Background
Stearman is a Baltimore County, Maryland case that deals with the question of whether an
insurance company in Maryland is able to exclude or limit
auto insurance coverage in an action brought by one family member
against another in the event of an auto accident. This situation
rises frequently because passengers have a tort cause of
action against the driver in an auto accident, regardless of whether
the passengers and drivers are family members. In the absence
of a statute, provisions of auto insurance policies that
exclude members of the insured's family or household from
coverage have generally received approbation from most courts. The stated
rationale is that Maryland auto insurance companies have
the same right as individuals to limit their liability and to
impose upon their obligations whatever conditions they please,
not inconsistent with public policy, and the courts have no right
to add anything to their contracts or to take anything from them. The
purpose of the household exclusion is to prevent "claims
stemming from one whose natural ties and pulls are likely to favor
a claimant who lives in the same household...." State
Farm Mut. Auto Ins. Co. V. Briscoe, 245 Md. 147, 151, 225
A.2d 270, 271 (1967). But in Jennings v. Government Employees
Ins., 302 Md. 352, 488 A.2d 166 (1985), the Maryland Court
of Appeals found that the "household exclusion"
clause of an auto liability insurance policy was not valid because it
was contrary to the public policy expressed in Maryland's
compulsory auto liability insurance law. Unfortunately,
the following year, the court clarified in State Farm Mut.
Auto. Ins. Co. v. Nationwide Mut. Ins. Co., 307 Md. 631 (1986),
that this public policy override of the policy language in auto
accident cases in Maryland applies only to the mandatory limits
set forth in Chapter 73. These limits are 20/40; in other
words, the insurance companies liability is limited to $20,000
per person, and $40,000 per accident (in there event more than
two family members bring a claim).
Stearman v. State Farm
In this case, a woman, a passenger in husband's vehicle, was seriously injured as the result of her husband's negligence. She suffered a broken rib, a broken collarbone, and a collapsed lung. The only vehicle involved in the collision was the vehicle driven by her husband. The State Farm insurance policy at issue provided bodily injury liability coverage of $ 100,000 per person, with an exclusion if the person injured was the insured or a member of the insured's family, in which case the statutory minimum coverage, $ 20,000 applied. The wife contended that this provision was void as against public policy. By a 5-2 decision, the Maryland Court of Appeals disagreed. The court found that the Maryland General Assembly prohibited liability coverage of less than the minimum amounts required by the Transportation code. The court found that a "household exclusion" violated public policy only to the extent that it operated to prevent this mandatory minimum coverage. The court further reasoned that if the Maryland legislature intended to require complete auto insurance coverage for injury spouses, it would have said so or increased the mandatory minimum liability limits.
In a dissent, Chief Judge Bell argued what our lawyers at Miller & Zois and many other plaintiff's personal injury attorneys believe: that the law of Maryland should not allow insurers to implement policy language to avoid auto insurance coverage in these instances. Judge Bell argued that to "hold the household exclusion totally invalid insofar as husband and wife is concerned does no violence, whatsoever, to the right of an insurer to contract with its insured, consistent with public policy. In this case, public policy favors permitting one spouse to sue the other for negligence and to recover for injuries caused by that spouse's negligence. That public policy is contravened when the insured, by contracting with the insurer, can limit his or her spouse's recovery. This is so because, in effect, such a contract, at least partially, abrogates the Court's prior abolition of interspousal immunity. To be sure, such a holding would, and does, as the majority says, interfere with the insurer's right to contract; however, it does so consistent with, and in the same sense that the requirement of mandatory minimum insurance coverage does. As such, it goes only as far as the law permits and no further." Id. at 473.
The "Take Home Message" for Clients and Other Personal Injury Attorneys
Just before this case was decided, the Maryland General Assembly passed SB 460, which implemented Section 19-504.1 of the Insurance Article. This new law requires an insurer to offer an insured liability coverage for claims made by a family member in the same amount as the liability coverage for claims by a nonfamily member under the insurance policy. The new legislation applies to insurance policies issued or renewed on or after Jan. 1, 2005. The statute requires the insurance company to offer this coverage in 10 point bold type font, so that the insurance company cannot hide this offer in small print. A common question we get in situations like this is "Can the auto insurance company deny me coverage if I demand a policy that takes advantage of this new requirement?" In this case, the statute specifically states that "an insurer may not refuse to underwrite a first named insured because the first named insured requests or elects the liability coverage for claims made by family members in an amount equal to the coverage provided for claims made by non-family members." (Select here for a sample uninsured motorist coverage waiver.) In other words, the insurance company cannot deny you coverage because you seek policy language that does not have the family member exclusion. But if you do not seek this coverage, which will increase your premiums slightly, you may be limited to a $20,000 recovery if you are making a claim under that policy against a family member as the result of an auto accident.
Relevant Links
