Fellow-employee exclusion valid, MD Court of Appeals holds

Daily Record, The (Baltimore), Nov 20, 2006 by Caryn Tamber

In a case with major ramifications for insurance coverage, the Court of Appeals has upheld an exclusion in a commercial automobile policy for injuries to one worker caused by another.

As long as the exclusion provides for the statutory minimum coverage, it is acceptable, the court held.

Steven E. Leder, who represented Nationwide Mutual Insurance Co. in the case, said the top court's decision will likely apply to other exclusions as well.

"I'm pleased that they wrote such a broad decision because it makes clear that the purpose of the minimum liability limits is to guarantee coverage for minimum limits, and freedom of contract exists over that, just like in every other contract," said Leder, who practices with The Leder Law Group LLC.

James K. MacAlister, who filed a brief on behalf of the Maryland Trial Lawyers Association, said the decision is "horrible" and will leave employees who accidentally injure their co-workers exposed to liability.

"The driver's basically playing you-bet-your-house," said MacAlister, of Saiontz, Kirk & Miles. "Whenever you give your co- worker a ride in your employer's vehicle, you're exposing yourself to tremendous loss - I mean, catastrophic liability."

MacAlister said he has advised the MTLA to lobby the legislature to change the law.

Full coverage not required

According to the opinion, on June 20, 2002, Taylor F. Wilson was on duty for Allegheny Industries Inc., riding in a car driven by a co-worker. The driver fell asleep at the wheel and caused an accident that seriously injured Wilson.

Allegheny had a $1 million car insurance policy with Nationwide, but the policy had a fellow-employee exclusion. Nationwide argued that it should only have to pay Wilson $20,000, the statutory minimum in Maryland. Wilson, meanwhile, argued that the General Assembly has never recognized the fellow-employee exclusion.

The Carroll County Circuit Court invalidated the exclusion, but the Court of Special Appeals reversed. Last week, a 6-1 majority of the top court affirmed, upholding the exclusion.

"Admittedly, it is possible that Nationwide's policy will not provide full and complete recovery for all victims, but - it is not required by law to do so," Judge Clayton Greene Jr. wrote for a six- judge majority. "Insurance contracts may lawfully exclude particular risks."

An exclusion does not have to be recognized by the General Assembly to be valid, Greene wrote.

Chief Judge Robert M. Bell dissented, referring to his dissent in 2004's Stearman v. State Farm Mut. Auto. Ins. Co.

In that case, the court held that an insurer can exclude coverage for injuries to the insured's family, so long as it provides for the statutory minimum coverage.

David M. Funk of Funk & Bolton P.A., who filed an amicus brief on behalf of the Property Casualty Insurers Association of America, said he believes the Court of Appeals took this case to clarify Stearman in light of a 1998 case that some believed contradicted it.

In the 1998 case, West American Ins. Co. v. Popa, the court invalidated a provision that excluded vehicles insured by a self- insurer or government from the definition of uninsured/underinsured vehicles.

Greene distinguished Popa from Wilson, writing that in Popa, the court worried that a motorist would be caught by surprise by payouts lower than those purchased.

"This is not a concern in the present case because Nationwide is not required to offer an amount of coverage equal to the liability coverage provided in the policy," he wrote. "Allegheny purchased the policy and the provisions of the policy satisfy the minimum statutory requirement, under Maryland law."

Vacated

The day after issuing the Wilson opinion, the court issued an order in a nearly identical case, Jones v. Peninsula Insurance Co., vacating the judgment of the Court of Special Appeals. The lawyer for the insurance company in that case said he believes the court got Wilson right.

"This decision, I think, is eminently correct in that it recognizes the practicalities in the workplace," said Franklin & Prokopik attorney Craig T. Walsworth. "When an employee is injured by the negligent act of another employee, he's eligible for workers compensation insurance, and I'm not sure that the employer should have to pay premiums for his workers compensation insurance and then pay premiums for coverage for the negligence of another employee."

But Wilson's lawyer, Peter J. Korzenewski, said workers compensation is an "incomplete remedy."

"It's disappointing that the Court of Appeals is allowing- an employer and an insurer to contract away the benefit of insurance for its employees," said Korzenewski, of Hollman, Maguire, Timchula & Titus Chtd.

WHAT THE COURT HELD

Case:

Wilson v. Nationwide Mutual Insurance Co., CA No. 22, Sept. Term 2006. Reported. Opinion by Greene, J.; dissent by Bell, C.J. Filed Nov. 14, 2006.

Issues:

Is a fellow-employee exclusion in a commercial automobile policy enforceable where it limits coverage to statutory minimum amounts, even though the policy limit is substantially higher?