Stearman v. State Farm Mut. Auto. Ins. Co ., 381 Md. 436 (2004)
Stearman is a Baltimore County, Maryland case that deals with the question of whether an insurance company in Maryland can exclude or limit auto insurance coverage in an action brought by one family member against another in the event of a car accident.
This situation frequently arises 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. Family members suing family members in traffic collision cases is an odd thing, particularly to Maryland jurors who see the family loves each other and are not told there is car insurance. But it happens all of the time.
The stated rationale is that 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 outlined 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 the 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 we at Miller & Zois and many other 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 are 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"
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 insurance company deny me coverage if I demand a policy that takes advantage of this new requirement?" In this case, the statute explicitly 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.