Ms. Gao refused the settlement offer, contending that because the accident had occurred in Maryland, Mr. Haas was entitled, pursuant to Maryland law, to $30,000 in liability coverage.

Thereafter, Ms. Gao sued Progressive, among others, seeking a declaratory judgment that $30,000 of liability coverage was available to her under the Progressive policy.

Progressive subsequently offered $30,000 in settlement to Ms. Gao, which she accepted. She then filed a motion for attorneys' fees and costs based on the declaratory judgment action she had pursued against Progressive.

The trial court denied her motion for attorneys' fees and costs, and Ms. Gao appealed.

Ms. Gao contended that, as an injured party who had successfully pursued her declaratory judgment claim for an increase in Mr. Haas' liability coverage against Progressive, she was entitled to the payment of attorneys' fees and costs because she came within the definition of an insured.

Progressive, conversely, posited that Ms. Gao was not in contractual privity with Progressive as an insured and, as such, was not entitled to collect attorneys' fees and costs.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court explained that Maryland generally adhered to the “American Rule,” in which each party to litigation was responsible for its own legal fees, regardless of who prevailed in the litigation. It added, however, that if an insured had to “resort to litigation to enforce its liability insurer's contractual duty to provide coverage for its potential liability to injured third persons,” the insured was “entitled to a recovery of the attorneys' fees and expenses incurred in that litigation.”

The appellate court then found that Ms. Gao did not meet the definition of “insured person” under the Progressive policy because she was not the policyholder, a relative of Mr. Haas, a person who was permissibly driving a vehicle covered by Mr. Haas' policy, or an agent of his at the time of the collision.

As a result, the appellate court ruled, Ms. Gao was not entitled to attorneys' fees under Maryland's indemnity exception to the American Rule.

The appellate court then rejected Ms. Gao's contention that she was a third-party beneficiary to the Progressive policy and, as a result, could enforce its provisions to achieve entitlement to an award of attorneys' fees, finding that the policy did not confer third-party beneficiary status to Ms. Gao. The appellate court also was not persuaded by her attempt to rely on the “common fund doctrine” as a basis to recover attorneys' fees because she had provided a benefit “common” to her and Mr. Haas by obtaining $30,000 from Progressive, concluding that she had not secured recovery for a group or a class as required for that doctrine to apply.

The case is Gao v. Progressive Max Ins. Co., No. 278 (Md. Ct. Special App. April 16, 2019).