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Maryland Intermediate Appellate Court Holds that Underinsured Motorist Insurer Need Not Demonstrate Actual Prejudice when Denying Coverage Pursuant to Md. Code Ann., Ins. § 19-511

Woznicki v. GEICO General Insurance Company
___ Md. App. ___, ___ A.3d ___, No. 532 (Md. App. April 29, 2013)
by Wayne C. Heavener, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.mdcourts.gov/opinions/cosa/2014/053w2s13.pdf

In Woznicki v. GEICO General Insurance Company, Maryland’s intermediate appellate court held that an insurer need not demonstrate actual prejudice in order to deny an insured’s underinsured motorist claim based on non-compliance with certain procedural requirements. Writing for the Court of Special Appeals, Judge Christopher B. Kehoe held that Md. Code Ann., Ins. § 19-511, which requires an insured to notify its insurer of offers to settle that would extinguish an adverse party’s bodily injury liability limits, is not subject to Md. Code Ann., Ins. § 19-110’s requirement that an insurer demonstrate “actual prejudice” before disclaiming coverage. In so holding, the Court determined that Section 511’s requirements, which were mirrored in the insured’s underinsured motorist policy, were not “notice” provisions under the Maryland Insurance Article.

On November 12, 2012, Jessica Woznicki was injured in an automobile accident caused by James B. Houston. Mr. Houston was insured by Nationwide Insurance Company (“Nationwide”), with policy limits of $20,000.00. Ms. Woznicki was insured by GEICO General Insurance Company (“GEICO”), with uninsured/underinsured motorist (“UM/UIM”) benefits in the amount of $300,00.00. Ms. Woznicki’s policy required her to notify GEICO, in writing, of any agreement to settle a bodily injury claim with another insurance company, where that settlement would exhaust that insurer’s bodily injury limits (“Consent to Settle Clause”). The Consent to Settle Clause mirrored Section § 19-511 of the Maryland Insurance Article, which similarly requires that:

(a) Notice of settlement offer required.— If an injured person receives a written offer from a motor vehicle insurance liability insurer . . . to settle a claim for bodily injury ..., and the amount of the settlement offer . . . would exhaust the bodily injury ... limits of the applicable liability insurance policies . . ., the injured person shall send by certified mail, to any insurer that provides uninsured motorist coverage for the bodily injury . . ., a copy of the liability insurer's written settlement offer.

Md. Code Ann., Ins. § 19-511. On March 29, 2011, Ms. Woznicki, though her attorney, orally accepted a settlement offer from Nationwide for the full $20,000.00 of Mr. Houston’s limited liability policy. Though the sequence of events after reaching this oral agreement is not entirely clear, on or around July 7, 2011, Ms. Woznicki signed Nationwide’s release. On the same day, Ms. Woznicki’s attorney wrote to GEICO’s adjuster, informing him that Ms. Woznicki had settled her claim against Mr. Houston. On August 15, 2011, GEICO informed Ms. Woznicki that it was denying UIM coverage based on an alleged breach of the Consent to Settle Clause. Ms. Woznicki filed a claim against GEICO in the Circuit Court for Frederick County, seeking reimbursement of her damages in excess of $20,000.00. On April 5, 2013, the circuit court granted summary judgment for GEICO. Ms. Woznicki appealed, arguing that Section 19-110 required GEICO to demonstrate actual prejudice before it could defend its denial of coverage based on her failure to comply with the Consent to Settle Clause, which GEICO failed to do.

The Court of Special Appeals affirmed the circuit court’s entry of summary judgment for GEICO. As a preliminary matter, the Court determined that an insurer could waive the procedural requirements of Section 19-511, despite the statutory language that “the injured person shall” notify its insurer by certified mail of a limit-exhausting settlement offer. In this case, the Court found that Ms. Woznicki failed to produce evidence upon which a jury could reasonably find that GEICO had waived Section 19-511 compliance. Even assuming that Ms. Woznicki’s attorney explicitly informed GEICO that she intended to assert a UIM against it, there is no reasonable inference that Ms. Woznicki likewise requested GEICO to waive the procedural requirements set out in the Consent to Settle Clause and Section 19-511. The Court likewise rejected Ms. Woznicki’s argument that GEICO was required to show actual prejudice in order to disclaim coverage. The Court recognized that Md. Code Ann., Ins. § 19-110 requires an insurer disclaiming coverage on the basis that “the insured has breached the policy by failing to cooperate with the insurer or by not giving the insurer required notice” demonstrate “actual prejudice.” The Court held, however, that the Consent to Settle Clause and Section 19-511 were not notice provisions, as contemplated by Section 19-110. As a result, GEICO was not required to demonstrate actual prejudice before disclaiming coverage. Finding no error in the circuit court’s decision, the Court affirmed the entry of summary judgment for GEICO.