Title: Clay v. GEICO

State: maryland

Issuer: Maryland Supreme Court

Document:

Dwayne Clay, M.D., P.C. t/a 1st Priority Physical Medicine v. Government Employees
Insurance Company, No. 133, September Term, 1998.
[Contracts - Assignments - Automobile liability policy contained nonassignability clause.
Insured assigned recovery under uninsured motorist coverage to health care provider.  Held:
Nonassignability clause is not contrary to public policy and is enforceable.]
Circuit Court for Calvert County
Case # 4-C-98-651
IN THE COURT OF APPEALS OF MARYLAND
No. 133
September Term, 1998
_________________________________________
DWAYNE CLAY, M.D., P.C. t/a
1st PRIORITY PHYSICAL MEDICINE
v.
GOVERNMENT EMPLOYEES
INSURANCE COMPANY
_________________________________________
Bell, C.J.
Eldridge
Rodowsky
        *Chasanow
Raker
Wilner
Cathell, 
JJ. 
_________________________________________
Opinion by Rodowsky, J.
_________________________________________
Filed:  October 12, 1999
*Chasanow, J., now retired, participated in the
hearing and conference of this case while an active
member of this Court but did not participate in the
decision and adoption of this opinion.
In this case a personal automobile liability insurer, in reliance on a nonassignability
clause in the policy, refused to recognize a post-accident assignment, by the injured insured
to a health care provider, of benefits payable under the policy's uninsured motorist coverage
in an amount equal to the provider's charges for health care rendered as a result of the
accident. The question presented is whether that application of the nonassignability clause
is contrary to public policy.  Within the framework of the arguments presented, we shall
answer the question "No."  
On November 11, 1995, Brenda R. Smith (Smith) was in an automobile accident in
the District of Columbia.  At the time of the accident, Smith was insured by the respondent,
Government Employees Insurance Company (GEICO).  The driver of the car that struck
Smith was uninsured at the time of the accident.  Smith was treated for her injuries by the
petitioner, Dwayne Clay, M.D., P.C. t/a 1st Priority Physical Medicine.  In lieu of payment
at the time of treatment Smith executed an "Assignment of Rights" form which did not
identify Smith's insurer.  In relevant part the assignment read: 
"For treatment provided, I hereby authorize the _____________ Insurance
Company to pay by check made out and mailed directly to:  
1st PRIORITY PHYSICAL MEDICINE
645 SOLOMON'S ISLAND ROAD, NORTH
SUITE 430
PRINCE FREDERICK, MD 20678
for the medical expense benefits allowable, and otherwise payable to me under
my current insurance policy, as payment toward the total charges for
Professional Services rendered.  This payment will not exceed my
indebtedness to the above mentioned assignee, and I agree to pay, as per my
financial arrangement.
- 2 -
     Neither Clay nor GEICO presented any evidence as to the purpose of this provision.
1
....
 
"THIS IS A DIRECT ASSIGNMENT OF MY RIGHTS AND BENEFITS
UNDER THIS POLICY AND INCLUDES ALL RIGHTS TO COLLECT
BENEFITS 
DIRECTLY 
FROM 
THE 
PATIENT'S 
INSURANCE
COMPANY."
Smith never pursued a personal injury claim against the tortfeasor, nor did she make
a claim against GEICO under the uninsured motorist benefits portion of her automobile
insurance policy.  After repeated demands for payment, Clay filed a lawsuit against Smith
for her treatment charges and obtained a judgment.  Thereafter Smith filed for bankruptcy,
scheduled her debt to Clay, and the judgment was discharged by the bankruptcy court.  
Clay subsequently demanded payment from GEICO pursuant to the "Assignment of
Rights" from Smith.  GEICO refused Clay's demand, in reliance on the nonassignability
clause contained in its automobile insurance policy with Smith. That clause reads:
"SECTION V - GENERAL CONDITIONS
....
4.  ASSIGNMENT
Assignment of interest under this policy will not bind us without our
consent."1
Following GEICO's refusal to pay, Clay, as assignee of the insured's claim, filed suit
against GEICO in the District Court of Maryland, sitting in Calvert County.  Clay sought
payment only out of the uninsured motorist benefits payable under Smith's policy.  An
- 3 -
     For reasons which do not appear in the record, Clay did not assert that the assignment
2
reached benefits payable under Smith's personal injury protection (PIP) coverage, if any.  See
Maryland Code (1997), §§ 19-505 through 19-508 of the Insurance Article.  Consequently,
the validity of a nonassignability clause, if applied to PIP benefits, is a question that is not
before us.
     Michaelson involved a life insurance policy issued on a husband and father who had
3
elected that death benefits be paid under a supplementary contract in monthly installments
to his widow and, on her death, to their children.  Upon death of the insured the insurer
issued the supplementary contract to the widow providing for payments as elected by the
insured, and further providing that the benefits accruing thereunder would not be
transferrable "'or in anyway subject to the debts of any beneficiary or payee, or to legal
process except as otherwise provided by law.'"  Id. at 531, 182 A. at 459.  After remarrying,
the widow assigned the stream of payments to the sellers of stock as security for her deferred
payment of the purchase price of the stock.  This Court affirmed the denial of an injunction
sought by the sellers of the stock to require the insurer to honor the assignment.  We
reasoned that honoring the assignment would be a breach of the contract between the insured
and the company because the contract was intended "to protect his wife and children against
any diversion of the funds ... provided for their use."  Id. at 533, 182 A. at 460.
insured's claim against the insurer based on a policy's uninsured motorist coverage is a
contract claim.  See Erie Ins. Co. v. Curtis, 330 Md. 160, 172, 623 A.2d 184, 190 (1993);
Reese v. State Farm Mut. Auto. Ins. Co., 285 Md. 548, 553, 403 A.2d 1229, 1232 (1979).2
The District Court entered judgment in favor of GEICO, holding that "the anti-
assignment clause between Brenda Smith and [GEICO] was valid, enforceable and not
waived."  That court reasoned "that Brenda Smith had no contractual right to assign any
interest she had under her policy to anyone else without GEICO's consent.  GEICO never
gave that consent.  Such clauses are valid and enforceable in Maryland[.  See] Michaelson
v. Sokolove, 169 Md. 529[, 534, 182 A. 458, 460] (1936)."3
- 4 -
Clay appealed to the Circuit Court for Calvert County, which affirmed.  Clay then
filed a petition for the writ of certiorari, which we granted.
In this Court, Clay  contends that a nonassignability clause in an automobile liability
insurance policy should not be enforceable against a health care provider who treats the
insured in return for an assignment of uninsured motorist benefits.  Clay's submission is that
accident victims should receive necessary medical treatment, but that accident victims who
lack adequate health insurance, or who are financially unable to pay, will not receive
necessary medical treatment unless they are allowed to assign the benefits available under
their automobile insurance policy.  On this reasoning Clay concludes that application of the
nonassignability clause in GEICO's policy to an assignment of uninsured motorist benefits
to a health care provider is unenforceable because it is contrary to strong public policy.
GEICO submits that, under Maryland law, parties to a contract may provide that rights
under their contract cannot be assigned.  Further, argues GEICO, there is no affront to public
policy because the nonassignability clause neither eliminates nor reduces the uninsured
motorist benefits; the clause simply limits to the insured the receipt of the benefits payable
under the policy.  In addition, if public policy requires recognizing assignments to health care
providers of uninsured motorist benefits in the face of a nonassignability clause, GEICO sees
no principled basis on which to limit the class of potential assignees, with the result that all
of the benefits payable to the insured could be exhausted by assignments to other creditors.
- 5 -
Because of the limited arguments advanced by the parties, we have no need in this
case to review general contract law on assignments.  GEICO has not argued that the
assignment executed by Smith would be ineffective to transfer to Clay an interest in
uninsured motorist benefits, absent the policy's nonassignability clause.  Clay has not argued
that, even if the nonassignability clause is valid and enforceable, operation of the clause, as
drafted, would not reach a post-accident assignment of Smith's anticipated uninsured motorist
benefits.  In other words, the sole issue in this case, as argued, is whether the
nonassignability clause is unenforceable on public policy grounds when applied to an
assignment of uninsured motorist benefits to a health care provider under the circumstances
here.  
The approach of Maryland courts to arguments, such as that advanced by Clay, that
are based upon public policy was stated in Maryland National Capital Park & Planning
Commission v. Washington National Arena, 282 Md. 588, 386 A.2d 1216 (1978), where we
said:
"Fearing the disruptive effect that invocation of the highly elusive
public policy principle would likely exert on the stability of commercial and
contractual relations, Maryland courts have been hesitant to strike down
voluntary bargains on public policy grounds, doing so only in those cases
where the challenged agreement is patently offensive to the public good, that
is, where 'the common sense of the entire community would ... pronounce it'
invalid.  This reluctance on the part of the judiciary to nullify contractual
arrangements on public policy grounds also serves to protect the public interest
in having individuals exercise broad powers to structure their own affairs by
making legally enforceable promises, a concept which lies at the heart of the
freedom of contract principle."
- 6 -
Id. at 606, 386 A.2d at 1228-29 (citations omitted).  See also Wolf v. Ford, 335 Md. 525,
532, 644 A.2d 522, 526 (1994); Anne Arundel County v. Hartford Accident & Indem. Co.,
329 Md. 677, 686-87, 621 A.2d 427, 431 (1993); Finci v. American Cas. Co.,  323 Md. 358,
376, 593 A.2d 1069, 1077-78 (1991).
This Court has also quoted with approval the following passage from Patton v. United
States, 281 U.S. 276, 306, 50 S. Ct. 253, 261, 74 L. Ed. 854, 867 (1930):
"The truth is that the theory of public policy embodies a doctrine of
vague and variable quality, and, unless deducible in the given circumstances
from constitutional or statutory provisions, should be accepted as the basis of
a judicial determination, if at all, only with the utmost circumspection.  The
public policy of one generation may not, under changed conditions, be the
public policy of another."
See Anne Arundel County v. Hartford Accident & Indem. Co., 329 Md. at 687, 621 A.2d at
432; Finci, 323 Md. at 376, 593 A.2d at 1078; First Nat'l Bank v. Fidelity & Deposit Co.,
283 Md. 228, 239, 389 A.2d 359, 365 (1978).  "'[D]eclaration of public policy is normally
the function of the legislative branch.'"  Anne Arundel County v. Hartford Accident & Indem.
Co., 329 Md. at 688, 621 A.2d at 432 (quoting Adler v. American Standard Corp., 291 Md.
31, 45, 432 A.2d 464, 472 (1981)).  Consequently, "[t]he lesser the relationship ... between
a statute and a contractual provision, the greater is the reluctance of this Court to invalidate
the provision on the basis of the public policy embraced in statute."  Finci, 323 Md. at 378,
593 A.2d at 1079.
The General Assembly first recognized the importance of uninsured motorist coverage
in 1972 when it required insurers to offer the option of buying such coverage.  See Chapter
- 7 -
73 of the Acts of 1972.  In 1975 the General Assembly required all insurers issuing, selling,
or delivering automobile insurance policies in Maryland to provide uninsured motorist
coverage in at least the amounts required under the compulsory automobile liability
insurance statute.  See Chapter 562 of the Acts of 1975.  Currently, Md. Code (1997), §§ 19-
509 through 19-511 of the Insurance Article (IA) address uninsured motorist coverage.  It is
described in § 19-509(c):
"(c)  Coverage required. -- In addition to any other coverage required
by this subtitle, each motor vehicle liability insurance policy issued, sold, or
delivered in the State after July 1, 1975, shall contain coverage for damages,
subject to the policy limits, that:
"(1)
the insured is entitled to recover from the owner or
operator of an uninsured motor vehicle because of bodily injuries sustained in
a motor vehicle accident arising out of the ownership, maintenance, or use of
the uninsured motor vehicle; and
"(2)
a surviving relative of the insured ... is entitled to recover
from the owner or operator of an uninsured motor vehicle because the insured
died as the result of a motor vehicle accident arising out of the ownership,
maintenance, or use of the uninsured motor vehicle."
Maryland's mandated uninsured motorist coverage embodies a public policy "'to
assure financial compensation to the innocent victims of motor vehicle accidents who are
unable to recover from financially irresponsible uninsured motorists.'"  Lee v. Wheeler, 310
Md. 233, 238, 528 A.2d 912, 915 (1987) (quoting Pennsylvania Nat'l Mut. Cas. Ins. Co. v.
Gartelman, 288 Md. 151, 157, 416 A.2d 734, 737 (1980)).  See also Nationwide Mut. Ins.
Co. v. Webb, 291 Md. 721, 737, 436 A.2d 465, 474 (1981) ("The courts have repeatedly
stated that the purpose of uninsured motorist statutes is 'that each insured under such
- 8 -
coverage have available the full statutory minimum to exactly the same extent as would have
been available had the tortfeasor complied with the minimum requirements of the financial
responsibility [l]aw.'" (quoting Webb v. State Farm Mut. Auto. Ins. Co., 479 S.W.2d 148, 152
(Mo. Ct. App. (1972)).  The uninsured motorist statutory plan is remedial in nature and
"dictates a liberal construction in order to effectuate its purpose of assuring recovery for
innocent victims of motor vehicle accidents."  State Farm Mut. Auto. Ins. Co. v. Maryland
Auto. Ins. Co., 277 Md. 602, 605, 356 A.2d 560, 562 (1976).  Thus, the intended direct
beneficiary of uninsured motorist coverage is the accident victim or his or her family, not
health care providers or other creditors of the insured.  Under GEICO's interpretation of the
challenged clause, it operates to place the insurance benefits in the hands of the intended
beneficiary.
In addition to uninsured motorist coverage, every automobile insurance policy issued
in Maryland must also contain PIP coverage, see IA §§ 19-505 through 19-508, unless the
coverage is waived in accordance with § 19-506.  In contrast to uninsured motorist benefits,
PIP coverage specifically provides no-fault "medical, hospital, and disability benefits" for
those "who [are] injured in a motor vehicle accident."  See IA § 19-505(a).  The main
purpose of PIP coverage "is to assure financial compensation to victims of motor vehicle
accidents without regard to the fault of a named insured or other persons entitled to PIP
benefits."  Pennsylvania Nat'l Mut. Cas. Ins. Co., 288 Md. at 154, 416 A.2d at 736.  See also
Nationwide Mut. Ins. Co. v. Seitz, 110 Md. App. 355, 362, 677 A.2d 129, 132 (1996) ("The
purpose of the PIP legislation was 'to put a limited amount of money in the hands of an
- 9 -
injured individual under certain circumstances without regard to whether another person is
liable for the injuries which the claimant sustained.'" (quoting Smelser v. Criterion Ins. Co.,
293 Md. 384, 393, 444 A.2d 1024, 1029 (1982)).  Unlike the PIP statute, the uninsured
motorists insurance statute does not specify medical treatment expenses as an object of the
coverage.  Under the latter coverage the cost of medical care is but part of the broader
spectrum of damages recoverable for personal injury.
The Maryland statute most directly addressing the credit risk that a health care
provider incurs in treating accident victims is the hospital lien law, Md. Code (1975, 1990
Repl. Vol., 1998 Cum. Supp.), §§ 16-601 through 16-605 of the Commercial Law Article
(CL).  That statute creates a lien for reimbursement, to the extent therein provided, for
medical services a hospital renders patients injured in an accident that is not covered by the
Workers' Compensation Act.  In St. Joseph Hospital v. Quinn, 241 Md. 371, 376, 216 A.2d
732, 734 (1966), we said that "[t]he obvious purpose of the Maryland [hospital] lien law was
to insure that the lawyer, the hospital and the injured person each received some share of the
amount recovered from the tort-feasor." 
"Hospital" is defined in Md. Code (1982, 1996 Repl. Vol., 1998 Cum. Supp.),
§ 19-301(f) of the Health-General Article.  It reads:
"(f)
Hospital. — 'Hospital' means an institution that:
"(1)
Has a group of at least 5 physicians who are organized as
a medical staff for the institution;
- 10 -
"(2)
Maintains facilities to provide, under the supervision of
the medical staff, diagnostic and treatment services for 2 or more unrelated
individuals; and
"(3)
Admits or retains the individuals for overnight care."
In his brief to this Court, Clay acknowledges that the hospital lien law is inapplicable
because Clay is not a hospital.  Accordingly, Clay's public policy argument lies well beyond
the boundaries of the statute that directly addresses collection by a health care provider out
of liability insurance proceeds for the cost of medical care to an accident victim.
That the costs of medical care are part of the damages for tortious personal injury and,
if incurred in an automobile accident with an uninsured motorist, are recoverable under
uninsured motorist insurance is not a basis for holding that enforcing the GEICO
nonassignability clause in the instant matter is contrary to public policy.  The relationship
between the result sought by Clay and the public policy underlying the statutes reviewed
above is far too attenuated for a court to declare the clause unenforceable in the
circumstances of this case.  Indeed, the argument advanced by Clay is not as strong as the
public policy argument that this Court rejected in Finci, 323 Md. 358, 593 A.2d 1069.  
In that case the State of Maryland Deposit Insurance Fund (MDIF), an entity specially
created by the General Assembly, was the receiver of an insolvent savings and loan
association.  MDIF had the statutory obligation to "'marshal and collect the assets and
exercise all of the powers necessary to liquidate the business affairs'" of the failed
association.  Id. at 377, 593 A.2d at 1079.  MDIF, as receiver, had obtained judgments
against former officers and directors of the thrift, based on breach of the duty of loyalty.
- 11 -
American Casualty Co. had issued an officers and directors liability insurance policy
covering the judgment debtors, and the judgment debtors assigned their claims against the
insurer to MDIF.  When MDIF, as assignee, sued on the liability policy American Casualty
Co. rejected the claim based on the policy's exclusion from coverage of loss in connection
with a claim made against officers and directors based upon an action brought by a
depository insurance organization.  Id. at 368, 593 A.2d at 1074.  MDIF contended that the
exclusion was void as contrary to public policy.  In essence, MDIF's argument was "that the
taxpayers of Maryland will have to pay any deficit in the insurance fund from which
depositors in ... insured, insolvent, Maryland savings and loan associations have been made
whole, and that it is socially desirable to reduce that deficit to the maximum extent possible."
Id. at 379, 593 A.2d at 1079-80.  We held that statutes placing a duty on public officials to
collect funds are not a basis for invalidating contracts, simply to facilitate collection.  Id. at
380, 593 A.2d at 1080.  Here Clay extended credit to Smith and has been unable to collect.
Unlike MDIF in the Finci case, Clay cannot even assert that his public policy argument
protects the public purse.
See also Wolf, 335 Md. 525, 535, 644 A.2d 522, 527-28 (clause in contract between
stockbroker and customer exculpating broker from liability for losses in discretionary
account that were not caused by gross negligence or willful misconduct not contrary to
public policy); Anne Arundel County v. Hartford Accident & Indem. Co., 329 Md. 677, 688,
621 A.2d 427, 433 (clause in fidelity bond requiring that restitution payments by thief first
be applied to reimbursing insurer and then to insured's deductible not contrary to public
- 12 -
policy, despite condition of probation that limited restitution to amount equal to deductible);
Food Fair Stores, Inc. v. Joy, 283 Md. 205, 216, 389 A.2d 874, 881 (1978) (release from
civil liability of storekeeper by accused shoplifter in consideration of prosecutor's dismissal
of criminal charges not contrary to public policy); cf. Jennings v. GEICO, 302 Md. 352, 357,
488 A.2d 166, 168 (1985) (household exclusion in automobile liability insurance policy
conflicts with public policy that such insurance be compulsory, as set forth in Title 17 of the
Transportation Article, and is invalid).
As support for his argument, Clay relies on Hernandez v. Suburban Hospital
Association, 319 Md. 226, 572 A.2d 144 (1990).  In Hernandez a hospital sued the attorney
for one of its patients for the cost of care.  The hospital alleged that the attorney violated his
obligation to honor the assignment to the hospital of any tort claim recovery and violated the
client's authorization to the attorney to honor the assignment, all as evidenced by a document
executed by both the attorney and the patient.  We held that the attorney was liable to the
hospital.  In explaining that there was "good reason to enforce such assignments," we said:
"The cost of health care may be considerable, as it was in this case, and
patients injured by the actions of others are often not in a position to pay for
that care at the time they need and receive it.  Those costs are frequently the
major element of special damage in the tort case.  On the other hand, funds
recovered from such tort actions are not subject to execution by judgment
creditors.  Thus, if the assignment of those funds is not permitted, the health
care provider may be forced to pursue its claim expeditiously against the
patient, a likely effect of which will be to involve the patient in double
litigation and put at risk the patient's personal assets.  Enforcement of an
assignment can avoid this problem; if given some assurance of payment from
the proceeds received from the tort action, the hospital may forego immediate
collection efforts and thus allow the patient a measure of financial stability."
- 13 -
     Citing Unkle v. Unkle, 305 Md. 587, 599, 505 A.2d 849, 853 (1986), and Summers v.
4
Freishtat, 274 Md. 404, 409, 335 A.2d 89, 90-91 (1975), Hernandez reiterated that such
choses in action are assignable.  See also Advance Fin. Co. v. Trustees of Clients' Sec. Trust
Fund of the Bar of Maryland, 337 Md. 195, 203-04, 652 A.2d 660, 664 (1995) (litigation
arising out of assignments of recoveries on personal injury claims as security for loans).
Id. at 235, 572 A.2d at 148 (citation omitted).
A nonassignability clause was not involved in Hernandez.  Tortfeasors and
automobile accident victims ordinarily do not enter into contracts restricting the assignability
of the tort damages.   The quoted statement from Hernandez would be relevant if the GEICO
4
policy did not contain the nonassignability clause, and GEICO was contending that Smith's
assignment to Clay was contrary to public policy.  Here, however, Clay contends that the
nonassignability clause in GEICO's policy is contrary to public policy.  The reasons
advanced by Clay are too nebulous to permit a judicial declaration that the clause is
unenforceable on public policy grounds as applied here.
JUDGMENT OF THE CIRCUIT COURT FOR
CALVERT COUNTY AFFIRMED.  COSTS TO
BE PAID BY THE PETITIONER.