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Mesmer v. Maryland Automobile Insurance Fund3/11/1999
[Involves An Action For An Excess Judgment Based Upon A Liability Insurer's Failure To Settle Within Policy Limits]
*Karwacki, J., now retired, participated in the hearing and conference of this case while an active member of this Court; after being recalled pursuant to the Constitution, Article IV, Section 3A, he also participated in the decision and the adoption of this opinion.
This is an action against a liability insurer based upon the insurer's allegedly erroneous denial of coverage. The issues are whether the action sounds in contract, in tort, or both, and what is the appropriate measure of damages.
I.
In January 1989 the Maryland Automobile Insurance Fund ("MAIF"), a state agency, issued an automobile liability policy on a 1981 Buick Skylark to Gladys Mesmer with personal injury liability coverage limits of $20,000.00 per person and $40,000.00 per accident. Krist Leo Salmi of Wheaton, Maryland, was the insurance agent or broker who produced the policy. The application and declaration page of the policy listed Gladys as the owner and operator of the vehicle. Gladys's daughter, Denise Mesmer, was also listed as an operator of the Buick. The application stated that both Gladys and Denise held valid Maryland driver's licenses, resided in Silver Spring, Maryland, and that Gladys had been refused automobile liability coverage by two private insurance companies.
On or about July 19, 1989, Gladys contacted Salmi and informed him that " e've changed vehicles." Both Gladys and Salmi stated that the matter primarily discussed was that Denise would be the primary driver of the newly acquired vehicle and that neither of them raised the issue of who was the owner of the newly acquired vehicle. Salmi secured from MAIF a new insurance policy that removed the Buick and added a 1989 Chevrolet Spectrum, without any change in coverage limits. The declaration page listed Gladys as the named insured and listed both Gladys and Denise as operators of the Chevrolet. The declaration page also included Item 8, stating that " nless otherwise stated herein: (a) he automobile(s) described in item 3 is (are) solely owned by the named insured . . . ." The Chevrolet, however, was not titled in either Denise's or Gladys's name. The titled owner was Robert Arthur Hyman, Gladys's future husband, with whom she and Denise lived. According to the complaint in the instant case, the Chevrolet had been purchased in the name of Mr. Hyman " n order to secure financing."
On February 22, 1990, Denise, while in the District of Columbia, negligently operated the Chevrolet and caused an accident. Peggy Lyons was seriously injured in the accident. The accident was reported to MAIF, which investigated the matter for approximately two months. On April 20, 1990, MAIF notified Gladys that it was denying coverage on the ground that she did not have an insurable interest in the Chevrolet at the time the policy was issued and that, therefore, the policy was being voided as of January 31, 1990, and premium payments would be refunded. Three days later MAIF informed Hyman that the Chevrolet did not qualify as an insured vehicle under the terms of the policy and that the policy was being voided ab initio.
In September 1990 and again in July 1991, the attorneys representing McKeeba Lyons, mother of Peggy Lyons, contacted MAIF by letter. The first letter requested that MAIF "post its policy" to enable the injured party to "proceed against other available insurance." The second letter offered to "settle this matter as against Denise Mesmer for MAIF's policy limit of $20,000." MAIF responded to both letters but declined to enter into any negotiations concerning Peggy's claim, s
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