Named Driver Exclusion Is Void In Commercial Auto Policies

In Zelinski v. Townsend, the Maryland Court of Special Appeals said that the named driver exclusion is void in a commercial auto policy. 

Interestingly, Harleysville, which was the insurer, had filed a declaratory judgment action in the U.S. District Court for the District of Maryland, to establish that it had no duty to defend or indemnify, based on the named driver exclusion.  The declaratory judgment action resulted in a finding that Harleysville was relieved of any obligation to defend or indemnify claims arising out of the accident in question.  However, the claimants in the underlying tort action were not made a party to the declaratory judgment action.

Meanwhile, in the underlying tort suit, there was a three day jury trial which resulted in a $6 million verdict.  The tort claimants then had a writ of garnishment issued against Harleysville Ins. Co.

Harleysville moved to dismiss the writ of garnishment, on the grounds that it had already received a judgment stating that it had no duty to defend or indemnify that claim.  The trial court granted Harleysville's motion.

On appeal, the Court of Special Appeals found that the trial court erred in dismissing the writ of garnishment, stating as follows:

It is well settled that, in a declaratory judgment action
initiated by an insurance company that seeks to be “relieved of
any duty to defend or indemnify” its insured against claims
arising out of an accident caused by the insured’s negligence,
the insured is not in privity with a victim of the insured’s
negligence. Therefore, because appellants were not parties to
the federal declaratory judgment action, there is no merit in the argument that the writ of garnishment was properly quashed on the ground of either res judicata or collateral estoppel.

The opinion does not give any details about the timing of these events, but it seems to be a very strange result , assuming that the judgment in the DJ action was handed down before the judgment in the underlying tort action.  Without doing any legal research, here is my seat of the pants view: 

Maryland is not a direct action state, and a third party tort claimant cannot bring suit directly against a tortfeasor's insurer until the claimant has received a judgment and it has gone unsatisfied.  Therefore, it seems to me that the claimants had no rights to, or interest in, the Harleysville policy until they had secured a judgment, and that they were not necessary parties to the DJ action. 

Further, after Harleysville had obtained a judgment in the DJ action that it had no obligation to defend or indemnify Townsend, the at-fault driver, he then had no right or interest in the Harleysville policy, and the claimants by taking a judgment against Townsend could not accede to rights to the policy greater than the rights that Townsend had. 

Or, to put it another way, the claimants cannot file a writ of garnishment against nonexistent insurance coverage.  A writ of garnishment can only attach property rights of the judgment debtor as they exist at the time the judgment is entered, and Townsend had no rights in that policy.

Instead of going through that kind of analysis, the Court simply rejects the notion that the federal court's judgment had a res judicata or collateral estoppel effect against the claimants.  I think that is missing the real issue.

Now, it may be that the trial court granted the motion to dismiss the writ of garnishment on res judicata or collateral estoppel grounds, although the opinion does not say that directly.  Further, it may be that the Court of Special Appeals regarded the motion to dismiss as a motion for summary judgment, because extraneous matters were considered, and that it could not affirm on grounds other than those considered by the trial court -- although the opinion does not say that either. Alternatively, it may be that the judgment in the DJ action was entered subsequent in time to the verdict in the underlying tort action -- but as I already pointed out, the opinion does not disclose the timing of these events either.

In the Maryland Daily Record, dated July 13, the lead counsel for the tort claimants is quoted as saying that "The most important part of this case in the long run is the very first part of the decision", which is what is discussed above.   That may be true, if it were possible to figure out what the Court of Special Appeals really decided here.   

I think in practice the decision will be easily distinguished.

Harleysville has a difficult decision to make as far as whether to file a petition for cert. to the Court of Appeals on this.  On one hand, they prevailed in a DJ action concerning coverage, and it must really stick in their craw to have that result disregarded by the Court of Special Appeals in such an offhand manner.  On the other hand, the Court of Special Appeals persuasively shows that the limited driver exclusion is void in a commercial motor vehicle policy.  Harleysville would be in the position of arguing to the Court of Appeals that the federal court's judgment should be determinative of the coverage question, even though it was (perhaps) wrongly decided and against the public policy of Maryland.  The result could be an even worse precedent.