A Contractual Provision That Violates Public Policy Is Invalid, But Only To The Extent Of The Conflict Between The Stated Public Policy And The Contractual Provision.
Following an automobile accident in March 2016, appellant Dinora Dominquez sought insurance coverage from her insurer, Government Employees Insurance Company (“GEICO”). When GEICO denied Ms. Dominquez’s claim for coverage, she sued GEICO alleging breach of contract. GEICO moved for summary judgment, and the circuit court granted GEICO’s motion. In Dinora Dominquez v. Government Employees Insurance Company, No. 811-2020, Court of Special Appeals of Maryland (September 13, 2021) the Court of Special Appeals was asked to declare an exclusion in GEICO’s policy to violate public policy and reverse the trial court’s grant of summary judgment.
FACTS AND PROCEEDINGS
The facts were undisputed. On the morning of March 22, 2016, Ms. Dominquez was riding as a passenger in her adult daughter Elena Dominquez’s car. At approximately 6:05 a.m., an unknown person driving an unidentified vehicle struck the rear of Elena’s car. The vehicle then fled the scene before Elena or Ms. Dominquez could identify its driver. The collision caused Ms. Dominquez to suffer serious injuries.
At the time of the collision, Elena was living in Ms. Dominquez’s household, and Elena’s vehicle was insured by a GEICO insurance policy which provided uninsured motorist bodily injury coverage limits of $30,000 per individual and $60,000 per occurrence. Ms. Dominquez, however, was insured under a separate GEICO policy which she and her husband had purchased through GEICO to cover their own vehicle (the “GEICO Policy”). The GEICO Policy provided Ms. Dominquez (and her husband) single limits uninsured/underinsured coverage of $300,000 per individual and occurrence.
GEICO accepted the claim Ms. Dominquez made under Elena’s policy, but it denied Ms. Dominquez’s claim under her GEICO Policy. Ms. Dominquez sued GEICO alleging breach of contract based on GEICO’s denial of her claim for uninsured motorist coverage under her GEICO Policy. GEICO eventually moved for summary judgment, arguing that, as a matter of law, an exclusion contained in the GEICO Policy permitted it to deny Ms. Dominquez’s claim. The circuit court granted summary judgment in favor of GEICO.
Generally, appellate courts will only consider the grounds upon which the trial court granted summary judgment. There is an exception to this general rule, however, where an appellate court may affirm the trial court on a different ground so long as the trial court would have had no discretion to deny summary judgment on that ground.
- A Maryland statute authorizes motor vehicle insurers to insert provisions into their policies that exclude certain claims from the policies’ otherwise mandatory uninsured motorist coverage;
- An insurer [GEICO] attempted to insert such an exclusion into its policy, but the express terms of the exclusion were impermissibly broader than what the clear terms of [the] statute allow – thus sweeping into the exclusion’s ambit claims that the insurer could not lawfully exclude; and
- A claim arose that the insurer could have excluded from coverage if its policy contained an exclusion that precisely tracked the statutory language.
Ms. Dominquez also conceded that, if the GEICO Policy had precisely tracked the statutory language that authorizes the exclusion, GEICO could have also lawfully denied her claim. Nevertheless, Ms. Dominquez argues that the GEICO Policy language is impermissibly broad in contravention of the statute, and claims that when an exclusion in an insurance policy is impermissibly broad, “the proper remedy for the Court” is to invalidate the exclusion ” in totality.”
Even assuming, as Ms. Dominquez alleges, the GEICO Policy is impermissibly broad, under settled Maryland law, it would only be invalid to the extent it conflicts with the statute. The statute which lies at the heart of this case, Md. Code (1995, 2017 Repl. Vol., 2020 Supp.), § 19-509(f)(1) of the Insurance Article (“Ins.”), provides:
(f) An insurer may exclude from the uninsured motorist coverage required by this section benefits for:
(1) the named insured or a family member of the named insured who resides in the named insured’s household for an injury that occurs when the named insured or family member is occupying or is struck as a pedestrian by an uninsured motor vehicle that is owned by the named insured or an immediate family member of the named insured who resides in the named insured’s household[.]
The purpose of this statute is to prevent a family from avoiding paying premium for UM/UIM coverage on all vehicles and being able to claim UM/UIM benefits from the first insurer even though no premium was paid to the first insurer for coverage of the other vehicles.
Regarding uninsured motorist coverage, the GEICO Policy provides, in relevant part: “We [GEICO] will pay damages for bodily injury and property damage caused by an accident which the insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle arising out of the ownership, maintenance or use of that vehicle.” The GEICO Policy then lists several exclusions, or circumstances whereby it will decline to provide coverage. The relevant Exclusion here states that GEICO’s uninsured motorist coverage does not apply: “To bodily injury sustained by an insured while occupying a motor vehicle owned by an insured and not described in the Declarations and not covered by the Bodily Injury and Property Damage liability coverages of this policy.”
Ms. Dominquez acknowledged that her daughter Elena, who lived in her household at the time of the accident, also qualifies as an “insured” under the GEICO Policy, and that Elena’s vehicle was not described in the Declarations of the GEICO Policy. By virtue of the fact that Ms. Dominquez, an insured, sustained injuries while occupying a motor vehicle owned by another insured (her daughter Elena) which was not specifically covered under the GEICO Policy, the GEICO Policy allows GEICO to deny Ms. Dominquez coverage for the injuries she sustained in Elena’s vehicle.
“Maryland law is clear: when the contractual provision of an insurance policy conflicts with a stated public policy, the policy provision is invalid, but only to the extent of the conflict between the stated public policy and the contractual provision.” (emphasis added) A contractual provision that violates public policy is invalid, but only to the extent of the conflict between the stated public policy and the contractual provision.
Regardless of the type of exclusion at issue, Maryland appellate courts have consistently invalidated an exclusion only to the extent it contradicts established public policy.
In conclusion, assuming that the GEICO Policy exclusion is invalid because it excludes coverage where the injury occurs in any family member’s vehicle as opposed to only an immediate family member’s vehicle as provided by statute, the remedy would be to construe the exclusion to ensure that it complies with the statute. Here, that remedy would limit the exclusion to immediate family members as prescribed in the statute. Because Ms. Dominquez concedes that she could not recover uninsured motorist benefits from the GEICO Policy exclusion if it is construed to conform to the statute, and since it conformed to the statute, GEICO was entitled to summary judgment on Ms. Dominquez’s claim for benefits under the GEICO Policy.
Insureds often try to stack UM/UIM coverages that were not intended to be stacked – a means to cover serious injuries where the primary insurance is inadequate. Insurers, in accordance with state law, work to avoid the stacking because they did not collect appropriate premium for two or more policies paying claims for a single accident in a single insured automobile.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
He is available at http://www.zalma.com and email@example.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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