MD Court of Appeals rules insured can keep advance, despite lower

Daily Record, The (Baltimore), Jan 4, 2007 by Ann W. Parks

A car accident plaintiff who received a $20,000 advance from her insurer can keep it, even though a Baltimore County jury later determined that she was only entitled to recover $5,445 for the accident, the Court of Special Appeals has held.

Neither Maryland law, nor Sara Chamberlin's insurance policy with Ohio Casualty Insurance Co., entitled the insurer to a refund, the appellate court concluded.

Chamberlin, who was involved in an automobile accident with Charlotte Deitrick at the intersection of Belair Road and Rossville Boulevard in April 2001, brought suit against Deitrick and her own uninsured/underinsured motorist (UIM) carrier, Ohio Casualty. She suffered back and shoulder injuries, according to her attorney, Howard J. Needle.

Prior to trial, Deitrick's insurer, the Progressive Insurance Co., offered Chamberlin its policy limits of $20,000 in exchange for a release of all claims by Chamberlin and Ohio Casualty.

Ohio Casualty, however, rejected the request for a release, denying Chamberlin the ability to settle with Deitrick's insurer, Needle said.

Section 19-511 of the Insurance Code addresses the problem that arises when a liability carrier (here, Progressive) requires a release before paying the limits on the tortfeasor's policy, while the UIM carrier (here, Ohio Casualty) won't allow the injured party to give that release.

Under the statute, if the UIM insurer refuses to accept the settlement offer, it must pay the injured person the amount of the settlement offer, preserving its subrogation rights against the liability insurer and its insured.

Ohio Casualty thus advanced $20,000 to Chamberlin, figuring it would eventually recover the money from tortfeasor Deitrick and her insurer. But when the case went to trial in 2005, Chamberlin received only $5,445 for her injuries.

The jury, apparently, believed that Deitrick's back injuries were mostly the result of a pre-existing injury, and not a result of the accident, Needle said.

"When the verdict came in, it was a shock," he said.

When Ohio Casualty sought to recover the $20,000 advanced to Chamberlin, she refused, and the insurer subsequently filed a motion in Baltimore County Circuit Court. But the circuit court refused to compel Chamberlin to return the money.

In a case of first impression in Maryland, the appellate court affirmed.

"Under the statutory scheme, the UIM carrier, in order to protect its subrogation rights, must examine and evaluate the facts of the case before deciding to make a payment to the injured party in the amount of the settlement offered by the liability carrier," Karwacki wrote.

"[W]e hold that when a UIM chooses to thwart a proposed settlement between a plaintiff and an alleged tortfeasor by substituting payment of the settlement amount, it bears the risk that a jury might return a verdict in an amount less than the amount advanced or in favor of the defendant(s) and it is not entitled to a refund of any amount paid," the court stated.

Vague

The court also rejected the insurer's contention that a statement in the policy - "we also have the right to recover the advance payment" - precluded Chamberlin from keeping the money. The language, the court concluded, was vague and unenforceable, as it failed to specify from whom the insurer may recover the payment: the insured, the tortfeasor or the tortfeasor's insurer.

Needle said Progressive paid the $5,445 verdict to Ohio Casualty, because Ohio had advanced the $20,000 to Chamberlin.

He added that he was surprised Ohio Casualty appealed, setting the stage for this week's precedent-setting opinion.

"For $20,000, it subjects the insurance industry to substantial obligation," he said.

Counsel for the insurer did not return a call for comment by press time.

David F. Snyder, vice president and general counsel of the Washington, D.C.-based American Insurance Association, did not have a chance to review the decision but said he hoped it would be reversed or overturned legislatively.

"It seems logical that the legislature would never intend a windfall of this kind," he said, adding that the insurer's obligation to pay should be limited by what the judicial system determines is appropriate - in this case, $5,445. "Every other policy holder ultimately pays to subsidize this unintended windfall."