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Greenvall v. Maine Mutual Fire Ins. Co.
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Decision:		1998 ME 204
Docket:		Ken-97-756
On Briefs:		June 15, 1998		
Decided :		August 6, 1998		


JERALD E. GREENVALL, Personal Representative of the Estate of Carla Madore v. MAINE MUTUAL FIRE INSURANCE COMPANY

	[¶1]	 Jerald E. Greenvall, the personal representative of the estate of
Carla Madore, appeals from a summary judgment entered in the Superior
Court (Kennebec County, Alexander, J.) in favor of Maine Mutual Fire
Insurance Company (Maine Mutual) on his complaint asserting breach of
contract, bad faith and late payment claims.  We agree with Greenvall's
contention that there is a genuine issue of material fact on the breach of
contract claim, and therefore we vacate the judgment on Count I of the
complaint.  We affirm the judgment on Counts II and III of the complaint. 
	[¶2]  The following material facts are undisputed.  On or about
February 11, 1995, Carla Madore died as a result of injuries sustained when
her car collided with a truck driven by James Donahue.   At the time of
accident, Madore was insured under an automobile liability policy issued by
Maine Mutual which provided Madore with $300,000 of uninsured motorist
coverage.{1}  Donahue was insured under a policy issued by Maryland Casualty
Insurance Company (Maryland Casualty) with a bodily injury limit for liability
coverage of $100,000.  Pursuant to the medical payments provision of
Madore's policy, Maine Mutual paid $4,939 to Madore's estate for funeral
expenses.   Maine Mutual then notified Maryland Casualty that Maine Mutual
was subrogated to the estate's claim for the funeral expenses.  
	[¶3]  In January 1996, Maryland Casualty paid $100,000 to Madore's
estate.  In consideration of the payment, Greenvall executed a release of
claims against Maryland Casualty, James Donahue, and Linda Donahue.{2}  The
release provided that "it [was] intended to release not only all claims against
[Maryland Casualty, James Donahue, and Linda Donahue] but also that portion
of any claim against any other person for which such other person may make
claim against [Maryland Casualty, James Donahue, and Linda Donahue] for
contribution, indemnification, subrogation or otherwise."  The estate did not
obtain Maine Mutual's consent prior to the settlement.  The attorney for the
estate notified Maine Mutual of the settlement and stated that the estate
would accept $200,000 (the difference between the $300,000 uninsured
coverage in the Maine Mutual policy and the $100,000 liability coverage in
the Maryland Casualty policy) in full settlement of the estate's claim.  
	[¶4]  After settlement negotiations failed, the estate filed a complaint
against Maine Mutual, asserting claims for breach of contract (Count I), bad
faith (Count II), and violation of 24-A M.R.S.A. § 2436 (1990), the late
payment statute (Count III).  Following a hearing on the parties' cross-
motions for summary judgment, the court found that Greenvall had
"released the claims that he might bring against the [underinsured motorist]
carrier and, there is no outstanding unpaid judgment[.]"  Based on these two
findings, the court concluded that there could be no breach of the Maine
Mutual policy.  The court also concluded that Greenvall would "be held to
the words which he agreed to and the benefits of his bargain which include
termination of any action to recover, based on the tortfeasor's negligence,
against the underinsured carrier."   Finally, the court held that there was no
violation of the late payment statute, since Maine Mutual's payment
obligation had been released.  From the summary judgment in favor of Maine
Mutual, Greenvall filed this appeal.  
	[¶5]  The entry of a summary judgment is proper "if the pleadings,
depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, referred to in the statements required by
[M.R. Civ. P.] 7(d) show that there is no genuine issue of material fact in
dispute and the moving party is entitled to judgment as a matter of law." 
M.R. Civ. P. 56(c).  On appeal from a grant of summary judgment, we view
the evidence in the light most favorable to the nonprevailing party, and
review the trial court decision for errors of law.  See Jacques v. Pioneer
Plastics, Inc., 676 A.2d 504, 506 (Me. 1996).  "We independently determine
whether the record supports the conclusion that there is no genuine issue
of material fact and that the prevailing party is entitled to a judgment as a
matter of law." Id.  
I. Breach of Contract
	[¶6]  The Maine Insurance Code requires that all automobile liability
policies issued or delivered for issuance in this State contain:
coverage . . . for the protection of persons insured thereunder
who are legally entitled to recover damages from owners or
operators of uninsured, underinsured or hit-and-run motor
vehicles, for bodily injury . . . including death, resulting from
the ownership, maintenance or use of such uninsured,
underinsured or hit-and-run motor vehicle.
24-A M.R.S.A. § 2902(1) (1990 & Pamph. 1997) (emphasis added).  In
compliance with section 2902(1), the policy issued to Madore provided that
Maine Mutual would pay Madore or her legal representative for damages that
she was "legally entitled to recover" from an owner or operator of an
uninsured motor vehicle.{3}  This appeal presents an issue closely related to
one we expressly declined to decide in Wescott v. Allstate Ins., 397 A.2d
156 (Me. 1979), namely "whether an insured has the right to bring a direct
action against her insurer" without first proceeding against the uninsured
tortfeasor.  See id. at 161 n.4.  
	[¶7]  The purpose of section 2902 is to permit an insured the same
recovery that would have been available to her had the tortfeasor been
insured to the same extent as the insured.  See Tibbetts v. Maine Bonding &
Cas. Co., 618 A.2d 731, 734 (Me. 1992).  To effectuate this intent, we
construe section 2902 "liberally in favor of the insured victim and strictly
against the insurer . . . ."  Wescott, 397 A.2d at 169.  Any ambiguity in the
phrase "legally entitled to recover"  must be construed in favor of the
insured.  See Reese v. Preferred Risk Mut. Ins. Co., 457 S.W.2d 205, 208
(Mo. Ct. App. 1970).   The uninsured motorist coverage provision in the
policy issued to Madore states that Maine Mutual "will pay under this
coverage only after the limits of liability under any applicable bodily injury
liability bond or policy have been exhausted by payment of judgments or
settlements."  (emphasis added).  At a minimum, this language implies that
a judgment against the underinsured tortfeasor is not the only means of
triggering Maine Mutual's contractual obligation.  Moreover, because the
insured's legal entitlement to recovery against the underinsured motorist
and the insurer's contract liability can be resolved in a single action,
considerations of judicial economy militate against requiring a judgment
against the underinsured tortfeasor before suit may be brought against the
insurer.  See State Farm Mut. Auto. Ins. Co. v. Griffin, 286 So.2d 302, 306
(Ala. Civ. App. 1973).{4}  
	[¶8]  The majority of jurisdictions hold that an insured may be
"legally entitled to recover" from an underinsured motorist without
obtaining a judgment against that motorist.  See, e.g., Swift v. Dairyland Ins.
Co., 547 N.W.2d 147, 151 (Neb. 1996); State Farm Mut. Auto Ins. Co. v.
Shrader, 882 P.2d 813, 821 (Wyo. 1994); see also 9 Lee R. Russ & Thomas F.
Segalla, Couch on Insurance § 123:17 at 123-43, -44 (3d ed. 1997) ("In the
context of an uninsured motorist claim, 'legal entitlement' does not mean
'judgment;' rather, the insured must demonstrate fault by the tortfeasor and
the extent of damages, but is not required to obtain a judgment against the
tortfeasor . . . .") (footnotes omitted); 8C John A. Appleman & Jean Appleman,
Insurance Law & Practice § 5089 at 336 (1981) ("The majority of
jurisdictions do not make the procuring of such a judgment a mandatory
condition precedent to enforcing one's rights under the policy.").  In the
past, we have assumed that a judgment against the tortfeasor was not a
precondition to the insured's right to recover uninsured or underinsured
motorist benefits.  See, e.g., Skidgell v. Universal Underwriters Ins. Co.,
1997 ME 149, 697 A.2d 831; Cobb v. Allstate Ins. Co., 663 A.2d 38 (Me.
1995).  Although there are states that do require a judgment,{5} we join those
jurisdictions that hold that obtaining a judgment against the tortfeasor is not
the insured's sole means of establishing legal entitlement to recover for
purposes of uninsured motorist coverage.{6} 	
	[¶9]  Maine Mutual contends that Greenvall's settlement with
Donahue and his insurer and the release of all claims arising out of the
accident barred recovery pursuant to the uninsured motorist coverage in the
Maine Mutual policy.  Despite disavowing any intention to rely on Greenvall's
breach of the "no consent to settlement" clause,{7} Maine Mutual's
fundamental position is that the release prejudiced its subrogation rights,
which the "no consent to settlement" clause is designed to protect.  See
Wescott, 397 A.2d at 168.
	[¶10]  In Wescott, the plaintiff was injured when the car she was
riding in collided with an uninsured automobile.  After settling with the
driver's insurance company, the plaintiff sought additional compensation
from her insurance carrier pursuant to the uninsured motorist coverage in
her policy.  We rejected the insurer's attempt to rely on the "no consent to
settlement" clause as a defense to the plaintiff's action:
	Insofar as the clause restricts the insured's right to
compromise and settle his claim against financially responsible
motorists who might be liable to him, it is contrary to the
purpose of the statute, is against public policy and
unenforceable. To permit third party settlements to work a
forfeiture of the uninsured motorist protection would destroy
the very purpose which the Legislature sought to achieve, i. e.
financial responsibility up to policy limits to the extent of the
satisfaction of such damage as the insured is legally entitled to
recover from an uninsured motorist.  We agree with such
	We believe the reasoning of those courts which reject
such liability limiting clauses as the no-consent-to-settlement
exclusion is more in line with the policy and purpose of
Maine's uninsured vehicle coverage statute.  Hence, we hold
that the no-consent-to-settlement exclusion clause contained
in the Allstate-Wescott policy is no defense where the insured
settled with a person other than the uninsured tortfeasor.
Wescott, 397 A.2d at 167-68 (citations omitted) (footnote omitted).  We
expressly declined to determine the enforceability of such a clause when the
insured settles with and releases the uninsured tortfeasor.  See id. at 167
n.8; see also Hare v. Lumbermens Mut. Cas. Co., 471 A.2d 1041, 1043 n.2 
(Me. 1984).  Later, in Bazinet v. Concord Gen. Mut. Ins. Co., 513 A.2d 279
(Me. 1986), we noted "the split of authority on the question whether
insurers may rely on 'no-consent to settlement' clauses to deny coverage to
insureds who settle with an uninsured motorist tortfeasor without consent." 
Id. at 281-82.  We further observed that "[t]he purpose of such clauses,
however, is almost exclusively to protect the insurer's subrogation rights
against the party released.  When the insurer's subrogation rights are
unaffected by the settlement, courts may not permit such clauses to defeat
the claims of insureds."  Id. at 282 (citations omitted). 
	[¶11]  The better view, held by many courts, is that a successful
invocation of the "no consent to settlement" clause defense requires the
insurer to demonstrate prejudice from the insured's failure to obtain the
insurer's consent before settling with the tortfeasor.  See, e.g., Galinko v.
Aetna Cas. & Sur. Co., 432 So.2d 179 (Fla. Dist. Ct. App. 1983) (appyling
North Carolina law); MacInnis v. Aetna Life & Cas. Co., 526 N.E.2d 1255
(Mass. 1988); Sorensen v. Farmers Ins. Exch., 927 P.2d 1002 (Mont. 1996). 
As one leading commentator notes: 
	There is now a significant body of judicial precedents for
the proposition that in order to justify foreclosing an insured's
right to indemnification from an otherwise applicable
underinsured motorist insurance coverage, an insurer must
show that it was prejudiced by the settlement of the tort claim. 
3 Alan I. Widiss, Uninsured and Underinsured Motorist Insurance § 43.5 at
346-47 (2d ed. 1995); but see Stevens v. Merchants Mut. Ins. Co., 599 A.2d
490, 492-93 (N.H. 1991) (holding that no consent to settlement clause is
enforceable without showing of prejudice to insurer); see generally
Annotation, Validity, Construction, and Effect of "No-Consent-To-
Settlement" Exclusion Clauses in Automobile Insurance Policy, 18 A.L.R.4th
249 (1982 & Supp. 1997).  "If [Maine Mutual] had no right to withhold its
consent from the settlement, then it could suffer no prejudice from
[Greenvall's] failure to seek that consent."  MacInnis, 526 N.E.2d at 1259. 
Where the tortfeasor has no substantial assets, the insurer must consent to a
proposed settlement and then pay the insured whatever amounts are due
under the policy.  Id. at 1259-60.  "The settlement terminates the insurer's
repayment claim against the tortfeasor, but causes no prejudice because the
tortfeasor has no remaining substantial assets with which to reimburse the
insurer."  Id. at 1260.  The essential rationale of the majority rule is that:
A judgment against [an impecunious tortfeasor] would not have
been worth the paper it was printed on and no reasonable
person would have expended the costs, let alone the attorney's
fees, it would have required to get it. When [insurer] lost the
opportunity to secure the judgment, it lost nothing.  Under our
law, a technical and illusory "loss" of this kind cannot result in
the forfeiture of insurance coverage.
Southeastern Fidelity Ins. Co. v. Earnest, 395 So.2d 230, 231 (Fla. Dist. Ct.
App. 1981). 
	[¶12]  This majority rule is not only persuasive, but also consistent
with our own insurance law jurisprudence.  In several related contexts, we
have held that an insurer must demonstrate prejudice before relying on the
insured's breach of a policy provision to deny coverage.  See, e.g., Marquis v.
Farm Family Mut. Ins. Co., 628 A.2d 644, 650 (Me. 1993) (holding that
insurer must "demonstrat[e] prejudice before it is relieved from its
obligation to pay based on the insured's request to delay an examination
under oath."); Ouellette v. Maine Bonding & Cas. Co., 495 A.2d 1232, 1235
(Me. 1985) (insurer must show breach of notice provision and resultant
prejudice).  We now extend that rule:  When an insured settles with an
underinsured tortfeasor, the insurer must demonstrate prejudice as a result
of the loss of subrogation rights before the insurer may deny recovery under
the policy.  See MacInnis, 526 N.E.2d at 1260-61.  
	[¶13]  Whether Maine Mutual was prejudiced by the loss of
subrogation rights against Donahue is a genuine issue of material fact that
precludes the entry of a summary judgment.  See Marsh v. Prestige Ins.
Group, 374 N.E.2d 1268, 1269 (Ill. App. Ct. 1978); Ouellette, 495 A.2d at
1235.   Here, Greenvall's statement of material facts indicates that the
attorney for the estate conducted an investigation into Donahue's financial
situation; that the investigation confirmed that Donahue lacked significant
assets, but did have substantial credit card debt; that Donahue owned no real
property in the State; and that Donahue was working only part-time and did
not have "significant income or assets."  Viewed in the manner most
hospitable to Greenvall, this evidence created a genuine issue of material
fact concerning the value of any subrogation rights that Maine Mutual lost as
a result of the release.  A summary judgment on Greenvall's breach of
contract claim was entered in error.{8}    
II. Bad Faith and Late Payment Statute Violations
	[¶14]  Greenvall argues that the court erred as a matter of law by
entering judgment in favor of Maine Mutual on the estate's bad faith claim.  
Although we have previously "refuse[d] to recognize an independent tort of
bad faith resulting from an insurer's breach of its duty to act in good faith
and deal fairly with an insured[,]"  Marquis v. Farm Family Mut. Ins. Co., 628
A.2d 644, 652 (Me. 1993), the third count of Greenvall's complaint sets
forth a freestanding claim for "bad faith."  In Marquis, we noted that an
insurer's duty of good faith and fair dealing arises from an implied covenant
in the insurance contract, and limits "an insured's remedies for breach of
the duty to the traditional remedies for breach of contract, and the
additional statutory remedies provided in the insurance code."  Id.   Even
viewed in the light most favorable to Greenvall, the evidence was insufficient
to establish that Maine Mutual breached its contractual duties by acting in
bad faith or unfairly.  Cf. Chiapetta v. Lumbermens Mut. Ins. Co., 583 A.2d
198, 202 (Me. 1990).
	[¶15]  Finally, contrary to Greenvall's contentions, the trial court did
not err by granting judgment to Maine Mutual on Greenvall's late payment
claim.  Maine Mutual's obligations pursuant to the late payment statute, 24-A
M.R.S.A. § 2436(1) (1990), arise only after ascertainment of the loss is
made.  There is no evidence in the record of such ascertainment, either by
agreement or arbitration award, and certainly the claim was disputed. 
Accordingly, the trial court did not err as a matter of law by granting a
summary judgment to Maine Mutual on the late payment claim.  See Baybutt
Constr. Corp. v. Commercial Union Ins. Co., 455 A.2d 914, 917  (Me. 1983).
	The entry is:
Judgment vacated in part, affirmed in part. 
Remanded for further proceedings consistent
with this opinion.

Attorney for plaintiff: Kevin J. Beal, Esq. Preti, Flaherty, Beliveau & Pachios, LLC P O Box 9545 Portland, ME 04112-9545 Attorney for defendant: William J. Kelleher, Esq. 7 East Crescent Street Augusta, ME 04330-7433
FOOTNOTES******************************** {1} The term "uninsured motorist coverage" refers to the coverage mandated by 24-A M.R.S.A. § 2902(1) (1990 & Pamph. 1997). {2} Linda Donahue is the owner of the vehicle James Donahue was driving at the time of the accident. {3} The Maine Mutual policy defines "uninsured motor vehicle" to include a motor vehicle "[t]o which a bodily injury liability . . . policy applies at the time of the accident" provided the "limit for bodily injury liability [is] less than" the uninsured motorist coverage in the Maine Mutual policy. See also 24-A M.R.S.A. § 2902(1) (defining "underinsured motor vehicle"). {4} The parties have not raised the issue and we do not decide whether the tortfeasor is an indispensable party in the insured's action against its insurer to recover pursuant to uninsured motorist coverage. {5} See, e.g., State Farm Mut. Auto. Ins. Co. v. Lorenz, 413 S.E.2d 782, 784 (Ga. Ct. App. 1991) (holding that a judgment against a known uninsured motorist is a condition precedent to the insured's action to recover pursuant to uninsured motorist coverage); United Serv. Auto. Ass'n v. Nationwide Mut. Ins. Co., 241 S.E.2d 784, 788 (Va. 1978) ("[The insured] could not have sued [her uninsured motorist carrier] on her policy until she had obtained a judgment against the tort-feasor."). {6} We recognize that language in Simpson v. Hanover Ins. Co., 588 A.2d 1183 (Me. 1991), suggests a result contrary to the one we reach here. In that case, we held that the trial court did not err by waiving the insurer's liability for pre-judgment interest when that interest would have increased the insurer's liability beyond the coverage provided in the contract. See id. at 1186-87. In rejecting the insured's attempt to distinguish Nunez v. Nationwide Mut. Ins. Co., 472 A.2d 1383 (Me. 1984), we observed that "the insurance contract[ ] provided that the insurer would not be obligated to pay until such time as a judgment was rendered against the tortfeasor . . . ." Simpson, 588 A.2d at 1186. To the extent this quoted language implies that a judgment against the tortfeasor is a condition precedent to recovery under uninsured motorist coverage, we decline to follow it. We hasten to point out, however, that the insured, in a direct action against the insurer, must demonstrate "legal entitlement" to recover against the tortfeasor. See 3 Alan I. Widiss, Uninsured and Underinsured Motorist Insurance § 34.1 at 106 (2d ed. 1995). Professor Widiss writes: Thus, in order to prevail against an insurance company when there is a dispute about whether a claimant is "legally entitled to recover," the insured is in a position comparable to that which would have existed if the tortfeasor had been covered by liability insurance in the amount of the applicable underinsured motorist coverage and a suit asserting the tort claim had been brought against the alleged tortfeasor. Id. {7} The "no consent to settlement" clause in the policy reads as follows: "We do not provide Uninsured Motorist Coverage for 'bodily injury' sustained by any person . . . [i]f that person or the legal representative settles the 'bodily injury' claim without our consent." {8} Maine Mutual also advances an additional argument that requires but brief comment. According to Maine Mutual, the release and the acceptance of the settlement payment from Maryland Casualty by Greenvall each constitutes an "accord and satisfaction" of all of the estate's claims, including claims against Maine Mutual pursuant to the policy. "[A]n accord 'is a contract under which an obligee promises to accept a substituted performance in future satisfaction of the obligor's duty.'" Stultz Elec. Works v. Marine Hydraulic Eng'g Co., 484 A.2d 1008, 1011 (Me. 1984) (quoting Restatement (Second) of Contracts § 281 (1981)). Maine Mutual was not a party to this settlement and did not provide consideration for the release executed by Greenvall. Maine Mutual is not entitled to enforce the release against Greenvall.