Many consumers are unaware that insurance companies have an obligation under the law to act in a “good faith” manner toward the people who purchase insurance through them. “Good faith” is defined as an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on the claim. An insurer fails to make an informed decision based on honesty and diligence when it denies payment of a claim for reasons that are contrary to the clear dictates of Maryland law.
In Ember Louise Buckley v. The Brethren Mutual Insurance Company, the Court of Special Appeals held that a release of liability signed by the insurance company of the man who caused Buckley’s injuries in an auto accident did not release Buckley’s insurance company from paying on the uninsured/underinsured (UM) coverage she maintained.
Buckley was involved in a car accident in 2007 caused by Harvey L. Betts. Buckley was a passenger in a vehicle driven by Betts. Betts had a liability policy with GEICO with policy limits of $100,000. GEICO offered to settle Buckley’s injury claim for the $100,000 policy limits. In return for the settlement, GEICO and Buckley signed a “full and final Release of any and all claims and liens” – standard procedure in personal injury claims. However, Betts didn’t carry enough insurance to pay for Buckley’s injuries.
Buckley had an insurance policy with Brethren. Buckley’s policy provided UM benefits of $300,000. After signing the release, Buckley requested payment from Brethren to cover her remaining medical expenses under the UM provision of her insurance policy with Brethren. Brethren refused to pay.
Buckley’s attorney had also sent two letters to Brethren to obtain Brethren’s consent to accept GEICO’s settlement. Brethren’s insurance adjuster sent a letter stating they would waive any subrogation action against Betts.
Buckley then filed a breach of contract claim against Brethren, asking for the policy limits of $300,000. Because of the $100,000 she received from GEICO, Buckley was entitled to receive $200,000 from Brethren under the UM provision of her insurance policy. Brethren filed an amended answer asserting that Buckley’s claim was barred by the release that she signed with GEICO.
Both Brethren and Buckley filed motions for summary judgment concerning the release and its effect on Buckley’s claim against Brethren. The trial court agreed with the insurance company.
Buckley also filed a complaint against Brethren with the Maryland Insurance Administration (MIA). The issue before MIA was whether Brethren acted with an absence of good faith in refusing to pay her UM claim. The MIA concluded that Brethren acted in the absence of good faith. MIA observed:
Undoubtedly, there is a fine line between a responsible insurer legitimately defending a claim and an insurer whose sole aim is to avoid the payment of a valid claim. The record of the instant case demonstrates that Brethren’s goal was to avoid paying the policy limit of $200,000.00 on a claim that clearly warrants the payment of policy limits as the claimant had serious injuries, legitimate medical expenses of over $200,000.00, ongoing medical issues, as well as pain and suffering.
MIA also concluded that reading the impact of the release to release Brethren from its obligation to pay money under the UM policy with Buckley was inconsistent with Maryland law.The case then went to the state’s intermediate appellate court. The Court of Special Appeals threw out the trial court’s decision and sent the case back to the trial court for further deliberation.
Buckley argued that “[b]ased upon the plain language of [Section 19-511], it was impossible as a matter of law for the release Ms. Buckley signed to prejudice her right to claim UM benefits.” Section 19-511 of the Maryland Code deals with uninsured motorist claims. She argued that the general release was “intended to protect Mr. Betts from claims by unknown joint tortfeasors . . . not to protect Brethren from Ms. Buckley.”
Brethren contended that “[a] release, such as that at issue in this appeal . . . releases all claims, known or unknown, against all persons or entities . . . even if that person or entity was not aware of the release and paid nothing for it.” Brethren argued that state law requires an injured person to execute a narrow release only in favor of the liability insurer.
Although one appellate judge dissented – disagreed – with the decision, the majority found several reasons why Brethren should have to make good on the uninsured/underinsured coverage that Buckley maintained with the company. The appeals court said executing a “boilerplate, general release in favor of the liability insurer does not relieve the UM carrier from its contractual duty to issue a UM payment to its insured. Three considerations support this conclusion: (1) the text of the statute; (2) the purpose of the statute; and (3) matters of public policy.”
The appeals court also said further fact finding was needed to determine whether Brethren’s response to the settlement offer executed between Buckley and GEICO constituted consent to the settlement.
The case was released September 26, 2012.
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