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Kenya Law / Blog / Case Summary: The Court of Appeals of Maryland holds that whereas primary insurance attaches upon the happening of the occurrence that gave rise to liability, excess insurance (such as that provided by an umbrella policy) attaches only after a predetermined amount of primary coverage has been exhausted

The Court of Appeals of Maryland holds that whereas primary insurance attaches upon the happening of the occurrence that gave rise to liability, excess insurance (such as that provided by an umbrella policy) attaches only after a predetermined amount of primary coverage has been exhausted

Pedro Steven Buarque de Macedo, Et Al v The Automobile Insurance Company of Hartford

463245V

Court of Appeals of Maryland

Watts, Hotten, Booth, Biran & Eaves, JJA; AD Sally & GM Joseph, Specially Assigned Senior Judges & JJA

August 11, 2022

Reported by Faith Wanjiku and Bonface Nyamweya

Download the Decision

Insurance law- motor vehicle insurance- a motor vehicle insurance policy vis-à-vis an umbrella policy- what was the difference in terms of coverage between a motor vehicle insurance policy and an umbrella policy- Maryland Code Insurance, 2010, § 19-505; Maryland Courts and Judicial Proceedings, 2005, § 5-806.

Statutes-statutory interpretation-the Maryland Courts and Judicial Proceedings, § 5-806 2005 on the limits of motor vehicle liability coverage- whether the term any as used in the Maryland Courts and Judicial Proceedings, 2005, § 5-806 meant some or any and all- Maryland Courts and Judicial Proceedings, 2005, § 5-806.

Insurance law- motor vehicle insurance- a motor vehicle insurance policy vi-a-vis an umbrella policy- household exclusions- where the petitioner’s father was insured under an umbrella policy- where the umbrella policy contained a household exclusion provision that purported to preclude coverage for bodily injury or personal injury suffered by the petitioner’s father or by individuals who were related to the petitioner’s father and who resided in that household- where the 1st and 2nd petitioners filed a civil action in the Circuit Court for Montgomery County asserting negligence, wrongful death, and survivorship claims against the petitioner’s father’s Estate and the State of Maryland – where the circuit court held that the household exclusion was valid and enforceable- where the Court of Special Appeals affirmed the judgment of the circuit court, and the petitioners sought further review in the Court of Appeals of Maryland- whether a child of insured parents under a primary automobile liability insurance policy and an umbrella policy could claim coverage for his/her personal injuries and the bodily injuries suffered by the late parents in a vehicle accident- Maryland Code Insurance, 2010, § 19-505; Maryland Courts and Judicial Proceedings, 2005, § 5-806.

Brief facts

The case arose from a tragic automobile accident on February 2016, that involved the 2nd petitioner, her brother and parents. Only the 2nd petitioner survived the crash but suffered permanent injuries. The father was driving one of the family vehicles when the accident occurred. The 2nd petitioner’s late parents were the named insureds of a primary automobile liability insurance policy issued by the Travelers Indemnity Company. The father alone was also the named insured of a personal liability umbrella policy issued by the respondent. The umbrella policy contained a household exclusion provision that purported to preclude coverage for bodily injury or personal injury suffered by the 2nd petitioner’s father or by individuals who were related to the 2nd petitioner’s father and who resided in that household.

The 1st and 2nd petitioners filed a civil action in the Circuit Court for Montgomery County asserting negligence, wrongful death, and survivorship claims against the 2nd petitioner’s father’s Estate and the State of Maryland (Counts I-VII). Count VIII of the complaint sought a declaratory judgment that the provisions in the 2nd petitioner’s father’s umbrella policy that purported to exclude claims brought against the named insured by members of the same household were void as against public policy and contrary to the Maryland Code Insurance, 2010,§ 19-505, to the extent the exclusion would otherwise apply to claims brought on behalf of the 2nd petitioner’s late brother’s estate and the 2nd petitioner. After a hearing on the 2nd petitioner’s and Travelers’ cross-motions for summary judgment, the circuit court declared the household exclusion valid and enforceable. The circuit court entered a final judgment as to count VIII and ordered counts I-VII stayed until the coverage dispute in count VIII was resolved on appeal. The Court of Special Appeals affirmed the judgment of the circuit court, and the petitioners sought further review in the Court of Appeals of Maryland.

Issues

 i.        What was the difference in terms of coverage between a motor vehicle insurance policy and an umbrella policy?

ii.        Whether the term any as used in the Maryland Courts and Judicial Proceedings, 2005, § 5-806 meant some or any and all.

iii.        Whether a child of insured parents under a primary automobile liability insurance policy and an umbrella policy could claim coverage for his/her personal injuries and the bodily injuries suffered by the late parents in a vehicle accident.

Relevant provisions of the law

Maryland Code Insurance, 2010

§ 19-505- Personal injury protection coverage

(a)  Coverage required- Unless waived in accordance with § 19-506 of this subtitle, each insurer that issues, sells, or delivers a motor vehicle liability insurance policy in the State shall provide coverage for the medical, hospital, and disability benefits described in this section for each of the following individuals: 

(1) except for individuals specifically excluded under § 27-609 of this article: 

(i) the first named insured, and any family member of the first named insured who resides in the first named insured’s household, who is injured in any motor vehicle accident, including an accident that involves an uninsured motor vehicle or a motor vehicle the identity of which cannot be ascertained; and 

(ii) any other individual who is injured in a motor vehicle accident while using the insured motor vehicle with the express or implied permission of the named insured; 

(2) an individual who is injured in a motor vehicle accident while occupying the insured motor vehicle as a guest or passenger; and 

(3) an individual who is injured in a motor vehicle accident that involves the insured motor vehicle: 

(i) as a pedestrian; or 

(ii) while in, on, or alighting from a vehicle that is operated by animal or muscular power. 

(b)  Minimum benefits required-  

(1) In this subsection, “income” means: 

(i) wages, salaries, tips, commissions, professional fees, and other earnings from work or employment; 

(ii) earnings from a business or farm owned individually, jointly, or in partnership; and 

(iii) to the extent earnings are paid or payable in property or services instead of in cash, the reasonable value of the property or services. 

Maryland Courts and Judicial Proceedings, 2005

§ 5-806

(a)  This section applies to:

(1)  An action by an unemancipated child against a parent of the child; and

(2) An action by a parent against an unemancipated child of the parent.

(b) The right of action by a parent or the estate of a parent against a child of the parent, or by a child or the estate of a child against a parent of the child, for wrongful death, personal injury, or property damage arising out of the operation of a motor vehicle, as defined in Title 11 of the Transportation Article, may not be restricted by the doctrine of parent-child immunity or by any insurance policy provisions, up to the limits of motor vehicle liability coverage or uninsured motor vehicle coverage.

Held

  1. A motor vehicle liability insurance policy was a type of primary policy that was required in the state. Such primary policies of motor vehicle liability insurance attached immediately upon the happening of the occurrence giving rise to liability, and had been required with a mandated minimum amount of coverage since the general assembly revised the state’s automobile insurance laws in 1972. An umbrella policy was a supplemental form of insurance that was distinguishable from more specific primary policies, such as motor vehicle liability insurance or homeowner’s insurance in that it provided coverage that exceeded the basic or usual limits of liability.
  2. An umbrella policy was not merely an extension of the primary policy, but rather a distinct and different form of coverage. In addition, the purpose of both forms of coverage were different. Whereas primary insurance attached upon the happening of the occurrence that gave rise to liability, excess insurance (such as that provided by an umbrella policy) attached only after a predetermined amount of primary coverage had been exhausted.
  3. The subtitle at issue in the present case, subtitle 5 included other provisions that also referred to motor vehicle insurance policies providing primary coverage. The term motor vehicle liability insurance policy was used in that section to discuss the minimum amount of coverage required in a primary policy each motor vehicle liability insurance policy should provide the minimum liability coverage specified in title 17 of the transportation article. The Maryland Code Insurance, 2010, in § 19-505 discussed the required minimum amount of personal injury protection coverage in a motor vehicle liability insurance policy.
  4. By including § 19-504.1 within the subtitle that governed primary layer automobile liability policies, the general assembly demonstrated its intention to address household exclusions in primary policies. Thus, it would be illogical to interpret the phrase motor vehicle liability insurance policy in § 19-504.1 as referring to umbrella policies, because umbrella policies, by definition, were supplemental and served as an excess form of coverage to motor vehicle primary policies. The only provision in subtitle 5 that addressed excess coverage (such as an umbrella policy), § 19-509(h)(1), explicitly referred to policies that were different in kind from primary policies discussing policies whose primary purpose provided coverage in excess of other forms of insurance. Therefore, § 19-509(h)(1) explicitly distanced itself from the primary motor vehicle policies discussed elsewhere in the section.
  5. A contrary holding would lead to a result that was unreasonable, illogical, or inconsistent with common sense. Applying that common sense approach, the court noted that the fundamental difference between umbrella and motor vehicle policies was underscored by the difference in premiums charged for the different coverages. In general, umbrella policy premiums were relatively small in relation to the amount of risk so that the company could not be expected to prorate with other excess coverages; and public policy should not demand that to be done.
  6. The goal of statutory interpretation was to ascertain and effectuate the actual intent of the general assembly in enacting the law under consideration. In conducting analysis, the court started with the plain language of the statute, and ordinary, popular understanding of the English language dictated interpretation of its terminology. If the statutory language was unambiguous and clearly consistent with the statute’s apparent purpose, the inquiry as to legislative intent ended ordinarily and the court applied the statute as written, without resort to other rules of construction. The court construed the statute as a whole so that no word, clause, sentence, or phrase was rendered surplusage, superfluous, meaningless, or nugatory.
  7. The plain language had to be viewed within the context of the statutory scheme to which it belonged, considering the purpose, aim or policy of the legislature in enacting the statute. It could be beneficial to analyze the statute’s relationship to earlier and subsequent legislation, and other material that fairly bore on the fundamental issue of legislative purpose or goal, which became the context within which the court read the particular language before it in a given case.
  8. Where statutory language was ambiguous and thus subject to more than one reasonable interpretation, or where the language was unambiguous when read in isolation, but ambiguous when considered in the context of a larger statutory scheme, a court had to resolve the ambiguity by searching for legislative intent in other indicia, including the history of the legislation or other relevant sources intrinsic and extrinsic to the legislative process.
  9. Further, the court checked its interpretation against the consequences of alternative readings of the text, which grounded the analysis. Doing so helped the court to avoid a construction of the statute that was unreasonable, illogical, or inconsistent with common sense.
  10. The petitioners argued that the plain language of the Maryland Courts and Judicial Proceedings, 2005, § 5-806 required the court to conclude that the statute applied to umbrella policies, inasmuch as it applied to any insurance policy provisions, up to the limits of motor vehicle liability coverage. The petitioners pointed out that any did not mean some, but rather meant any and all. And they argued that because their umbrella policy included excess motor vehicle liability coverage, § 5-806 by its plain language rendered the household exclusion void up to the $2,000,000 policy limit.
  11. The court could not say that the petitioners’ reading of the Maryland Courts and Judicial Proceedings, 2005, § 5-806(b) was unreasonable. The household exclusion in the 2nd petitioner’s father’s umbrella policy was an insurance policy provision and the umbrella policy provided excess motor vehicle liability coverage. Thus, if the court were to read the Maryland Courts and Judicial Proceedings, 2005, § 5-806(b) without reference to any other provisions or authorities, it was likely to agree with the petitioners that the language of § 5-806 reflected an intent to void household exclusions in umbrella policies as to claims brought by unemancipated children against their parents (and vice versa) for motor vehicle torts.
  12. But the court did not read the Maryland Courts and Judicial Proceedings, 2005, § 5-806 in a vacuum. Rather, the Maryland Courts and Judicial Proceedings, 2005, § 5-806(b) had to be read in conjunction with the relevant provisions of title 19 of the Insurance article, subtitle 5. The review lead the court to conclude that the interpretation of the Maryland Courts and Judicial Proceedings, 2005, § 5-806(b) as applying only with respect to mandatory primary coverages was also reasonable.
  13. It was significant that the general assembly referred to motor vehicle liability coverage or uninsured motor vehicle coverage in the Maryland Courts and Judicial Proceedings, 2005, § 5-806(b). Motor vehicle liability coverage and uninsured motor vehicle coverage were the two mandatory coverages in a primary motor vehicle insurance policy. Section 5-806(b)’s reference to umbrella coverage arguably was a strong indicator that the phrase motor vehicle liability coverage in § 5-806(b) referred to the other statutorily required primary liability coverage and not to optional excess coverage.
  14. Subtitle 5’s only reference to excess coverage, such as an umbrella policy, was found at the Maryland Code Insurance, 2010 (Maryland Code), § 19-509(h)(1), which provided that such a policy could include the umbrella coverage provided for in that section. Nothing in the Insurance article mandated an insurer to provide excess coverage for claims made by household members of an insured who chose to obtain an umbrella policy. To the extent § 5-806(b) could be read to impose such a requirement, it would do so without a cross-reference in the Maryland Courts and Judicial Proceedings, 2005 Act acknowledging that substantive change to the Maryland insurance law. That seemed an unlikely scenario, given that the Insurance article explicitly incorporated and/or cross-references provisions in other parts of the Maryland Code that substantively addressed insurance law.
  15. It was difficult to distinguish the language that the general assembly used in the Maryland Code § 19-504.1 regarding a policy of private passenger motor vehicle liability insurance, from that of the Maryland Courts and Judicial Proceedings, 2005 § 5-806(b) on motor vehicle liability coverage. Given that the Maryland Code § 19-504.1(b) immediately went on to refer to liability coverage provided under a policy of private passenger motor vehicle liability insurance, one could reasonably conclude that the Macedos’ argument was based on a distinction without a difference. An insurance policy could encompass several different coverages. Stickley v State Farm Fire and Casualty Company, 431 Maryland 347 (2013) (Stickley) did not turn on the type of fine distinction the petitioners urged, but rather was driven by the substantive differences between umbrella policies, which were personal liability policies, and motor vehicle liability policies, which were primary auto liability policies.
  16. The general assembly had acquiesced in Stickley’s recognition of the fundamental difference between umbrella and motor vehicle policies, by not legislatively overturning Stickley in the nine years since the court decided that case. The general assembly was presumed to be aware of the court’s interpretation of its enactments and, if such interpretation was not legislatively overturned, to have acquiesced in that interpretation.
  17. In 2004, the general assembly enacted the Maryland Code § 19-504.1. The enactment of the Maryland Code § 19-504.1 created an inconsistency in the treatment of unemancipated children compared with other family members regarding claims against primary auto liability policies. Under the Maryland Code § 19-504.1, if an insured, in purchasing a primary auto policy, chose to purchase coverage for claims by family members equal to coverage for claims by non-family members, the insurance coverage in an action between a parent and a family member other than an unemancipated child was up to the policy limits. Those policy limits, of course, could be higher than the mandatory minimum policy limits set forth in the Transportation Article § 17-103. However, under the then-operative version of the Maryland Courts and Judicial Proceedings, § 5-806, in an action between a parent and an unemancipated child, parent-child immunity would bar a claim against a primary auto policy above the statutorily mandated minimum primary coverages.
  18. In the 2005 session, the general assembly amended the Maryland Courts and Judicial Proceedings, § 5-806. 2005. The amendment deleted the phrase: mandatory minimum liability coverage levels required by § 17–103(b) of the Transportation Article. The petitioners acknowledged that, prior to the 2005 amendment, the Maryland Courts and Judicial Proceedings, § 5-806(b) only voided restrictions in primary auto policies and only up to the mandatory minimum liability coverage levels required by the Transportation Article § 17-103(b). According to the petitioners, by removing the explicit reference to the Transportation Article § 17-103(b) from the statute, the general assembly demonstrated its intent to untether the Maryland Courts and Judicial Proceedings, § 5-806 from primary auto policies and to expand the abrogation of parent-child immunity to all motor vehicle liability coverage, including excess coverage contained in umbrella policies.
  19. An insurance policy could not limit a spouse’s recovery under a primary policy to the mandatory minimum limits if the insured chose to purchase higher limits. The treatment of spouses with respect to primary auto policies was an instructive reference point when considering what the Floor Report meant in referring to equal treatment for minor children a little later in the Floor Report.
  20. The general assembly’s intention in amending the Maryland Courts and Judicial Proceedings, § 5-806(b) was to put unemancipated children on an equal footing with other family members with respect to claims under primary auto policies. The enactment of the Maryland Code § 19-504.1 was the catalyst for the amendment of the Maryland Courts and Judicial Proceedings § 5-806. As the court explained in Stickley, the general assembly intended the Maryland Code § 19-504.1 only to require insurers to offer higher coverage limits to family members with respect to mandatory auto liability coverages. That persuaded the court that the Maryland Courts and Judicial Proceedings, § 5-806, as amended, was intended only to provide parents and their children with a way to reach negotiated policy limits for the mandatory liability and umbrella coverages.
  21. In the event of a household exclusion, spouses did not receive the benefit of excess motor vehicle liability coverage under an umbrella policy. Thus, equal treatment for minor children meant abrogating parent-child immunity up to the negotiated policy limits for mandatory coverages. If the petitioners’ interpretation of the amended the Maryland Courts and Judicial Proceedings, § 5-806 was correct, then the general assembly intended to put unemancipated children not in an equal position, but rather in a better position, than spouses and emancipated children with respect to umbrella policies. Had that been the intent, it undoubtedly would have generated mention somewhere in the legislative history. The legislative history of the 2005 amendment to the Maryland Courts and Judicial Proceedings, § 5-806 contained nothing of the sort.
  22. The Maryland Courts and Judicial Proceedings, § 5-806 applied not only to claims by unemancipated children against their parents, but also to claims by parents against their unemancipated children. There was no textual basis to distinguish between child-parent and parent-child claims. Indeed, the case in which the court first adopted the doctrine of parent-child immunity involved a mother being injured while her 16-year-old son was driving. If children’s claims against their parents were to override umbrella policies’ household exclusions, so would parents’ claims against their minor children. There was no reason the court could imagine why the general assembly would allow parents’ claims against their children to draw upon excess motor liability coverage, while at the same time allowing household exclusions to operate to bar such coverage for interspousal motor vehicle liability claims.
  23. When the general assembly passed the Maryland Code § 19-504.1 in 2004, it required the commissioner to study the impact on motor vehicle liability insurance rates as a result of requiring insurers to offer to the first named insured liability coverage for claims made by a family member in the same amount as the liability coverage for claims made by a nonfamily member, as provided under that Act, and to report on those findings after the law had been in effect for three years.
  24. Every source that the court had reviewed demonstrated that, at the time of the amendment to the Maryland Courts and Judicial Proceedings, § 5-806(b) in 2005, no stakeholders believed that the amendment would expand the scope of the provision to cover supplemental insurance, such as an umbrella policy. The court was convinced that the general assembly understood and intended that the Maryland Courts and Judicial Proceedings, § 5-806 would continue to apply only to the primary coverages that were mandatory under the Maryland Code.
  25. The general assembly did not provide for complete insurance recovery by unemancipated children when it amended the Maryland Courts and Judicial Proceedings, § 5-806 in 2005. The purpose of the amendment was to provide equal treatment for family members with respect to primary auto coverages. The circuit court correctly held that the household exclusion in Travelers’ Umbrella Policy was valid and enforceable, and therefore properly granted summary judgment to Travelers on count VIII of the petitioners’ complaint.

Petition dismissed; judgment of the Court of Special Appeals affirmed.

Relevance to the Kenyan jurisprudence

The Insurance Act of 1985 [Rev 2021] in section 100 talks about family insurance policies by noting that:

 (6) A trustee, or if there is no trustee or in default of notice to the insurer of the existence of a trustee, the person whose life is insured or his personal representative, may vary the terms of the policy in any manner permitted by the insurer, surrender the policy in whole or in part or borrow money upon the policy, and any money obtained by any such variation, surrender or borrowing shall be subject to the same trusts as those upon which the policy was or is held.

(7) Except as expressly provided by this section, nothing in this section shall affect the operation of the law in force in Kenya relating to trustees.

(8) In this section, “children” in relation to a person, includes— (a) a person adopted by the first-mentioned person under the Law of Kenya relating to the adoption of children; or (b) a person adopted by the first-mentioned person under the Law of any country relating to the adoption of children if the validity of the adoption would be recognised under the Law of Kenya; or (c) a step-child of that person.

Section 103 further illuminates about the death of the owner of a policy not being life insured by highlighting that:

 (1) Subject to this section, where the owner of a policy of life assurance, not being the person whose life is assured by the policy, predeceases the person whose life is so assured, and a person satisfies the insurer that issued the policy that he is entitled—

(a) under the will or on the intestacy of the deceased owner to the benefit of the policy; or

(b) to obtain probate of the will, or to take out letters of administration of the estate of the deceased owner, the insurer may, without requiring the production of probate or letters of administration, endorse on the policy a declaration that that person has so satisfied the insurer and is the owner of the policy, and thereupon that person shall become, subject to subsection (2), the owner of the policy.

The Insurance (Motor Vehicles Third Party Risks) Act, Chapter 405 in section 10 emphasizes that:

 (1) If, after a policy of insurance has been effected, judgment in respect of any such liability as is required to be covered by a policy under paragraph (b) of Section 5 (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then notwithstanding that the insurer may be  entitled to avoid or cancel, or may have avoided or cancelled, the policy, the insurer shall,  subject to the provisions of this section, pay to the persons entitled to the benefit of the judgment any sum payable thereunder in respect of the liability, including any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments.

In AIG Insurance Company Limited v Benard Kiprotich Kirui [2022] eKLR, the case emanated from an accident claim involving motor vehicle Reg. No. KBX 556S and a motorcycle registration No. KMCT 763N which occurred on March 24, 2014, in which the motorcycle’s passenger by the name Nelson Ochieng Oiso was injured. The court partly granted the appeal holding that there was no evidence from the respondent to demonstrate that he had insured the full loan amount. The court was unable to make a finding in his favour for compensation for the entire loan amount.

In the Court of Appeal Case Civil Appeal 192 of 2007 Ignatius Makau Mutisya vs. Reuben Musyoki Muli [2015] eKLR, it was stated as follows: -

 All this goes to show that the presumption that the person registered as owner of a motor vehicle in the log book is the actual owner is rebuttable. Where there exists other compelling evidence to prove otherwise, then the Court can make a finding of ownership that is different from that contained in the log book. 

The case of UAP Insurance Co. Ltd v Patrick Charo Chiro [2021] eKLR involved the respondent who had filed a primary suit namely Mavoko Senior Principal Magistrate’s Civil Case No. 372 of 2017 as a result of an accident that occurred on 11.3.2016 involving motor vehicle registration number KCG 094C Faw Lorry belonging to the appellant’s insured and which had been insured by the appellant. Judgement was later entered in favour of the respondent against the appellant’s insured for the sum of Kshs 5,045,000 with costs of the suit. The respondent later approached the trial court and filed a declaratory suit namely Civil Case No. 284 of 2018 where it was pleaded that the appellant was the insurer of motor vehicle registration number KCG 094C under policy number 496/087/1/004349/2016 that covered third parties in respect of inter alia, injury caused by the suit vehicle. Dismissing the appeal, the court held that:

 The contention by the appellant’s manager that documents ought to be served on some particular department and not at the reception is not convincing since it was the duty of the receptionist to give those directions to a process server but in this case the documents were duly received and stamped by the receptionist and it was then the upon the appellant to address the issues. The process server cannot be faulted in any way. In any event, the appellant’s witness admitted that indeed the said letters were duly received. I am satisfied that the Appellant was duly notified and should now settle the sums due to the respondent. In the premises the decision arrived at by the learned trial magistrate cannot be faulted and must be upheld.

This case is therefore relevant to the Kenyan jurisprudence because it clarifies on the scope of a motor vehicle insurance policy and an umbrella policy as it stresses that whereas primary insurance attaches upon the happening of the occurrence that gave rise to liability, excess insurance (such as that provided by an umbrella policy) attaches only after a predetermined amount of primary coverage has been exhausted.

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