The state's top court has upheld an insurer's refusal to pay out on a claim under an umbrella policy made by a Maryland woman after her husband was killed in an auto accident. The Court of Appeals held that an umbrella policy does not fit within the definition of "private passenger motor vehicle liability insurance" contained in Section 19-504.1 of the state's laws on insurance.
Joan Stickley was a passenger in a motor vehicle accident in 2008 in which the driver, her husband, was killed and in which she suffered serious injuries. According to the court's opinion, Stickley's husband "negligently" drove into an intersection.
The Stickleys had motor vehicle insurance and umbrella policies with State Farm. The motor vehicle liability policy had coverage of $100,000 per person and $300,000 per accident with State Farm Auto. The "Personal Liability Umbrella Policy" had uninsured motorist coverage of $2,000,000.
The umbrella policy provided coverage for bodily injury, personal injury and property damage; however, it had a household exclusion. A household exclusion generally excludes coverage for bodily injury to members of the insured's family or household when the insured is at fault. The purpose of the exclusion is to prevent collusion claims by family members.
Although State Farm offered her the full $100,000 in liability coverage, it denied the bodily injury claim she made under the umbrella policy, citing the household exclusion.
Disagreeing with the insurer's decision, Stickley filed a complaint in the Circuit Court for Montgomery County. She said that Section 19-504.1 of the insurance laws requires an insurer to offer its insured liability coverage for claims made by family members in the same amount as liability coverage for claims made by non-family members.
The trial judge ruled for State Farm on summary judgment, declaring that there was no ambiguity in the law and that the umbrella policy was not a part or connected to a private passenger motor vehicle liability insurance policy. The Court of Special Appeals affirmed the decision. The Court of Appeals also affirmed, holding that an umbrella policy does not fit within the definition of "private passenger motor vehicle liability insurance" contained in Section 19-504.1.
Stickley argued before the state's top court that by only giving her the benefit of her primary motor vehicle coverage, she was being denied the extra protection she sought in the umbrella policy, which contradicted the purpose and the language of the statute. She also argued that, because the umbrella policy required her to carry motor vehicle insurance, that this requirement intrinsically linked the two policies together. She also argued that household exclusion policies in umbrella policies are against Maryland public policy.
The court first examined the plain meaning of the phrase "policy or binder of private passenger motor vehicle liability insurance." These insurance policies have been held to attach to automobiles and not to individuals, the court observed. By contrast, a personal liability umbrella policy includes coverage for a myriad of losses suffered by the insured. Umbrella policies attach generally to the insured, whereas private passenger motor vehicle liability insurance polices attach to the motor vehicle and protect against injuries and/or damages resulting from the operation of the motor vehicle.
Additionally, motor vehicle liability insurance policy is a type of primary policy required in the state. Primary polices of motor vehicle liability insurance attach immediately upon the happening of the occurrence giving rise to liability and have been required with a mandated minimum amount of coverage since the General Assembly revised the state's automobile insurance laws in 1972. An umbrella policy, on the other hand, is a supplemental form of insurance that is distinguishable from more specific primary policies, such as motor vehicle liability insurance or homeowner's insurance.
And, not only are the basic definitions and coverages different in motor vehicle liability policies and umbrella policies, but the purpose of both forms of coverage are different, the court said. Primary insurance attaches upon the happening of the occurrence that gives rise to liability, excess insurance attaches only after a predetermined amount of primary coverage has been exhausted, the court noted.
In fact, the court said, umbrella policies generally require the existence of a primary policy as a condition of coverage because the umbrella policy "kicks in" after the primary policy is exhausted to protect against catastrophic loss.
Finally, noting that the validity of household exclusion clauses in motor vehicle insurance policies is based on specific statutory provisions and that it would not "invade" the province of the General Assembly, the court also held that the public policy aspect of the household exclusion in this case is a valid and enforceable contractual provision.
The case is Joan J. Stickley v. State Farm Fire and Casualty Company.
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