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Maryland Court of Appeals Agrees to Reconsider Maryland Common Law on Construing Insurance Contracts

Insurance contract

On January 24, 2014, the Maryland Court of Appeals granted a petition for writ of certiorari filed by People’s Insurance Counsel Division and in doing so agreed to reexamine Maryland common law on construing insurance contracts. The underlying conflict arose from the collapse of an unenclosed carport owned by the Taylors under the weight of accumulated snow.  The Taylors filed a claim with their insurer, State Farm Fire and Casualty Insurance Company and received partial coverage for their claim.  However, State Farm denied the Taylors’ claim for the collapse of their carport upon the basis that the additional coverage for collapse expressly applied to the collapse of a building or part of a building, and a carport was not a building.  The Taylors filed a complaint to the Maryland Insurance Administration, where the People’s Insurance Counsel Division intervened on their behalf.  The MIA found that State Farm’s denial was not in violation of the Insurance Article where the claim was adjusted in good faith and the denial was based upon the ordinary and reasonable meaning of the policy language.  The Circuit Court for Baltimore City affirmed this decision upon judicial review and the Court of Special Appeals similarly affirmed the MIA’s decision below.

Now, in a surprising move, the Court of Appeals has accepted PICD’s invitation to revisit Maryland common law on how to construe alleged ambiguity in a policy of insurance.  Maryland is now in the minority of states that defers to an insurer’s interpretation of policy terms as long as the insurer acts in good faith and the definitions reflect the ordinary and reasonable meaning of the words.  The majority of states have adopted an alternative view that language in an insurance contract should be construed in favor of the consumer, who enters the contract with less power as the non-drafting party.  The court is expected to hear argument on this case later this year, and a decision is expected by August 31, 2015.

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