A Maryland jury awarded $2 million for lead poisoning of an infant girl at a property in Baltimore. The award was reduced to $850,000 under a Maryland law limiting non-economic damages. The plaintiff sought to collect the full $850,000 from Penn National, an insurance company that provided liability insurance to one of the property’s owners for a portion of the period of lead exposure. Penn National filed a declaratory judgment action in federal court seeking a declaration that it was responsible for paying only the pro rata portion of the damages award corresponding to the months during the exposure period that its policy covered the property.
In Pennsylvania National Mutual Casualty Insurance v. Roberts, issued today, the Fourth Circuit unanimously held that the insurer was responsible only for a pro rata portion of the damages awarded and that the district court had improperly expanded the number of months that the insurer’s coverage was effective. Judge Wilkinson wrote the opinion, in which Judge Duncan and Judge Gergel (D.S.C., sitting by designation) joined.
At bottom, an insurance contract is an agreement to accept a premium in exchange for a contractually defined risk. If an insurance company cannot limit its risk to a defined period, it will be unable to determine the precise risks assumed under a contract, which in turn will prevent it from accurately pricing coverage. Not only will this hinder rational underwriting, but the higher premiums necessary to compensate for this rising uncertainty will be passed on to policyholders everywhere. Because we do not wish to force “insureds to bear the expense of increased premiums necessitated by the erroneous expansion of their insurers’ potential liabilities,” see Bao v. Liberty Mut. Fire Ins. Co., 535 F. Supp. 2d 532, 541 (D. Md. 2008) (internal quotation marks and citation omitted), we refuse to adopt Roberts’s approach.
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We recognize that Roberts unfortunately may not be able
to recover her entire judgment from either [of the property’s actual owners]. It is a dispiriting but inescapable fact that sometimes really bad things happen, and those responsible are either insolvent or inadequately insured. But that regrettable reality does not allow us to ignore Maryland law, to hold an insurance company to a contractual provision to which it never agreed, or to scramble together whole areas of law that are conceptually distinct. The district court was right to allocate Penn National’s liability using the pro-rata time on-the-risk approach.
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The law may not be difficult here, but the human costs incurred are undeniably hard. It is sad that Roberts may recover only partially on her judgment. The jury obviously believed this child suffered significant brain damage from lead poisoning and that Attsgood and Gondrezick were liable. The condition of the property and the failure to procure appropriate insurance were the property owners’ responsibility. Roberts’s misfortune cannot be laid at Penn National’s feet, for that company has not disputed that it must pay that portion of the judgment to which its policy applied. To place the entire judgment on the insurer would be chaotic, rewarding those who decline to purchase adequate coverage and ultimately punishing those who do. This would lead in turn to more uncovered risks and lessened opportunities for the recompense of serious loss.