Circuit Court for Baltimore County Case No. 03-C-09-002837
The opinion of the court was delivered by: Barbera, J.
Property & Casualty Insurance Guaranty Corp. v. Belinda Beebe-Lee, No. 64, September Term 2012
INSURANCE -- PCIGC -- ABILITY TO REVIEW AND CONTEST
SETTLEMENTS -- The Property & Casualty Insurance Guaranty Corporation ("PCIGC") assumes the obligations of insolvent insurers to pay covered claims up to $300,000 that are owed to Maryland residents who would otherwise suffer serious financial loss. PCIGC has the statutory power to review settlements entered into prior to an insurance company's insolvency to determine if the settlements may be properly contested. The corporation has the same powers the insurer would have had to challenge a settlement had the insurer not become insolvent. In addition, PCIGC may challenge a settled claim on other limited grounds that would not have been available to the insurer. It is PCIGC's burden to prove it has a legitimate rationale for challenging a settlement. These reasons include, but are not necessarily limited to, fraud, collusion, duress, mutual mistake, or the failure of the insurer to use reasonable care in investigating or settling the claim. Other than these defenses, PCIGC is generally prevented from challenging the underlying liability on a claim for which a settlement has been reached.
INSURANCE -- PCIGC -- FINANCIAL OBLIGATION ON MULTIPLE POLICIES
-- The Property & Casualty Insurance Guaranty Corporation ("PCIGC") is obligated to pay each covered claim presented to it up to a statutory maximum of $300,000 per claim. Covered claims are defined as an insurer's unpaid obligations at the time the insurer becomes insolvent. When there is an underlying insurance policy and an umbrella policy, these two policies count as separate covered claims under the statute. Therefore, a single incident that triggers coverage from two different insurance policies does not form a single claim, but instead counts as two covered claims. PCIGC may be obligated to pay up to the statutory maximum on each claim.
Bell, C.J., Harrell Battaglia Greene Adkins Barbera McDonald, JJ.
When a property or casualty insurer becomes insolvent, the Maryland Property & Casualty Insurance Guaranty Corporation ("PCIGC") assumes responsibility for any outstanding claims or litigation. In the case before us, an insurance company settled a claim with an insured party but became insolvent before the agreement could be approved by a court. Maryland Code (1995, 2011 Repl. Vol.), § 9-306(e)(1)(ii) of the Insurance Article,*fn1 states that PCIGC "may review settlements, releases, and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which the settlements, releases, and judgments may be properly contested."
PCIGC argues that the insurance company should not have been liable on the claim and seeks to challenge the settlement reached by the parties. PCIGC also contends that it should not have to pay its statutory maximum on both an underlying insurance policy and an umbrella policy when the claims stem from a single incident. The Court of Special Appeals, in an unreported opinion, held that PCIGC may challenge a settlement only on limited grounds, such as fraud or collusion, and the corporation bears the burden of proving its reason for challenging a claim. Additionally, the Court held that PCIGC was liable for the statutory maximum on both policies.
We granted a petition for a writ of certiorari, Property & Casualty Insurance Guaranty Corp. v. Beebe-Lee, 428 Md. 543 (2012), to answer the following questions:
1. Did the Circuit Court err in ruling, and the Court of Special Appeals err in affirming, that [§ 9-306(e)(1)(ii)] provides PCIGC with only a limited right to contest settlements entered into between a claimant and an insolvent insurer, despite the absence of such limiting language in the governing statute?
2. Did the Circuit Court err in declaring, and the Court of Special Appeals err in affirming, that PCIGC is liable to Claimants for twice its statutory limit of liability on a claim for a single bodily injury where the insolvent insurer provided both primary coverage and umbrella coverage?
For reasons we shall explain, we answer no to both questions and affirm the judgment of the Court of Special Appeals.
While visiting her grandparents at their home in Jefferson, Maryland on June 30, 2003, nine-year-old Ashley Beebe-Lee was seriously injured while riding a go-cart.*fn2 Prior to the accident, Ashley and another grandchild asked their grandfather William Lee if they could take the go-cart out of the garage. Lee initially resisted, telling them that the go-cart had not been running for a year or more. After the grandchildren washed dirt and dust off of the vehicle, Lee decided to see if it would operate. The go-cart's engine started up, and Ashley drove the vehicle around the driveway and back lot of the property. At one point, Ashley lost control of the go-cart and drove into a trailer. She suffered severe injuries to her right arm and shoulder, and was flown ultimately to Children's National Medical Center in Washington, D.C. for treatment. She sustained two severed arteries, a broken collar bone, and two broken ribs in the accident, among other injuries. Ashley reportedly has permanent scarring and was estimated at one point to have roughly 62 percent impairment to her body, with serious impairment to her right arm, hand, and fingers.*fn3
Ashley's mother, Belinda Beebe-Lee, on behalf of her minor daughter (hereinafter Respondents), hired an attorney and presented notice of a bodily injury claim against the Lees on November 3, 2003. Respondents filed the claim with the Lees' insurer, Shelby Casualty Insurance Company ("Shelby"). The Lees had two policies with Shelby, one that provided homeowner's personal liability protection up to $500,000 and a second umbrella policy that covered up to $1 million. Respondents' attorney communicated with Shelby by letter and fax on multiple occasions between December 2003 and March 2006, discussing the insurance company's liability investigation. Respondents forwarded copies of medical bills to Shelby along with photographs documenting Ashley's injuries and her recovery.*fn4 As of January 20, 2006, Ashley's medical treatment totaled more than $155,000, and one doctor estimated the cost of future surgical procedures at roughly $300,000. After initially offering $750,000 to settle the claim on April 19, 2006, Shelby raised its offer to $1 million in an email a month later, with a proposal to structure $500,000 of the settlement as an annuity. Gary Murton, a litigation specialist at Shelby, wrote an email to Respondents' attorney in which he stated, "You and I understand any settlement must be approved by the court and that the courts certainly look favorably upon the settlement to which we have agreed."*fn5 In an affidavit signed on July 10, 2009, Murton said that he viewed court approval as a "ministerial" matter "that did not prevent the settlement agreement from being binding."
On June 28, 2006, the Texas Department of Insurance sought, and was granted, a court order placing the Vesta Insurance Group and its affiliates, which included Shelby, into receivership. After finding that Shelby was insolvent, the District Court of Travis County, Texas, ordered that the company be liquidated on August 1, 2006. Respondents learned of Shelby's problems in late July and asked the company to place the $1 million settlement in escrow. Shelby responded by directing Respondents to PCIGC, describing it as the "only recourse" available.
Respondents sent a letter on September 18, 2006 to PCIGC, informing it of the $1 million settlement reached with Shelby and that company's liquidation. PCIGC and Respondents' attorney exchanged letters through the remainder of 2006 and early 2007. PCIGC stated that it was not clear whether Shelby had a duty to defend the claim, and it sought additional information about the policies and the accident to assist it in determining what its statutory obligations were under the circumstances. Respondents maintained that Shelby had a duty to defend and that, under § 9-306(c),*fn6 PCIGC was required to assume all of the obligations and duties that Shelby would have had if the company had not become insolvent. On January 31, ...