Nationwide Mut. Insurance v. Shilling ( 2020 )

Nationwide Mutual Insurance Company v. Margaret Shilling, No. 38, September Term,
2019. Opinion by Getty, J.
INSURANCE LAW–STATUTE OF LIMITATIONS–UNDERINSURED
MOTORIST CLAIM
The Court of Appeals held that the statute of limitations in an underinsured motorist
claim—i.e., when the insured institutes a contract action against its own insurer to recover
underinsured motorist benefits—begins to run when the insurer denies the insured’s
demand for benefits, thereby breaching the insurance contract.
Circuit Court for Anne Arundel County
Case No. C-02-CV-16-002948
Argued: December 6, 2019
IN THE COURT OF APPEALS
OF MARYLAND
No. 38
September Term, 2019
______________________________________
NATIONWIDE MUTUAL INSURANCE
COMPANY
v.
MARGARET SHILLING
______________________________________
Barbera, C.J.
McDonald,
Watts,
Hotten,
Getty,
Booth,
Harrell, Glenn T., Jr. (Senior
Judge, Specially Assigned),
JJ.
______________________________________
Opinion by Getty, J.
______________________________________
Filed: April 20, 2020
Pursuant to Maryland Uniform Electronic Legal
Materials Act
(§§ 10-1601 et seq. of the State Government Article) this document is authentic.
2020-09-09 11:41-04:00
Suzanne C. Johnson, Clerk
Uninsured and underinsured motorist coverage is a statutorily required component
of every motor vehicle liability insurance policy issued in Maryland. Md. Code (1957,
2017 Repl. Vol., 2019 Supp.), Insurance (“IN”) §§ 19-509 to 19-511. This mandatory
coverage protects insured drivers involved in motor vehicle accidents from paying out-of-
pocket expenses when the liable party, a tortfeasor, is either completely uninsured or
inadequately insured to cover the extent of the insured’s injuries.
In this case, an underinsured tortfeasor extended to the insured a policy limits
settlement offer of $20,000, which the latter accepted. The insured, in turn, attempted to
collect additional underinsured motorist benefits from her own insurer, which covered up
to $300,000 per person for bodily injury caused by an uninsured or underinsured motorist.
This case requires us to determine when the statute of limitations begins to run against the
insured in an underinsured motorist claim against her insurer. The controlling statute of
limitations provision, Md. Code (1957, 2013 Repl. Vol.), Courts and Judicial Proceedings
(“CJ”) § 5-101, requires that “[a] civil action at law shall be filed within three years from
the date it accrues.”
In light of this Court’s prior jurisprudence interpreting the uninsured motorist statute
and because an insured’s action against his or her own insurer sounds in contract—where
principles of contract law dictate that a contract action accrues upon breach—we hold that
the statute of limitations begins to run in an underinsured motorist claim when the insurer
breaches the contract to provide underinsured motorist benefits by denying the insured’s
claim.
BACKGROUND
Respondent Margaret Shilling (“Ms. Shilling”) was injured in an automobile
accident on April 19, 2011.1 As Ms. Shilling was braking her vehicle because of slow
traffic on Odenton Road in Anne Arundel County, she was hit from behind by a vehicle
driven by Barbara Gates (“Ms. Gates”). After the initial impact pushed her automobile
forward, Ms. Shilling applied the brakes to stop but was hit again by Ms. Gates. Ms.
Shilling’s injuries from the multiple-impact collision required medical treatment that
continued from April 2011 to July 2014.
Ms. Gates was an underinsured motorist. Her motor vehicle liability insurance
policy with Agency Insurance Company of Maryland (“Agency”) provided up to $20,000
per person in bodily injury coverage. Ms. Shilling was insured by the Petitioner,
Nationwide Mutual Insurance Company (“Nationwide”), under a motor vehicle liability
insurance policy that included uninsured and underinsured motorist coverage in the amount
of $300,000 per person in bodily injury coverage.
Settlement Negotiations with Agency
Nearly two years after the accident, on April 4, 2013,2 Agency offered Ms. Shilling
$20,000 to release all outstanding claims and causes of action against Ms. Gates resulting
from the accident. Agency conditioned the offer on Nationwide’s willingness to waive its
1
The facts germane to this appeal are procedural in nature and thus the record contains
only minimal facts about the accident and Ms. Shilling’s injuries.
2
The Court of Special Appeals opinion below indicates that this date is April 14; however,
the offer letter from Agency to Ms. Shilling’s attorney is dated April 4, 2013.
2
subrogation rights and Ms. Shilling’s signed release of all claims. On April 23, 2013,
Nationwide advised Ms. Shilling’s attorney that it would waive its subrogation rights
against Ms. Gates. Ms. Shilling’s attorney transmitted Nationwide’s waiver of subrogation
to Agency on January 27, 2014. In the same email, Ms. Shilling’s attorney requested
Agency’s draft release. Ms. Shilling executed Agency’s “Full Release of All Claims and
Demands” (the “Release”) on February 3, 2014. Ms. Shilling’s attorney deposited the
$20,000 settlement check into an escrow account on February 14, 2014.
Settlement Negotiations with Nationwide
According to the parties, Ms. Shilling and Nationwide began settlement discussions
after April 23, 2013.3 On January 26, 2015, Ms. Shilling sent Nationwide a formal demand
letter stating her desire to recover underinsured motorist benefits under the Nationwide
policy. Ms. Shilling enclosed a chronology of her medical care as a result of the accident
and supporting medical records. Nationwide confirmed receipt of Ms. Shilling’s letter on
February 2, 2015 and informed her that a review of the claim was pending. On February
6, 2015, Nationwide requested additional medical reports and records to aid in evaluating
Ms. Shilling’s claim. Thereafter, Nationwide contacted Ms. Shilling’s attorney on four
separate occasions in 2015—February 11, March 18, April 13, and June 12—to check on
the status of the outstanding documents Nationwide requested. Nationwide did not deny
Ms. Shilling’s claim during these settlement negotiations.
3
The record does not reveal the extent or content of these settlement discussions. The only
indication that negotiations were ongoing after this date is derived from the circuit court’s
order dated July 28, 2017.
3
Proceedings in the Circuit Court for Anne Arundel County
On September 23, 2016, Ms. Shilling filed suit against Nationwide in the Circuit
Court for Anne Arundel County. Under Nationwide’s underinsured motorist coverage,
Ms. Shilling sought the balance of unpaid damages not covered by Agency’s $20,000
settlement. Nationwide filed a motion to dismiss, arguing that Ms. Shilling’s claim was
time-barred because the three-year statute of limitations under CJ § 5-101 had expired. The
circuit court held a hearing on February 7, 2017.
At the hearing, the parties disagreed about the relevant event that triggers the statute
of limitations. Nationwide averred that the statute of limitations should begin to run when
the tortfeasor’s insurance policy is exhausted. According to Nationwide, the date of
exhaustion occurred in mid-April 2013 when Ms. Shilling accepted Agency’s settlement
offer. Ms. Shilling countered that the statute of limitations “always begins to run on the
date of denial,” i.e., when the insurer denies the insured’s claim for additional benefits.
Under this theory, Ms. Shilling argued that the statute of limitations never began to run
against her because Nationwide had not formally denied her claim for underinsured
motorist benefits.
The circuit court agreed with Nationwide, and by Memorandum Opinion and Order,
granted Nationwide’s motion to dismiss on July 28, 2017, reasoning:
On April 23, 2013[,] a contract was formed by the settlement agreement in
this case. Notwithstanding the fact that a demand letter was sent in January
2015 and that there were discussions between the parties taking place through
June 2015, the statute of limitations on the breach of contract action began
4
running on the date of settlement with [Agency].[4] Thus, if [Ms. Shilling]
believed there was a breach by [Nationwide, Ms. Shilling] needed to file suit
by April 23, 2016. [Ms. Shilling] failed to do so.
Ms. Shilling noted a timely appeal to the Court of Special Appeals on August 16,
2017 (Docket No. 1154, Sept. Term, 2017). While pending in the Court of Special
Appeals, Ms. Shilling advised Nationwide that she did not execute Agency’s release until
February 3, 2014, approximately ten months after Nationwide consented to Agency’s
settlement offer, causing the parties to file a Joint Motion to Stay Appeal and Remand to
the Circuit Court. The Court of Special Appeals granted the parties’ motion on January
29, 2018. The intermediate appellate court remanded the case to the circuit court
for the purpose of determining whether, in the context of [Ms. Shilling’s]
underlying claim for breach of an underinsured motorist contract, the date of
exhaustion of the tortfeasor’s policy is (1) the date the insurer consented to
the settlement with the tortfeasor, (2) the date the insurer and tortfeasor
signed the Release, or (3) the date the settlement check was deposited.
On remand, the circuit court held another hearing to determine when the statute of
limitations began to run. The circuit court considered three possible dates of exhaustion:
(1) April 23, 2013—the date Nationwide consented to the settlement agreement with
Agency; (2) February 3, 2014—the date Ms. Shilling executed the release; or (3) February
14, 2014—the date Ms. Shilling’s attorney deposited the settlement check. Nationwide
maintained that the tortfeasor’s liability coverage is exhausted “when the underinsured
carrier consents [to settlement.]” Ms. Shilling adapted her argument to address the question
4
In a later order dated April 30, 2018, discussed infra, the circuit court clarified that this
sentence should have read “the statute of limitations for the breach of contract action began
running on the date the insurer consented to settlement with [Agency].”
5
posed by the Court of Special Appeals. At the remand hearing, Ms. Shilling argued that
“exhaustion occurs when [a] settlement is reached between the tortfeasor and the
[insured.]”
The circuit court issued a second order on April 30, 2018, finding that “April [23],
2013 is the date of the exhaustion of [Ms. Gates’] policy in this case.”5 Therefore, the
circuit court held that Ms. Shilling’s suit was time-barred. Ms. Shilling again noted a
timely appeal to the Court of Special Appeals on May 14, 2018 (Docket No. 515, Sept.
Term, 2018). Ms. Shilling also filed a Motion to Lift Stay and Consolidate Appeals, which
the Court of Special Appeals granted on June 6, 2018.
Proceedings in the Court of Special Appeals
The Court of Special Appeals reversed the judgment of the circuit court in a reported
opinion. Shilling v. Nationwide Ins. Co., 241 Md. App. 261 (2019).6 Distilling the basic
principles of Lane v. Nationwide Mutual Insurance Co., 321 Md. 165 (1990), and Pfeifer
v. Phoenix Insurance Co., 189 Md. App. 675 (2010), the Court of Special Appeals held
that Ms. Shilling’s suit was not time-barred because “the earliest date for commencing
contract limitations is February 3, 2014, the date when Ms. Shilling, with Nationwide’s
5
This order indicates “April 13, 2013” as the date of exhaustion; however, the parties agree
this is a typographical error that should read “April 23, 2013” when Nationwide consented
to the settlement and waived subrogation. See Shilling v. Nationwide Ins. Co., 241 Md.
App. 261, 267 n.2 (2019).
6
While Ms. Shilling’s complaint identified Nationwide as “Nationwide Insurance
Company,” we gather from Nationwide’s Motion to Dismiss in the circuit court and its
filings in this Court, that it is properly referred to as “Nationwide Mutual Insurance
Company.”
6
permission, accepted [Agency’s] offer of $20,000 and executed the Release in favor of
[Ms. Gates]. That is the date when [Ms. Gates’] coverage was ‘exhausted’ pursuant to
Pfeifer.” Id. at 274–75.
The Court of Special Appeals reasoned that such a holding comported with this
Court’s decision in Lane, because insureds have “the absolute statutory right to initially
sue the tortfeasor in tort and thereafter sue the [underinsured motorist insurer] in contract.”
Id. at 275. Moreover, according to the court, setting the exhaustion date at Ms. Shilling’s
execution of the release further accorded with Lane because “contract limitations are not
triggered until the insured/injured party makes a demand for payment under the
[underinsured motorist] policy.” Id. at 275–76. Therefore, the court concluded that
“Nationwide’s consent to the proposed settlement and agreement to waive subrogation
does not start the running of contract limitations.” Id. at 276.
Nationwide timely petitioned this Court for writ of certiorari, which we granted on
August 26, 2019. Nationwide Mut. Ins. Co. v. Shilling, 465 Md. 665 (2019). Nationwide
presents a single question for this Court’s review,7 which we have rephrased as follows:
When does the statute of limitations begin to run in an insured’s action
against his or her own insurer to recover underinsured motorist benefits?
7
Nationwide’s petition for writ of certiorari presented the question as follows:
(1) Did the Court of Special Appeals err in holding that the statute of
limitations for an underinsured motorist claim starts to run on the date a
plaintiff executes a release with the tortfeasor’s insurance carrier, thereby
allowing a plaintiff to unilaterally determine when the statute of limitations
runs, prejudicing defendants?
7
For the reasons that follow, we hold that the statute of limitations in an underinsured
motorist claim begins to run when the insurer denies an insured’s demand for benefits,
thereby breaching the insurance contract. As it pertains to Ms. Shilling, the record before
us does not reveal a definitive date on which Nationwide denied her claim for benefits;
however, the underinsured motorist claim is not time-barred because Nationwide did not
deny the claim more than three years prior to her instituting the lawsuit on September 23,
2016. Accordingly, while we affirm the judgment of the Court of Special Appeals, we do
so on different grounds.
DISCUSSION
Uninsured and underinsured motorist coverage is a form of first-party coverage that
enables an insured to recover damages even if “the at-fault tortfeasor has no liability
insurance or insufficient insurance funds.” TravCo Ins. Co. v. Williams, 430 Md. 396, 403
(2013) (citing Reese v. State Farm Mut. Auto. Ins. Co., 285 Md. 548, 552 (1979)). IN § 19-
509 refers only to “uninsured” motorists and motor vehicles; however, the legislature has
defined,8 and we have noted, that an uninsured motorist or motor vehicle is, for all intents
8
IN § 19-509 defines an uninsured motor vehicle as one that
(1) the ownership, maintenance, or use of which has resulted in the bodily
injury or death of an insured; and
(2) for which the sum of the limits of liability under all valid and collectible
liability insurance policies, bonds, and securities applicable to bodily injury
or death:
(i) is less than the amount of coverage provided under [IN § 19-509];
or
8
and purposes, the same as an underinsured motorist or motor vehicle. Connors v. Gov’t
Emps. Ins. Co., 442 Md. 466, 474 n.4 (2015) (emphasis added). While these terms connote
different factual scenarios, they are interchangeable:
“Uninsured motorist” coverage describes when an insured is involved in an
accident with a motorist who does not carry any liability insurance coverage
whatsoever. “Underinsured motorist” coverage describes when an insured is
involved in an accident with a motorist who carries liability insurance, but
whose insurance coverage is less than the insured’s underinsured motorist
coverage.
Id.We think it prudent to briefly explain the nature of Ms. Shilling’s suit. When an
insured is involved in an automobile accident with an uninsured or underinsured motorist,
the insured can pursue two separate and distinct actions. The insured can initiate (1) a tort
action against the uninsured or underinsured motorist; or (2) a contract action against his
or her own insurer for uninsured or underinsured motorist benefits; or (3) both. The
insured’s action against his or her own insurer—an “uninsured or underinsured motorist
claim”—is at issue in this case. Because Ms. Shilling’s damages exceeded Ms. Gates’
liability coverage of $20,000, we tailor our language in the following analysis to Ms.
Shilling’s underinsured motorist claim.
(ii) has been reduced by payment to other persons of claims arising
from the same occurrence to an amount less than the amount of
coverage provided under [IN § 19-509].
IN § 19-509(a).
9
A. Maryland’s Uninsured Motorist Statute.
The General Assembly first enacted Maryland’s uninsured motorist statute in 1972.
Woznicki v. GEICO Gen. Ins. Co., 443 Md. 93, 109 (2015); 1972 Md. Laws, ch. 73. As
originally enacted, the statute provided in pertinent part:
[E]very policy of motor vehicle liability insurance issued, sold, or delivered
in this State . . . MAY contain coverage . . . for damages which the insured
is entitled to recover from the owner or operator of an uninsured motor
vehicle because of bodily injuries sustained in an accident arising out of the
ownership, maintenance, or use of such uninsured motor vehicle.
Woznicki, 443 Md. at 109 (citing State Farm Mut. Auto. Ins. Co. v. DeHaan, 393 Md. 163,
171–72 (2006)) (capitalization in original); 1972 Md. Laws, ch. 73. Since the uninsured
motorist statute’s original enactment, the General Assembly has enacted subsequent
legislation to broaden its scope. In 1975, the General Assembly removed the term “may”
and replaced it with “shall,” to make uninsured motorist coverage mandatory for all motor
vehicle liability insurance policies issued, sold, or delivered in Maryland. Woznicki, 443
Md. at 109; 1975 Md. Laws, ch. 562.
Notably, the General Assembly defined uninsured motor vehicles to encompass
underinsured motor vehicles in 1981. Woznicki, 443 Md. at 109; 1981 Md. Laws, ch. 510.
The General Assembly revised the statute in 1983 to exempt certain vehicles, which did
not travel on highways, from the requirement of obtaining uninsured motorist coverage.
1983 Md. Laws, ch. 656. In the 1983 revisions, the General Assembly also permitted
excess coverage insurers to provide uninsured motorist coverage. Woznicki, 443 Md. at
109–10; 1983 Md. Laws, ch. 656. In 1989, the General Assembly further revised the statute
to require motor vehicle liability insurers to offer, in writing, the ability to contract for
10
higher amounts of uninsured motorist coverage than those required by statute. Woznicki,
443 Md. at 110; 1989 Md. Laws, ch. 542. Legislation in 1992 required insurers to provide
uninsured motorist coverage equal to the amount of liability coverage afforded under the
policy, unless waived by the insured. Woznicki, 443 Md. at 110; 1992 Md. Laws, ch. 641.
In 1995, the General Assembly expanded the definition of uninsured motor vehicles to its
present state, noted supra at 8 n.8. Woznicki, 443 Md. at 110; 1992 Md. Laws, ch. 515.
As part of Maryland’s code revision,9 the General Assembly recodified the
Insurance Article into three separate volumes between 1995 and 1997.10 The uninsured
motorist statute, formerly Article 48A, § 541, became recodified at IN §§ 19-509 to 19-
511. 1996 Md. Laws, ch. 11. The first post-recodification substantive revision occurred
in 2012 when the General Assembly made clear that the insurer’s written consent for the
insured to accept a tortfeasor’s settlement offer did not (1) limit the insurer’s ability to
litigate liability or damages in the insured’s subsequent contract action or (2) constitute an
admission against the insurer to any issue raised in the insured’s subsequent contract action.
9
“[C]ode revision is a periodic process by which statutory law is re-organized and restated
with the goal of making it more accessible and understandable to those who must abide by
it.” Johnson v. State, ___ Md. ___, ___ n.8 (2020) (quoting In re S.K., 466 Md. 31, 56 n.21
(2019)). “Maryland Code Revision began in 1970 as a long-term project to create a modern
comprehensive code when Governor Marvin Mandel appointed the Commission to Revise
the Annotated Code. This formal revision of the statutory law for the General Assembly
was coordinated by the Department of Legislative Services. Code Revision was completed
in 2016 with the enactment by the General Assembly of the Alcoholic Beverages Article.”
Id.10
1995 Md. Laws, ch. 36; 1996 Md. Laws, ch. 11; 1997 Md. Laws, ch. 35.
11
2012 Md. Laws, ch. 269. Most recently, the General Assembly revised the statute to enable
insureds to purchase enhanced uninsured motorist coverage.11 2017 Md. Laws, ch. 815.
This Court has previously explained that “[t]he purpose of the uninsured motorist
statute is to provide minimum protection for individuals injured by uninsured motorists.”
Woznicki, 443 Md. at 110 (quoting Erie Ins. Exch. v. Heffernan, 399 Md. 598, 612 (2007)).
The “statute creates a floor to liability not a ceiling.” Id. (quoting Heffernan, 399 Md. at
612); see also Nationwide Mut. Ins. Co. v. Webb, 291 Md. 721, 737 (1981) (“[T]he purpose
of uninsured motorist statutes is ‘that each insured under such coverage have available the
full statutory minimum to exactly the same extent as would have been available had the
tortfeasor complied with the minimum requirements of the [statute].’” (citation omitted)).
Moreover, the uninsured motorist statute is remedial in nature. DeHaan, 393 Md. at 176.
As such, it “dictates a liberal construction in order to effectuate its purpose of assuring
recovery for innocent victims of motor vehicle accidents.” Id. (quoting State Farm Mut.
Auto. Ins. Co. v. Md. Auto. Ins. Fund, 277 Md. 602, 605 (1976)); see also Pa. Nat’l. Mut.
Cas. Ins. Co. v. Gartelman, 288 Md. 151, 159 (1980) (“Maryland’s uninsured motorist
statute is remedial in nature and should be liberally construed in order to promote its
purpose of recovery for innocent victims of motor vehicle accidents.”).
This case implicates the settlement procedures in the uninsured motorist statute
established in IN § 19-511.12 If an insured (1) receives a written settlement offer from a
11
2017 Md. Laws, ch. 815 applies only to policies issued “on or after July 1, 2018.”
12
IN § 19-511 provides, in pertinent part:
12
(b) If an injured person receives a written offer from a motor vehicle
insurance liability insurer or that insurer’s authorized agent to settle a claim
for bodily injury or death, and the amount of the settlement offer, in
combination with any other settlements arising out of the same occurrence,
would exhaust the bodily injury or death limits of the applicable liability
insurance policies, bonds, and securities, the injured person shall send by
certified mail, to any insurer that provides uninsured motorist coverage for
the bodily injury or death, a copy of the liability insurer’s written settlement
offer.
(c) Within 60 days after receipt of the notice required under subsection (b)
of this section, the uninsured motorist insurer shall send to the injured person:
(1) written consent to acceptance of the settlement offer and to the
execution of releases; or
(2) written refusal to consent to acceptance of the settlement offer.
(d) Within 30 days after a refusal to consent to acceptance of a settlement
offer under subsection (c)(2) of this section, the uninsured motorist insurer
shall pay to the injured person the amount of the settlement offer.
(e)(1) Payment as described in subsection (d) of this section shall preserve
the uninsured motorist insurer’s subrogation rights against the liability
insurer and its insured.
(2) Receipt by the injured person of the payment described in
subsection (d) of this section shall constitute the assignment, up to the
amount of the payment, of any recovery on behalf of the injured
person that is subsequently paid from the applicable liability insurance
policies, bonds, and securities.
(f) The injured person may accept the liability insurer’s settlement offer and
execute releases in favor of the liability insurer and its insured without
prejudice to any claim the injured person may have against the uninsured
motorist insurer:
(1) on receipt of written consent to acceptance of the settlement offer
and to the execution of releases; or
(2) if the uninsured motorist insurer has not met the requirements of
subsection (c) or subsection (d) of this section.
13
tortfeasor’s motor vehicle liability insurer (2) to settle a claim for bodily injury or death,
and (3) the amount of the settlement offer would exhaust the applicable liability insurance
policy’s limits, an insured must, by certified mail, send a copy of the settlement offer to
the insurer providing uninsured motorist coverage. IN § 19-511(b). Within sixty days of
receiving the insured’s notice of an outstanding settlement offer, the uninsured motorist
insurer must send the insured either written consent, permitting the insured to accept the
offer and execute releases, or written refusal. IN § 19-511(c). If the uninsured motorist
insurer refuses the settlement offer, it must directly pay the full amount of the settlement
offer to the insured within thirty days. IN § 19-511(d).
The insurer’s payment to the insured preserves the insurer’s subrogation rights
against the tortfeasor and tortfeasor’s liability insurer. IN § 19-511(e)(1). The insured’s
acceptance of the settlement offer and execution of releases in favor of the tortfeasor and
tortfeasor’s liability insurer does not prejudice any claim the insured may institute against
its own uninsured motorist insurer when (1) the insured receives the insurer’s written
consent to accept the settlement offer and execute releases; (2) the insurer fails to provide
(g) Written consent by an uninsured motorist insurer to acceptance of a
settlement offer under subsection (c)(1) of this section:
(1) may not be construed to limit the right of the uninsured motorist
insurer to raise any issue relating to liability or damages in an action
against the uninsured motorist insurer; and
(2) does not constitute an admission by the uninsured motorist insurer
as to any issue raised in an action against the uninsured motorist
insurer.
14
either written consent or refusal to consent to the settlement offer under IN § 19-511(c); or
(3) the insurer refuses the settlement offer and fails to directly pay the insured the amount
of the settlement offer under IN § 19-511(d). IN § 19-511(f). Likewise, the uninsured
motorist insurer’s written consent to the settlement offer does not limit its ability to litigate
issues of liability or damages in the insured’s action against the insurer, nor does such
consent constitute an admission against the insurer in the insured’s action. IN § 19-511(g).
We note that Ms. Shilling’s motor vehicle liability insurance policy comports with the
requirements of IN § 19-511.13
13
In pertinent part, the policy provides:
The insured must:
a) obtain our written consent to:
(1) settle any legal action brought against any liable party; or
(2) release any liable party.
b) preserve and protect our right to subrogate against any liable party.
c) with respect to a claim for bodily injury, before accepting any
written settlement offer from a liable party’s insurer, submit a copy of
any such settlement offer to us by certified mail. Within 60 days of
our receipt of that copy, we must send the insured written notice that
we either:
(1) consent to the settlement offer; or
(2) refuse to consent to the settlement offer. If we refuse to
consent, we must pay the insured the amount of the settlement
offer within 30 days after our refusal. Such payment will
preserve our subrogation rights.
15
B. The Parties’ Contentions.
Before this Court, Nationwide contends that the statute of limitations for an
underinsured motorist claim begins to run when the tortfeasor’s policy limits are exhausted.
In its view, the date of exhaustion occurs when the underinsured insurer consents to
settlement, and the Court of Special Appeals erred by holding that “the date of exhaustion
is the date a release is signed.”14 Nationwide asserts that the tortfeasor’s coverage is
exhausted when a tortfeasor’s insurer offers its policy limits because the tortfeasor’s insurer
cannot rescind its limits offer or make any other offers under the same coverage.
Maintaining this argument, Nationwide avers that hinging the statute of limitations on the
date a tortfeasor’s policy is exhausted provides plaintiffs with an absolute power to
determine when the statute of limitations begins to run.
Ms. Shilling counters that the statute of limitations in an underinsured motorist
claim begins to run when the insurer denies the insured’s claim for coverage under the
insurance policy. The crux of Ms. Shilling’s argument relies on three basic principles: (1)
the underinsured motorist lawsuit sounds in contract; (2) the statute of limitations in
contract cases is three years; and (3) an insurer’s denial of coverage is a breach of the
insurance contract. Alternatively, Ms. Shilling contends that if the statute of limitations
14
Nationwide’s understanding of the holding below differs from ours. The Court of
Special Appeals did not fix a specific date of exhaustion; instead, it held that “the earliest
date for commencing contract limitations is . . . the date when Ms. Shilling . . . accepted
the tortfeasor’s insurance company’s offer of $20,000 and executed the Release in favor of
the tortfeasor.” Shilling, 241 Md. App. at 274–75.
16
runs on the date of exhaustion, that term should be defined to mean the date the insured
settles with the tortfeasor.
C. Analysis.
We begin our analysis with the two Maryland decisions addressing when the statute
of limitations begins to run in uninsured and underinsured motorist claims: Lane and
Pfeifer.
In Lane v. Nationwide Mutual Insurance Co., this Court considered “when the
statute of limitations begins to run in an action for uninsured motorist benefits” under facts
distinguishable from the instant case. 321 Md. at 166. The Lanes purchased and
maintained an automobile liability insurance policy with Nationwide Mutual Insurance
Company. Id. While the policy remained in effect, the Lanes were involved in a car
accident. Id. “[A] vehicle, driven by [] Callaway, attempted to pass the Lanes on the left
and was forced off the road by an oncoming vehicle, owned by [] McKenna and driven by
[] Warren.” Id. at 166–67. The vehicle operated by Warren struck the Lanes and caused
permanent injuries. Id. The Lanes notified Nationwide of the accident shortly after it
occurred. Id. at 167.
The Lanes initiated a tort action against Warren, McKenna and Callaway on
December 14, 1982. Id. At some point before filing the action, however, the Lanes
discovered that Warren and McKenna were uninsured motorists. Id. On December 17,
1982, the Lanes notified Nationwide of the tort action and that Warren and McKenna were
uninsured, yet Nationwide did not intervene as a party. Id. Three years and four months
later, on April 17, 1986, while the tort action remained pending, the Lanes initiated a
17
second suit against Nationwide to recover uninsured benefits. Id. In their complaint, the
Lanes alleged that (1) Warren and McKenna were the direct and proximate cause of their
injuries; (2) Warren and McKenna were uninsured; (3) they had properly demanded that
Nationwide pay uninsured motorist benefits under the Lanes’ policy; and (4) Nationwide
breached its contract with the Lanes by denying compensation. Id. Nationwide filed a
motion for summary judgment, contending the action was time-barred by CJ § 5-101
because the statute began running when the Lanes discovered Warren and McKenna were
uninsured. Id. The circuit court agreed with Nationwide and the Court of Special Appeals
affirmed. Id. at 168.
This Court reversed and began by noting that an insured is statutorily entitled to
bring a tort action against the uninsured tortfeasor and establish the amount of damages
owed. Id. at 173 (“[A]n insured ‘has the option of bringing a contract action against his
insurer or a tort action against the uninsured motorist.’”) (quoting Reese, 285 Md. at 554)
(emphasis in Lane). The insured is not required to seek uninsured motorist coverage from
the insurer under his or her own personal automobile liability insurance policy. Id. We
continued, “[a]s long as the insured does not demand compensation under his own
insurance policy, the uninsured motorist [insurer] is not called upon to pay under the
contract, and, therefore, there can be no breach of contract causing the statute of limitations
to begin running.” Id. Certainly, the insured may never demand benefits. Id. at 174. The
insured may lose the tort action or, conversely, the uninsured tortfeasor may be able to
satisfy the judgment. Id. In any event, the uninsured motorist insurer is protected because
18
it must be informed of the tort action and it may intervene in the same. Id. (citing Webb,
291 Md. at 732). Therefore, we held that
[w]hen an insured elects to bring and does bring a timely tort action
against the uninsured motorist, having notified his uninsured motorist
[insurer] of the tort action, and when the insured thereafter either during the
pendency of the tort action or within a reasonable time after judgment in the
tort case makes a claim upon his insurer for uninsured motorist benefits,
the statute of limitations does not begin running against the insured until
the insurer denies that claim, thereby allegedly breaching the contract.
Id. at 176–77 (emphasis added).
Twenty years later, in Pfeifer v. Phoenix Insurance Co., the Court of Special
Appeals confronted a nearly identical legal question as the question posed in Lane,
determining when the statute of limitations begins to run in an underinsured motorist claim,
but under different facts. 189 Md. App. 675. There, Ms. Pfeifer was operating her
employer’s vehicle when she was injured in a car accident on February 12, 2003. Id. at
678. Ms. Pfeifer’s employer had insured the vehicle, with a policy containing uninsured
motorist coverage, through Phoenix Insurance Company (“Phoenix”). Id.Two weeks after the accident, on February 27, 2003, Ms. Pfeifer’s attorney notified
Phoenix of ongoing settlement negotiations with the tortfeasor’s insurance company. Id.Ms. Pfeifer’s attorney put Phoenix on notice that “there may be insufficient limits [on the
tortfeasor’s] coverage to pay all of the damages to [Ms. Pfeifer.]” Id. In October 2004,
the tortfeasor’s insurance company offered Ms. Pfeifer its policy limits of $100,000. Id. at
678–79. Ms. Pfeifer, in turn, informed Phoenix and requested its consent to settle on
October 13, 2004. Id. at 679. Phoenix gave its permission and Ms. Pfeifer accepted the
tortfeasor’s insurance company’s policy limits offer, releasing all claims against the
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tortfeasor. Id. Ms. Pfeifer did not demand underinsured benefit coverage from Phoenix.
Id. at 691. Consequently, there was no denial by Phoenix; a claim never arose. Id. On
July 10, 2006, Ms. Pfeifer instituted a contract action against Phoenix for its failure to
provide underinsured motorist benefits. Id. at 679.
The Court of Special Appeals’ analysis focused largely on Lane. The Pfeifer court
distilled three guiding principles from Lane: (1) the uninsured motorist statute “embodies
a public policy to assure financial compensation to the innocent victims of motor vehicle
accidents who are unable to recover from financially irresponsible uninsured motorists”;
(2) an insured’s claim against his or her own insurer to recover uninsured motorist coverage
is a contract action; and (3) “[a]s long as the insured does not demand compensation under
his own insurance policy, the uninsured motorist [insurer] is not called upon to pay under
the contract, and, therefore there can be no breach of contract causing the statute of
limitations to begin running.” Id. at 689–90 (quoting Lane, 321 Md. at 169, 174).
However, the Court of Special Appeals distinguished Lane on the grounds that “Ms. Pfeifer
did not bring a timely tort suit against the underinsured motorist because of her settlement.”
Id. at 690–91. The court reiterated that Ms. Pfeifer did not demand underinsured motorist
benefits and Phoenix did not deny a nonexistent claim. Id.The Pfeifer court acknowledged the lack of Maryland jurisprudence addressing the
statute of limitations issue in the underinsured motorist context. Id. at 693. The Court of
Special Appeals noted different approaches in other states but remained “most persuaded
by those courts that have held that the limitations period begins to run when the insured
settles with the tortfeasor.” Id. Therefore, the court held “that the statute of limitations in
20
an underinsured motorist contract action for damages does not begin to run until, at the
earliest, the date on which exhaustion of the tortfeasor’s coverage occurs.” Id. at 694–95
(footnote omitted).
Against this backdrop, we turn to the case at hand. The relevant statute of
limitations, CJ § 5-101, provides, in pertinent part, that “[a] civil action at law shall be filed
within three years from the date it accrues.” In Ceccone v. Carroll Home Services, LLC,
this Court articulated the policy underlying statutes of limitations generally:
Statutes of limitations are designed to balance the competing interests
of plaintiffs, defendants, and the public. A statutory period of limitations
represents a policy judgment by the Legislature that serves the interest of a
plaintiff in having adequate time to investigate a cause of action and file suit,
the interest of a defendant in having certainty that there will not be a need to
respond to a potential claim that has been unreasonably delayed, and the
general interest of society in judicial economy. In enacting the three-year
statute of limitations that governs most tort and contract actions, the General
Assembly thus made a policy decision as to an appropriate deadline for the
filing of such a claim by a reasonably diligent plaintiff.
454 Md. 680, 691 (2017) (citations and footnote omitted).
Two foundational legal principles guide our resolution of this case. First, an
insured’s action against his or her own insurer to recover uninsured or underinsured
motorist benefits is a contract action. Lane, 321 Md. at 169–70 (citing Reese, 285 Md. at
553); see also Vega v. Farmers Ins. Co. of Or., 895 P.2d 337, 340 (Or. Ct. App. 1995) (“An
action by an insured against an insurer for [uninsured or underinsured motorist] coverage
is based on their contract and the insurer’s liability stems from that contractual
relationship.”). Therefore, the insured’s action is “governed by the principles and
21
procedures applicable to contract actions generally.” Lane, 321 Md. at 170 (quoting Reese,
385 Md. at 553).
Second, in contract actions, principles of contract law dictate that the statute of
limitations begins to run when the contract is breached. Mayor & Council of Federalsburg
v. Allied Contractors, Inc., 275 Md. 151, 157 (1975) (“In contract cases, the general rule
is that the period of limitations begins to run from the date of the breach, for it is then that
the cause of action accrues and becomes [enforceable].”); see also Shailendra Kumar, P.A.
v. Dhanda, 426 Md. 185, 196 n.4 (2012) (“Generally, a cause of action for breach of a
contract accrues, and the statute of limitations begins to run, when the plaintiff knows or
should have known of the breach.” (citation omitted)). Indeed, this is precisely the result
we reached in the uninsured motorist context when we said, “the statute of limitations does
not begin running against the insured until the insurer denies that claim, thereby allegedly
breaching the contract.” Lane, 321 Md. at 177 (emphasis added).
While the facts of this case most closely resemble those in Pfeifer, we disagree with
that court’s analysis and take this opportunity to expand upon our decision in Lane to the
underinsured motorist context. Because the insured’s underinsured motorist claim sounds
in contract, the relevant date in determining when the statute of limitations begins to run is
the date the insurer breaches its contract with the insured to provide underinsured motorist
benefits. The insurer cannot breach the insurance contract if the insured does not demand
payment of benefits. Applying Lane to an underinsured motorist claim, when an insured
(1) is extended a policy limits settlement offer by a tortfeasor’s liability insurer; (2)
complies with the requirements set out in IN § 19-511; and (3) makes a demand on the
22
insurer for underinsured motorist benefits, the statute of limitations does not begin to run
against the insured until the insurer denies that claim. Only upon denial of the claim does
the insurer breach the contract.
Here, Agency extended a policy limits offer to Ms. Shilling on April 4, 2013.
Nationwide consented and enabled Ms. Shilling to accept the settlement offer on April 23,
2013. Ms. Shilling executed the release in favor of Agency and Ms. Gates on February 3,
2014; then Ms. Shilling’s attorney deposited the settlement check on February 14, 2014.
Ms. Shilling continued receiving medical care related to the accident through July 1, 2014.
Ms. Shilling demanded Nationwide pay underinsured motorist benefits on January 26,
2015. Nationwide promptly responded on February 2, 2015 that it was in receipt of the
demand and was in the process of reviewing it. Four days later, on February 6, Nationwide
requested additional documentation to complete its review of Ms. Shilling’s demand.
Nationwide contacted Ms. Shilling’s attorney multiple times from February to June 2015
about the status of the outstanding documents, but on the record before us, never outright
denied Ms. Shilling’s claim for underinsured motorist benefits.
These events, and their associated dates, are not significant in determining when the
statute of limitations begins to run because none of these actions demonstrate a breach of
the insurance contract between Nationwide and Ms. Shilling. Ms. Shilling only called upon
Nationwide to pay the underinsured benefits on January 26, 2015. Ms. Shilling generally
alleged in her complaint that Nationwide has “refused to pay” underinsured motorist
benefits and “has breached its contract.” Therefore, on the record before us and because
we cannot identify the date of denial, we cannot conclusively state the date on which the
23
statute of limitations began to run. We can, however, conclude that Ms. Shilling’s action
is not time-barred because Nationwide did not deny her claim for underinsured motorist
benefits more than three years prior to her instituting the present action.
At oral argument, Nationwide contended that it was prejudiced by Ms. Shilling’s
alleged delay in filing the underinsured motorist claim because it was forced to expend
resources defending against the action and prosecuting an appeal to this Court. More
broadly, Nationwide argued that tolling the statute of limitations until an insurer denies a
claim gives insureds the unilateral power to determine when to file a demand and start the
underinsured benefits process. This argument rings hollow for two reasons well stated by
the Supreme Court of Nevada in Grayson v. State Farm Mutual Automobile Insurance:
[T]he insurer can protect itself from claims that are remote in time by
including explicit, unambiguous time limitations [for an insured to demand
underinsured motorist benefits] in its insurance contracts. Additionally, the
equitable remedy of laches would protect insurers from the costs associated
with any unreasonable delay on the part of the insured.
971 P.2d 798, 800 (Nev. 1998) (citations omitted). Laches, we recently explained, may
bar a claim “where a party unreasonably delays an assertion of his or her rights that
prejudices an opposing party.” Ademiluyi v. Egbuonu, 466 Md. 80, 124 (2019).
We recognize that our sister jurisdictions are not unanimous in their treatment of
when the statute of limitations begins to run in an underinsured motorist claim. The
overwhelming majority of jurisdictions to address this issue have concluded, like we do
today, that the statute of limitations begins to run upon the insurer’s breach of the insurance
24
contract.15 Fewer jurisdictions have held that the statute of limitations begins to run from
either the date of the accident, settlement with the tortfeasor, or entry of a judgment against
the tortfeasor.16 Still, other jurisdictions have held that the statute of limitations begins to
run when the tortfeasor’s liability insurance is exhausted. See Coelho v. ITT Hartford, 752
15
Jurisdictions holding that the statute of limitations in an uninsured or underinsured
motorist claim begins to run upon the insurer’s breach of the insurance contract—i.e.,
denial of uninsured or underinsured motorist benefits—include Alaska, Arizona, Arkansas,
California, Delaware, Idaho, Iowa, Kansas, Maine, Massachusetts, Michigan, Nebraska,
Nevada, New Hampshire, Oklahoma, Oregon, Rhode Island, Texas, Washington, and West
Virginia. See McDonnell v. State Farm Mut. Auto. Ins. Co., 299 P.3d 715, 728 (Alaska
2013); Blutreich v. Liberty Mut. Ins. Co., 826 P.2d 1167, 1171 (Ariz. Ct. App. 1991);
Shelter Mut. Ins. Co. v. Nash, 184 S.W.3d 425, 430 (Ark. 2004); Spear v. Cal. State Auto.
Ass’n, 831 P.2d 821, 825 (Cal. 1992); Allstate Ins. Co. v. Spinelli, 443 A.2d 1286, 1292
(Del. 1982); Klein v. Farmers Ins. Co. of Idaho, 453 P.3d 266, 273 (Idaho 2019); Hamm
v. Allied Mut. Ins. Co., 612 N.W.2d 775, 784–85 (Iowa 2000); Eidemiller v. State Farm
Mut. Auto. Ins. Co., 915 P.2d 161, 169 (Kan. Ct. App. 1996), rev’d on other grounds, 933
P.2d 748 (Kan. 1997); Palmero v. Aetna Cas. & Sur. Co., 606 A.2d 797, 799 (Me. 1992);
Berkshire Mut. Ins. Co. v. Burbank, 664 N.E.2d 1188, 1189 (Mass. 1996); Jacobs v. Detroit
Auto. Inter-Ins. Exch., 309 N.W.2d 627, 630 (Mich. Ct. App. 1981); Snyder v. Case, 611
N.W.2d 409, 415 (Neb. 2000); Grayson v. State Farm Mut. Auto. Ins., 971 P.2d 798, 800
(Nev. 1998); Metro. Prop. & Liab. Ins. Co. v. Walker, 620 A.2d 1020, 1022 (N.H. 1993);
Wille v. Geico Cas. Co., 2 P.3d 888, 892 (Okla. 2000); Vega v. Farmers Ins. Co. of Or.,
895 P.2d 337, 340 (Or. Ct. App. 1995); Am. States Ins. Co. v. LaFlam, 69 A.3d 831, 844
(R.I. 2013); In re Britt, 529 S.W.3d 93, 97 (Tex. App. 2016); Safeco Ins. Co. v. Barcom,
773 P.2d 56, 60 (Wash. 1989); Plumley v. May, 434 S.E.2d 406, 411 (W. Va. 1993).
16
Jurisdictions holding that the statute of limitations begins to run from the date of the
accident, settlement with the tortfeasor, or entry of judgment against the tortfeasor include
Colorado, Georgia, Illinois and New Jersey. See Brown v. Am. Family Ins. Grp., 989 P.2d
196, 197–98 (Colo. App. 1999); Commercial Union Ins. Co. v. Wraggs, 284 S.E.2d 19, 21
(Ga. 1981); Butler v. Econ. Fire & Cas. Co., 557 N.E.2d 1281, 1286 (Ill. 1990); Green v.
Selective Ins. Co. of Am., 676 A.2d 1074, 1080 (N.J. 1996). Two jurisdictions—Florida
and Minnesota—have held that the statute of limitations runs from the date of the accident
unless a provision in the insurance contract tolls the limitations period until settlement with
or judgment against the tortfeasor. See Woodall v. Travelers Indem. Co., 699 So.2d 1361,
1362–65 (Fla. 1997); Sargent v. State Farm Mut. Auto. Ins. Co., 486 N.W.2d 14, 16 (Minn.
Ct. App. 1992).
25
A.2d 1063, 1064 (Conn. 1999). Our holding comports with our previous decision in Lane,
the policy established by the General Assembly for uninsured and underinsured liability
insurance in Maryland, and the majority of those sister jurisdictions that have addressed
this issue.
Our decision today overrules Pfeifer to the extent that it allowed the statute of
limitations to run before an insurer denies uninsured motorist coverage. Pfeifer, 189 Md.
App. at 694–95. The Pfeifer court’s holding—“that the statute of limitations in an
underinsured motorist contract action for damages does not begin to run until, at the
earliest, the date on which exhaustion of the tortfeasor’s coverage occurs”—cannot be
reconciled with basic contract principles, which Pfeifer noted in apparent contradiction of
itself, that “[a] breach of contract, triggering the statute of limitations, can only occur after
the underinsured motorist [insurer] denies further coverage.” Id.The Court of Special Appeals’ analysis below incorrectly applied our holding in
Lane. In reaching the result it did, that court opined that “our conclusion is consistent with
Lane’s holding that contract limitations are not triggered until the insured/injured party
makes a demand for payment under the [underinsured motorist] policy.” Shilling, 241 Md.
App. at 275–76 (emphasis added) (citing Lane, 321 Md. at 173). However, in Lane, we
made clear that the insured’s demand only calls upon the insurer to pay benefits under the
contract; until the insured makes a demand on the insurer, “there can be no breach of
contract causing the statute of limitations to begin running.” Lane, 321 Md. at 173. Put
another way, the insured’s demand is a necessary precondition which gives rise to a
26
potential breach. The insurer’s refusal to pay underinsured motorist benefits—i.e., the
breach of contract—is the event that causes the statute of limitations to run.
CONCLUSION
In light of this Court’s decision in Lane, we hold that the statute of limitations begins
to run in an underinsured motorist claim when the insurer denies an insured’s demand for
underinsured motorist benefits, thereby breaching the insurance contract.
JUDGMENT OF THE COURT OF
SPECIAL APPEALS IS AFFIRMED.
COSTS TO BE PAID BY
PETITIONER.
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The correction notice(s) for this opinion(s) can be found here:
https://mdcourts.gov/sites/default/files/import/appellate/correctionnotices/coa/38a19cn.pdf