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.
On August 9, 2012, the Maryland Insurance Administration issued Bulletin 12-15, wherein it presented proposed regulations impacting insurers who apply percentage deductibles to hurricane or storm claims. The regulations are designed to “define homeowners insurance; establish when an insurer can apply a percentage deductible; detail the information that must accompany the insurer’s filing of an underwriting standard requiring the application of a percentage deductible…; and set out the minimum requirements for the annual statements that must be provided to insureds.”
The Administration has made clear that it intends for these proposed regulations to apply in full force to Surplus Lines carriers. Various carriers have expressed concerns that the Administration appears to be, for the first time, directly applying both rate and form law to the surplus lines market. Of particular concern is that the proposed regulations would compel carriers to file with and obtain approval from the Commissioner of any underwriting standard that requires a percentage deductible exceeding 5%.
All Surplus Lines carriers doing business in Maryland should review the proposed regulations in the context of the forms they currently use, as well as their business model. We will continue to monitor the progress of the proposed regulations, as well as the comments made concerning impact from pending changes.
Any questions concerning this matter should be directed to Jason E. Fetterman, Esq. at Niles, Barton & Wilmer, LLP, at 410-783-6390 or firstname.lastname@example.org.
On August 3, 2012, the Maryland Insurance Administration issued Bulletin 12-14, asserting that Property and Casualty carriers have recently been developing a habit of violating various regulations concerning claims-handling. The Bulletin is primarily targeted at auto insurers, and highlights a number of supposed patterns of violation. In particular, the Bulletin takes issues with what the Administration views as a lack of sufficient investigation into claims, resulting in non-renewals or increased premiums.
Of particular import to Surplus Lines carriers, however, is that the Administration states in the Bulletin that its purpose is to “remind all Property and Casualty insurers” of “applicable” laws and regulations. The Administration asserts that failure to comply may result in “administrative action.” Based on these assertions, as well as the Administration’s ongoing treatment of Surplus Lines carriers, it appears that this Bulletin is also targeted at such insurers. Of course, under current Maryland law, the Administration would appear to have no jurisdiction over such insurers. We will continue to monitor the situation, as any attempt to take “administrative action” against a Surplus Lines carrier would appear to be outside the scope of the Administration’s authority.
On January 25, 2012, the Court of Appeals issued a decision in the case of People’s Insurance Counsel Division v. Allstate Insurance Company, CA No. 60, September Term, 2011 holding that Section 27-501 of the Insurance Article prohibiting discrimination in underwriting applies to cases in which an insurer wishes to cease writing new policies in a certain area of the State.
In 2006, Allstate made a business decision to stop writing property policies for homes located within certain hurricane bands. Following various procedural maneuvers, the Insurance Commissioner held hearings concerning Allstate’s decision, and determined that, in its opinion, Allstate was required to comply with Section 27-501’s prohibitions on underwriting discrimination, and had the burden of establishing. The Commissioner ultimately determined that Allstate met its burden. The People’s Insurance Counsel Division disagreed. Allstate asserted that Section 27-501 was not applicable, but if it were, it met its burden. Read more
On December 13-14, 2011, the Maryland Insurance Administration held hearings concerning the availability and affordability of coverage in Maryland’s coastal regions. The Administration invited any interested groups or individuals to provide testimony. Accordingly, the hearings attracted a great deal of interest from industry groups and carriers. Those who testified were nearly unanimous in the belief that there is no coverage availability crisis in Maryland’s coastal region. Indeed, the vast majority of witnesses testified that there is a vibrant and strong free market, in which numerous admitted and surplus lines carriers compete for business. The general consensus was that, while rates tended to be a bit higher in coastal regions than elsewhere, this is due to the enhanced risk associated with coastal properties and businesses, and is not out of line with other similarly situated states. Read more
The Maryland Insurance Administration will be holding public hearings regarding the availability and affordability of personal and commecial property and casulaty insurance in costal areas on December 13th and 14th 2011, starting at 10:00 a.m. As surplus lines insurers tend to be heavily involved in providing such coverage in Maryland, these hearing are of significant import to the surplus lines market. Niles Barton Partner Jason Fetterman will attend the hearings to monitor the MIA’s position regarding these issues. Craig Roswell, Niles Barton Partner and counsel to the Joint Insurance Association [JIA], will be testifying on December 14th on behalf of the JIA.
On September 8, 2011, the Maryland Insurance Administration (“MIA”) issued Bulletin 11-27, in which it advised that surplus lines carriers are “expected to comply” with the Insurance Article’s Percentage Deductable Requirements for homeowner’s policies.
Section 19-209 of the Insurance Article prohibits “insurers” from adopting a deductable that exceeds 5% of the “Coverage A – Dwelling Limit” in cases involving storm or hurricane damage unless the insurer obtained approval from the Insurance Commissioner. The MIA has now taken the position that this provision applies to surplus lines carriers as well as admitted carriers. Read more