CHAPTER SEVENTEEN AN INTRODUCTION TO AUTO INSURANCE POLICIES
| Jurisdiction | Maryland |
YOSEF KUPERMAN works for the Law Offices of Robert L. Siems, P.A. in Baltimore City. He represents insurers, policyholders, and insurance professionals in disputes about insurance and insurance-professional licensing before Maryland courts and the Maryland Insurance Administration.
ROBERT L. SIEMS owns the Law Offices of Robert L. Siems, P.A., where he has practiced insurance law in Baltimore City since 1998. Before that, he worked in-house for St. Paul Fire and Marine Insurance Company and USF&G on extra-contractual and SIU matters. And before that, he practiced as an insurance defense lawyer in Baltimore City for thirteen years.
I. INTRODUCTION1
A. What this Chapter Covers
This chapter introduces the law of auto insurance policies, specifically focusing on the four main types of auto insurance coverage in Maryland: Liability coverage, Uninsured Motorist coverage, Personal Injury Protection (PIP), and First Party Property coverage.
This chapter will not replace a treatise.2 Instead, this chapter aims to introduce auto insurance coverage to the uninitiated. We chose to focus on broad concepts and avoid deep factual discussions of specific cases or specific policy language. The chapter focuses on common issues and avoids obscure ones, aiming to give a lawyer who does not practice insurance coverage law a good practical overview.
B. How to Interpret Insurance Policies
Insurance law is mostly contract law. Almost all coverage cases turn on specific policy language. Understanding auto liability insurance therefore requires understanding how to interpret language in an insurance policy context.
1. The Three-Step Analysis of Policy Language
Almost all insurance policies follow a common writing pattern. Recognizing the pattern makes analyzing coverage much easier.
First, policies grant coverage via an "insuring clause."
Then, policies take coverage away via "exclusions."
Finally, policies restore some excluded coverage via "exceptions to exclusions."
Practice Pointer
Although this "coverage hokey-pokey" is not a formal canon of policy construction itself, this pattern provides the logical basis for many policy interpretation rules. Exclusions do not create new coverage because first, coverage comes in and then, exclusions take it out. Exceptions to exclusions do not expand coverage beyond the initial insuring grant because exceptions only restore what the exclusion removed.
2. The Objective Theory of Contracts
Insurance policies are contracts. Maryland courts interpret them like contracts.3 Maryland uses the "objective theory of contract interpretation."4 Insurance policies (like any other contracts) mean "what a reasonable person in the position of the parties would have understood the language to mean and not the subjective intent of the parties at the time of formation."5 Like all contracts, the court reads insurance policies "as a whole."6 They give effect to every clause and phrase.7
When contract language is unambiguous, courts will enforce the language based on its "ordinary and accepted meanings." Courts often find those meanings by reading dictionaries.8 In a recent case about ambiguity, the court looked to sources like Merriam Webster Collegiate Dictionary, Black's Law Dictionary (preferring a current edition to an older one), and Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts (2012).9
Maryland construes exclusions narrowly and "in favor of finding coverage." Insurers must therefore draft exclusions "conspicuously, plainly, and clearly." Exclusions cannot be merely implicit.10 Courts read each exclusion separately against the insuring clause.11 Exclusions narrow the scope of the coverage granted in the insuring clause. Exceptions narrow the scope of exclusions. Neither expands coverage beyond the original grant.12
Maryland meanwhile construes omnibus clauses (i.e., clauses defining who is an insured) liberally and "in favor of the insured."13 (For a discussion of omnibus clauses, see section II.B.i., below).
Maryland also construes Uninsured Motorist and PIP coverage liberally to "promote its purpose of recovery for innocent victims of motor vehicle accidents."14
Interpreting contracts, including deciding whether contracts are ambiguous, is a question of law subject to de novo review.15
Practice Pointer
Do liberal construction rules change outcomes? Maybe not. Finding Maryland cases resolving interpretation disputes using Maryland's ambiguity rules (below) is easy. Meanwhile, Maryl and has no case law applying liberal interpretation standards instead of an ambiguity analysis. This suggests that liberal construction rules may be dicta.
3. Ambiguity
Maryland treats terms in insurance policies as ambiguous "if, to a reasonably prudent person, the term is susceptible to more than one meaning."16 The secondary meaning must be "reasonable in context" of the entire contract.17 Ambiguity can exist because words have multiple meanings in context or because words can apply to the specific factual circumstances at hand in multiple ways.18
After finding that policy language is ambiguous, courts look to extrinsic evidence to clarify the language. Extrinsic evidence is evidence other than the contract that "reflects on the parties' subjective intent in entering the contract."19 It includes statements from the parties and the circumstances around the agreement and the context (such as the condition of the insured property.)20 It can include testimony from adjusters and expert witnesses.21
Without extrinsic evidence resolving the ambiguity, the court (employing the contra proferentem interpretive principle) construes the contract against the drafter (i.e., the insurer.) The court therefore enforces the insured's reasonable interpretation of the policy.22
Determining what ambiguous language means is a question of fact.23 Practically, however, most insurance cases about ambiguity resolve via summary judgment because of the legal presumption against the insurer.
Practice Pointer
Some states construe all policy language against the insurer regardless of ambiguity or look to the "reasonable expectations" of the insured. Maryland rejects those views.
4. Choice of Law
Maryland interprets insurance policies as contracts using lex locus contractus—the law of the place where the contract was made.24 This means the place "where the last act occurs necessary under the rules of offer and acceptance to give the contract a binding effect."25 This is the state where the insurer delivered the policy to the insured and the insured paid premiums.26 Maryland will generally allow a choice of law clause to override the lex loci contractus doctrine and choose another state's law, but has never analyzed this question in an auto insurance context.27 Maryland also recognizes the "renvoi" doctrine for insurance policies, meaning that if a policy was entered into in another state, but that state's choice of law rules dictate using Maryland law, Maryland will apply that choice of law rule and use Maryland law.28
5. No Standard Forms Exist
Maryland, unlike "standard policy" states, has no single policy form used as a baseline by all carriers.
All Maryland auto policies are similar, but each form is unique to each insurer. Each insurer typically takes an industry-standard form as a base and modifies it slightly. The insurers submit their final forms to the Maryland Insurance Administration (MIA) for approval.29 They then issue policies using that form to individual insureds.
The result is that while all auto policies are similar and address common issues, each insurer uses different policy language that may produce different results.
Since no standard form exists, courts must read all case law and contractual interpretation in context of the exact policy language in any given case.
6. Understanding Policy Form Jargon
Lawyers need to get the right policy and therefore must know the right things to ask for.
A policy consists loosely of a "declarations page" and "policy forms." The "declarations page" ("dec page" in jargon) contains critical information specific to the policy. It will have policy numbers, insured locations, insured vehicles, named insureds, underwriting information, the producer's name, and a list of policy forms. The policy forms typically include a main form and a series of "endorsements" that add on or replace language in the main form. All policy forms carry an identifying number to allow easy assembly from form libraries.
Ideally, a lawyer will work from a "certified policy," meaning a copy of the declarations page and all policy forms that the insurer certifies is the complete policy for a specific insured.
Practice Pointer
Sometimes lawyers lack access to all relevant policies. This can prevent complete coverage analysis. The authors use these techniques to get policy forms when insurers do not provide them: (1) offering to swap certified policies with other lawyers in the same position; (2) maintaining a collection of policy forms from prior cases; and (3) using the SERFF system to pull insurer forms from public records.
II. AUTOMOBILE LIABILITY INSURANCE
A. The Liability Insurer's Promise—Insuring Agreements
Liability insurance coverage typically begins with an "insuring clause." The insuring clause establishes the insurer's obligations under the policy. A typical insuring agreement includes two major promises: the "duty to indemnify" and the "duty to defend." The insurer promises to pay its insureds' legal liability as a result of auto accidents up to its limits and defend the insured against any claim. These paired obligations form the core of what a liability insurer does.30
The following sample insuring clause, taken from a commercial auto policy, shows how these clauses work:
We will...
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