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Consent to Settle violation does not required UM insurer to demonstrate actual prejudice

Jeannine Morse v. Erie Insurance Exchange
--- Md. App. --- (April 29, 2014) (not yet published)

by Gregory S. Emrick, Associate
Semmes, Bowen & Semmes (

Available at:

In April 2007, Jeannine Morse and Paula Smallwood were involved in a motor vehicle accident in New Castle, Delaware. Nationwide insured the Smallwood vehicle, and Erie Insurance Exchange (“Erie”) provided underinsured motorist coverage (“UM”) to Morse. During the course of the claim handling, Nationwide offered the full extent of Smallwood’s $15,000 liability coverage to Morse. On October 27, 2008, counsel for Morse sent a notice of the liability limits offer to Erie by regular mail, not certified mail as required by MD. CODE ANN., INS. ART., § 19-511. Erie claimed it did not receive the letter until the beginning of December 2008; and in the meantime, Morse settled her claim against Smallwood and signed a release as to Smallwood. Morse modified the global release by hand, purporting to retain her UM claim against Erie. Thereafter, Morse sought UM coverage from Erie, who denied the claim on the basis that 1) Morse signed the Release and negotiated the check prior to sending Erie the proper statutory notice, 2) the release signed by Morse was a global release, extinguishing the UM claim, and 3) Morse settled her claim against the tortfeasor without Erie’s consent, in violation of her policy. Morse filed suit against Erie.

At trial, Morse argued that Erie was required to show actual prejudice prior to denying coverage, as required by MD. CODE ANN., INS. ART. § 19-110. The Court refused to give the jury an instruction requiring the demonstration of actual prejudice, and the jury returned a verdict in Erie’s favor. Morse appealed.

The Court of Special Appeals defined the appellate issue as “whether an injured insured’s failure to obtain her insured motorist insurer’s consent to settle with a tortfeasor’s liability insurer for policy limits, in violation of her insurance policy and § 19-511, triggers either the § 19-110 or common law prejudice rules.” Id. at 9. The Court observed that the analysis was premised on the interpretation of both § 19-110 and § 19-511. The procedure in § 19-511 created “a procedure that allows an injured insured to settle her claim against a tortfeasor’s liability insurer for full policy limits without prejudice to her claim for uninsured motorist benefits.” Id. at 5. Meanwhile, § 19-110 requires that an insurer demonstrate actual prejudice prior to denying liability coverage, based on the insured’s lack of cooperation or notice of the claim. In holding that actual prejudice was not required in this case, the Court noted that § 19-110 did not apply to this action by its plain language, as the scope was narrowly interpreted to apply only to failures to cooperate or provide notice. Maryland’s common law prejudice standard was not “noticeably broader.” Id. at 10. The Court further observed that requiring that actual prejudice be applied to a failure to obtain consent to settle would render § 19-511 a nullity.

The Court analyzed the legislative history of both § 19-110 and § 19-511 and dismissed Morse’s effort to force her facts into the protections of § 19-110. The Court reviewed the Maryland case history on consent to settle and the procedures required under § 19-511, holding that while Morse may have provided “notice,” notice was not the equivalent of the obtaining a consent to settle. The Court did acknowledge that not all situations that fell under § 19-511 would be free from the actual prejudice requirement, but they would be limited to failures to cooperate or provide notice. Otherwise, the actual prejudice rule would nearly always excuse the Plaintiff’s non-compliance with the settlement procedure in § 19-511. The judgment of the trial court was affirmed.

Judge Woodward issued a dissenting opinion noting that Erie had never presented an argument that they had been prejudiced by Morse’s settlement and that the majority opinion misapplied the legislative intent in the enactment of § 19-511. In Judge Woodward’s opinion, the legislative intent in protecting the injured insured supported Morse’s argument that actual prejudice was required.