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REPORTED

IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 2149 September Term, 2001

MARYLAND AUTOMOBILE INSURANCE FUND v. LUMBERMEN'S MUTUAL CASUALTY COMPANY, ET AL.

Eyler, James R., Adkins, Smith, Marvin H., (Retired, Specially Assigned) JJ.

Opinion by Adkins, J.

Filed: December 24, 2002

In Queens, New York, in August 1998, a 1993 Lexus owned by Natecha Tyme, and operated at the time by Devon Guthrie, collided with a vehicle driven by Kenneth McBride. At the time of the

accident, McBride's vehicle was insured by Lumbermen's Mutual Casualty Co. ("Lumbermen's"), appellee. Tyme's vehicle, on the

other hand, was insured by the Maryland Automobile Liability Insurance Fund ("MAIF"), appellant. After the accident, McBride

submitted a claim to MAIF for losses sustained during the accident. Through an investigation commencing before the accident, and extending thereafter, substantial questions were raised about

Tyme's status as a Maryland resident.

Accordingly, MAIF issued a

letter on January 5, 1999, notifying Tyme that her policy "ha[d] been voided back to the inception date," pursuant to Md. Code (1997, 2002 Repl. Vol.), section 20-502(e) of the Insurance Article ("IN"). Because of the voiding of the policy, McBride was unable to recover from MAIF, so he sought compensation from Lumbermen's under his uninsured motorist coverage with that company. Thereafter,

Lumbermen's filed a complaint in the Circuit Court for Anne Arundel County, asking the court to "enter a declaratory judgment finding a valid policy of insurance with MAIF insuring the Tyme vehicle." MAIF appeals from entry of such a declaratory judgment in favor of Lumbermen's, raising the following issue: Can a MAIF policy be voided ab initio than 60 days after its issuance, when applicant intentionally misrepresented residence status in order to meet more the her the

statutory eligibility requirements set forth in IN section 20-502? We answer this question in the affirmative, and hold that the legislature has declared any policy obtained through intentional misrepresentation void ab initio, regardless of when the

misrepresentation is discovered by MAIF. Therefore, we reverse the judgment of the circuit court. FACTS AND LEGAL PROCEEDINGS Tyme first secured insurance with MAIF on November 6, 1996. On her application, Tyme listed her address as "8001 Crabtree Place, Gaithersburg, MD." She also listed home and work telephone Tyme further represented that At the bottom

numbers with Maryland area codes.

she was a "home attendant" at "Potomac Home Care."

of the application, Tyme certified in the "applicant eligibility statement" that she was a Maryland resident or was "otherwise eligible" for insurance with MAIF. The vehicle insured under the

1996 policy was a 1994 Toyota 4 Runner. The 1996 policy was subsequently terminated in 1997 for alleged non-payment of premiums. Soon thereafter, Tyme filled out

another application for insurance with MAIF, and a second policy was bound on August 26, 1997. on her 1996 application. Toyota 4 Runner. Tyme repeated the information given

The 1997 policy also insured the 1994

A second vehicle, the 1993 Lexus involved in the

accident that lies at the heart of this case, was added to the 1997 policy on May 27, 1998. Both the 1996 and 1997 policies were bound 2

by Charles L. Baum, a MAIF producer. In its answer to Lumbermen's complaint seeking a declaratory judgment as to the validity of Tyme's MAIF policy, MAIF asserted that "the policy issued to Natecha Tyme was voided ab initio." Both parties moved for summary judgment.1 After the September 25

hearing on the motions, the circuit court granted Lumbermen's motion, concluding that the voiding of Tyme's policy had been "ineffective insofar as liability claims asserted against Tyme by third parties are concerned," and that MAIF "d[id] have liability insurance coverage for the vehicle owned by Natecha Tyme . . . for the motor vehicle accident" at issue.2 DISCUSSION In 1972, the legislature passed amendments to the motor vehicle law, for the first time mandating motor vehicle insurance.3 See Van Horn v. Atlantic Mut. Ins. Co., 334 Md. 669, 680 (1994). "The provisions for compulsory insurance on every Maryland MAIF appealed.

automobile were made feasible by the creation of MAIF as an insurer

In arguing their respective motions for summary judgment, the parties assumed arguendo that, to obtain a MAIF policy, Tyme misrepresented her state of residence, as well as other information material to her eligibility. We too will so assume in reviewing the circuit court's decision to grant summary judgment in favor of Lumbermen's. The specific reasons given by the court for its decision will be discussed later in this opinion. The amendments became effective on January 1, 1973. Horn v. Atlantic Mut. Ins. Co., 334 Md. 669, 680 (1994). 3
3 2

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See Van

of last resort."

Id. at 684; see also Nat'l Grange Mut. Ins. Co.

v. Pinkney, 284 Md. 694, 703-4 (1979)(purpose of MAIF is to provide automobile insurance coverage to individuals who may not otherwise be able to obtain insurance). This case concerns whether a MAIF

policy is rendered void ab initio if, at any time after policy issuance, MAIF discovers that the policy was obtained through intentional misrepresentation by the policyholder in his or her policy application. In 1994, the Court of Appeals answered this question as it pertained to private insurers and their policies. Before the

adoption of the 1972 amendments, insurers enjoyed a common law right to void ab initio a motor vehicle insurance policy for fraud in the application - i.e., when the applicant had made a material misrepresentation in the policy application. See Van Horn, 334 Md. at 679. In deciding whether this common law right had been

abrogated by the 1972 amendments, the Court considered the main public policy objective of the amendments. According to the Court, "[t]hat objective was to ensure, as far as practicable, that there would be continuous insurance policy coverage, or approved selfinsurance, accidents." applicable to injuries incurred in automobile

Id. at 680 (citing Pennsylvania Nat'l Mut. Cas. Ins. It noted that, while instituting

Co. v. Gartelman, 288 Md. 151, 154 (1980)). the 1972 amendments added statutory

provisions

mandatory motor vehicle insurance, and creating MAIF to carry out 4

that mandate, it also repealed the former Maryland Automobile Insurance Plan for Assigned Risks ("the Plan"). This assigned risk plan was designed to aid drivers in obtaining policies from private insurers in pre-MAIF times. See id. at 683. One of the provisions

of the Plan stated that an otherwise eligible applicant could not be refused coverage, or have his or her coverage cancelled for underwriting reasons, unless the applicant had made a "material misrepresentation in procuring the insurance," in which case the insurer could void the policy from the date of its inception. In

other words, the former statute expressly recognized an insurer's common law right to void ab initio a policy for fraud. The Court

found significant the fact that the legislature did not include a comparable provision preserving this right of rescission in its 1972 amendments. See id. at 684.

In holding that a private insurer's common law right to void ab initio a fraudulent policy indeed was abrogated by the adoption of the 1972 amendments, the Court of Appeals forcefully stated that "[r]ecognition of a common law contract right to void a motor vehicle insurance policy ab initio is utterly inconsistent with" the legislative purpose of the compulsory insurance provisions of the amended statute. See id. It also found the recognition of

such a right of retroactive termination inconsistent with the amended statute's policy termination procedures, "which permit only prospective cancellation, require that the insurance policy stay in

5

force

if

the

cancellation

is

protested,

and

contemplate

the

availability of an insurance policy from MAIF if the cancellation goes into effect, thereby guaranteeing continuous motor vehicle insurance coverage." Id. at 685. The Court noted that its

conclusion was consistent with that of other compulsory motor vehicle insurance jurisdictions that had addressed the issue. id. at 687. See

The Court of Appeals' decision relied heavily on the

existence of MAIF as an insurer of last resort, an entity that was "waiting in the wings" to insure an individual should his or her private insurance be terminated.4 Although the Court of Appeals' decision in Van Horn answered the question at issue in this case as to private insurers and their policies, no court yet has addressed whether MAIF policies are void ab initio because of a misrepresentation in the policy application. Thus, we tread in new territory in resolving this appeal. MAIF asserts that the circuit court erred in concluding that the policy remained effective as it pertained to third party claims. Lumbermen's argues that the court acted properly in Before we outline the parties' arguments in shall set forth the background material

imposing liability. any more detail, we

relevant to our analysis.

It is important to note that the Court of Appeals only reached the abrogation question as it pertained to third party claims, and expressly reserved decision of whether an insurer could void a policy in the face of a first-party claim by the policyholder. See Van Horn, 334 Md. at 693 n.8. 6

4

I. Relevant Authorities A. 1973 Attorney General's Opinion The first relevant authority interpreting the statute at issue was a 1973 opinion of the Maryland Attorney General ("1973

Opinion"). the 1973

See 58 Md. Op. Att'y Gen. 427 (1973). Opinion, the MAIF statute featured

At the time of the following

cancellation provision, which is retained in the current statute as IN section 20-509(e): (e) Cancellation of coverage - Grounds.

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Maryland Law