Court of Appeals Reaffirms Validity of Household Exclusion Provision
September 30, 2022 By Paul F. Rowedder
Maryland Courts have, in the past, ruled that a household exclusion provision was valid and enforceable under an umbrella policy. In Stickley v. State Farm Fire and Casualty Company, 431 Md. 347 (2013), the Court of Appeals examined Md. Insurance Code Ann. § 19-504.1(b), which stated:
An insurer shall offer to the first named insured under a policy or binder of private passenger motor vehicle liability insurance liability coverage for claims made by a family member in the same amount as the liability coverage for claims made by a nonfamily member under the policy or binder.
The specific phrase that was analyzed in this opinion was “motor vehicle liability insurance.” The Court determined an umbrella policy does not qualify as a “motor vehicle liability insurance”, under the specific statutory framework challenged.
The Court of Appeals added further support to this position in De Macedo v. Auto. Ins. Co., No. 52, 2022 Md. LEXIS 321, 2022 WL 3269743 (Aug. 11, 2022) wherein the Court addressed a separate statute, Maryland Code, Courts and Judicial Proceedings Article § 5-806(b), and ruled that umbrella policies do not apply to this statutory provision. In De Macedo, a father and his family of four were involved in a two-car collision. The father, mother and one of children died. Their remaining child survived the crash but suffered permanent injuries. The father had a primary automobile liability insurance policy issued by The Travelers Indemnity Company and a personal liability umbrella policy issued by The Automobile Insurance Company of Hartford. The umbrella policy contained a household exclusion provision that precluded coverage for bodily injury or personal injury suffered by the father or by individuals who were related to father and who resided in the father’s household.
The surviving child, and Petitioner, filed suit and contended that the plain language of Maryland Code, Courts and Judicial Proceedings Article § 5-806(b) renders void a household exclusion in an umbrella policy, up to the limits of the motor vehicle coverage of the umbrella policy, as to personal injury and wrongful death claims made by unemancipated children. Section 5-806(b) provides in pertinent part:
The right of action … by a child or the estate of a child against a parent of the child, for wrongful death, personal injury, or property damage arising out of the operation of a motor vehicle, as defined in Title 11 of the Transportation Article, may not be restricted by the doctrine of parent-child immunity or by any insurance policy provisions, up to the limits of motor vehicle liability coverage or uninsured motor vehicle coverage.
Unlike in Stickley, De Macedo provided a different problem. In Stickley, theCourt of Appeals found it would be illogical to interpret the phrase ‘motor vehicle liability insurance policy’ in § 19-504.1 as referring to umbrella policies, because umbrella policies served as an excess form of coverage to motor vehicle primary policies.
Here, the Court of Appeals acknowledged that the plain reading of § 5-806(b) would support the Petitioner’s position, inasmuch as it applies to “any insurance policy provisions, up to the limits of motor vehicle liability coverage.” However, the Court agreed with the Respondent that when viewed in the context of relevant provisions in the Insurance Article, it was clear that the General Assembly’s intent was to limit application of the provision to the mandatory primary auto coverages.
Initially, the court examined whether the Insurance Article cross-referenced § 5-806(b) and acknowledged the substantive change to Maryland insurance law. Though the Insurance Article explicitly incorporates and/or cross-references provisions in other parts of the Maryland Code that substantively address insurance law, it failed to do so in this instance.
However, what the Court of Appeals found to be dispositive was the legislative history of § 5-806(b). After a somewhat lengthy review of the legislative history, the Court determined the General Assembly intended § 5-806 only to provide parents and their children with a way to reach negotiated policy limits for the mandatory auto liability and UM coverages. In doing so, the Court of Appeals has once again supported the validity of the household exclusion provision, and resolved an apparent textual contradiction in Maryland law.