Md. Court of Appeals Rules Site of Crash Affects Amount of Money Recovered

By Caryn Tamber

A Maryland couple whose daughter died in a car accident in Delaware can pursue a claim for underinsured motorist benefits under Delaware law, which could entitle the couple to recover more money than if the claim proceeded under Maryland law.

Considering questions referred by the U.S. District Court for the District of Maryland, the Court of Appeals held that where an automobile insurance contract was executed in Maryland but the accident occurred elsewhere, the law of the other state applies in determining what the claimants can recover in an action for underinsured motorist benefits.

Underinsured motorist insurance covers the policyholder for injuries or damages if the policyholder is in an accident caused by a driver whose own insurance coverage is insufficient.

Delaware, unlike Maryland, has neither a cap on non-economic damages nor a contributory negligence standard, so the top court's decision could help the couple, Edmund and Diane Heffernan. The Heffernans sued their insurance company, Erie Insurance Exchange, for benefits after their daughter, Mallory, was killed when the underinsured driver of the car in which she was riding fell asleep.

The Heffernans' underinsured motorist coverage provided that Erie would pay the damages "that the law entitles" them to, so the major question for the court was which law applies. Erie argued that the claim should proceed under contract law and should therefore be decided under the law of the state where the contract was executed - Maryland. The Heffernans argued that underinsured motorist claims involve both contracts and torts, so contract law should apply to some parts of the action and tort law to other parts.

The court agreed with the Heffernans.

"We conclude, pursuant to Maryland law, that an action by an insured against his insurance company for uninsured motorist benefits is a contract action," Judge Clayton Greene Jr. wrote for the court. "Although principles of lex loci contractus [law of the place where the contract was executed] apply to contract disputes, because the uninsured motorist statute and the insurance policies, by the incorporation of the phrase 'entitled to recover,' references tort law, the substantive tort law of where the accident occurred applies, generally, to the issues of fault and damages."

Judge Irma S. Raker joined in the judgment but not the opinion.

Andrew Janquitto and Samuel H. Paavola, who handled the case for the Heffernans, praised the court's holding.

"Erie had argued that the court should establish a choice-of-law rule that would only apply to uninsured motorist coverage-" said Janquitto, of Towson law firm Mudd, Harrison & Burch LLP. "Had the court accepted that proposition, it would have had far-reaching implications, and particularly Maryland's cap on damages would apply regardless of where the accident happened, and Maryland contributory negligence would apply regardless of where the accident happened."

Barring a motion for reconsideration, the case will now return to federal court, where the parties are in the discovery stage.

Charles E. Wilson Jr., who handled the case for Erie, did not return calls for comment.

According to the opinion, 17-year-old Mallory Heffernan and two friends were driving back to Maryland after attending a nighttime concert in Pennsylvania. Erie alleges that Mallory called her parents during the drive and asked if she could stay overnight with friends because she and the driver were very tired. Erie claims, but the Heffernans deny, that they told their daughter she had to be home that night.

In Delaware, the driver, John McMahon Jr., apparently fell asleep. His car collided with a tractor-trailer, killing Mallory.

The driver was an underinsured motorist under the terms of the Heffernans' policy with Erie. The driver's insurance company offered to pay the Heffernans the limit on the driver's policy, which was $35,000. Erie approved the settlement and waived subrogation, the right to try and collect from the negligent driver.

The Heffernans sued Erie in Baltimore City Circuit Court, seeking damages under the underinsured motorist portion of their policy. The case was removed to federal district court, where Judge Catherine C. Blake certified the choice-of-law questions to the Court of Appeals.

In addition to deciding that Delaware law applies to the Heffernans' breach of contract action against Erie, the Court of Appeals held that Maryland's statutory cap on non-economic damages is not critical enough to the state's public policy to override the fact that Delaware law controls.

"This Court is not persuaded that allowing the Heffernans, or others similarly situated, potentially to recover the full amount of the benefits, for which they contracted, will impact significantly the availability or affordability of liability insurance in the State of Maryland," Greene wrote.

Erie had also contended that Maryland's contributory negligence standard - which dictates that an injured person who somehow contributed to the injury cannot recover anything in a tort claim - was such a significant public policy that adherence to it should override the controlling Delaware law. But the top court dismissed that argument as well, holding that, since Erie had signed off on the Heffernans' settlement with the underinsured driver, contributory negligence is no longer a valid defense.

"We conclude that because Erie approved the Heffernans' settlement with the tortfeasor, Erie is bound by the terms of that settlement and, therefore, the underlying tort liability is not an issue in this breach of contract case," Greene wrote.

WHAT THE COURT HELD

Case:

Erie Insurance Exchange v. Heffernan, Misc. No. 2, Sept. Term 2006. Certified question from the U.S. Dist. Ct. for the Dist. of Maryland. Reported. Opinion by Greene, J. Filed Apr. 10, 2007.

Issues:

(1) In a claim for benefits under the uninsured/underinsured provisions of a car insurance policy executed in Maryland, where the accident occurred in Delaware, should Maryland or Delaware law apply to determine what the claimants are "entitled to recover"? (2) If Delaware governs the tort issues in this case under lex loci delicti, would Maryland's public policy exception to that doctrine nonetheless require application of Maryland's statutory cap on non- economic damages and Maryland's contributory negligence principles?

Holding:

Delaware law on (1), no on (2). Even though the action sounds in contract, the contract references tort law. Therefore, Delaware tort law controls. The public policy exception does not apply.

Counsel:

Charles E. Wilson Jr. for appellant; Andrew Janquitto for appellees.

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