injuries. An affirmative finding on either question would preclude
recovery. The jury found contributory negligence and the insured appealed.
The Court of Appeals reversed based on erroneous jury instructions, but went on to
address the effect of the uninsured motorist insurer's consent to settle with the tortfeasor.
By consenting to a settlement, an uninsured motorist insurer became bound by it. Id. at 74,
945 A.2d at 637 (quoting Nationwide Mut. Ins. Co. v. Webb, 291 Md. 721, 739-40, 436
A.2d 465, 476 (1981) (holding that "consent to sue" clauses in uninsured motorist policies
are invalid, but noting that "consent to settle" clauses have generally been upheld)). A
consenting insurer was thus precluded from "contest[ing] the issues of tort liability" in the
insured's action to recover on the policy. Id. at 75, 945 A.2d at 638. The Court concluded
that the insurer in Maurer should not have been allowed to raise the issues of its insured's
- 20 -
contributory negligence or assumption of risk, and the Court directed that "[a]ny new trial
shall be limited to the matter of damages." Id.8
In 2012, the General Assembly tempered the effect of an insurer's written consent to
settle with a tortfeasor. By 2012 Md. Laws Chaps. 268, 269, the legislature added
subsection (f) to § 19-511, which provides:
(f) Construction of written consent to acceptance of settlement offer –
Written consent by an uninsured motorist insurer to acceptance of a settlement
offer under subsection (b)(1) of this section:
(1) may not be construed to limit the right of the uninsured
motorist insurer to raise any issue relating to liability or damages in an action
against the uninsured motorist insurer; and
(2) does not constitute an admission by the uninsured motorist
insurer as to any issue raised in an action against the uninsured motorist
insurer.
The legislation provided "[t]hat this Act shall take effect October 1, 2012." Under current
law, an insurer will not be bound by a settlement to which it has given written consent.
Notwithstanding its consent, an insurer still may raise in its defense "any issue relating to
liability or damages." Consent to settlement "does not constitute an admission ... as to any
issue raised in an action against the uninsured motorist insurer."
8
As we have noted, the Court had earlier held in Waters, before the enactment of §
19-511, that an uninsured motorist insurer that did not employ a consent to settle clause in
its policy would be bound by a settlement to which it did not consent if it had notice of the
pending offer and an opportunity to intervene in the tort action. 328 Md. at 718-19, 616
A.2d at 892-93.
- 21 -
Although, today, an uninsured motorist insurer may consent to settlement with a
tortfeasor without waiving its right to contest tort liability, that was not true at the time Erie
would have decided whether to grant consent to Morse's settlement with Nationwide, had
Morse given it the opportunity. By its terms, the 2012 legislation did not take effect until
October 1, 2012 – well after Morse's 2007 accident, 2008 settlement, and 2011 filing of suit
against Erie. If Morse had complied with § 19-511 and given Erie an opportunity to grant
or refuse consent to settle, Erie would have had to consider the more weighty, pre-§ 19-
511(f) consequences of its decision.
The 2012 amendment has no effect on this case. Statutes are presumed to apply only
prospectively, absent "clear expressions in the statute to the contrary ... particularly ... where
the statute adversely affects substantive rights." See State Farm Mut. Auto Ins. Co. v.
Hearn, 242 Md. 575, 582, 219 A.2d 820, 824 (1966). See also Keeney v. Allstate Ins. Co.,
130 Md. App. 396, 402-07, 746 A.2d 947, 951-53 (2000). The addition of subsection (f)
clearly affected substantive rights, as it drastically altered the effect of an insurer's granting
consent to settle, vis-à-vis both insurer and insured, and did not merely "alter[] procedural
machinery." Hearn, 242 Md. at 582, 219 A.2d at 824. There is absolutely no indication that
the General Assembly intended for 2012 Md. Laws Chaps. 268, 269, to apply
retrospectively. On the contrary, the legislation specifically provided that it would take
effect October 1, 2012. The 2012 change in the law is immaterial to our analysis.
- 22 -
In this case, to be sure, Erie never contested Smallwood's negligence or raised
Morse's contributory negligence as an affirmative defense to its liability on the policy. Even
if Erie had determined, before Nationwide extended the settlement offer, that Morse had not
been at all negligent and Smallwood was completely at fault, that is not material to our
analysis. Although this may be evidence that Erie was not prejudiced by Morse's settlement
with Nationwide, our task here is only to determine whether, in the abstract, obtaining
consent to settle is equivalent to providing required notice. As we have determined that they
are not equivalent, the prejudice rule is not implicated and Erie's lack of prejudice in this
case is irrelevant.
C. The Common Law Prejudice Rule is Unavailing
Morse also invokes Prince George's County v. Local Gov't Ins. Trust, 388 Md. 162,
879 A.2d 81 (2005), which, she claims, created a common law prejudice rule that is broader
than § 19-110. In that case, Prince George's County was found liable for the actions of three
county police officers that deprived a citizen of his state and federal constitutional rights.
The County did not inform its excess liability insurer, the Local Government Insurance
Trust, of the incident or the lawsuit until ten days after the jury returned its verdict. The
Trust denied coverage on the ground that the County had failed to give notice, as required
by the policy, and the County filed suit.
The trial court granted summary judgment in favor of the Trust. This Court affirmed,
as did the Court of Appeals. The Court of Appeals held that the County had indeed violated
- 23 -
the notice requirements of the policy, but that § 19-110 did not apply because the Trust did
not fit the statutory definition of an "insurer."9 Nevertheless, the Court held that the Trust
was required to show prejudice under the common law. In any event, the Trust was
prejudiced as a matter of law by the County's failure to provide notice until after an adverse
verdict was rendered, and it was thus entitled to deny coverage.
In holding that the Trust was required to show prejudice under the common law, the
Court overruled its earlier rejection of a prejudice rule in Watson v. U.S.F. & G. Co., 231
Md. 266, 189 A.2d 625 (1963). The Court took note of the fact that, although no-prejudice
was the majority rule at the time Watson was decided, the majority of states now support a
prejudice rule. 388 Md. at 182-83, 879 A.2d at 93. Furthermore, the General Assembly's
swift rejection of Watson, by enacting the forerunner of § 19-110, "announced the public
policy of this state that an insurer must show prejudice before disclaiming coverage based
on the insured's breach of a notice provision." Id. at 187, 879 A.2d at 96. Thus, the Court
held:
An insurer may not disclaim coverage to an insured based on the insured's
violation of a notice provision, unless the insurer has been prejudiced by the
violation.
Id., 879 A.2d at 96-97 (emphasis supplied).
9
The Court found that the Trust was an insurance pool formed by public entities under
Ins. § 19-602, not an "insurer" engaged in the insurance business under Ins. § 1-101. 388
Md. at 180-81, 879 A.2d at 92.
- 24 -
To the extent that a common law prejudice rule even exists, it does not extend to an
insured's failure to obtain consent to settle. By its facts, the Prince George's decision
extended the § 19-110 prejudice rule to cover entities that do not meet the strict definition
of "insurer" contained in Ins. § 1-101, and made clear that the prejudice rule applies to both
primary and excess liability insurers. This may support Morse's argument that the prejudice
rule applies to uninsured motorist insurance policies, which are not, strictly speaking,
liability insurance policies.10 Nevertheless, nothing in the Prince George's decision remotely
suggested that the rule could be extended to anything other than "the insured's violation of
a notice provision."
In fact, in a subsequent case, the Court has taken an even more limited view of its
Prince George's holding. In Sherwood Brands, Inc. v. Great American Ins. Co., 418 Md.
300, 322 n.18, 13 A.3d 1268, 1282 n.18 (2011), the Court explained:
In [Prince George's], we – noting § 19-110's embodiment of "the public policy
of this state that an insurer must show prejudice before disclaiming coverage
based on the insured's breach of a notice provision" – did "adopt the prejudice
rule." That is not to say, however, that, prior to [Prince George's], we did not
require a showing of prejudice. Section 19-110 requires as much. Rather, we
stated merely that, in requiring an insurer to show prejudice when it denies
coverage based on a breach of a notice provision, we were not unlike the
overwhelming majority of our sister states.
10
In General Accident Ins. Co. v. Scott, 107 Md. App. 603, 614-15, 669 A.2d 773,
779, cert. denied, 342 Md. 115 (1996), we noted that, "[a]rguably, [Article 48A,] § 482
applies to uninsured motorist coverage, because that kind of coverage is a part of the liability
insurance policy." Nevertheless, we did not "decide whether § 482 actually applies to
uninsured motorist coverage." Id.
- 25 -
(Emphasis supplied). Whatever common law prejudice rule Maryland may have, it is not
noticeably broader than § 19-110.
The Statutory Settlement Procedure
Our conclusion that Erie's denial of coverage did not trigger the § 19-110 or common
law prejudice rules is strengthened by the fact that the procedure for settling with an
uninsured tortfeasor is itself a creature of statute. We cannot apply one statute to excuse
Morse's noncompliance with another statute, especially where the two statutes do not
overlap or conflict. As we have explained, § 19-110 requires an insurer to show actual
prejudice only where it disclaims liability coverage based on an insured's failure to cooperate
or provide required notice. It does not apply where a disclaimer of coverage is based on an
insured's failure to comply with the § 19-511 settlement procedure.
In Harvey, the Court held that the § 19-110 prejudice rule did not apply to an insurer's
denial of PIP coverage. Like uninsured motorist insurance, PIP coverage is mandatory in
Maryland, unless affirmatively waived, and is governed by its own statutory provisions. See
Ins. §§ 19-505 et seq. Consistent with the PIP coverage statute, the insurer had written into
its policy a six-month time limit for submitting proof of claim. The Court held that the
insurer was entitled to deny PIP coverage based on its insured's failure to timely submit
proof of claim, without having to show prejudice.
- 26 -
In view of the cases, and of the express legislative authorization
contained in [Art. 48A, §] 544(a)(1)[11] permitting a time limit for submission
of the original proof of loss, we think GEICO had a contractual right to deny
liability based on appellee's failure to comply with the condition precedent
requiring that proof of claim be made within six months after the accident.
This is so, we hold, irrespective of prejudice and notwithstanding the fact that
PIP coverage is compulsory.
278 Md. at 554, 366 A.2d at 17 (emphasis supplied). Similarly, an uninsured motorist
insurer may deny coverage based on an insured's failure to comply with a statutory
settlement procedure, § 19-511, irrespective of prejudice and notwithstanding the fact that
uninsured motorist coverage is compulsory.
We do not suggest that § 19-511 removes all uninsured motorist coverage disputes
from the ambit of § 19-110. On the contrary, if an uninsured motorist insurer denies
coverage based on an insured's failure to provide notice or to cooperate, it will have to show
actual prejudice. In General Accident Ins. Co. v. Scott, 107 Md. App. 603, 669 A.2d 773,
cert. denied, 342 Md. 115 (1996), this Court affirmed a circuit court's grant of summary
judgment in favor of an injured insured whose uninsured motorist insurer denied coverage
based on the insured's twenty-nine-month delay in providing notice of the accident. Without
11
Today, Ins. § 19-508(a)(2) provides, in pertinent part:
(2) A policy that contains the coverage described in § 19-505 of this
subtitle may:
(i) set a period of not less than 12 months after the date of the
motor vehicle accident within which the original claim for benefits must be
filed with the insurer[.]
- 27 -
deciding whether the forerunner of § 19-110 actually applied to uninsured motorist
coverage, we concluded that "an insurer cannot avoid coverage under an uninsured motorist
policy on the grounds of an unreasonably late notice, unless the insurer proves that it
suffered 'actual prejudice.'" Id. at 615, 669 A.2d at 779.12
Section 19-511 exists primarily for the benefit of an injured insured. It was first
enacted in 1995 as Article 48A, § 542(b). See 1995 Md. Laws Chap. 516. It was conceived,
in part, as a short cut allowing an injured insured to obtain at least some compensation for
her injury without having to wait for a global settlement involving both the tortfeasor's
liability insurer and her own uninsured motorist insurer. See Kritsings v. State Farm Mut.
Auto Ins. Co., 189 Md. App. 367, 378-79, 984 A.2d 395, 401-02 (2009), cert. denied, 413
Md. 229 (2010). It is a carefully brokered legislative solution that "sets forth a settlement
procedure to be followed by claimants." See Brethren Mut. Ins. Co. v. Buckley, ___ Md.
___, 86 A.3d 665, 674 (2014).
In Keeney v. Allstate Ins. Co., 130 Md. App. 396, 403-04, 746 A.2d 947, 951 (2000),
we explained the situation before § 19-511, when liability insurers' unwillingness to settle
12
Section 19-511 did not apply in the Scott case because the action was commenced
well before the statute took effect in 1995. Even if it had applied, however, § 19-511 would
not have been implicated because the case was argued and decided based on the insured's
failure to provide notice, not the insured's failure to obtain consent to settle.
- 28 -
without a release was pitted against uninsured motorist insurers' unwillingness to grant a
release and waive subrogation.13 We recounted the legislative purpose behind the bill:
Senate Bill 253 [of 1995], which was to become Article 48A, Section
542(b), was sponsored by Senator Vernon Boozer of Baltimore County. The
purpose of Senator Boozer's bill, according to the "Senate floor report," was
to provide a
remedy to a problem that has existed in Maryland's tort system
for some time. Currently, an injured person who makes a claim
against a liability carrier for limits available under the liability
policy is frequently not allowed by their uninsured/
underinsured motorist carrier to give the liability carrier a full
release of their claim. Therefore, if the injured person wishes
to make an additional claim for their injuries against their
underinsured motorist coverage, they get caught in a situation
where the liability carrier will not give them the limits of the
at-fault party's policy without a release and the
uninsured/underinsured motorist carrier will not allow them to
give a release to the liability carrier. As a result, they are unable
to recover funds from either carrier. This dilemma can cause a
lengthy delay in settlement.
Senate Bill 253 would eliminate this dilemma by
requiring the uninsured/underinsured motorist carrier to: (1)
allow their injured insured to settle with the liability carrier and
provide a release; or (2) pay their injured insured themselves to
fully maintain their subrogation rights against the liable party.
Therefore, the insured party gets his money more quickly and
13
Even after the enactment of § 19-511, some insurers (including Erie in its initial
denial of Morse's claim) have argued that an insured's general release of a tortfeasor can also
release the uninsured motorist insurer's obligation to provide coverage. The Court of
Appeals rejected that argument in Brethren Mut. Ins. Co. v. Buckley, ___ Md. ___, 86 A.3d
665 (2014), holding that an insured may execute a general release, not explicitly limited to
the tortfeasor and the tortfeasor's liability insurer, without prejudice to her claim for
uninsured motorist benefits.
- 29 -
the uninsured/underinsured motorist carrier would have "up
front" the liability settlement.
The summary of the bill provided in the Senate floor report was terse,
viz:
SENATE BILL 253 ESTABLISHES A SETTLEMENT
PROCEDURE TO BE FOLLOWED WHEN A CLAIMANT
IS INJURED BY A PARTY WHOSE LIABILITY
INSURANCE LIMIT IS LESS THAN THE CLAIMANT'S
UNINSURED MOTORIST LIMITS.
Id. at 401-02, 746 A.2d at 950.
In exchange for allowing injured insureds to obtain some compensation earlier on in
the process, without prejudice to their remaining claims for uninsured motorist benefits, §
19-511(b) grants an uninsured motorist carrier the right to consent to settlement and a sixty-
day period to make that decision. This is true even if the policy does not contain a consent
to settle clause. Section 19-511 effectively writes into all uninsured motorist policies a
consent to settle clause that applies where the settlement offer would exhaust liability policy
limits. See Maurer, 404 Md. at 73 n.4, 945 A.2d at 637 n.4 ("Under some circumstances,
where the amount of the settlement or settlements, arising out of the same occurrence, would
exhaust liability policy limits, the uninsured/underinsured carrier is by statute given the
option to consent or not to consent to the settlement. Under such circumstances, there exists
a 'consent to settle' clause by statute.").
If an injured insured follows the settlement procedures of § 19-511, she cannot lose.
If the uninsured motorist insurer grants consent to the settlement, she will obtain prompt
- 30 -
compensation from the tortfeasor's liability insurer. If the uninsured motorist insurer refuses
consent to the settlement, it must promptly remit to her the same compensation, as an
advance against any future recovery. If the uninsured motorist insurer does not respond
within the statutorily established time limit, she may accept the liability insurer's offer as if
her insurer had consented. Upon settling with a liability insurer, pursuant to § 19-511(e),
or accepting equivalent payment from her uninsured motorist insurer, pursuant to § 19-
511(c), the injured insured no longer bears any risk that her claim will later be found to be
worth less than the limit of the tortfeasor's liability policy. Once she accepts payment, the
money is hers to keep.14 In short, an injured insured cannot prejudice her claim for
uninsured motorist benefits by following § 19-511.
In this case, Morse made no attempt to comply with § 19-511. Section 19-511 was
triggered when Nationwide extended an offer to settle for the full limit of the only liability
policy Smallwood had. Instead of sending Erie a copy of Nationwide's offer by certified
mail, as required by § 19-511(a), Morse's previous attorney first notified Erie by telephone
and later by non-certified mail. Instead of giving Erie sixty days to decide whether to grant
or refuse consent to the settlement, as required by § 19-511(b), Morse accepted Nationwide's
offer and signed a release, twenty-one days after the offer was extended, nineteen or twenty
14
Although the amount of payment the insured receives will be set off against any
later higher recovery against a responsible party or the uninsured motorist insurer, see §§ 19-
509(g), 19-511(d)(2), the insured will not have to return any money should subsequent
litigation result in a recovery lower than the initial payment, or even no recovery at all. See
Ohio Cas. Ins. Co. v. Chamberlin, 172 Md. App. 229, 914 A.2d 160 (2007).
- 31 -
days after her attorney notified Erie by telephone, seven days after her attorney sent notice
by non-certified mail, and thirty-two or thirty-three days before Erie actually received the
written offer.
We are mindful that "the purpose of uninsured motorist statutes is 'that each insured
under such coverage have available the full statutory minimum to exactly the same extent
as would have been available had the tortfeasor complied with the minimum requirements
of the financial responsibility law,'" see, e.g., Nationwide Mut. Ins. Co. v. Webb, 291 Md.
721, 737, 436 A.2d 465, 474 (1981), as well as "the remedial nature of the statutory plan,
which dictates a liberal construction in order to effectuate its purpose of assuring recovery
for innocent victims of motor vehicle accidents," see, e.g., State Farm Mut. Auto. Ins. Co.
v. Maryland Auto. Ins. Fund, 277 Md. 602, 605, 356 A.2d 560, 562 (1976). Nevertheless,
even a liberal construction of a remedial statute cannot excuse total noncompliance.
In Buckley v. Brethren Mutu. Ins. Co., 207 Md. App. 574, 53 A.3d 456 (2012), this
Court held that an insured's general release, given in exchange for settlement with a
tortfeasor's liability insurer, that released the tortfeasor "and all other persons, firms or
corporations," did not also release the insured's uninsured motorist carrier from providing
benefits. We explained that to hold otherwise would be contrary to the text, spirit, and
purpose of § 19-511. Nevertheless, we remanded for further factfinding with regard to
whether the insurer had consented to the settlement with the tortfeasor. The answer to that
question would determine whether the insurer could contest tort liability at trial or be limited
- 32 -
to a trial on damages only. The Court of Appeals affirmed our decision in all respects,
though it did not reach the question whether the insurer had actually consented to the
settlement. Brethren Mut. Ins. Co. v. Buckley, ___ Md. ___, 86 A.3d 665 (2014). Nothing
in either opinion casts any doubt on an insured's obligation to comply with § 19-511.
We are not moved by Morse's assertion that Erie could not have been prejudiced by
her settlement with Nationwide because the settlement was for the full limits of the only
liability insurance policy Smallwood had. As we have explained, no prejudice rule was
triggered in this case and Erie's lack of prejudice is irrelevant. We note, however, that, if we
were to apply a prejudice rule as Morse suggests, such a lack of prejudice would almost
always excuse noncompliance with § 19-511, because § 19-511 only applies where "the
amount of the settlement offer, in combination with any other settlements arising out of the
same occurrence, would exhaust the bodily injury or death limits of the applicable liability
insurance policies, bonds, and securities." § 19-511(a). We cannot apply a strained
construction of the § 19-110 prejudice rule to eviscerate § 19-511, a carefully brokered
legislative compromise that already is stacked in favor of an injured insured who complies
with it.
Out-of-State Cases are Not Persuasive Here
Morse presents us with decisions of twenty-eight states which, she claims, apply a
prejudice rule to a denial of uninsured motorist coverage based on violation of a consent to
- 33 -
settle clause.15 Those decisions are easily distinguished from the case at bar. Only two of
those states, Nebraska16 and North Dakota,17 have statutory provisions concerning consent
to settle with a tortfeasor. All the rest have dealt with the matter by common law. Unlike
15
She also acknowledges six states that have rejected a prejudice rule. See Downey
v. Travelers Prop. Cas. Ins. Co., 74 So. 3d 952 (Ala. 2011); Dalke v. Allstate Ins. Co., 935
P.2d 1067 (Kan. Ct. App. 1997); Lee v. Auto-Owners Ins. Co., 554 N.W.2d 610 (Mich. Ct.
App. 1996); Stevens v. Merchants Mut. Ins. Co., 599 A.2d 490 (N.H. 1991); Fraioli v.
Metropolitan Prop. & Cas. Ins. Co., 748 A.2d 273 (R.I. 2000); Osborne v. National Union
Fire Ins. Co., 465 S.E. 2d 835 (Va. 1996). Dalke involved an uninsured motorist settlement
statute very similar to Maryland's § 19-511, Kan. Stat. § 40-284(f), which does not contain
a prejudice provision. The court declined to imply one.
16
Nebraska law provides that uninsured motorist coverage "shall not apply" where
the insured or his or her representative makes, without the written consent of
the insurer, any settlement with or obtains any judgment against any person
who may be legally liable for any injuries if such settlement adversely affects
the rights of the insurer, except that this subdivision shall not apply to
underinsured motorist coverage when the insured has given notice to the
insurer, in compliance with subsection (2) of section 44-6412, and the insurer
has failed to make the required payment to protect its right of subrogation[.]
Neb. Rev. Stat. § 44-6413(1)(a) (emphasis supplied).
17
North Dakota law provides that uninsured motorist coverage "do[es] not apply"
where
the insured, without the written consent of the insurer, shall make any
agreement or settlement with any person who may be legally liable therefor,
if such agreement adversely affects the rights of the insurer. The insurer is not
bound by any agreement or settlement without its prior knowledge and
consent. This limitation does not apply to underinsured motorist coverage
when the insured has advised the insurer, in compliance with subsection 2 of
section 26.1-40-15.5, and the insurer has failed to advance the required
payment to protect its right of reimbursement and subrogation[.]
N.D. Cent. Code § 26.1-40-15.6(7) (emphasis supplied).
- 34 -
Maryland's § 19-511, the Nebraska and North Dakota statutes explicitly contain a prejudice
provision.
In Sherwood Brands, Inc. v. Great American Ins. Co., 418 Md. 300, 327-28, 13 A.3d
1268, 1285 (2011), the Court of Appeals cautioned against "squeez[ing] a square peg – that
is, Maryland's notice-prejudice statute, as embodied in § 19-110, and our jurisprudence –
into a round hole – that is, the notice-prejudice jurisprudence of other states and
jurisdictions." The Court noted that, "[o]f the more than three-dozen states adopting a
notice-prejudice rule, it appears that only two did so legislatively, as Maryland has." Id.
That assessment applies equally to the cases Morse has cited here. We may not read a
prejudice rule into § 19-511 on the authority that other state legislatures have included one
in their statutes, or that other state courts have included one in their judicially-crafted
remedies, when the Maryland General Assembly has not seen fit to do so.
Conclusion
Morse argues that our result would be inequitable. Erie, to be sure, made no showing
at all that it was prejudiced by Morse's failure to obtain its consent to settle with Nationwide.
The result Morse feels is harsh could have been easily avoided by complying with the
straightforward settlement procedure the General Assembly provided in § 19-511. We will
not nullify a finely tuned and completely valid statutory procedure simply to excuse Morse's
noncompliance in this particular case. As Morse's noncompliance did not trigger a prejudice
- 35 -
rule, Erie was entitled to disclaim liability on the basis of that noncompliance, with or
without prejudice.
JUDGMENT AFFIRMED; COSTS TO
BE PAID BY APPELLANT.
- 36 -
REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 0511
September Term, 2013
JEANNINE MORSE
v.
ERIE INSURANCE EXCHANGE
Woodward,
Matricciani,
Moylan, Charles E., Jr.
(Retired, Specially Assigned),
JJ.
Dissenting Opinion by Woodward, J.
Filed: April 29, 2014
I respectfully dissent.
At the outset, it is important to note that under the facts of this case, Erie does not
claim, nor is there anything in the record to support a claim, that Erie was actually prejudiced
by Morse’s failure to obtain Erie’s written consent prior to settling her claim against the
tortfeasor for the limits of the tortfeasor’s liability policy. Thus, if the consent to settle
requirement of § 19-511 is enforced in the absence of actual prejudice, as Erie urges and the
majority holds, “the insurer [Erie] suffers no harm and the insured [Morse] forfeits the
premiums and loses coverage.” Prince George’s Cnty. v. Local Gov’t Ins. Trust, 388 Md.
162, 187 (2005). Notwithstanding the majority’s assertion that Erie’s lack of actual prejudice
is “irrelevant,” I believe that such lack of actual prejudice is very relevant to a proper
construction of § 19-511.
In Town of Oxford v. Koste, 204 Md. App. 578 (2012), aff’d, 431 Md. 14 (2013), this
Court set forth the principles that guide the construction of a statute:
This case presents an issue of statutory construction, like
many, resolvable on the basis of judicial consideration of three
general factors: 1) text; 2) purpose; and 3) consequences. Text is
the plain language of the relevant provision, typically given its
ordinary meaning, viewed in context, considered in light of the whole
statute, and generally evaluated for ambiguity. Legislative purpose,
either apparent from the text or gathered from external sources, often
informs, if not controls, our reading of the statute. An examination of
interpretive consequences, either as a comparison of the results of
each proffered construction, or as a principle of avoidance of an
absurd or unreasonable reading, grounds the court’s interpretation in
reality.
Id. at 585-86 (emphasis added) (citations omitted). When the text is ambiguous, we must
look beyond the statute’s plain language to determine legislative intent:
“While the language of the statute is the primary source for
determining legislative intention, the plain meaning rule of
construction is not absolute; rather, the statute must be construed
reasonably with reference to the purpose, aim, or policy of the
enacting body. The Court will look at the larger context,
including the legislative purpose, within which statutory language
appears. Construction of a statute which is unreasonable,
illogical, unjust, or inconsistent with common sense should be
avoided.”
Consol. Constr. Servs., Inc. v. Simpson, 372 Md. 434, 457 (2002) (emphasis added) (quoting
Tracey v. Tracey, 328 Md. 380, 387 (1992)). The Court of Appeals has emphasized the
importance of legislative purpose, stating that “[t]he cardinal rule [of statutory interpretation]
is to ascertain and effectuate legislative intent.” Id. at 456 (alterations in original) (internal
quotation marks omitted).
Regarding the text of § 19-511, in Buckley v. Brethren Mutual Insurance Co., 207 Md.
App. 574 (2012), aff’d, ___ Md. ___, No. 10, September Term 2013 (filed March 4, 2014),
we summarized the procedure to be followed by the insured and the uninsured motorist
carrier (“UM carrier”) when the liability insurer of the alleged tortfeasor offers the policy
limits to the injured person. We stated:
Pursuant to § 19-511(a), when the liability insurer of the alleged
tortfeasor offers its policy limits to the injured person, the injured
insured must send a copy of the offer by certified letter to the injured
insured’s UM carrier. § 19-511(a). Within 60 days after receipt of
the notice, the UM carrier “shall send to the injured person: (1)
written consent to acceptance of the settlement offer and to the
execution of releases; or (2) written refusal to consent to acceptance
of the settlement offer.” § 19-511(b). If the UM carrier refuses to
consent to acceptance of the settlement offer, the UM carrier must pay
the amount of the settlement offer to the injured person within 30 days
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following the refusal. If the UM insurer consents to the settlement
offer, or otherwise fails to respond to the settlement offer as required
by subsections (b) and (c) of § 19-511, then the injured insured may
accept the settlement offer from the liability insurer and execute a
release “in favor of the liability insurer and its insured without
prejudice to any claim the injured person may have against the
uninsured motorist insurer.” § 19-511(e).
Id. at 586-87 (footnote omitted).
There is no language in § 19-511 that sets forth the consequences of an insured’s
failure to follow the statute’s procedure prior to accepting the tortfeasor’s liability policy
limits. According to the majority, the consequence of such failure is that the UM carrier may
deny coverage regardless of whether it suffered actual prejudice. Morse, on the other hand,
construes § 19-511 to require actual prejudice to the UM carrier before it can deny coverage.
Given the absence of statutory language, § 19-511 is ambiguous, and the question thus
presented is which construction is consistent with the purpose and policy of § 19-511, and
how do the results of each construction compare with each other.1 See Simpson, 372 Md. at
457 (holding that ambiguity in a statute requires the court to consider the purpose and policy
behind the statute and avoid unjust results); Koste, 204 Md. App. at 586 (noting that statutory
interpretation should be grounded in a consideration of the interpretive consequences of the
statutes’s proffered constructions).
1
Although Morse relies on § 19-110 to arrive at her construction of § 19-511, I do
not believe that such reliance is necessary to come to the same conclusion.
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In Buckley, this Court articulated the purpose and policy of the uninsured motorist
statute, as well as the underlying reasons for enacting § 19-511. We said:
The purpose of the uninsured motorist statute is to provide
minimum protection for individuals injured by uninsured
motorists and should be liberally construed to ensure that
innocent victims of motor vehicle collisions are compensated for
their injuries. Consistent with the public policy of affording minimal
protection for innocent victims, an insured can purchase a higher
amount of uninsured motorist insurance which will become available
when the insured’s uninsured motorist coverage, as well as his
damages, exceed the liability coverage of the tortfeasor. The effect
[i]s to provide an injured insured with compensation equal to that
which would have been available had the tortfeasor carried liability
insurance in an amount equal to the amount of the injured insured’s
UM coverage.
207 Md. App. at 589 (alteration in original) (emphasis added) (citations and internal
quotation marks omitted). Similarly, Maryland has a “strong public policy favoring
compensation of those injured by UM drivers.” Id. at 591.
The primary reason for enacting § 19-511 was to eliminate the potential lengthy delay
caused by “‘a situation where the liability carrier w[ould] not give [the injured persons] the
limits of the at-fault party’s policy without a release and the [UM] carrier w[ould] not allow
them to give a release to the liability carrier.’” Id. at 590 (first and fourth alterations in
original) (quoting Keeney v. Allstate Ins. Co., 130 Md. App. 396, 401 (2000)). Moreover,
§ 19-511 sought to strike a balance between the right of the insured to a speedy recovery of
the liability policy limits and the protection of the UM carrier’s subrogation rights.
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When the constructions of § 19-511 advanced by the majority and Morse are
considered in the context of the purpose and policy of Maryland’s uninsured motorist statute
and the reasons underlying § 19-511, the result clearly favors Morse’s construction. Morse’s
construction would further the public policy of affording protection for innocent victims by
allowing recovery of uninsured motorist compensation unless the UM carrier can show actual
prejudice occasioned by the insured’s failure to comply with the procedural requirements of
§ 19-511. Where there is no actual prejudice, an insured who paid for uninsured motorist
coverage equal to his or her liability coverage would receive what the statute intended:
“‘[C]ompensation equal to that which would have been available had the tortfeasor carried
liability insurance in an amount equal to the amount of the injured insured’s UM coverage.’”
Id. at 589 (quoting Kritsings v. State Farm Mut. Auto. Ins. Co., 189 Md. App. 367, 375
(2009)). In addition, the balance between the insured’s right to speedy recovery and the
protection of the UM carrier’s subrogation rights would be maintained by Morse’s
construction, because the UM carrier would still be able to deny coverage where its
subrogation rights were actually prejudiced.
A comparison of the results of the different constructions of § 19-511 also support
Morse’s construction. Adoption of the majority’s view results, in effect, in a windfall to the
UM carrier—the UM carrier is allowed to keep the premiums paid for uninsured motorist
coverage while avoiding its obligation to pay an otherwise valid claim, where the actions of
the insured did not increase the risk inherent with such coverage or prejudice any subrogation
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rights of the UM carrier. Morse’s construction would protect a UM carrier from any real
adverse impact on its subrogation rights while allowing the recovery of compensation under
uninsured motorist coverage that was bought and paid for by the insured.
Finally, the views expressed in this dissent are consistent with those of Andrew
Janquitto, who wrote in his treatise, Maryland Motor Vehicle Insurance:
The issue of whether an unauthorized settlement by a
claimant can relieve the claimant’s insurer of its obligation to pay
UM benefits is a difficult one . . . . A short answer is that the 1995
amendment that created what is now Section 19-511 provides a
mandatory procedure that must be followed and, if it is not followed,
the UM insurer is relieved of its obligation to pay UM benefits. This
short answer may not be correct. Of note, Section 19-511 does not
indicate that the failure to abide by its provisions relieves the UM
insurer of its contractual obligation to pay. Hence, if the UM insurer
can escape its obligation, it must do so by relying on a contractual
consent-to-settle clause.[2] But using a breach of a consent-to-settle
clause to avoid the obligation to pay UM benefits is also problematic.
Not only is there no provision in the UM Statute that creates an
insurer’s subrogation right, there is no provision that states that a
claimant’s unauthorized release of a tortfeasor is grounds for the
insurer to escape paying UM benefits. Even assuming an insurer
could escape its contractual and statutory obligations by
enforcing a consent-to-settle provision, it should be able to do so
only if that is an equitable result. Subrogation, even when it [ ]
arises out of a contract or a statute, is equitable in nature. . . . [A]
court must seek to strike a balance between the claimant’s right
to compensation and the insurer’s right to subrogation. Certainly,
a mere loss of a theoretical right of subrogation rights should not
cause the loss of an injured claimant’s right of recovery, for such a
holding would not be an equitable one. An insurer, simply put, must
show that there was a realistic likelihood that it would have recovered
2
In the instant case, Erie relied upon its contractual consent-to-settle clause to deny
Morse her UM claim.
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had it exercised the subrogation rights. In other words, an insurer
must show that it has been actually or materially prejudiced by
the release of the tortfeasor.
Andrew Janquitto, Maryland Motor Vehicle Insurance § 8.12(B), at 471 (3d ed. 2011)
(footnote omitted).
For the foregoing reasons, I would reverse the judgment of the circuit court.
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